How fast can you pay off your debt?

[jigabodo]

Is 8.6% the highest rate or just common rate? 10 years sound affordable.. well.. if I could net 60000-80000 after tax

Yay for internationals! We take out private loans and the interest rate is EVEN HIGHER than that!

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[Smills91]

There's a few of you who need to go get some schooling on debt management. My dad took 20 years to pay off 40,000 dollars of debt when he graduated dental school. If you think you SHOULD or CAN pay it off in 2-3 years you got another one coming.

 

[SanOnofre2002]

could you do the math for me on 30 yr plan? suppose I come out with 300k debt.. I have thought about 30 yr repayment since I realized 3-5 years plan won't work for me

There's simple online tools for calculating this. Here's one:
http://www.finaid.org/calculators/loanpayments.phtml

 

[TempleDMDKrazd]

There's a few of you who need to go get some schooling on debt management. My dad took 20 years to pay off 40,000 dollars of debt when he graduated dental school. If you think you SHOULD or CAN pay it off in 2-3 years you got another one coming.

with your thinking no wonder so many people are in debt. oh, its only this amount of money, i will just amortized it over 30 years....etc...etc....you're giving the bank free interest....

i had a family friend that paid a 30 year mortgage off in 5 years time. so now they have 0 payments a month and it goes straight to their high interest accounts that is accruing interest in their favor

 

[hope2Bdoc]

with your thinking no wonder so many people are in debt. oh, its only this amount of money, i will just amortized it over 30 years....etc...etc....you're giving the bank free interest....

i had a family friend that paid a 30 year mortgage off in 5 years time. so now they have 0 payments a month and it goes straight to their high interest accounts that is accruing interest in their favor

while I know these will be harder to come by, for now. what about those that have a low interest loan ie less than 3%
seems you'd want to keep these as long as possible, you'd make more from T-bills than you would pay in interest, plus you get the tax benefit of student loan interest.
not to mention that loans aren't indexed to inflation... ie that 500 a month I pay 20 years from now would be equiv to 300 or so today, so it would 'seem' like a lower payment later on.

 

[TempleDMDKrazd]

while I know these will be harder to come by, for now. what about those that have a low interest loan ie less than 3%
seems you'd want to keep these as long as possible, you'd make more from T-bills than you would pay in interest, plus you get the tax benefit of student loan interest.
not to mention that loans aren't indexed to inflation... ie that 500 a month I pay 20 years from now would be equiv to 300 or so today, so it would 'seem' like a lower payment later on.

find me a low 3% interest student loan for grad school and i will automatically sign up

 

[SanOnofre2002]

while I know these will be harder to come by, for now. what about those that have a low interest loan ie less than 3%
seems you'd want to keep these as long as possible, you'd make more from T-bills than you would pay in interest, plus you get the tax benefit of student loan interest.
not to mention that loans aren't indexed to inflation... ie that 500 a month I pay 20 years from now would be equiv to 300 or so today, so it would 'seem' like a lower payment later on.

Again, there are income limits to this deduction. As a dentist you have to be married with a spouse not working and earn the lowest average for a new grad, to get the interest deduction. See earlier in thread.

 

[alanan84]

with your thinking no wonder so many people are in debt. oh, its only this amount of money, i will just amortized it over 30 years....etc...etc....you're giving the bank free interest....

i had a family friend that paid a 30 year mortgage off in 5 years time. so now they have 0 payments a month and it goes straight to their high interest accounts that is accruing interest in their favor

I agree with this 100%. When you're making 100k+ a year but living like you're still a dirt poor college student it's amazing how fast those loans can go away. I understand that's easier said then done but I also know plenty of people that have done it.

 

[hope2Bdoc]

find me a low 3% interest student loan for grad school and i will automatically sign up

Well if interest rates keep falling, you could get close by consolidating any variable interest federal loans. Like I said... there aren't as many people now that will be able to take advantage. but there are a substantial number that did.

