High Loan amount and payoff - Advanced Standing DDS/DMD

[Aspire2019]

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Hello! Here is another thread on high loan amounts 🙂

Are there any practicing dentists out there who completed their DDS/DMD as an advanced standing student in US. I am hoping to hear about their experiences with high loan amounts and how are they tackling it. I know there are PAYE/REPAY options for federal loans, but I am interested in personal experiences and what have people in similar situations done.

Asking about advanced standing because circumstances may be different from someone who did undergrad and then dentistry and took a traditional path.

Thanks for sharing your experiences.

 

[Pablo Sanchez]

Everyone has different goals, but if I were in your shoes I would SACRIFICE and pay off your loans ASAP. There is a reason getting loans is so easy; whoever is collecting interest wins every time.

 

[Aspire2019]

Thanks for your comments. That’s the plan.
How did you do it? Was there a strategy that worked for you? Like start off with REPAY to manage risk and keep paying down extra? There is some interest subsidy that comes into play with REPAY but I am not sure.
Thanks!

 

[Pablo Sanchez]

Thanks for your comments. That’s the plan.
How did you do it? Was there a strategy that worked for you? Like start off with REPAY to manage risk and keep paying down extra? There is some interest subsidy that comes into play with REPAY but I am not sure.
Thanks!

So I admittedly didn't do it. I am in a different situation than you, and likely have different goals. I am personally not going to start on REPAYE, or any income-based repayment, because that gives you an excuse not to put as much money towards your loans as possible. It's too easy to say "Well, I paid what I was supposed to this month, I'm going to do X, Y, Z with my remaining income instead of paying back my loan." And every day you have a student loan is a day that someone is collecting interest off of you. The borrower is slave to the lender, my friend.

I want my money to be COLLECTING interest FOR me. Instead I am going to be on a standard 10 year repayment plan, and I am going to put all of my money towards my loans to pay my loans off well before the 10 years are expired. That means living with my parents or in a trailer, driving an old car, etc. It means eating rice and beans, beans and rice. It means ignoring the societal pressure to spend your money on things. Things don't make you happy. It means living like nobody else today so that you can live like nobody else tomorrow.

Everyone has to find what works for them, but from a financial perspective, the key is paying off your loans like a crazy person. I'm not sure about the specifics of being on REPAYE to manage risk, and paying off your loans faster. There might be a penalty for that. I personally think having the security of falling back on only paying 10% of my salary towards loans is dangerous for me, so why give myself the option?

The fact that you are thinking about it now is good. Good luck!

 

[knewstance]

So I admittedly didn't do it. I am in a different situation than you, and likely have different goals. I am personally not going to start on REPAYE, or any income-based repayment, because that gives you an excuse not to put as much money towards your loans as possible. It's too easy to say "Well, I paid what I was supposed to this month, I'm going to do X, Y, Z with my remaining income instead of paying back my loan." And every day you have a student loan is a day that someone is collecting interest off of you. The borrower is slave to the lender, my friend.

I want my money to be COLLECTING interest FOR me. Instead I am going to be on a standard 10 year repayment plan, and I am going to put all of my money towards my loans to pay my loans off well before the 10 years are expired. That means living with my parents or in a trailer, driving an old car, etc. It means eating rice and beans, beans and rice. It means ignoring the societal pressure to spend your money on things. Things don't make you happy. It means living like nobody else today so that you can live like nobody else tomorrow.

Everyone has to find what works for them, but from a financial perspective, the key is paying off your loans like a crazy person. I'm not sure about the specifics of being on REPAYE to manage risk, and paying off your loans faster. There might be a penalty for that. I personally think having the security of falling back on only paying 10% of my salary towards loans is dangerous for me, so why give myself the option?

The fact that you are thinking about it now is good. Good luck!

Ah a Dave Ramsey listener Solid plan though. IMO, that's the best way to do it, you end up spending wayyy less money on interest in the long run.

