Financial Question (About Loans)

[Bifenthrin]

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So my fiance and I were talking last night about the possibility of renting an apartment, and our conversation left me wondering about a few things.

He wants me to move into his mom's house with him while I'm in school, because he wants to save for a house mainly. His whole point was that while I'm in school, we'll be a single income family and that if we have an apartment and all associated expenses, we'll have to cut back on going out, and we won't be able to save up much for a down payment.

My point of view is that we should get an apartment and that I could take out a personal loan each year on top of tuition, for living expenses, to help supplement the costs of us living on our own and so we can still save a little and not cut back all the way on everything we are accustomed to. Fiance, however, says that this will ruin my credit score because I would be taking on extra debt.

So I was wondering if anyone here knows how taking out an extra $80k or so over four years on top of tuition would affect my credit. Or if anyone has input or anything.

This is all theoretical at this point, as I have yet to be accepted, but I figure it's good to think about now.

 

[CleverThought]

Take this with a grain of salt, as I am a debt free student - so my perception is admittedly skewed.

I'm a married undergrad, but we manage to rent a house and pay all of our bills while we're both in school. And I'm sure our combined income is a hell of a lot less than your single income.

Who cares if you guys don't get to go out much over the course of your education. Imagine putting that 80k into retirement someday. Live below your means. Dave Ramsey says you have to live like no one else, so that one day you can live and give like no one else.

I'm going to assume you have undergrad debt, add that up with DS debt and then this additional 80K - it sounds like an irresponsible mess about to happen.

http://angus65.com/ <---- this is a Dave Ramsey budget spreadsheet that's free to download
http://kidsactivitiesblog.com/2195/save-money <----- 50 tips to be frugal

I would recommend, perhaps, taking a Dave Ramsey course (wow, I feel like he should pay me per use of his name!). We took Financial Peace University as part of our marriage counseling and it was a godsend. We will be able to pay cash for our next car and hopefully put a minimum 40% down on our first house in the next couple years.

I understand that educational debt is often needed, but I think you should take out as little of it as possible. You in 20 years will greatly appreciate it

 

[Bifenthrin]

I only have $40k in undergraduate loans because my scholarship covered most of tuition.

The problem is, living in NYC is expensive. My fiance makes enough that we can rent an apartment, keep paying for the car, pay bills and all.. but we wouldn't be able to put much in savings. We would have MAYBE $500 a month left over, IF that. It would be very tight. Taking out an additional $20k a year in loans would help tremendously.

Problem is also that right now, I have a $50k a year salary. We'd be losing that with my going to school, obviously. Which would be very difficult to adjust to.

 

[SES0112]

I think the question is can you live with your mom in law (future) for the next 4 years and it be okay not just from your view but from hers too. Thats kind of a burden on both ends. Personally I'd do the loans...

 

[NDPitch]

Are you really passing up on the opportunity to save EIGHTY THOUSAND DOLLARS (caps for emphasis)?? I'm not trying to sound mean here, but do you understand how much of a burden an extra 80 grand is on top of the existing loan debt? That 80,000 will turn into a much bigger number after 4 years of interest accrual. You shouldn't be looking at this with a "we won't be able to go out as much" or a "my credit score won't be as good" mentality. To be honest, "the life you're accustomed to" now will definitely change in dental school, whether you're in your own apartment or not. You should be looking at this situation with a "how will we pay all of this back after school" mentality.

You will be wishing you bit the bullet and saved all that money when you're left with a much bigger loan balance after those 4 years, trust me. Have you punched some realistic numbers into a loan payback calculator yet? The numbers should make you cringe and realize to keep your debt as low as possible. Having no rent for 4 years sounds like a golden opportunity to me...

I'm with your fiancé on this one, hands down.

 

[teett]

I don't think taking more 80k will ruin ur credit score.

I am on the side of not living with mother in law. However, I would love to live with my mom 😉

 

[vinnie83]

I recall this question being asked at a financial aid Q&A when I started dental school and the answer was no. They also recommended taking out as little as possible in student loans. Many people can spend several decades paying off their loans. Do you really want to add $80k (or probably over $100k by the time you pay it back) to that? If you guys are going out for nice dinners all the time I would cut back on that regardless, you have the whole rest of your life to do stuff like that.

