How feasible is it to pay off debt in a reasonable timeframe?

[HopefulDent]

Hello everyone! I have recently been accepted to dental school and know that the cost of attendance will exceed $350,000+. I figure this is roughly the same cost off attending almost all of the private dental universities. I was considering doing the military, but it would only be for my fear of the overwhelming debt that will come with school.
I figure that only 300-400 dental students enroll in military scholarship programs. Obviously, the remaining population of students are required to pay off debt without scholarships. How feasible is it to pay off the 350+ amount of debt within a reasonable time frame? Will the debt be manageable? If anyone has already graduating and is experiencing debt repayment, can you please educate me on the manageability of staying on top of debt without resorting on Top Ramen?

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[g23armani]

Hello everyone! I have recently been accepted to dental school and know that the cost of attendance will exceed $350,000+. I figure this is roughly the same cost off attending almost all of the private dental universities. I was considering doing the military, but it would only be for my fear of the overwhelming debt that will come with school.
I figure that only 300-400 dental students enroll in military scholarship programs. Obviously, the remaining population of students are required to pay off debt without scholarships. How feasible is it to pay off the 350+ amount of debt within a reasonable time frame? Will the debt be manageable? If anyone has already graduating and is experiencing debt repayment, can you please educate me on the manageability of staying on top of debt without resorting on Top Ramen?

For $350k you'll be paying back a little over $4,000 a month if you want to pay it back in 10 years. These are very rough estimates but if you make $150k right out of school and take home ~9k a month, obviously the 4,000 remaining is feasible to live off, and you might be able to afford a modest house, car and maybe buy into a practice. While 150k right out of school is definitely possible, I wouldn't count on it.

If you make 100k and take home ~6000 a month the 2000 a month remaining is livable, but you're not going to be living much better than someone who got a simple job right out of high school.

The real problem is other expenses. 10 years is a long time, most people will want to start families, buy a car, buy a house, buy a practice etc and I could see the debt being a fairly large hindrance in that case.

Take these numbers with a grain of salt as I'm simply projecting forward with very rough estimates, but hopefully that gives you an idea.

 

[nicz888]

can someone fill me in with what kind of services do a dentist do in military if he/she do receive the military scholarship.

 

[doc toothache]

In a world where paying income tax is optional the figures might work.

http://mortgage-x.com/calculators/amortization.htm

 

[BiomajorPreDent]

A "ten year" repayment plan is a bad idea.

What you should do refinance into a 30 year payment plan, you can check out this website:

https://loanconsolidation.ed.gov/lo...vc.Controller?controller_task=startCalculator

With a 30 year re-payment plan, you will be able to get your feet on the ground with lower payments, mine are looking like $2000 a month (based on a similar loan amount) vs $4000.

Now once you get established with a practice (and maybe a house), build your speed up and are making money, you will have more money available to make loan payments.

Thus you will be able to send them a bigger check every month, and have the loans paid off in way less than 30 years.

The best part is you won't kill yourself for the first couple of years out of school living like a bum.

 

[dmoney2010]

refinancing a loan for a 30 year repayment is a bad idea in my opinion. It is better to stick with the 10 year plan and get your debt payed off faster. Just because you can live "wealthier" for your first years out of dental school with a 30 year plan you are in actuality causing yourself to make less money in the long run. Due to interest of you loan remaining. Just suck it up and dont buy a 500 thousand dollar house within a year of graduation. Wait ten!!

 

[Palmetto914]

Why put yourself in the situation where you MUST pay it back in 10 years? Just because you have a 20 or 25 year repayment schedule, doesn't mean you can't pay it off faster. Unless you're extremely disciplined, committing to a $4000 payment for 10 years RIGHT after d-school is a recipe for a stress-dominated life. I've been in the "real" world for 6 years, paying $1000/mo to a student loan. The truth is, there are a lot of other expenses than income taxes. You're much better off making smaller payments on a 25 year plan at first, using the extra money to start a retirement fund, build up savings and get yourself into a home. Those are investments that pay for themselves over time. If you're a good dentist, you should only expect your income to rise throughout your career. Begin increasing those loan payments (and your retirement contributions) as you have more income. While I'll agree that $9000 a month after taxes is a good chunk of change, you'd probably need to be making more than $150k to get that, as you have retirement contributions, insurance, etc.

 

[dmd87]

working out the numbers on this lately has really made me wonder if this is all worth it, esp if ur going to a private school. I was reading on some threads in the dental forum, and one of the dentists was like dentistry is great... if you go to your state school and do a top 4 specialty

 

[cowboy17]

..

 

[yuppers]

First thing to note: Do not the HSPS just for the money. You will be a military officer first and a dentist second. And it is not as great as a recruiter makes it out to be.
I applied for a HSPS scholarship early this summer without putting much thought into it, but for the past few months I have been doing some long overdo soul searching, researching, talking with friends and family, and just reading bunch of forums. I decided that it is not worth it for me for many reasons.
Sure the debt is pretty overwhelming, but as long as you can sacrifice some pleasantries while in DS and in the beginning of your dental career, you should be just fine.

 

[KitKat09]

Agree with above- unless you want to be an officer do not go into army, unless you want to work with poor / underprivileged do not apply for for NHSC... you will hate it and no amount of money will be worth it...
this is my plan as all 4 schools I got accepted are in about same price range- high...
1. Live frugally while in DS
2. take as little loans as possible
3. Settle on the 30 year repayment plan, inflation will work for you
4. live frugally for first few years and make significant payments towards capital
5. consider loan repayment with NHSC

 

[StirrinIt]

Agree with above- unless you want to be an officer do not go into army, unless you want to work with poor / underprivileged do not apply for for NHSC... you will hate it and no amount of money will be worth it...
this is my plan as all 4 schools I got accepted are in about same price range- high...
1. Live frugally while in DS
2. take as little loans as possible
3. Settle on the 30 year repayment plan, inflation will work for you
4. live frugally for first few years and make significant payments towards capital
5. consider loan repayment with NHSC

Inflation rate: ~2%/yr...
Loan interest rate: ~6.8%/yr....

leaves u with 4.8% annual interest accruing upon itself..Not following your 30 yr logic..

also, why would u say dont do NHSC then say conisider "repayment" with it? what would the diff be?