I really only see 2 viable ways to paying off large loans. One, listed above.
The other, along the lines of what you've started talking about. Go with PAYE, pay the minimum for the 25 years, all the while stashing away cash in a fund that can later be used to pay your tax bomb when your remaining balance is forgiven.

Kind of two drastically different approaches, and I think each of them requires a unique set of disciplines to achieve. In the first option, you get to live your life without weight on your back sooner, while the second option allows you some breathing room all the way along, but you have your debt hanging over your head for 1/4 of a century.

It really depends on your personality and how you want to live your life.

 

[Aspire2019]

Ah a Dave Ramsey listener Solid plan though. IMO, that's the best way to do it, you end up spending wayyy less money on interest in the long run.

I really only see 2 viable ways to paying off large loans. One, listed above.
The other, along the lines of what you've started talking about. Go with PAYE, pay the minimum for the 25 years, all the while stashing away cash in a fund that can later be used to pay your tax bomb when your remaining balance is forgiven.

Kind of two drastically different approaches, and I think each of them requires a unique set of disciplines to achieve. In the first option, you get to live your life without weight on your back sooner, while the second option allows you some breathing room all the way along, but you have your debt hanging over your head for 1/4 of a century.

It really depends on your personality and how you want to live your life.

Thanks for the responses.
I am firmly in the camp of paying down as quickly as possible. Too many variables with keeping the loan for decades. But at the same time, I am a firm believer in reducing daily risk. Consider you are on a 10 year plan with high monthly payment and something like COVID happens, only at a lower scale and federal govt does not help, like this time around or some other personal issue pops up and the income decreases, in this case if one is on REPAY it is easier to make lower payments and still make additional payments as much as possible. I admit it will require a firm discipline but is doable. And that is the direction I was thinking in.
Did you graduate from AS program?

 

[knewstance]

Did you graduate from AS program?

I'm not entirely sure what you are meaning by AS program, I assume advanced standing, but I'm still not sure what that means.

I completed an master's program prior to starting dental school.

 

[Cold Front]

I'm not entirely sure what you are meaning by AS program, I assume advanced standing, but I'm still not sure what that means.

I completed an master's program prior to starting dental school.

It is advanced standing (international dentists at US programs).

 

[New_Vegas]

Ah a Dave Ramsey listener Solid plan though. IMO, that's the best way to do it, you end up spending wayyy less money on interest in the long run.

I really only see 2 viable ways to paying off large loans. One, listed above.
The other, along the lines of what you've started talking about. Go with PAYE, pay the minimum for the 25 years, all the while stashing away cash in a fund that can later be used to pay your tax bomb when your remaining balance is forgiven.

Kind of two drastically different approaches, and I think each of them requires a unique set of disciplines to achieve. In the first option, you get to live your life without weight on your back sooner, while the second option allows you some breathing room all the way along, but you have your debt hanging over your head for 1/4 of a century.

It really depends on your personality and how you want to live your life.

Doing the PAYE is actually a really bad idea. You will end up paying much more than the original loan amount in the long run. That orthodontist that owes 1 over a million dollars is doing the PAYE with minimum payments, and he will end up paying over 1.7 million in the long run (including his debt forgiveness). All the while, we don't know if there will be changes to the PAYE program, because hey.. It's the government. So you will be a slave to debt your whole life. You will have horrible credit, and may not be able to get money from a bank to buy a house/practice/car/etc.

The fact that there are so many people who think making minimum payments on PAYE is a viable solution out of debt is pretty scary actually. The only way to do it properly is by paying as much as you possibly can as soon as you possibly can.

Please listen to Dave Ramsey. Dental students somehow think they know more than he does. I don't think it's worth it to go into dentistry if you are going to come out with $400k+ loans. Aka- if you can't get into a state school that gives you in state tuition, it's probably best to do something else. Dentistry just doesn't pay enough on average to live a normal/good/healthy life if you have 500k+ debt right out of school.