Personally my wife would not be able to deal with living in my parents' house for 4 years and considering that I moved out over a decade ago I'm not sure I could either. I do know people that have made this work, but that's for you and your fiance to figure out.

 

[Bifenthrin]

I currently live with my mother and he lives with his. We can't live with my parents because first of all, the house isn't big enough and second of all, I don't want him living with my parents cause it would get old fast.

I figure that that additional $80k loan will wind up totaling something like an extra $700 a month to student loans. And I'm taking the 30 year plan regardless, because I'm not going to try to pay off that much money in like five years or something.

I also spoke about being fine with cutting back on nice dinners and have tried explaining that I will not really have time for the nice mini-vacations of going out of town for weekends. But he's still stuck on the saving for a house aspect. 🙁

 

[shootingstar7]

I currently live with my mother and he lives with his. We can't live with my parents because first of all, the house isn't big enough and second of all, I don't want him living with my parents cause it would get old fast.

I figure that that additional $80k loan will wind up totaling something like an extra $700 a month to student loans. And I'm taking the 30 year plan regardless, because I'm not going to try to pay off that much money in like five years or something.

I also spoke about being fine with cutting back on nice dinners and have tried explaining that I will not really have time for the nice mini-vacations of going out of town for weekends. But he's still stuck on the saving for a house aspect. 🙁

This is a tough call. I would love to live with my future mother in law, but she is pretty awesome.

700 a month for 30 years is a huge burden. Its the difference between a 100,000 mortgage and a 200,000 one.

Why dont you give it a try for the first year? If its not working out then get your own place. The first year is by far the must expensive and accrues the most interest anyway.

 

[NDPitch]

I also spoke about being fine with cutting back on nice dinners and have tried explaining that I will not really have time for the nice mini-vacations of going out of town for weekends. But he's still stuck on the saving for a house aspect. 🙁

He has the correct mindset.

 

[NDPitch]

Also, it is unwise to plan to pay back these loans in 30 years.

 

[Bifenthrin]

This is a tough call. I would love to live with my future mother in law, but she is pretty awesome.

700 a month for 30 years is a huge burden. Its the difference between a 100,000 mortgage and a 200,000 one.

Why dont you give it a try for the first year? If its not working out then get your own place. The first year is by far the must expensive and accrues the most interest anyway.

This sounds like a good compromise, actually. Could even save two years theoretically.. We aren't getting married until June 2014, so if I get into school this year, I could live with my parents and just see my fiance on weekends like we do now, and then after the wedding try living with his mom for a year to see if it's bearable.

I love my future mother in law, but I'm just not sure how I would feel living with her full time, you know?

When we talk about this again, which will probably be this weekend, I will bring up this compromise to him and see what he thinks.

Thank you!

 

[Bifenthrin]

Also, it is unwise to plan to pay back these loans in 30 years.

Why? I mean, I realize I would be paying more in interest, but I just think it's unrealistic to plan to pay it back in 5 years, or even 10. I would have to make HUGE payments each month, which would be tough with trying to also buy a house AND a practice after 3-5 years.

 

[NDPitch]

Why? I mean, I realize I would be paying more in interest, but I just think it's unrealistic to plan to pay it back in 5 years, or even 10. I would have to make HUGE payments each month, which would be tough with trying to also buy a house AND a practice after 3-5 years.

Paying back these loans over 30 years will hurt your ability to save for and fund your retirement. Hanging onto student loans when you're in your 50s is extremely financially draining.

There is a tremendous pool of knowledge on this in the articles on dental town. Dentists in financial trouble are the ones with little to no savings, have no emergency fund established, and are paying for a practice, home, and student loans all at the same time.

If you're still paying 2 to 3 grand a month when you're in your 50s towards student loans, you can bet your savings ability will have suffered tremendously.