 

[hope2Bdoc]

Again, there are income limits to this deduction. As a dentist you have to be married with a spouse not working and earn the lowest average for a new grad, to get the interest deduction. See earlier in thread.

that's why you need a good accountant to get your AGI under the limits

 

[TempleDMDKrazd]

Well if interest rates keep falling, you could get close by consolidating any variable interest federal loans. Like I said... there aren't as many people now that will be able to take advantage. but there are a substantial number that did.

interest has been falling first quarter of this year and the stafford loan is still at 8.6%...so you're telling me before the interest drop this quarter it was higher than that?!

 

[crazy4clana]

Are you sure some of you guys aren't accountants on the side? LOL you're churning out numbers and figures like nobody's bussiness.

 

[Hysteria24]

interest has been falling first quarter of this year and the stafford loan is still at 8.6%...so you're telling me before the interest drop this quarter it was higher than that?!

Interest rates on federal student loans do not fluctuate whenever the feds decide to adjust interest rates (like you mentioned happening in the first quarter of this year).

The rates for the student loans are a separate entity and set in stone for a few years at a time. Every once in a while, the powers at be convene to update these in order to reflect the current rates. I believe the last change happened within the last year, so don’t expect to see this rate be adjusted any time soon.

 

[Hysteria24]

Again, there are income limits to this deduction. As a dentist you have to be married with a spouse not working and earn the lowest average for a new grad, to get the interest deduction. See earlier in thread.

You hit the nail on the head!

One is only allowed to deduct a max of $2,500 due to interest paid because of student loans. With a $200,000 loan amount, one would be paying around $16,500 in interest. Therefore you are only getting a tax break on a very small portion of the whole amount. All the $2,500 deduction means is that you don’t have to pay any tax on that money. If your are in a 50% tax bracket, you save $1,250 (50% of the $2,500 that you would have been taxed on).

Additionally, you cannot take this deduction if you are single and make more than $70,000. Many of us will hit this threshold in our first year. Married couples can take this deduction as long as they make a combined income of less than $140,000, so it may be possible.

As many have said here, it will be difficult for us to take advantage of this. Even if we are eligible, it won’t be that much of a break (unlike deducting mortgage payments which are much more forgiving).

IRS website info:
http://www.irs.gov/publications/p970/ch04.html#d0e4912

 

[SanOnofre2002]

The deduction ends at 140k for married filers, but it begins a gradual phase out at 110k. I sure hope my AGI is above 110k, even my first full year out. But then it's irrelevant for me b/c my wife will definately be working.

 

[doc3232]

Hence do not eat excess food until your debt is paid off. No car, no house, no drinks (except water), and a only 10 pound bags of rice, and the cheapest apartment that you can rent or sleep at your parents house.

GOOD LUCK

 

[Hysteria24]

The deduction ends at 140k for married filers, but it begins a gradual phase out at 110k. I sure hope my AGI is above 110k, even my first full year out. But then it's irrelevant for me b/c my wife will definately be working.

Yep...

And just to reiterate, even if we are eligible, we’re looking at a max savings of roughly $1,250 a year. At least it is something, but not the panacea some here are talking about when they say “Oh, I’ll just deduct my huge student loan amount and save lots in taxes.”

 

[SanOnofre2002]

Yep...

And just to reiterate, even if we are eligible, we’re looking at a max savings of roughly $1,250 a year. At least it is something, but not the panacea some here are talking about when they say “Oh, I’ll just deduct my huge student loan amount and save lots in taxes.”

Agree completely. And the interest rates I'm seeing from lenders don't look like anything I want to be paying for 30 years.

 

[TempleDMDKrazd]

As many have said here, it will be difficult for us to take advantage of this. Even if we are eligible, it won’t be that much of a break (unlike deducting mortgage payments which are much more forgiving).

IRS website info:
http://www.irs.gov/publications/p970/ch04.html#d0e4912

that's what i've been trying to tell everyone. pay off your student loans as fast as possible so that you can get a mortgage. with the mortgage there are 3 pros'

1) lower interest rate
2) higher tax deductions
3) the pride of owning your own home

 

[hope2Bdoc]

interest has been falling first quarter of this year and the stafford loan is still at 8.6%...so you're telling me before the interest drop this quarter it was higher than that?!

