PA Student Financial Decision-Making: What You Need to Know

Andrew Baker, PA-C, MBA

March 16, 2022

Being a PA student isn’t easy. Anyone who has been in PA school understands the huge expectations placed upon you. And PA school does a great job preparing students for their future as a PA! But how much do PA schools teach their students about what happens after PA school beyond clinical practice – and in particular, how to manage money? Most PA students have an idea of how much money they will be making after graduation. Digging a little deeper, however, we might question how much PA students and new graduate PAs understand about the following topics:

  • Managing a $100,000+ salary
  • Paying off $100,000+ school loans and other debt
  • Retirement and investment accounts
  • Disability and life insurance
  • Refinancing options

For the majority of students, the answer is very little. There is much to understand about personal finance in order to avoid common financial mistakes that can set you back many years. Living your life in order to pay your next bill is no way to go through life; unfortunately, this is very common, even for PAs and other high income earning professions.

PA 4 Finance was created to fill this knowledge gap for PAs and ensure PAs make the most out of their careers. With the average PA income around $115,0001 PAs will be faced with constant decisions about what to do with their income. Additionally, how and when should PAs attack their student loan debt, averaging around $150,0002?

I’d like to provide some insight on these important financial topics.

Income

Effectively managing an income of $80,000-$100,000 as a new graduate is not an easy task. It is all too easy to lose track of this seemingly substantial income and, by the end of the year, scratch your head wondering where it all went. This is exactly why new grads need to start a BUDGET! A budget is an easy, free way to track your expenses. If anything, it will help clarify your spending and show you where you need to cut back. Listed below are a few important elements to consider when budgeting:

  • Fixed expenses
  • Variable expenses
  • Debt payments
  • Emergency fund savings
  • Retirement savings/investments
  • Sinking fund
  • Entertainment expenses

Start budgeting with a free app (like EveryDollar or Mint) or using an Excel spreadsheet. Track your expenses and be honest with yourself. It is not useful if you are not tracking every single expense or appropriately categorizing them. Start with using either the “50/30/20” rule or the “80/20” rule:

  • 50/30/20 rule
    • 50% take-home pay for necessities
    • 30% take-home pay for discretionary items
    • 20% savings or debt repayment
  • 80/20 rule
    • 20% take-home pay for debt repayment
    • 80% for everything else
    • Start with 80/20, eventually go to 70/30 -> strive for 60/40

Begin this process as a student when your expenses are easier to track. Transition right into budgeting your PA salary with a plan already in place and never look back!

Debt

Per the PA Education Association (PAEA), 85% of PA students take out loans to pay for PA school.3 During your career, you will see others who have a lifestyle that does not fit into their income level – picking up evening and weekend shifts, working holidays, taking additional on-call or weekend rounding coverage, all in addition to their full-time job, just to keep up with debt payments. Trust me when I say, you will see this often.

Scholarships are a great way to decrease your overall debt. While it would be nice to have a scholarship cover 100% of PA school expenses, any amount helps. Check out the PA Foundation Scholarship Program, which provides financial support for PA students who are passionate about PA leadership and healthcare-related community service. The 2022 cycle is open through May 31. Don’t miss out on the opportunity to apply – your future self will thank you!

Financial decision-making as a PA has a lot to do with debt and spending. For PA students and new graduate PAs, there is plenty of time to design a plan to avoid common and often massive financial mistakes. PA financial decision-making mainly consists of:

  • Deciding which debt to pay
  • Determining how to invest with student loan debt
  • Navigating new purchases (i.e., home or vehicle)
  • Considering refinancing options

Government student loan forgiveness is a possibility but is not something you should count on.

Some refinancing options are valid and should be considered. There are many reputable companies to consider. The main point with refinancing is to do your research. Know the terms of refinancing and make sure it is going to benefit you. Did I mention people who refinance are not eligible for student loan forgiveness? Again, there is a lot to keep in mind and a lot of information available. Be sure to ask for help if you are going to refinance.

Let’s talk about new purchases. As a rule of thumb, avoid buying a brand-new car. If you must have a new vehicle, purchase something in the $5,000-$10,000 range to get you from point A to point B until you are more financially sound. What about purchasing your first home? This is a common financial mistake as a new grad, even though the last decade of your life was spent being a student without income. In general, it is best to hold off on buying a home for a few years until you have solidified your career and income.

Retirement and Investing

This part of financial planning is very individualized. Blanket recommendations regarding how much to put into retirement or other investment accounts cannot be made. One of the most important concepts to understand as a PA student is “the miracle of compound interest.” The earlier in your career money is put aside into a retirement or investment account, the more opportunity for growth over time.

Realize the benefit of employer-sponsored retirement plans and take advantage of compound interest. The next important piece of information is utilizing tax advantages plans. There are many ways to lower your taxable income now and later. Most investment accounts offer some sort of tax benefit, and you must diversify your retirement accounts and/or investments to take advantage of this. Saving for the future starts with paying off your debt and limiting debt accumulation. Only then will you be able to tell your money where to go and create generational wealth.

Asset Protection

This section is typically not a favorite, but EXTREMELY important! As healthcare providers, we see patients without health insurance. This puts them at a huge disadvantage and at risk if they are faced with a serious health consequence. Life happens and millions of Americans get disabled or injured to the point of not being able to perform the duties of their job for either a short or long period of time. In these situations, without proper disability insurance, this results in bankruptcy. COVID has shown us we need to be prepared for the uncertain. Many PAs did not do this step and struggled because of it.

Short-term disability and long-term disability are insurance for yourself. The earning potential for a PA over time is huge. Establish both short- and long-term disability plans as a new graduate. Look for these plans to cover 60-80% of your income.

Life insurance is also necessary, but the amount needed varies widely. Some employers offer this, which is a good place to start. If you have a spouse or children, you will need to consider increasing your policy.

Lastly, set up a will and living will. As many of us know through experience, death and dying is one of the most difficult parts of being a PA. Make these choices now, so your family doesn’t have to later.


Best of luck to all those PA students out there! You are on a unique trajectory and have the opportunity to make a positive impact during your career. Please contact me at [email protected] with any additional questions. PA 4 Finance is here to help you make the most out of your career!


References

  1. US News and Money Report. (2022). How Much Does a Physician Assistant Make? Retrieved from https://money.usnews.com/careers/best-jobs/physician-assistant/salary
  2. The Physician Assistant Life. (2021). How Much Does it Cost to go to PA School? Retrieved from https://www.thepalife.com/how-much-does-it-cost-to-go-to-physician-assistant-pa-school/
  3. PAEA Research. (2019). Student Report 3. Data from the 2018 Matriculating Student and End of Program Surveys. Retrieved from https://paeaonline.org/wp-content/uploads/imported-files/sr3-program-report-20190814.pdf