Advertisement - Members don't see this ad
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.
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.