perhaps, I'm showing my age here.... but those of us with loans prior to the restructuring of the federal student loan program (aka when the govt decided future benefits weren't as valuable as immediate gains, thus screwing students..... alas, that's another story) had loans that were variable rate, if you had loans prior to july 2006 (I think that's when the new system started, someone feel free to correct me if that isn't accurate) these loans would still be variable, resetting every july 1 based on interest rates at the end of may IIRC. As I recall, when I consolidated my loans, I was allowed to pick and choose which loans to include... obviously I did them all, since this locked me at one of the lowest rates ever. however I would presume you could pick just the variable ones, and consolidate them. locking what should be a fairly low rate this coming year.
I haven't really looked into the rules on such a possibility but from what I remember, it should be possible.
for those that only have the new fixed interest loans, you're SOL on this... be sure to thank the govt when you get your food stamps.

 

[hope2Bdoc]

Hence do not eat excess food until your debt is paid off. No car, no house, no drinks (except water), and a only 10 pound bags of rice, and the cheapest apartment that you can rent or sleep at your parents house.

GOOD LUCK

NEVER EVER rent!!!!!!
(ok there are some legitimate times)
assuming you're working a regular job... ie you're going to be at a given location several years, then you're just pissing money away when you rent... I don't care how cheap it is. That is money you're giving away instead of building some equity.

 

[jigabodo]

NEVER EVER rent!!!!!!
(ok there are some legitimate times)
assuming you're working a regular job... ie you're going to be at a given location several years, then you're just pissing money away when you rent... I don't care how cheap it is. That is money you're giving away instead of building some equity.

I think this is a valuable advice.

 

[blankguy]

I think this is a valuable advice.

If the person in question has intention to stick around in the area after graduation then it would make sense to buy but if not it's not worth it.

 

[rkamsterdam]

I've been mulling over the question of whether to pay off your student loan liability long term or asap trying to come up with a financial model showing my pov. I think the majority of folks out there want to pay student loans off asap, and I can definitely understand the imaginable burdon of a six figure debt looming over your heads. Truth be told, we, as dentists, are going to have other debts in that six-figure range, ie mortgage, start-up loans, and its something we must not get super stressed over or we'll have unfulfilled, short lives.

many out there look at all these loans as equals (student loans=mortgage=business debt) and I think thats a gross misperception. yes, yes, I subscribe to the school of thought that debt is generally not a good thing and its best to pay it off as soon as possible. And I think this is true with traditional assets. for instance, you build personal equity if you can pay off your house quickly, your retirement fund increases in principal, diversity, and overall potential if you can put money into it.

However, an educational loan does not equate, and thats what people seemingly cant understand. Once you have your diploma (DDS, DMD), it pays off regarless of whether or not youve paid the bank. It's not as though you have to pay off your student loan debt before you can practice as a dentist. moral of the story- pay off your other loans first, pay your student loans last because there is no realized financial benefit in paying down this debt.

 

[mooredge]

I've been mulling over the question of whether to pay off your student loan liability long term or asap trying to come up with a financial model showing my pov. I think the majority of folks out there want to pay student loans off asap, and I can definitely understand the imaginable burdon of a six figure debt looming over your heads. Truth be told, we, as dentists, are going to have other debts in that six-figure range, ie mortgage, start-up loans, and its something we must not get super stressed over or we'll have unfulfilled, short lives.

many out there look at all these loans as equals (student loans=mortgage=business debt) and I think thats a gross misperception. yes, yes, I subscribe to the school of thought that debt is generally not a good thing and its best to pay it off as soon as possible. And I think this is true with traditional assets. for instance, you build personal equity if you can pay off your house quickly, your retirement fund increases in principal, diversity, and overall potential if you can put money into it.

However, an educational loan does not equate, and thats what people seemingly cant understand. Once you have your diploma (DDS, DMD), it pays off regarless of whether or not youve paid the bank. It's not as though you have to pay off your student loan debt before you can practice as a dentist. moral of the story- pay off your other loans first, pay your student loans last because there is no realized financial benefit in paying down this debt.

Overall i agree, but i think that the realized financial benefit in paying off student loans is simply not hemorrhaging money away in interest payments.

I would advocate paying down student loans first to a resonable level before getting into deeper debt.