 

[knewstance]

Doing the PAYE is actually a really bad idea. You will end up paying much more than the original loan amount in the long run. That orthodontist that owes 1 over a million dollars is doing the PAYE with minimum payments, and he will end up paying over 1.7 million in the long run (including his debt forgiveness). All the while, we don't know if there will be changes to the PAYE program, because hey.. It's the government. So you will be a slave to debt your whole life. You will have horrible credit, and may not be able to get money from a bank to buy a house/practice/car/etc.

The fact that there are so many people who think making minimum payments on PAYE is a viable solution out of debt is pretty scary actually. The only way to do it properly is by paying as much as you possibly can as soon as you possibly can.

Please listen to Dave Ramsey. Dental students somehow think they know more than he does. I don't think it's worth it to go into dentistry if you are going to come out with $400k+ loans. Aka- if you can't get into a state school that gives you in state tuition, it's probably best to do something else. Dentistry just doesn't pay enough on average to live a normal/good/healthy life if you have 500k+ debt right out of school.

I agree with you that it's not a good idea. I agree with you that you'd ideally be in less debt. But, not all people have that option or they are too deep before they've come to the realization of the true costs vs benefits.

You've chosen an extreme example. While I already stated that the best way and the least money, in the long run, is paying it off as quickly as possible - PAYE is a valid choice for some students.

If you care to see where I'm coming from in this explanation, do the math a little more and you will find that PAYE + tax bomb can end up being a lower number. You've repeated some of the issues with this, just as I alluded to in my previous post - you have a weight on your back for a LONG time.

In the end, its an option, and some people that are willing to carry that debt for a long time find it a more attractive option.

 

[New_Vegas]

I agree with you that it's not a good idea. I agree with you that you'd ideally be in less debt. But, not all people have that option or they are too deep before they've come to the realization of the true costs vs benefits.

You've chosen an extreme example. While I already stated that the best way and the least money, in the long run, is paying it off as quickly as possible - PAYE is a valid choice for some students.

If you care to see where I'm coming from in this explanation, do the math a little more and you will find that PAYE + tax bomb can end up being a lower number. You've repeated some of the issues with this, just as I alluded to in my previous post - you have a weight on your back for a LONG time.

In the end, its an option, and some people that are willing to carry that debt for a long time find it a more attractive option.

I don't think PAYE will end up being less in the long run. You are paying 10% of what you earn over 20 years. Then, the amount of what is forgiven is taxed as income. If you graduate with 500k, at 7% interest (you can't refinance with PAYE), your interest on that one year would be $35,000. If you make 120k out of dental school, if you opt for the PAYE plan, you will pay $12,000 on the loan. So, by making minimum payments on PAYE your loan will snowball out of control. Let's say over 20 years, you average 200k as a general dentist (but you probably won't make that much because you likely will not be able to buy your own practice if you go the PAYE route on minimum payments). But for the sake of the argument, you would end up paying 20k * 20 = 400k. That is WITHOUT the tax bomb. Now, lets say as a conservative estimate, the loan will swell to twice it's size since you are failing to even cover the interest of the loan. So, if you have a $1,000,000 loan that is forgiven, that will be taxed as income. Meaning, depending on the state you live in, you would have to pay another 400k for taxes on that amount forgiven.
In total, if you graduate with 500k in debt, by doing the PAYE with minimum payments, you could easily expect to pay 800k or more in the long run.

Whereas if you refinance your loans out of school, and put literally almost every spare penny into paying off the loan, you could probably pay it off in 10 years or less.

Either way it's a pretty bad deal, but I would wager the PAYE is much worse in most circumstances. Especially since if you have a loan that is spiraling out of control, you will have horrible credit for the rest of your life. I hope that students choosing dentistry will understand magnitude of these loans. You will likely never be wealthy if you graduate with that much debt.

