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Thursday, August 3rd, 2023 | by Theodore C. Schumann, II, MBA, MSF, CFP®, AIF®, Partner at DBS Investment Advisers, LLC & DBS Dental Sales

Dental Student Loan Repayment Strategies for 2023-2024

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After a delightful 3-year break from payments, as well as interest accrual on student loans, dentists with student debt should prepare to resume making payments again beginning in October 2023. Interest on student loans will resume on September 1, 2023, and payments will be due starting in October.

The initial suspension or “freeze” in student loan repayment traces its roots back to one of the many programs designed to help Americans through the COVID-19 pandemic. The freeze was extended until the recent debt-ceiling negotiations at which lawmakers ultimately concluded that student loan payments and interest accruals must resume. Sadly, all good things must come to an end!

With the average student loan debt for a graduating dentist topping $300,000, and many dentists owing even more than that, both new and seasoned dentists are wondering what impact these immense debt loads will have on the future of the profession—most notably, whether new graduates will be able to buy their own practices.

 

5  Flexible Student Loan Repayment Options

While a debt load of $300,000 may seem daunting, especially to a newly graduated dentist, they need not fret! Believe it or not, there is a tremendous amount of flexibility that can be used to manage this debt and the monthly payments it necessitates. When it comes to paying off student loan debt, dentists have a variety of options, including:

  • Aggressively paying down debt over a 10-year term
  • Extending the repayment term out to 20+ years
  • Private refinancing for a lower interest rate
  • Military service and/or public health
  • Income-driven repayment

 

Key Considerations for a Student Loan Repayment Strategy

None of the above student loan repayment options is inherently better or worse than any of the others; the right strategy for a dentist largely depends on the borrower’s situation.

When determining which strategy makes the most sense, some of the most important things that the dentist needs to consider are their general philosophy toward debt, the outlook for their current and future income, marital status or plans to be married, their spouse’s income, family size, credit score and borrowing capacity. Recent dental school graduate

In addition, willingness to work in the public sector or enlist in military service and their tax situation should be considered.

For example, a single new graduate who has just taken their first job in corporate dentistry and is unsure of where they will be practicing long term may be best served to use an income-contingent repayment plan, as it is the most flexible and has the lowest required monthly payment.

In contrast, a dentist who has already purchased their own practice, has stable and predictable income from that practice, and is debt-adverse would be well-served to take advantage of the lower interest rates offered by a private student loan refinancing company and get the debt paid off quickly.

 

Student Loan Repayment Cost and Interest Rate Calculations

The table below shows the overall cost for a $300,000 student loan at 7.9% through the current loan service, or 6.05% through the private refinancing company.

Repayment Plan Interest Rate Monthly Payment Additional Savings Necessary* Tax on Loan Forgiveness Total Out-of-Pocket Cost of Loan + Tax
10-year standard 7.9% $3,624.00 0 0 $434,879.42
20-year extended 7.9% $2,490.68 0 0 $597,763.63
15-year refinanced 6.05% $2,539.68 0 0 $457,142.68
15-year refinanced, paid off in 10 years 6.05% $3,338.15 0 0 $400,578.32
Revised pay as you earn (REPAYE)* 7.9% $1,068.00 $200 $110,000 $456,000
SAVE (New REPAYE) 7.9% $488 $350 $117,750 $264,000

 

In the above chart, it’s critical to note to the income level relative to the borrower.

  • REPAYE payments are predicated on the debt load as well as income relative to poverty levels and the family size of the borrower. For this example, I assumed a single borrower with a $150,000 income.
  • The nature of REPAYE is an “income-driven repayment program,” which means that payments are based on the borrower’s income for a stated period (20-25 years depending on the program the borrower is using) and whatever isn’t paid off at the end of the program is forgiven. Under current legislation, forgiven debt is taxable as ordinary income, so the borrower must save—and ideally invest those savings—to have funds sufficient to pay the tax due on the forgiven debt.

 

US Government Action on Student Loan Repayment

It should be noted that the Biden administration has refreshed the income-driven repayment programs by adding a new component: Saving on a Valuable Education (SAVE).A young dentist performing a procedure on a patient.

Borrowers on the REPAYE Plan will automatically receive the benefits of the new SAVE Plan. The SAVE version will essentially replace REPAYE with some attractive improvements, including:

  • Improvement in payment calculation, resulting in lower required monthly payments for most borrowers.
  • If the payment calculated is not enough to cover the interest for that month, the unpaid interest is not added to the loan. This is a major improvement over REPAYE!
  • Simplified recertification process

 

Ensuring Success in Your Financial Pursuits

While student debt can seem burdensome, especially to a new graduate, and wading through the various repayment strategies can seem complicated and confusing, it’s important to remember that student loan repayment seldom, if ever, prohibit dentists from other financial pursuits, specifically dental practice ownership and home ownership.

Dental practice loan providers like Bank of America, Provide, or Huntington are aware of the cost of education and can accommodate loans to graduates with high student debt loads. The most financially successful dentists are the ones that develop a long-term financial plan, which most often includes buying a dental practice and a formal debt-reduction strategy.

For dentists that develop a plan and stick to it, student debt is not an impediment to financial success.

Not sure where to start as a recent dental school grad? Contact us.

 

About the Author:

Theodore C. Schumann, II, MBA, MSF, CFP®, AIF® is the Managing Partner of DBS Investment Advisers, LLC and DBS Dental Sales. For almost two decades, Ted has been crafting financial plans for dentists, starting as early as graduation, and extending through their career and into retirement. Besides helping dentists meet their financial goals, Ted also provides support and guidance to clients when they are ready to buy or sell their practice.

Ted is also a frequent speaker at both state and local dental society meetings, as well as at both of Michigan’s dental schools. He is recognized as a thought-leader in dentistry in Michigan, especially as it relates to financial strategy and maximizing wealth for dentists.

Ted is a graduate of Central Michigan University (2006) and earned his MBA and Master of Finance from Walsh College (2015). He has earned the designations of Certified Financial Planner (CFP®) in 2010 and his Accredited Investment Fiduciary (AIF®) in 2015.


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