 

[Tsrshorty]

It makes sense to me also to not worry as much about paying off student loans so fast. You will most likely pay way more in interest for your house than you will for student loans. It might be a lower rate for a mortgage, but you will still pay more $. Unless of course you buy a house that costs less than your loans. Then go ahead and pay the loans first.

 

[Aceofspades]

Many people here mentioned 8.6% interest rates, but our (for those of us who borrow large sums of money) rates will be a mix of 6.8% and 8.5% loans. Perhaps some at other rates, but it will mainly be Stafford and Grad Plus loan rates I believe.

Paying off your loans very quickly in theory is a good idea. You always want to 1. Pay off higher interest debt first and 2. Pay off low interest debt last because you may be able to beat the interest rate in investment. However, it will be difficult to make enough money on stable investments and beat 6.8%,the lowest student loan interest rate, after taxes let alone 8.5%. I simply wouldn't bet on it.

In addition, paying your loans off quickly will probably be very difficult. Yes, you could live like a poor college student, but will you really do that after 4 years of dental school? What if you specialize? Will you spend 7 years in school just to come out living like a college student for another 5 years? What about marriage, kids, a family, personal enjoyment of life, etc... I highly doubt many people will take this route, however it will save you a ton of money on interest payments.

 

[doc3232]

It makes sense to me also to not worry as much about paying off student loans so fast. You will most likely pay way more in interest for your house than you will for student loans. It might be a lower rate for a mortgage, but you will still pay more $. Unless of course you buy a house that costs less than your loans. Then go ahead and pay the loans first.

Correct me if I am wrong, but the first house that one buys does not require interest to be paid.

 

[GoDawgs]

Stafford loans are locked in this year at 6.8%. I dont know why people are saying 8.6%. Also they have a default repayment plan for 10 years. However, if you can consolidate your student loans for under 5% and stretch it out to 20-30 years; its a no-brainer. This is simple finance. You want to invest that difference you will be paying each year in investments. Why pay the bank 6.8%, when you can make 8-10% on investments?I know everyone here is scared of debt; but student loans = good debt. It doesnt make since to pay off low interest debt in 5 years.

 

[Hysteria24]

Correct me if I am wrong, but the first house that one buys does not require interest to be paid.

Ummmm, yes the banks charge interest. That’s how they make money.

What they will do for first time homebuyers are things like giving a lower interest rate, or a lower down payment.

Also, the interest paid on the mortgage of a primary residence is tax deductible, in essence reducing the amount of interest paid.

 

[rkamsterdam]

Stafford loans are locked in this year at 6.8%. I dont know why people are saying 8.6%. Also they have a default repayment plan for 10 years. However, if you can consolidate your student loans for under 5% and stretch it out to 20-30 years; its a no-brainer. This is simple finance. You want to invest that difference you will be paying each year in investments. Why pay the bank 6.8%, when you can make 8-10% on investments?I know everyone here is scared of debt; but student loans = good debt. It doesnt make since to pay off low interest debt in 5 years.

yes, frankly said and right on the mark.

 

[rkamsterdam]

I would advocate paying down student loans first to a resonable level before getting into deeper debt.

I agree with this, but the term reasonable is highly subjective. and everyone has a certain threadhold. Personally, I'm comfortable with students loan interest accruing at a low rate and those who agree with my rationale should also.

 

[Hysteria24]

Stafford loans are locked in this year at 6.8%. I dont know why people are saying 8.6%.

There is both a yearly and lifetime xap for the amount of Stafford loans an individual can take. These are at the 6.8% rate. However a bulk of the rest of the loans will be through the Grad PLUS program which has a fixed rate of 8.5%.[/QUOTE]

However, if you can consolidate your student loans for under 5% and stretch it out to 20-30 years; its a no-brainer. This is simple finance. You want to invest that difference you will be paying each year in investments. Why pay the bank 6.8%, when you can make 8-10% on investments?.

You are correct here. Many experts will advise against paying off student loans and mortgages quickly. You have capital (money that you would pay toward the loan) costing you roughly 6.8% a year. Like you said, you can invest that money in stocks, which average a 10% rate of return, and are netting a ~3% return on that investment. Many people are hesitant to do this because they fear debt and feel that eliminating it all together is better than using it for some other financial gain.

