Should You Save For Your Child’s Graduate School?

For most physicians, it is a given that they will pay for their children’s college education. Most physicians should not have to sacrifice their retirement savings to pay for college. However, far fewer physicians choose to save for their children’s graduate school. In this article, we will look at the cost of graduate school, the percentage of students who have their medical school paid for by their parents, and the cultural and financial considerations of paying for graduate school.

Cost of Medical School

For the purposes of this article, I will assume that your kids will go to one of the more expensive of the graduate schools: medical school. According to the AAMC, the current median cost of medical school in 2016-2017 (tuition, fees, and health insurance) is $36,427 for in-state residents at public schools and $57,472 for students at private schools. Ten years ago, it was $22,236 for in-state residents at public schools and $39,885 for students at private schools. Over the past 10 years, the median price has increased by 64% for public schools and 44% for private schools. Assuming similar tuition increases in the future, we can project the cost of four years of medical school to be $391,036 for public schools and $477,320 for private schools in 20 years. This doesn’t even take into account room, board, or other living expenses. These numbers can be very daunting for anyone who wants to pay for their children’s graduate education.

What Percentage Of Medical Students Have Their Education Paid For By Their Parents?

When I was in medical school, I heard stories of many medical students who had a parent who was a physician. Most of these students would also talk about their student loan burdens. It seems that many highly-paid physicians did not pay for their children’s medical school education. This may not mean that they could not afford the tuition. Many physicians feel compelled to pay for their children’s college, but not medical school, educations.

So what percentage of medical students have their education paid for by their parents? We cannot know for sure, but we can make some good estimates. According to the AAMC, in 2014, 84% of graduating medical students had student loans. So 16% of medical students were able to graduate debt-free.

There are several ways that students could graduate with no loans. They may have received a full scholarship (merit or need). They may have done an M.D./PhD, where frequently their medical school education is 100% free. They may have signed up for one of the military loan forgiveness programs. Finally, their parents could have paid for their medical school. I’d estimate that between 5-10% of medical students had their entire education paid for by their parents.

Cultural Considerations

So clearly only a small minority of medical students have their educations paid for by their parents. No one should feel obligated to pay for their children’s graduate education, but it is very important for some parents.

In some cultures, particularly Asian cultures, the importance of education is extremely high. Many parents will sacrifice even their own retirement savings to pay for their children’s college and graduate schools. For them, by investing in their child’s future, they are investing in themselves — children are the retirement plan. Parents pay for their children’s college and graduate school, and when the children become financially successful, they will be able to take care of their parents.

Financial Considerations

It is challenging to project what your net worth will be in 15 to 20 years. Your net worth will be very different if the stock market does well (e.g. 12% return) than if it does poorly (e.g. 2% return). I like to project my net worth using a conservative return, such as 2-3%, and ensure that I will have enough for retirement and college even in this conservative scenario. However, the historical average return and expected future return are approximately 6–7%. The amount of extra money between the best case and worst case scenarios could be in the millions of dollars. What can you do with those extra millions? You could do a lot of things, but paying for your kid’s graduate school education is one option.

For most people, paying for their children’s graduate school is a “nice to have” on their list of financial priorities. Most will not plan for it, like they would for retirement, college, or a nice home. But if you get lucky and the stock market does well in the next few decades, it’s something to do with the extra money.

My Plan

We do not plan to have money set aside to pay for potential graduate school for our kids. Rather, we will make sure that we can save for our own retirement and their college tuition assuming a low (2-3%) investment return. In the likely scenario that the stock market does better than our conservative estimates, there will be extra money that would be used to pay for their graduate school tuition.

My kids may not go to medical school or even grad school. They may choose to work in finance or another career that does not require a graduate degree. In that case, any money that would be allocated for graduate school could be used to help them save for a down payment on a house, or a very nice vacation or two.

What do you think? Do you plan to pay for your children’s graduate school education? Why or why not?