The rule of thumb accepted by many dental financial advisors is that if you are going to purchase a practice, you do that before you buy a home. Your practice is your source of maximum income potential and should be prioritized as such.

I've said this to a lot of fellow pre-dents on here, and I'm not trying to pick on you. Seriously, I'm trying to help you. I'd hate to see you get in over your head. That said, I can tell you're a little naive when it comes to finances. Again, no offense intended here. I'm trying to help. This loan money is not Monopoly money. It is very real, yet many pre-dents will not realize it until they graduate. I feel lucky to be going through this process as an older applicant with more life experience. It's allowed me to have a clearer vision, and to try and give meaningful advice to fellow pre-dents.

I strongly encourage you to read the great financial articles on dental town. Here is a link to one of the more recent ones talking about debt. I'll include an excerpt below.

http://www.towniecentral.com/Dentaltown/Article.aspx?i=314&aid=4270

--------------------------------------------

Student Loans

Student loans provide skills that increase a dentist's potential income level. Yet they often decrease that dentist's wealth-creating ability.

Dave Ramsey, author and TV personality, provides detail of doctor/student debt with a phone-in program recording that can be heard at: http://a1611.g.akamai.net/f/1611/23575/9h/dramsey.download.akamai.com/23575/audio/mp3/MyDRS Blog/
04022008__dont_get_docitis.mp3.

An abridged version:

Dear Dave,

I'm 33 and a resident with $250,000 in student loan debt. Next year I'll finish my residency and increase my income dramatically. The interest rate on my student loan is just 3.5 percent, so I'd like to postpone paying it off and make house payments and begin saving for retirement instead. I'd put off paying the student loans as long as possible. Is this a good idea?

- Derrick

Dear Derrick,

That loan hanging over your head is unbelievable. I've worked with many doctors over the years where 20 years later they are still playing math games with the student loans like they're stupid pets! If you're not careful, you might catch a nasty disease called "doc-itis." Some of the symptoms include two or three leased BMWs and a fully furnished house with a pool on the golf course. "That student loan can just wait a while to be paid." It's a financially debilitating disease.

You've been used to living on nothing (less than $40,000) for a while now. Just keep on doing that for a little bit longer. You can have that student loan debt knocked out in a few years.

I'd postpone any retirement savings and buying a home until you've completely knocked out the loan and have an emergency fund ($50,000+) in place...

- Dave

What can a young dentist do? Unfortunately, suck it up and live like a student for a few years after becoming a doctor. One who pays off student debt quickly will have real savings by age 50.

The insidious part of lingering student debt is that it inculcates a lifestyle of constant debt accumulation, never being totally debt-free. The media promotes debt incessantly to our insatiable urges. And we dentists buy in like lemmings! Unfortunately a $200,000 to $400,000 student loan burden is common for dental grads today.

Our dentist, Dr. Bill, paid off $150,000 in student loans within five years of dental school graduation and his wife, Jennifer, has student loan debt of $160 per month that she will pay off completely within the next year.

 

[Bifenthrin]

Thank you! I will look at those articles later tonight when I get a chance to be on for more than a few minutes.

I totally get you're not picking on me, haha.

 

[shootingstar7]

NDPitch- Thank you for sharing. Your post makes excellent points.

I have a question though. Why would you not buy a home before a practice? Renting really isn't financially wise. I mean, we are hoping to buy something while I'm in dental school.

 

[NDPitch]

NDPitch- Thank you for sharing. Your post makes excellent points.

I have a question though. Why would you not buy a home before a practice? Renting really isn't financially wise. I mean, we are hoping to buy something while I'm in dental school.

I'll go digging through some of my old emails with dental financial advisers and see if I can find the exact answer they gave me. For now I have to run, though, so I won't be able to post it until later.

 

[shootingstar7]

I'll go digging through some of my old emails with dental financial advisers and see if I can find the exact answer they gave me. For now I have to run, though, so I won't be able to post it until later.

Thanks!

