Dental Student loans have quite the complexity. Roughly counting there are approximately 9 variations of how you can repay your student loan. The time frame of repayment is anywhere from 10 years to 25 years. Student Loans viewed in isolation may seem simple, but in a case of many dentists it proves to be quite complex when considering the your whole financial picture.
Case Study- Starting your own Dental Practice
When starting your own business, cash flow is king. Most businesses fail due to not having a long enough run way to execute their business plan. Dental student loans can be very burdensome to new or aspiring business owners. Average student loan account balances are more than $250,000+. This causes unique challenges for young dentists inspiring to open their own firm to take the leap.
Fortunately, you have several great options within the Federal Student Loan program to lower your payments. This is why, refinancing your student loans may not be the best route for you if you are looking at starting your own business now or in the future. Did I mention, cash flow is king…
Several federal student loan repayment options are available; you have access to income base repayment options. Which as the name indicates, this allows you to pay a % of your income as you earn it. The other popular choice for your student loans is to extend it to a 25-year loan on a graduated payment schedule. This allows you to spread payments over 25 years and every 2 years the payments increase. If the primarily objective is to help with cash flow for your future business this is the route to take. (Warning! These plans also accrue the most amount of interest over time)
Case Study- Working as an Associate
Working for another dental group brings up different unique challenges for student loan planning. The goal here is usually, “how can I pay the least amount of interest” or more commonly “how do I get rid of these loans”. This is a delicate balance and one that depends on your unique circumstance.
Refinancing your student loans with a third party is a very popular way to save on interest, but did you realize that you lose your loan forgiveness in the case that you would pass away. This could leave your spouse with your student loan balance, and most likely not enough income to pay it off over time. However, you can counteract this risk with a low-cost term insurance policy.
The other factor to consider is how to balance retirement savings and student loan repayments. The answer lies somewhere in the middle. You will want to balance saving for the future and paying down your debt. This looks different for each dentist I work with, and depends on your future goals and current values.