Also remember that the average inflation rate is 3%. That $300,000 loan amount is a lot now, but in twenty years when a gallon of milk costs $20 and a crappy car will cost $50,000, that original sum won’t seem as big. That’s one reason a lot of old dentists think their $30,000 that they took out for d-school back in the day was huge. It was back then! But now that the cost of everything is greater (including incomes) 30 grand is just a drop in the bucket.

 

[War Eagle]

I've got a question for some of you that seem to know a lot more about finances than I do. I always thought that after graduating one could consilidate his loans into a low interest long term repayment plan. However, just this past weekend I was talking to a friend that said that there was some law or something that prevented her from being able to lower the interest rates on her student loans. She said she was able to consolidate them, but she couldn't obtain a lower interest rate. Anyone know what I'm talking about here, or did she just get screwed?

 

[Hysteria24]

I've got a question for some of you that seem to know a lot more about finances than I do. I always thought that after graduating one could consilidate his loans into a low interest long term repayment plan. However, just this past weekend I was talking to a friend that said that there was some law or something that prevented her from being able to lower the interest rates on her student loans. She said she was able to consolidate them, but she couldn't obtain a lower interest rate. Anyone know what I'm talking about here, or did she just get screwed?

In the past, all federal student loans were at a variable rate. So a few years out, if rates dropped, one could consolidate at the lower rate.

As of ~2006, all federal student loan rates are fixed. Thus we are stuck with this rate for good.

Here is a link that gives a bit of insight:

http://www.studentloanconsolidator....-blog/2008/04/01/consolidating-now-v-waiting/

"If you just graduated and all of your Stafford loans were borrowed after July 1, 2006, you can consolidate whenever you would like, as your rate will always be 6.8%. This is because the rate changed from a variable rate to a fixed rate on July 1, 2006. All of your loans are already fixed in at 6.8%…consolidating them will not change the rate, but it can lower your monthly payments."



EDIT: Now that I think about it, this may just be if you were to do a federal consolidation. It is possible that some private companies may offer a slightly lower interest rate in order to get your business (but nothing significant like it may have been in the old days with variable rates). I actually talked with a finaid person recently who said many companies that used to give out lots of perks are cutting way back because recent legislation has make it less profitable for them to work with student loans.

.

 

[War Eagle]

“If you just graduated and all of your Stafford loans were borrowed after July 1, 2006, you can consolidate whenever you would like, as your rate will always be 6.8%. This is because the rate changed from a variable rate to a fixed rate on July 1, 2006. All of your loans are already fixed in at 6.8%…consolidating them will not change the rate, but it can lower your monthly payments.”


.

So if you took out Stafford loans during undergrad education before July 1, 2006, would that make you eliglible for federal consolidation? Or does that mean that only the loans taken out before 2006 can be consolidated and the rest are fixed?

 

[Hysteria24]

Or does that mean that only the loans taken out before 2006 can be consolidated and the rest are fixed?

Based on what I know, this statement is correct. Contact any finaid person at any school and they will be able to tell you for sure.

 

[jay47]

You're probably right. I suspect I'm a few years older than you. I don't have a family yet, but I've been thinking of starting a family sooner than later.

As for taking money from family - I don't see it as depriving myself of a life lesson, as the agreement can still be made contractual and legally binding. You can pay your family back in totality and more with greater ease. Perhaps it was my cultural rearing - but I'd rather keep money in the family. If I'm going to be paying interest, I'd rather be paying interest to benefit someone in my family.

Excellent point. I don't expect my family to pay my loans. BUT, since they are capable, I would like them to help me out some, I mean, money is money. That is not the reason I am going into the field. And I too would like to keep the money in the family, not give it to some bank for them to make interest on. The less debt that I have when I get out of dental school, the less debt I will have to pay to the bank. I fully intend to repay my parents should they want me to; indeed that is the only fiscally responsible thing to do. I can't mooch off of them all of my life. In addition, our parents won't be around forever and realistically, the money you give them eventually will come back to you in one way or another, assuming they don't just blow it, although they are definitely able to do that. And, they will get free dental work for the rest of their lives!