 

[Bereno]

The whole paying off loans in 10 vs 30 years thing is tricky and requires a balancing act. If it were me, I would strike out on the minimum student loan PMT for a few years to build up enough money to put a deposit down on a practice loan (if it is required). Once you have established your practice and now have the ability to expand your income, then hit the student loans much harder. Trying to make a dent in your student loans during an associate-ship is likely to delay your ability to own a practice. Saving the payment for after your established practice will allow you to pay off your loans safely, as well as start making a larger income sooner, which allows you to be more aggressive on the pmts sooner.

Oh, BTW you would not be taking out a private loan for the housing - it would be a student loan, so it would not hurt your credit score at all. That said, I would totally live with the parental units, and save that money. However, I would use the saved money for a practice not a house lol. As you might tell, I am really in favor of owning a practice sooner than later. Hope this helps 🙂

 

[NDPitch]

I went searching through my emails for the correspondence I had with a dental financial adviser. This is coming from a dentist who is now retired, and helps those in practice with their finances. I consider this advisor pretty reputable - has published articles, had a successful career, was able to retire early, etc. I gathered up all my questions and the answers I received and pasted them below. I know this topic is about finances -- some of these questions don't pertain to that but I'm including them anyway. This is just advice from someone I consider to be reputable. I took a lot of this advice to heart when it was given to me - perhaps you will do the same, perhaps not. Just throwing it out there to see.


---------------------------------


It's scary to think about these huge student loans - one could buy a house with this amount of money. How do people do both?

These loans are a mortgage. And one cannot take on another until the first on is paid off, or all sorts of stress invade your life.....

I really want to go to a public school that's cheaper, but one of my favorite schools is private, expensive, and close to home. What do you recommend?

I'm firm after reviewing all evidence for the past six years that it makes no sense to attend a private professional school. The financial burden has become intolerable. When applying to dental school back in the mid-70s, I had a choice between USC and UCLA. The tuition and fees were low compared to today, yet even back then the typical UCLA grad could easily pay off loans in 2-5 years, with little downside to lifestyle, while USC grads all paid hurtful loans for up to 8-10 years. The numbers we paid back then would make you laugh, but a net income of $50K was considered incredible.

In my research, it seems that fresh out of school, if a graduate can get a job as an associate in a thriving private practice, that can pay a salary anywhere from 80 to 120k. Is this accurate?

Yes.

If I go to my favorite private school, I've crunched numbers and think I can have the debt paid back in 10 years or so. What do you think of that?

This is way too long to wait before getting on with your life---buying a home, saving for retirement, buying a practice. Basically, one has to pay off student loans within 5-7 years, or they will find themselves without much savings or college funds for kids in their 50s. With private school loans, which now are in the $400K range, one has to live for about seven years after school like a student to pay them off and get back to ground zero. Sorry to be blunt, here, but this is the truth. Most dentists in coastal CA right now can't afford homes in their early to mid-40s! Why? Student loans that linger on.....

What would you do if you were just going to dental school today?

Go to a public dental school at all costs.

Do you think where you go to dental school matters?

Where you went to dental school has no status anywhere in the country that I know of. Yes, Harvard, Columbia, and Penn may have some Ivy clout in the East, yet in real life, being around other dentists, I've never found a dental school "ego ladder."

Is going into dentistry today still a wise decision financially?

If you go into it for the money, be warned that you'll work into your 70s, no matter which school you go to. Guys who like money spend a lot and don't generate much wealth. If you go into it to make a good living, you'll be fine financially. BUT, stay far away from the private schools, as finances in your 40s may be a huge stress.

 

[NDPitch]

Also, Shootingstar, I couldn't find the email where we talked more about home mortgages. But the general consensus was that through the years of this advisers career, there had been many dentists who wished they had bought a practice before a house. Owning a house first made it very hard for them in the practice. In the practice, you have a BIG loan, new employees, insurance, billing, treatment plans, and you're trying to build up speed to be profitable, amongst other stress as well. A home mortgage makes this even more stressful and hurts your ability to save. This doesn't mean you don't have a place to live. A lot of people think that home ownership is the only option when you're a medical professional - it's part of the American Dream and everyone else is doing it! Well, ownership happens at the right time. I was recommended to rent CHEAP at first, and own later. It's true that owning can be more financially rewarding, but I think there are more important things to focus your finances on first that will earn you a greater return - such as your practice. It is what makes you known to patients, and it's what allows you to even be in the position to own a home.