 

[knewstance]

I don't think PAYE will end up being less in the long run. You are paying 10% of what you earn over 20 years. Then, the amount of what is forgiven is taxed as income. If you graduate with 500k, at 7% interest (you can't refinance with PAYE), your interest on that one year would be $35,000. If you make 120k out of dental school, if you opt for the PAYE plan, you will pay $12,000 on the loan. So, by making minimum payments on PAYE your loan will snowball out of control. Let's say over 20 years, you average 200k as a general dentist (but you probably won't make that much because you likely will not be able to buy your own practice if you go the PAYE route on minimum payments). But for the sake of the argument, you would end up paying 20k * 20 = 400k. That is WITHOUT the tax bomb. Now, lets say as a conservative estimate, the loan will swell to twice it's size since you are failing to even cover the interest of the loan. So, if you have a $1,000,000 loan that is forgiven, that will be taxed as income. Meaning, depending on the state you live in, you would have to pay another 400k for taxes on that amount forgiven.
In total, if you graduate with 500k in debt, by doing the PAYE with minimum payments, you could easily expect to pay 800k or more in the long run.

Whereas if you refinance your loans out of school, and put literally almost every spare penny into paying off the loan, you could probably pay it off in 10 years or less.

Either way it's a pretty bad deal, but I would wager the PAYE is much worse in most circumstances. Especially since if you have a loan that is spiraling out of control, you will have horrible credit for the rest of your life. I hope that students choosing dentistry will understand magnitude of these loans. You will likely never be wealthy if you graduate with that much debt.

I'm not sure what to tell you. You're estimating and guessing. I've done the math using real numbers, real interest rates, and real salaries with friends that are in this situation. It works out to be less money than other mid to long term traditional payment plans.

In real life, some people can't afford to put $6000 on their loans each month. That's reality. Quickly paying the loan off isn't always possible and you need to open your eyes a little bit to see that other options are viable.

It's a valid option for some people. I don't need to convince you of that, you have your mind made up. That's fine, but I don't think it's appropriate for you to try to tell people that there is only ONE way to do things, because that's just not true. Like I've said so many times before, there is a BEST way (paying it off as quickly as possible), but its not the only reasonable way.

Also: You would not have horrible credit for the rest of your life. If you don't miss any payments, your credit score still remains high. Student debt isn't typically directly calculated into debt-to-income ratios (in terms of auto loans at least because that's the industry I'm familiar with) and the lenders just look at it to make sure that you are making your payments on time.

 

[sobertiger]

I don't think PAYE will end up being less in the long run. You are paying 10% of what you earn over 20 years. Then, the amount of what is forgiven is taxed as income. If you graduate with 500k, at 7% interest (you can't refinance with PAYE), your interest on that one year would be $35,000. If you make 120k out of dental school, if you opt for the PAYE plan, you will pay $12,000 on the loan. So, by making minimum payments on PAYE your loan will snowball out of control. Let's say over 20 years, you average 200k as a general dentist (but you probably won't make that much because you likely will not be able to buy your own practice if you go the PAYE route on minimum payments). But for the sake of the argument, you would end up paying 20k * 20 = 400k. That is WITHOUT the tax bomb. Now, lets say as a conservative estimate, the loan will swell to twice it's size since you are failing to even cover the interest of the loan. So, if you have a $1,000,000 loan that is forgiven, that will be taxed as income. Meaning, depending on the state you live in, you would have to pay another 400k for taxes on that amount forgiven.
In total, if you graduate with 500k in debt, by doing the PAYE with minimum payments, you could easily expect to pay 800k or more in the long run.

Whereas if you refinance your loans out of school, and put literally almost every spare penny into paying off the loan, you could probably pay it off in 10 years or less.

Either way it's a pretty bad deal, but I would wager the PAYE is much worse in most circumstances. Especially since if you have a loan that is spiraling out of control, you will have horrible credit for the rest of your life. I hope that students choosing dentistry will understand magnitude of these loans. You will likely never be wealthy if you graduate with that much debt.

