# A Real Cost Analysis...

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#### 1070752

##### Full Member
5+ Year Member
So I came across the "Cost Analysis" thread, and while it had some 'good' information - it was way too oversimplified. I will point out why below, and do some more calculations. Feel free to contribute.

School A: (Let's analyze the original)

Loan Term = 200K @ 7.9% for 20 years <----- 20 years? Why would you pay it in 20 years, especially as a dentist?
Monthly Payment = \$1660
Total Interest Paid = \$198,500
Total Paid = \$398,500

Here's a more realistic repayment:

Loan Term = 200K @ 7.9% (you can find better btw) for 10 years
Monthly Payment = \$2390
Total Interest Paid = \$86,485
Total Paid = \$286,485

======
There's no need to analyze the other scenarios, but as you can see. By paying ~\$800/mo more, you save over \$100k in interest. 10 years (imo) is still a long repayment, 7-8 is more ideal. Of course, situations vary.
======
Second, he mentions salary + taxes:

Starting salary of new grad = \$120,000
Taxes at 28% = \$33,000

\$120k is on the low side, usually it's somewhere between \$140-150k in 2016 (again depending where you live/work). Many people I know (recent grads) started with \$700/day.

Now, taxes. 28% is correct, however, you shouldn't be paying your "full" tax rate. There are deductions (e.g 401K or RRSP for Canadians), if you're contracted you can claim many expenses, and so on.

So again, a bit old and oversimplified.
======
Everything else such as mortgage, car, etc, etc depends on where you live, what you use, and how much you use.

Lets assume your debt is \$300K, and you want to repay it in 8 years.

Initial Debt: \$300K @7.9%
Repayment Time: 8 years
Total Payments: \$402K
Interest: \$102K
Monthly Payments: \$4,185

Assuming a wage of \$140k, you take home \$11,667 pre tax. After taxes (lets say 28% for argument sake), \$8400/mo take home. Again, there are many ways to lower your tax %.

\$8400 - \$4185 = \$4215 left over which is ~\$51k/year. Higher than the median income of U.S. households.

If you're smart for 8 - 10 years while aggressively tackling your loan, you'd save more in interest than you would going to a school that would cost \$100k more.

And even this is oversimplified.

3 users

#### doktorinprogres

##### Full Member
7+ Year Member
I think you were right to take a look at paying loans off quicker than 20 yrs. Most of us who are interested in the cost analysis would however rather take a conservative estimate on income. I would look at things on the 120k income. Also your 140k wage after taxes needs to include other things like state income tax, social security, and medicare tax.

I think on 140k wage it's not unreasonable to estimate that your monthly would work out to \$7800.
Without doublechecking your payment estimates: 7800-4185= \$3615

I do agree that there are ways to lower your taxburden but the most effective would be 401k etc which necessitates a lower take-home/usable monthly income.

1 user

#### Incis0r

##### I LOVE Dental School
7+ Year Member
So I came across the "Cost Analysis" thread, and while it had some 'good' information - it was way too oversimplified. I will point out why below, and do some more calculations. Feel free to contribute.

School A: (Let's analyze the original)

Loan Term = 200K @ 7.9% for 20 years <----- 20 years? Why would you pay it in 20 years, especially as a dentist?
Monthly Payment = \$1660
Total Interest Paid = \$198,500
Total Paid = \$398,500

Here's a more realistic repayment:

Loan Term = 200K @ 7.9% (you can find better btw) for 10 years
Monthly Payment = \$2390
Total Interest Paid = \$86,485
Total Paid = \$286,485

======
There's no need to analyze the other scenarios, but as you can see. By paying ~\$800/mo more, you save over \$100k in interest. 10 years (imo) is still a long repayment, 7-8 is more ideal. Of course, situations vary.
======
Second, he mentions salary + taxes:

Starting salary of new grad = \$120,000
Taxes at 28% = \$33,000

\$120k is on the low side, usually it's somewhere between \$140-150k in 2016 (again depending where you live/work). Many people I know (recent grads) started with \$700/day.

Now, taxes. 28% is correct, however, you shouldn't be paying your "full" tax rate. There are deductions (e.g 401K or RRSP for Canadians), if you're contracted you can claim many expenses, and so on.

So again, a bit old and oversimplified.
======
Everything else such as mortgage, car, etc, etc depends on where you live, what you use, and how much you use.

Lets assume your debt is \$300K, and you want to repay it in 8 years.

Initial Debt: \$300K @7.9%
Repayment Time: 8 years
Total Payments: \$402K
Interest: \$102K
Monthly Payments: \$4,185

Assuming a wage of \$140k, you take home \$11,667 pre tax. After taxes (lets say 28% for argument sake), \$8400/mo take home. Again, there are many ways to lower your tax %.

\$8400 - \$4185 = \$4215 left over which is ~\$51k/year. Higher than the median income of U.S. households.

If you're smart for 8 - 10 years while aggressively tackling your loan, you'd save more in interest than you would going to a school that would cost \$100k more.

And even this is oversimplified.

Excellent calculations.

2+ Year Member
1 user

#### cacajuate

##### Full Member
5+ Year Member
Living on \$50k for 7-10 years is awful. Once you factor in all bills, you are left with hardly any money. You better hope you have a significant other that is going to work.

Yes, you will get by but I damn sure didn't go through all these effort to live like that. Pretty much any skilled job you will be better off.

There is good debt and bad debt. \$350k+ @ ~7% is bad debt.

#### super frank

##### Full Member
5+ Year Member
Aren't most federal loans given out at 4-5%?

#### 1070752

##### Full Member
5+ Year Member
Living on \$50k for 7-10 years is awful. Once you factor in all bills, you are left with hardly any money. You better hope you have a significant other that is going to work.

Yes, you will get by but I damn sure didn't go through all these effort to live like that. Pretty much any skilled job you will be better off.

There is good debt and bad debt. \$350k+ @ ~7% is bad debt.

That's assuming you're the only contributor. You'd be a dentist, you're most likely going to have a SO or find an SO in a similar position. Obviously your SO might not be a dentist, but they're also not going to be a minimum wage worker. \$50k is assuming your salary also stays constant at \$140k for 8 years (very unlikely).

\$350k debt with no return = bad debt.

\$350k debt with a lifetime investment return/career (dentist) = better/good debt.

5+ Year Member

#### 1070752

##### Full Member
5+ Year Member
I think you were right to take a look at paying loans off quicker than 20 yrs. Most of us who are interested in the cost analysis would however rather take a conservative estimate on income. I would look at things on the 120k income. Also your 140k wage after taxes needs to include other things like state income tax, social security, and medicare tax.

I think on 140k wage it's not unreasonable to estimate that your monthly would work out to \$7800.
Without doublechecking your payment estimates: 7800-4185= \$3615

I do agree that there are ways to lower your taxburden but the most effective would be 401k etc which necessitates a lower take-home/usable monthly income.

You're right, I just didn't want to complicate the taxes since different states, etc, etc...

5+ Year Member
1 user

#### super frank

5+ Year Member
Care to expand?

##### DDS
7+ Year Member
Care to expand?
5.31% is for graduate unsubed loans. for the 2016-2017 school year anyway.

Last edited:
1 user

#### Incis0r

##### I LOVE Dental School
7+ Year Member
Care to expand?

Check this out- you are correct that loans can be given out at 5%, but those are under the special circumstances indicated on the website.

1 users