 

[UCSFx2017]

The whole paying off loans in 10 vs 30 years thing is tricky and requires a balancing act. If it were me, I would strike out on the minimum student loan PMT for a few years to build up enough money to put a deposit down on a practice loan (if it is required). Once you have established your practice and now have the ability to expand your income, then hit the student loans much harder. Trying to make a dent in your student loans during an associate-ship is likely to delay your ability to own a practice. Saving the payment for after your established practice will allow you to pay off your loans safely, as well as start making a larger income sooner, which allows you to be more aggressive on the pmts sooner.

Oh, BTW you would not be taking out a private loan for the housing - it would be a student loan, so it would not hurt your credit score at all. That said, I would totally live with the parental units, and save that money. However, I would use the saved money for a practice not a house lol. As you might tell, I am really in favor of owning a practice sooner than later. Hope this helps 🙂

How long are you expecting to stay as an associate if you become a GP?

 

[NDPitch]

How long are you expecting to stay as an associate if you become a GP?

The same adviser who I posted info from above said that there are now many associates that aren't able to afford becoming an owner until they're in their 40s - because of student loans, mortgage, etc. Crazy!

 

[UCSFx2017]

The same adviser who I posted info from above said that there are now many associates that aren't able to afford becoming an owner until they're in their 40s - because of student loans, mortgage, etc. Crazy!

Should mortgage come before practice?

I sort of thought since I'm single I might do associate (<5 years), pay off loans (<5 years), take out loan to buy practice (at year 5), and then buy home whenever ready.

 

[NDPitch]

I sort of thought I might do associate, pay off loans, buy practice, and then buy home.

That's the order that was recommended to me! 👍

 

[Bifenthrin]

Hmm.. I mean, thankfully I'm not going to be living on a single income once I'm done with school and stuff. So would it make sense maybe to pay low on the loans in the beginning and save for a practice, and hit the loans harder when I have the practice AND buy a home before the practice?

If I start off at about $120,000 a year out of school (possible for me), I'd have a combined household income of $200,000. So we could probably tackle a mortgage, minimum payments on my student loans, AND saving for a practice as well. I figure that after taxes we'd have a good $130k a year left over. Of that, say about $36k goes to mortgage and bills and expenses on a house. I still have $94k left. Another $36k a year on loan (I'm guessing my minimum would be around $3k a month) leaves us with $58k. Put away $30k into savings for a practice for five years (to have a down payment of $150k), and that leaves me with $28k a year to spend on food, clothes, going out, cars, etc. Which I believe is very doable.

But the question is, would it be logical to do it that way?

 

[UCSFx2017]

Hmm.. I mean, thankfully I'm not going to be living on a single income once I'm done with school and stuff. So would it make sense maybe to pay low on the loans in the beginning and save for a practice, and hit the loans harder when I have the practice AND buy a home before the practice?

If I start off at about $120,000 a year out of school (possible for me), I'd have a combined household income of $200,000. So we could probably tackle a mortgage, minimum payments on my student loans, AND saving for a practice as well. I figure that after taxes we'd have a good $130k a year left over. Of that, say about $36k goes to mortgage and bills and expenses on a house. I still have $94k left. Another $36k a year on loan (I'm guessing my minimum would be around $3k a month) leaves us with $58k. Put away $30k into savings for a practice for five years (to have a down payment of $150k), and that leaves me with $28k a year to spend on food, clothes, going out, cars, etc. Which I believe is very doable.

But the question is, would it be logical to do it that way?

I have no idea. You should ask here. I usually lurk Dental Town for real-world questions.

http://www.towniecentral.com/Dentaltown/campaign.aspx?c=284&r=1&url=/Dentaltown/SiteDefault.aspx

 

[88845]

Paying back these loans over 30 years will hurt your ability to save for and fund your retirement. Hanging onto student loans when you're in your 50s is extremely financially draining.