PAYE is a great deal if you can manage to get loan forgiveness.

1. It's not 10% of gross income but discretionary income.
2. Inflation means the value of the loan decreases over time. At the average inflation rate of 3%, 500k, even with interest, will be worth much less in 20 years.
3. The money you invest grows in value. Let's say about 7% if you play it safe and put it in an index fund or something.

So assuming all goes right with PAYE, you are paying a minimal amount monthly, as you use the rest of the money to live and invest in assets. Your assets grow in value and generate income, while inflation chips away at the real value of the loan.

The standard 10-year repayment plan is the worst. You're not giving the loan enough time to depreciate, you get bad rates, and you don't have money to invest. If you really don't like having loans, private refinancing would be the better option given that you can get good rates.

Let's say the loan is 500k at 7% interest. Assuming annual income of about 200k (a rather conservative estimate), I pay about 230k over 20 years and about 320k in tax bomb. That's about 560k. If I do the 10 year plan I pay 700k. Private refinancing at 5% I pay 650k. So even nominally this is a bad deal. Take inflation rate and return rate into account, and the difference becomes very significant. If you use the student loan planner's calculator, you will see that the difference in NPV (net present value, which takes everything into account) is nearly 260k (300k for PAYE vs. 560k for 10-year standard).

Of course, this is all assuming that the borrower doesn't miss any payments and the loan servicer doesn't mess up somewhere along the way. If that happens, I'd be screwed. This risk is the only reason I wouldn't do PAYE and just refinance privately. In theory though, PAYE is an excellent deal.

 

[SirBrotherJam]

NEWSFLASH! You guys can refinance more than once. If you have loans of 500k and refinance privately to 5% and never do it again your not very savvy financially so its not a great comparison to PAYE. My loans are at 3% and have left the monthly payment the same so I pay more in principal each time thus less interest over the long run and you pay it off faster.

Also, if you assume the market growth at 7% and your loans are less than that interest, it is smart to invest because you will make more that way, HOWEVER I don't know of many people that take all that unspent money and put it straight into the market so ideal thought, but not practiced well. My guess is that some save it, but most probably increase their lifestyle, pay for raising kids, vacations etc. and are tired of living as pheasants during undergrad and dental school.

It is a good option for some if you are smart and works for your situation.

 

[Aspire2019]

Thanks for great responses everyone. Anyone tried IBR options with extra payments? So not looking for forgiveness but looking to contain risk and lock-in lower payment amount while making extra payments. Looking to pay off as soon as possible - maybe 5 years. Any pitfalls in this plan??

 

[oralcare123]

Graduates of advanced standing programs in general already have experience and able to practice with decent speed right away. Strategy is to move where pay is better, if you can, and work six days a week to pay off loan faster
I would not recommend to forget joys of life for 10 years - it ruins personality. Use common sense - you are only young once

 

[charlestweed]

Thanks for great responses everyone. Anyone tried IBR options with extra payments? So not looking for forgiveness but looking to contain risk and lock-in lower payment amount while making extra payments. Looking to pay off as soon as possible - maybe 5 years. Any pitfalls in this plan??

If you plan to pay off loan in 5 or less year, then why bother looking at the IBR option? Isn’t the advanced standing program only 2-year long? And the cost to attend it should be less than the regular 4-yr DDS program? Don’t worry! Dentistry is a safe profession even during this Covid time. The only way that you can’t make the required minimum monthly payment is you are too lazy to work. I have worked with a lot of foreign trained dentists at corp offices. They are all very hard working people. Many of them were promoted to become the lead dentists because of their dedication and hard work.

I wonder if you read any of Tanman’s posts. He is one of my favorite posters in this forum. He has a very “pessimistic” assumption that everyone has a short lifespan of only 50 years. Therefore, you’ll need to work your butt off to achieve the financial freedom long before that. So you can live and enjoy as many years before your "death" as possible and not have to worry about work. And if you can live many years beyond your 50th birthday, that’s great. I prefer this “working hard now and enjoy life later” approach over the “enjoy now and living paycheck to paycheck” approach. According to Taman’s plan, I am way behind. I paid off my last debt just 2 months ago and I will be 50 at the end of this year. I am behind because I couldn’t resist those damn European cars that I had leased in the last 20 years🤣.

