Tackling Student Loan Debt
Almost all young dentists face confusing (and often conflicting) choices after graduation because of the significant amount of student loan debt they have from dental school. The average dental school graduate has more than $247,000 in student debt. That figure has risen nearly 40% since 2010.
Almost all young dentists face confusing (and often conflicting) choices after graduation because of the significant amount of student loan debt they have from dental school. The average dental school graduate has more than $247,000 in student debt. That figure has risen nearly 40% since 2010.
"[Dentists have] been trained for years to focus on passing the next academic exam, completing a procedure correctly or passing a licensing exam," says Dr. Douglas Carlsen, founder of Golich Carlsen, a financial consulting firm for dentists. Carlsen retired from his own dental practice in 2004. "[Dentists] have not, in many instances, been prepared well for the real world of employment and possible business ownership," he says. "They have not been prepared for the world of consumer purchasing and financial planning."
The key, Carlsen says, is for dentists to get on solid financial footing so they can start to tackle their student loan debt. Here's how:
Make a Financial Plan
Carlsen recommends that young dentists address debt by establishing goals they want to reach within a certain deadline. Include your partner, if you have one. Factors to consider include what kind of lifestyle you want to have, how much student loan debt you have, how much savings you want to have and what kind of practice you will be a part of in the next one, five, and 10 years, he says. Identifying these parts of your life will help clarify the amount you can dedicate to paying down debt while living your life.
The goal of the financial plan is to help you keep your expenses low. By reducing your spending, Carlsen says you could dedicate 40% of net income to pay down debt. "I personally know of dentists that have paid off $400,000 in less than eight years," he says.
Free budgeting apps, such as Mint and Personal Capital, can make it easy for dentists (or anyone else) to track their spending.
Consolidate and Pay Down Student Debt
In general, dentists with good credit can consolidate and refinance their loans with a lower rate from a private lender. For example, Common Bond could save the average dentist thousands over the life of their student loans.
If qualifying for student loan refinancing at a lower interest rate is not an option immediately after dental school, Carlsen recommends consolidating federal student loans and using an income-driven repayment plan.
Remember Your Retirement Fund
You'll want to balance student loan repayment with other goals, such as retirement. Nate Wenner, a CPA and certified financial planner who specializes in working with dentists, recommends dentists set aside at least 10% of their gross income toward retirement.
"After meeting that baseline level of saving, one can look to more aggressively pay down any debt which carries an interest rate higher than what you might expect to earn by investing over the next 10 years," he says.
Good financial habits can help dentists retire early, Carlsen says. He notes that the dentists who retired at 50 he knows have these characteristics in common: They bought a home and remained in it until retirement. They have saved more than 20% of their annual net income after their student loans have been paid off. They started saving for retirement by age 35 or earlier. And finally, they paid cash for everything except their homes and practices.
Hold off on Buying a Home or Practice
Carlsen says the worst mistake he sees young dentists make is to buy a home too soon. "A young dentist should not buy a home until he or she is stabilized in their employment or practice situation," he says.
Don't rush into buying a practice, either. "I see many of the national brokers promising much higher income projections for practices for sale than what is prudent," Carlsen says. "There will be a plethora of practices for sale by baby boomer dentists in the next five to eight years. Take your time and find a practice that suits your style, not what others tell you to do."
Following these tips can help dentists pay off their student loans faster and set themselves up for an even brighter future.
This is a sponsored post from Common Bond
A version of this story was originally published in Forbes.com.
Refinance or Consolidate your Student Loans?
As young professionals, many of us left or will be leaving school with student loan debt. As our grace periods wear off and we enter repayment a lot of us find ourselves scouring the internet or asking friends and colleagues how they are going about tackling their student loans. It can be daunting going through the options - some of us have loans from undergraduate school and/ or graduate school. Some of us may have taken out private student loans, federal loans or a combination. Either way, we need to know the options for repaying these loans.
As young professionals, many of us left or will be leaving school with student loan debt. As our grace periods wear off and we enter repayment a lot of us find ourselves scouring the internet or asking friends and colleagues how they are going about tackling their student loans. It can be daunting going through the options - some of us have loans from undergraduate school and/ or graduate school. Some of us may have taken out private student loans, federal loans or a combination. Either way, we need to know the options for repaying these loans.
Student loan refinancing and student loan consolidation are two different tactics to help borrowers repay their loans. In some cases student loan consolidation is the way to go, and in other situations student loan refinancing is best. So what that difference?
Consolidation
Consolidation refers to combining multiple student loans into one loan. You may have taken out a separate loan for each semester of school and thus by consolidating you are combining all those different loans into one, which results in just one monthly payment instead of many. This is designed to make repayment easy and typically refers to federal student loans. Since it applies to federal student loans you keep all the benefits that federal loans offer (loan forgiveness, income based repayment, etc). Consolidation however, does not lower the interest you pay on the loans. The interest you pay is calculated based on the average interest of all your combined loans. It is important to note that consolidation does not necessarily save you money - it simply combines all your loans to make your payments easier to manage.
Consolidation is only done through the Department of Education (studentloans.gov)
Refinancing
Refinancing your student loans is a good option if you have several loans from several sources (private, federal, etc). This option does not combine your loans, but rather creates a brand new loan. Your new loan’s interest rate can be lower depending on your credit score, so it is important that this score is healthy. The great thing(s) about refinancing is that you will now have one single new loan instead of many and there is the potential to get a lower interest rate which can save you a lot of money over time.
Refinancing can be done through a private loan lender (not government). There are many options out there like SoFi, Laurel Road, Earnest,, LendKey, etc.
Which is best?
If you have multiple private loans OR a single private loan with a high interest rate - Refinance
If you have federal student loans and planning on getting student loan forgiveness or rely on Income based repayment - Consolidate
If you have both federal and private loans and want a single loan with low interest rate - Refinance