There is a tremendous pool of knowledge on this in the articles on dental town. Dentists in financial trouble are the ones with little to no savings, have no emergency fund established, and are paying for a practice, home, and student loans all at the same time.

If you're still paying 2 to 3 grand a month when you're in your 50s towards student loans, you can bet your savings ability will have suffered tremendously.

The rule of thumb accepted by many dental financial advisors is that if you are going to purchase a practice, you do that before you buy a home. Your practice is your source of maximum income potential and should be prioritized as such.

I've said this to a lot of fellow pre-dents on here, and I'm not trying to pick on you. Seriously, I'm trying to help you. I'd hate to see you get in over your head. That said, I can tell you're a little naive when it comes to finances. Again, no offense intended here. I'm trying to help. This loan money is not Monopoly money. It is very real, yet many pre-dents will not realize it until they graduate. I feel lucky to be going through this process as an older applicant with more life experience. It's allowed me to have a clearer vision, and to try and give meaningful advice to fellow pre-dents.

I strongly encourage you to read the great financial articles on dental town. Here is a link to one of the more recent ones talking about debt. I'll include an excerpt below.

http://www.towniecentral.com/Dentaltown/Article.aspx?i=314&aid=4270

--------------------------------------------

Student Loans

Student loans provide skills that increase a dentist's potential income level. Yet they often decrease that dentist's wealth-creating ability.

Dave Ramsey, author and TV personality, provides detail of doctor/student debt with a phone-in program recording that can be heard at: http://a1611.g.akamai.net/f/1611/23575/9h/dramsey.download.akamai.com/23575/audio/mp3/MyDRS Blog/
04022008__dont_get_docitis.mp3.

An abridged version:

Dear Dave,

I'm 33 and a resident with $250,000 in student loan debt. Next year I'll finish my residency and increase my income dramatically. The interest rate on my student loan is just 3.5 percent, so I'd like to postpone paying it off and make house payments and begin saving for retirement instead. I'd put off paying the student loans as long as possible. Is this a good idea?

- Derrick

Dear Derrick,

That loan hanging over your head is unbelievable. I've worked with many doctors over the years where 20 years later they are still playing math games with the student loans like they're stupid pets! If you're not careful, you might catch a nasty disease called "doc-itis." Some of the symptoms include two or three leased BMWs and a fully furnished house with a pool on the golf course. "That student loan can just wait a while to be paid." It's a financially debilitating disease.

You've been used to living on nothing (less than $40,000) for a while now. Just keep on doing that for a little bit longer. You can have that student loan debt knocked out in a few years.

I'd postpone any retirement savings and buying a home until you've completely knocked out the loan and have an emergency fund ($50,000+) in place...

- Dave

What can a young dentist do? Unfortunately, suck it up and live like a student for a few years after becoming a doctor. One who pays off student debt quickly will have real savings by age 50.

The insidious part of lingering student debt is that it inculcates a lifestyle of constant debt accumulation, never being totally debt-free. The media promotes debt incessantly to our insatiable urges. And we dentists buy in like lemmings! Unfortunately a $200,000 to $400,000 student loan burden is common for dental grads today.

Our dentist, Dr. Bill, paid off $150,000 in student loans within five years of dental school graduation and his wife, Jennifer, has student loan debt of $160 per month that she will pay off completely within the next year.

Excellent post, NDPitch, as per usual.

This thread reminds me of a very recent NYTimes article highlighting the same debt issue but for veterinarian students. It's as if this very same article could be written for dental students.

NYTimes: High Debt and Falling Demand Trap New Vets

 

[Bereno]

How long are you expecting to stay as an associate if you become a GP?

Dunno. Preferably no longer than 4 years.

Hmm.. I mean, thankfully I'm not going to be living on a single income once I'm done with school and stuff. So would it make sense maybe to pay low on the loans in the beginning and save for a practice, and hit the loans harder when I have the practice AND buy a home before the practice?

