Student Loan Strategies for Dentists

Most dentists have some amount of student loans, sometimes amounting in the six figures! Many are worried about how and when they are going to pay them off in full. This can be a big burden to contend with, but as a dentist, the question isn’t whether or not you can pay them, but rather when is it optimal to get aggressive with payments?

1. While in dental school, your only option is “In-School Deferment.” Since you don’t have an income, you can’t start paying these down yet. Your main focus should be being frugal with the funds you do have available, minimizing the total tab at the end of training, and becoming the best Dentist you can be to put yourself in a position to earn a great income.
2. Once you finish dental school the best approach will rely mainly on your income. Depending on your Debt-to-Income ratio there are several repayment options to consider.  Many Dentists have anywhere from $150-250K+ of loans and the options available include standard repayment, income-based repayment and refinancing.  Some of these strategies could result in some, if not most, of your loans forgiven at the end of a certain time period. The type of loans you have, how much, and what your income will be are the main factors to figure out what your repayment strategy should be once you start working.
3. Income-driven repayment plans are the most common approach to paying off loans. Generally, the majority of a Dentist’s student loan balance is from the federal government. There are many different types, but the most common are Direct Federal Loans (sometimes called Stafford loans). There are both Subsidized and Unsubsidized forms of Federal Loans available. If you are a Dentist with a high Debt-to-Income ratio (meaning you have 1.5-2x the amount of loans relative to your income), your best option may be to utilize federal loan forgiveness. This means you make payments in proportion to your income, and after 20, sometimes 25 years, the government will forgive the balance you have left!  However, something to remember is the amount forgiven is taxed as ordinary income.  You will need to carve out additional savings along the way to pay the tax at the end of your payment period. Taking a disciplined approach towards forgiveness can potentially save you tens of thousands that you otherwise would have paid if you paid them off “early” or used the 10-year Standard Repayment.
4. Private Refinancing can be another way to manage your loans and lock in your monthly payments. Unlike the IDR plans where the payment depends on your income and could change annually, refinancing will lock in your monthly payment for the entire repayment term you select. The shorter the repayment term & the higher the balance of loans you refinance will generally drive the monthly payment up.  If you stretch the term longer, you will likely free up more of your monthly budget to use for personal expenses, savings, and investments. Be aware that when choosing refinancing as a repayment option you have less flexibility than you do with the federal government (if you’re using an IDR plan).

“Any other pointers that might help?” – Yes!

1. Put a strategy in place and stick to it. The stresses of dentistry and the looming student loan payment after your grace period may cause you to react emotionally and put you in an unfavorable position that could have lasting effects on your overall finances. If you have other goals besides solely paying off your loans—such as taking vacations, buying a house, raising a family and retiring someday—you need to have a strategy.
2. Part of that strategy is protecting your income by securing disability coverage. Private income protection guarantees your ability to specifically practice dentistry, which is your greatest asset early on in your career. More specifically, this form of coverage allows you the ability to maintain a debt elimination plan, a Long-term Financial Plan, and your dignity for that matter (if something were to happen, God forbid). If you are hurt or sick and can’t work as a dentist, your private disability policy will pay you a monthly benefit (sometimes even if you are still working in a reduced capacity). If you can’t earn an income, how can you pay off your loans? There are many different options out there—however not all are the same and there definitely is no “one size fits all” strategy.
3. Do your research and ask lots of questions. If you are talking with your loan servicer or an insurance agent and it seems like they are “steering you” towards one option over another, your radar should go up. You have more options than you think! Contact us to schedule a meeting and we’ll show you.