 

[Aspire2019]

If you plan to pay off loan in 5 or less year, then why bother looking at the IBR option? Isn’t the advanced standing program only 2-year long? And the cost to attend it should be less than the regular 4-yr DDS program? Don’t worry! Dentistry is a safe profession even during this Covid time. The only way that you can’t make the required minimum monthly payment is you are too lazy to work. I have worked with a lot of foreign trained dentists at corp offices. They are all very hard working people. Many of them were promoted to become the lead dentists because of their dedication and hard work.

I wonder if you read any of Tanman’s posts. He is one of my favorite posters in this forum. He has a very “pessimistic” assumption that everyone has a short lifespan of only 50 years. Therefore, you’ll need to work your butt off to achieve the financial freedom long before that. So you can live and enjoy as many years before your "death" as possible and not have to worry about work. And if you can live many years beyond your 50th birthday, that’s great. I prefer this “working hard now and enjoy life later” approach over the “enjoy now and living paycheck to paycheck” approach. According to Taman’s plan, I am way behind. I paid off my last debt just 2 months ago and I will be 50 at the end of this year. I am behind because I couldn’t resist those damn European cars that I had leased in the last 20 years🤣.

Thanks for the response.

1. IBR option is just a hedge against the unknown. A risk mitigation strategy.
2. cost of attendance for AS is not much different. The program can range from 3 to 2 years (some schools have made if full 4 years). I am in 2.5 years one. Fee structures I believe are bit different and cost is almost same as 4 year one except cost of living, of course. It can fall anywhere between 200K to 600K which is also the range for many dds programs. It’s one of the most sought after program and hence is a great money maker for the schools.
3. Foreign trained dentists are generally also older as it takes many years sometimes to get into the program along with other struggles so runway to retirement is generally shorter.

I agree with paying off as soon as possible just want to know if my hedge to use IBR has any pit falls other than the discipline problem or is there anything else to keep in mind.

 

[charlestweed]

Thanks for the response.

1. IBR option is just a hedge against the unknown. A risk mitigation strategy.
2. cost of attendance for AS is not much different. The program can range from 3 to 2 years (some schools have made if full 4 years). I am in 2.5 years one. Fee structures I believe are bit different and cost is almost same as 4 year one except cost of living, of course. It can fall anywhere between 200K to 600K which is also the range for many dds programs. It’s one of the most sought after program and hence is a great money maker for the schools.
3. Foreign trained dentists are generally also older as it takes many years sometimes to get into the program along with other struggles so runway to retirement is generally shorter.

I agree with paying off as soon as possible just want to know if my hedge to use IBR has any pit falls other than the discipline problem or is there anything else to keep in mind.

Oh, I see. I’ve always thought that most of the advanced standing programs are like the 2-yr international programs that they have at USC and Loma Linda.

I think the safest way is to pay off debt as fast as you can. By paying off the smallest loans first, your required monthly payment amount will be reduced and you can use extra cash every month to pay off other loans (Dave Ramsey’s debt snowball). If you continue to live like a student, you can easily cut the 500-600k debt in half in 2-3 years…and not in 5-10 years. Don't delay....work hard now when you are still young and healthy. And when your loan amount is reduced in half, you’ll have more flexibility to do other things like opening a practice, investing in real estates, or cutting down your workdays to 5 days/wk (from 6 days/wk) etc. You don’t need to sign up for the IBR option. One good thing about student loan is you can always file for a forbearance to defer the loan repayment if, for some reasons, you can’t work. You can’t do that with other loans. When the whole country was shutdown due to Covid, dentists could skip their student loan repayments for at least 6 months.