If I start off at about $120,000 a year out of school (possible for me), I'd have a combined household income of $200,000. So we could probably tackle a mortgage, minimum payments on my student loans, AND saving for a practice as well. I figure that after taxes we'd have a good $130k a year left over. Of that, say about $36k goes to mortgage and bills and expenses on a house. I still have $94k left. Another $36k a year on loan (I'm guessing my minimum would be around $3k a month) leaves us with $58k. Put away $30k into savings for a practice for five years (to have a down payment of $150k), and that leaves me with $28k a year to spend on food, clothes, going out, cars, etc. Which I believe is very doable.

But the question is, would it be logical to do it that way?

I would only do the mortgage in that order if you are able to have a really small down pmt. Just remember that owning your own practice sooner the better. At least, that is what I think lol

 

[NDPitch]

Excellent post, NDPitch, as per usual.

This thread reminds me of a very recent NYTimes article highlighting the same debt issue but for veterinarian students. It's as if this very same article could be written for dental students.

NYTimes: High Debt and Falling Demand Trap New Vets

Tachyon, thanks. That was a good read. Some of the comments are a little shocking as well. One in particular reads...

I graduated from vet school in 2006 with $160K worth of debt. I regret the decision to take on that debt (and become a vet). My student loans have become a lasting symbol of my financial ignorance at the age of 21. That said, I accept that it was MY stupid decision and I don't expect anyone to forgive them.

If a Vet can start out at a 40k salary, that seems eerily similar to someone starting out at 100k as a dentist with 400k in student loans. I'm not pointing the finger at anyone here in a similar situation, but it makes me nervous for these students that will graduate and be shocked to find out how hard it's going to be. I know one student that's going off to ortho after just graduating from one of the most expensive schools. He can expect to be $700,000 dollars in the hole at 6.8 and 7.9 percent interest. Yikes.

 

[Bereno]

Tachyon, thanks. That was a good read. Some of the comments are a little shocking as well. One in particular reads...

I graduated from vet school in 2006 with $160K worth of debt. I regret the decision to take on that debt (and become a vet). My student loans have become a lasting symbol of my financial ignorance at the age of 21. That said, I accept that it was MY stupid decision and I don't expect anyone to forgive them.

If a Vet can start out at a 40k salary, that seems eerily similar to someone starting out at 100k as a dentist with 400k in student loans. I'm not pointing the finger at anyone here in a similar situation, but it makes me nervous for these students that will graduate and be shocked to find out how hard it's going to be. I know one student that's going off to ortho after just graduating from one of the most expensive schools. He can expect to be $700,000 dollars in the hole at 6.8 and 7.9 percent interest. Yikes.

I don't know if I would make the 160K/40K to 400K/100K comparison. At the least, I would be very careful doing so. The reason for this is 40K is the income, but there is a "standard" cost to living. What I mean by this is that I would like to live off of, say, 30K a year, leaving 10K for the loan (assuming these are all post tax), giving a ratio of 160/10 or 16. Looking at the dentist now, using that same 30K, we have 400/70 or about 5.7. From these numbers, the dentist is still much better off. Even if we double the "standard" cost of living for the dentist at 60K, we are still in a better position than the vet (400/40 or 10). Just food for thought. 🙂

 

[Bifenthrin]

I have to find out obviously, but I think I may be able to get a mortgage with a $50k down payment, because the houses in the area I want to buy in are about $500k for the kind of house we want. And I'm pretty sure a 10% down payment is acceptable. I could be wrong though, as I've never bought a house before.

 

[Bereno]

I have to find out obviously, but I think I may be able to get a mortgage with a $50k down payment, because the houses in the area I want to buy in are about $500k for the kind of house we want. And I'm pretty sure a 10% down payment is acceptable. I could be wrong though, as I've never bought a house before.

woah.... 500k house would be a niiiice house lol. That seems like too much house for a new grad - its risky to say the least. Also, from what I remember, 20% was the standard down pmt. I don't know if that has changed, but it very well could have.