The military route is also not that bad. The military guys have came and talked to us about their plans several times in our dental society. Of course, I haven't read the exact wording in the contract, but from what I hear, it's really a pretty good deal. You even get a stipend while in dental school. I think that serving in the military would give a great route to gain practice under the experience of another dentist. Sure, they tell you where to live, but Uncle Sam takes care of a lot of things: healthcare for you AND your family, your home, your food, and all of the debt you incurred. In addition, I believe that your chances of going overseas are small, they need dentists here moreso than other places.

If my parents were not able to help me out, I think that I just might do the military thing, I would like to see other places someday in my life.

 

[blankguy]

3 years IMO unless you will waste your salary.
Personally, I don't think I will spend more than 30k a year for basic needs, but thats just me.
You will get finaid in priv dent school too.

Not possible unless you meant to type 30 years. There is another reason as to why having a repayment plan drag out a few years. It builds your credit rating. Up to this point the younger members of this board have never had any real credit history anything that they've had to borrow would have required a guarantor to back them up (exarents). If you develop a history of consistently making payments in a timely fashion banks or other institutions that give out loan will deem you trustworthy enough to loan you money so that later on when you want to buy a house or a practice you don't need to rely on another person to help you out. There are other factors like collateral being used and job(income) but for the purpose of this post I'll stick to credit history.

 

[diagnodent]

After reading a few of these posts I just want to comment as a current dentist....

If you are afraid of debt and don't want to have debt then dentistry is not for you. Once you graduate you will have a ton of debt and if it is 300k then you probably won't be able to pay it off for at least 10 years. Waiting to buy a practice until your school debt is paid off isn't realistic and should not be a goal. You can make more money by owning your own office and accumulate wealth by growing a practice. Debt is just a part of dentistry and it keeps increasing every year it seems for the newbies.

 

[crazy4clana]

What if your planning on specializing, like OMFS? In how many years can you pay off your debt taking into consideration residency?

 

[blankguy]

What if your planning on specializing, like OMFS? In how many years can you pay off your debt taking into consideration residency?

Aren't the loans deferred during residency?

 

[Hysteria24]

Aren't the loans deferred during residency?

To my understanding the subsidized loans go into deferment, but all unsubsidized loans will continue to accrue interest. And considering the Stafford subsidized loan limit is ~$8,500 a year, a bulk of one’s loans will be unsubsidized.

 

[SHC1984]

After reading a few of these posts I just want to comment as a current dentist....

If you are afraid of debt and don't want to have debt then dentistry is not for you. Once you graduate you will have a ton of debt and if it is 300k then you probably won't be able to pay it off for at least 10 years. Waiting to buy a practice until your school debt is paid off isn't realistic and should not be a goal. You can make more money by owning your own office and accumulate wealth by growing a practice. Debt is just a part of dentistry and it keeps increasing every year it seems for the newbies.

Do you feel, as a current dentist, that dentistry is less profitable now then it was back in the days? If so why is it more competitive now?

I can't believe some dentists only took out 30k to 40K back then....lucky!

 

[Hysteria24]

I can't believe some dentists only took out 30k to 40K back then....lucky!

True, but you have to take inflations into account.

Here some links showing some prices of other things back in the 70’s and 80’s when many established current dentists went to dental school.

http://www.1970sflashback.com/1970/ECONOMY.asp
“Cost of a new home: $26,600.00
Cost of a new car: $
Median Household Income: $8,734.00
Cost of a first-class stamp: $0.06
Cost of a gallon of regular gas: $0.36
Cost of a dozen eggs: $0.62
Cost of a gallon of Milk: $1.15”

http://www.1980sflashback.com/1980/ECONOMY.asp
Cost of a new home: $76,400.00
Cost of a new car: $
Median Household Income: $17,710.00
Cost of a first-class stamp: $0.15
Cost of a gallon of regular gas: $1.25
Cost of a dozen eggs: $0.91
Cost of a gallon of Milk: $2.16

They probably though their loans were huge too when they first took them out!

Just wait till we’re 30 years into our careers and students are paying a couple million for school. They’ll think we had the bargain.

 

[Jive]

I would have to say it is dependent upon your lifestyle and your month to month needs. 5 years-conservative estimate