Don't Be (Too) Afraid of Student Loans

In my last post, I outlined some of the challenges facing aspiring graduate students in clinical psychology. The greatest of these challenges is the terribly competitive race for scare positions in what are often called "funded" Ph.D. positions. These students pay significantly reduced tuition, but at the cost of spending countless hours working on research that is of primary interest to their faculty mentor. The idea is that these programs are intended to produce clinical researchers who do the same kind of work as the faculty mentor. However, since such faculty jobs are even more scarce than the Ph.D. positions, there is no guarantee that students in those Ph.D. programs will end up as clinical researchers at all — in reality, many of them end up as — gasp! — actual clinicians.

Getting into a lower-cost Ph.D program

In order to grab those scarce spots in funded clinical psychology Ph.D. programs, aspiring students have started doing research and publishing as early as their undergraduate years. They enroll in costly master's degree programs, the primary purpose of which is to boost one's chances for a doctoral position. They work as low-paid research assistants for years. Of course, none of these activities guarantee admission to a lower-cost Ph.D. program, and all of these activities end up costing money. They represent what economists call "opportunity costs," or, the cost of taking one course of action over another.

Putting off grad school

What's the other course of action? Well, first, maybe not to go to graduate school straight out of undergrad in the first place. Maybe take some heed of what the great psychologist Carl Jung said:

“Anyone who wants to know the human psyche will learn next to nothing from experimental psychology. He would be better advised to abandon exact science, put away his scholar's gown, bid farewell to his study, and wander with human heart through the world. There in the horrors of prisons, lunatic asylums and hospitals, in drab suburban pubs, in brothels and gambling-hells, in the salons of the elegant, the Stock Exchanges, socialist meetings, churches, revivalist gatherings and ecstatic sects, through love and hate, through the experience of passion in every form in his own body, he would reap richer stores of knowledge than text-books a foot thick could give him, and he will know how to doctor the sick with a real knowledge of the human soul.”

Not your standard academic advice, I know. But maybe the field of clinical psychology needs fewer "A" students with perfect curriculum vitae and a dozen publications, and maybe it needs more people who have actually experienced something of the world. How many clinical psychologists have gone through military Basic Training, or a police academy, or worked as an LPN in a nursing home, or as an orderly in a psychiatric hospital? I would venture, not enough. So don't be afraid to do something real with your life before continuing on with more schooling. If doing so harms your chances of getting into a lower-cost Ph.D. program, that says more about them than it does about you.

Paying the price for your grad degree

The next alternative is to consider a higher-cost Psy.D. program. (In these two posts on this subject, I'm not differentiating between the Ph.D. and Psy.D. programs themselves, I'm just using "Psy.D." to represent a degree that will require you to take on a lot of debt, and "Ph.D." to represent a degree that will require you to take on less debt.) Let's say the worst-case scenario comes true and you graduate with $200,000 in student loan debt. Could you pay it off? As I noted in my previous post, paying off that amount in 20 years at 5% interest would entail a monthly payment of $1,320.00. That's quite a sticker shock, especially if you are thinking like an employee, and not as an entrepreneur.

If your goal after earning a doctorate in clinical psychology is to get a job, either as an assistant professor or at a VA Medical Center or some other agency, then, yes, you had better be concerned about how much student debt you take on. One similarity that Ph.D. and Psy.D. jobs have is that they don't pay too much: Think somewhere in the $70,000 to $80,000 range. [By the way, the U.S. Department of Education is currently running an amazing program where they will pay off your student loans after 10 years of your making payments, if you are working for a federal or state agency, like the Department of Veterans Affairs, or a state mental health agency.] I know that salary seems like a lot to most people, but it's not so much if you've got a huge student loan payment every month.

Going into private practice

So how could you afford the higher-cost degree and avoid the opportunity costs of the master's program, research assistantships, etc.? Go into private practice after graduation, where you determine how much you earn. Running a private practice is no different from running any small business: You have to account for both revenues and expenses. Thinking of your student loan payment as a business expense might put that big scary $200,000 figure into a better perspective. Let's say you spend $1,200.00/month on renting, furnishing, and lighting/heating an office. Malpractice insurance and continuing education credits and licensing fees will cost about another $2,500 per year (or $208 per month). Add a phone and other miscellaneous costs for $192 per month. Personal health insurance for about $456 a month. And, of course, that student loan payment of $1,320 per month. All told, that's $2,057 in expenses or $24,684.00 per year.

Now let's look at revenues. Let's lowball these, just to be as conservative as possible. Let's say you see six patients a day, five days a week. You take insurance, and let's say you get a not-so-great rate of $80 per 45-minute session. That's 30 patients a week x $80 = $2,400 per week. Multiply that times 50 weeks and your annual gross receipts are $120,000 per year. Subtract the $25,000 in expenses (which include your student loan payments), and you have a pre-tax income of $95,000. Subtract the self-employment tax rate of 15.3% (which covers your payments to Medicare and Social Security) and you're at $80,465, which is not only a comfortable income but also better than most assistant professors and most clinical psychologists employed by agencies.

And remember that these estimates are derived from low-balling your revenues. Let's say you add two evenings a week, seeing six more patients during those times. That would boost your gross receipts to $144,000 per year. Let's say you see seven patients a day, four days a week, and on Fridays you do Social Security disability exams (two requiring WAIS-IV testing and two requiring Mental Status only). That Friday could bring in a bit more than a thousand dollars (you would have to see nearly 13 patients to earn the same amount). And if the insurance you take pays $86 instead of $80? Under the original scenario of seeing just six patients a day, that means an extra $9,000 per year.

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Your mileage may vary, of course. But I suggest that what will make the biggest difference in outcomes is your own entrepreneurial attitude or lack thereof. Some people are just not comfortable with the risks and responsibilities of running their own private practice. They would prefer to trade the extra rewards (such as increased income and autonomy) for what seems like security and stability. In any event, if private practice is your ultimate goal, don't give too much credence to (non-entrepreneurial) professors who tell you that "no one can afford to take on $200,000 in student loan debt."