 

[Bifenthrin]

Hmm.. I'm not sure. I remember from somewhere it being 10%, but I may be going crazy from lack of sleep.

Out here, 500k is a new 3 bedroom, 2 bathroom house. At least in the town I like. NY is expensive. 🙁

 

[Bereno]

Hmm.. I'm not sure. I remember from somewhere it being 10%, but I may be going crazy from lack of sleep.

Out here, 500k is a new 3 bedroom, 2 bathroom house. At least in the town I like. NY is expensive. 🙁

Ahh, I see. Yeah, NY is expensive, that much is true. If you are able, try and bump that down pmt up. It can sometimes lower your effective pmt, even on equal balances. (less risk to the lender, and less insurance for them). Do some poking around and see what you come up with. If you do find a lower down payment, be sure to look out for any other costs!!

 

[NDPitch]

I don't know if I would make the 160K/40K to 400K/100K comparison. At the least, I would be very careful doing so. The reason for this is 40K is the income, but there is a "standard" cost to living. What I mean by this is that I would like to live off of, say, 30K a year, leaving 10K for the loan (assuming these are all post tax), giving a ratio of 160/10 or 16. Looking at the dentist now, using that same 30K, we have 400/70 or about 5.7. From these numbers, the dentist is still much better off. Even if we double the "standard" cost of living for the dentist at 60K, we are still in a better position than the vet (400/40 or 10). Just food for thought. 🙂

Very true. Although in my eyes, assuming a traditional payment plan, the debt should be considered first. If you don't make your payments you're done for, and there's always a way to figure out how to live cheaper.


Vet with 160k @ 6.8%
Starting salary = 50k
After tax take-home = ~40k
Loan payments per year = ~13k
Left over for living for expenses = ~27k

Dentist with 400k @ 7.4% (weighted)
Starting Salary = 100k
After tax take-home = ~74k
Loan payments per year = ~35k
Left over for living expenses = ~39k

The dentist has about 12k more per year to live off of. However, I would venture a guess that the typical dental graduate would be prone to spending more money because they have a higher salary (see "doc-itis" above, haha). That's a big generalization, though.

I'd take being the dentist for sure, but neither situation is very optimal. Now, if you introduce the desire to purchase a practice as a dentist with that kind of debt load, things become more interesting. Anyway, I digress. Just be smart people!

 

[Bereno]

Very true. Although in my eyes, assuming a traditional payment plan, the debt should be considered first. If you don't make your payments you're done for, and there's always a way to figure out how to live cheaper.


Vet with 160k @ 6.8%
Starting salary = 50k
After tax take-home = ~40k
Loan payments per year = ~13k
Left over for living for expenses = ~27k

Dentist with 400k @ 7.4% (weighted)
Starting Salary = 100k
After tax take-home = ~74k
Loan payments per year = ~35k
Left over for living expenses = ~39k

The dentist has about 12k more per year to live off of. However, I would venture a guess that the typical dental graduate would be prone to spending more money because they have a higher salary (see "doc-itis" above, haha). That's a big generalization, though.

I'd take being the dentist for sure, but neither situation is very optimal. Now, if you introduce the desire to purchase a practice as a dentist with that kind of debt load, things become more interesting. Anyway, I digress. Just be smart people!

True. I guess what I was getting at is scaling the debt to income ratio is not all that practical when the cost of "standard" living is not scaled with it. Assuming both people have the same cost of living, the dentist is a lot better off, even with the larger loan. However, as you pointed out when someone has a higher salary, they tend to spend more money thus increasing their own "standard" of living... I am sure this is deceptively easy to fall into lol

 

[NDPitch]

True. I guess what I was getting at is scaling the debt to income ratio is not all that practical when the cost of "standard" living is not scaled with it. Assuming both people have the same cost of living, the dentist is a lot better off, even with the larger loan. However, as you pointed out when someone has a higher salary, they tend to spend more money thus increasing their own "standard" of living... I am sure this is deceptively easy to fall into lol

Yeah for sure. As usual, it's always nice to hear your take.

👍