 

[iwannabadentist]

Inflation rate: ~2%/yr...
Loan interest rate: ~6.8%/yr....

leaves u with 4.8% annual interest accruing upon itself..Not following your 30 yr logic..

also, why would u say dont do NHSC then say conisider "repayment" with it? what would the diff be?

if you do NHSC before entering DS, ur obliged to work in underserved areas for 4 years. if you decide to do repayment with them, you have time to decide if you want to do it, and you have 2 yr contracts during which time they pay u a certain amount of money (i think its something like 25k/year) for 2 years to pay towards ur loans.

also, with the 30 yr repayment plan - you guys need to realize that lenders will want their interest before you start paying towards the principal. so according to the loan calculator on finaid.com, here are some numbers for you to consider:

with a 30 yr plan on 350k loan at a 7.5% fixed interest rate (7.5% is an approximate average between stafford and grad plus loans):
you will be making cumulative payments worth approx $881 k meaning the total amount of interest you will have paid over 30 years is appros $531k. if your monthly payment is approx $2500, you will be making ONLY interest payments for approx. 18 years. doing this just seems very counter intuitive to me...but then again im no financial whiz...just trying to make some sense out of what seems to be the reasonable thing to do.

 

[Palmetto914]

with a 30 yr plan on 350k loan at a 7.5% fixed interest rate (7.5% is an approximate average between stafford and grad plus loans):
you will be making cumulative payments worth approx $881 k meaning the total amount of interest you will have paid over 30 years is appros $531k. if your monthly payment is approx $2500, you will be making ONLY interest payments for approx. 18 years. doing this just seems very counter intuitive to me...but then again im no financial whiz...just trying to make some sense out of what seems to be the reasonable thing to do.

You'll only get stuck paying all that interest if you only pay the min payment. The idea is to pay a little more than that min payment. My payment for my undergrad loans in around $500/mo, but I pay closer to $1000.

Also, consider the fact that making a $2500 payment at first vs. a $4000 payment leaves $1500 more $ for investments (which would most likely do better than the interest on your student loans). Sure, it's good to pay off MOST debts as soon as you can, but the compound interest on investments works that much more for you the earlier you start.

 

[yuppers]

Agree with above- unless you want to be an officer do not go into army, unless you want to work with poor / underprivileged do not apply for for NHSC... you will hate it and no amount of money will be worth it...
this is my plan as all 4 schools I got accepted are in about same price range- high...
1. Live frugally while in DS
2. take as little loans as possible
3. Settle on the 30 year repayment plan, inflation will work for you
4. live frugally for first few years and make significant payments towards capital
5. consider loan repayment with NHSC

You said army, but just to be clear it is the same situation in all branches of the military.
Also, I would try to get a 10 year repayment plan if possible. But a 30 year and then a reconsolidation is also a viable option especially if you are not sure what your situation will be after DS.

 

[iwannabadentist]

You'll only get stuck paying all that interest if you only pay the min payment. The idea is to pay a little more than that min payment. My payment for my undergrad loans in around $500/mo, but I pay closer to $1000.

Also, consider the fact that making a $2500 payment at first vs. a $4000 payment leaves $1500 more $ for investments (which would most likely do better than the interest on your student loans). Sure, it's good to pay off MOST debts as soon as you can, but the compound interest on investments works that much more for you the earlier you start.

okay consider this:

either $1500 in monthly savings/investments or approx $400k in savings over 30 years, which is how much you would save on the additional 20 years of interest. albeit, this is considering that you don't make any additional payments throughout the 30 years.

now - take that 400k divide by $1500 a month - which gives you an approximate 22 years. this means you would have to keep "saving" that $1500/month for 22 years for it to match the amount you would save by paying off all ur debt in 10 years.
once again - factor in making extra payments towards the principal as your savings increase + include the interest you may gather on your savings and the gap between the 2 possible repayment options may be bridged closer together, but in my opinion saving $400k over a 30 year time span is an investment in itself.

 

[StirrinIt]

okay consider this:

either $1500 in monthly savings/investments or approx $400k in savings over 30 years, which is how much you would save on the additional 20 years of interest. albeit, this is considering that you don't make any additional payments throughout the 30 years.

now - take that 400k divide by $1500 a month - which gives you an approximate 22 years. this means you would have to keep "saving" that $1500/month for 22 years for it to match the amount you would save by paying off all ur debt in 10 years.
once again - factor in making extra payments towards the principal as your savings increase + include the interest you may gather on your savings and the gap between the 2 possible repayment options may be bridged closer together, but in my opinion saving $400k over a 30 year time span is an investment in itself.

...you lost me.

I'm just gonna pay it off quickly as financial advisors suggest, seeing as I am a scientist; and i trust they know more about loan repayment as I will know more about root canals...

Plus, thats one less burden off your shoulders than to toy with ur money and think "well maybe this stock will do well and it was a better investment than paying off my loans" etc.

 

[iwannabadentist]

...you lost me.

I'm just gonna pay it off quickly as financial advisors suggest, seeing as I am a scientist; and i trust they know more about loan repayment as I will know more about root canals...

sorry man...i had to read my own post 3 times before i posted it. i sorta lost myself too :-\

the bottom line is your financial advisers are pretty much right. pay off ur debt as fast as you can. besides, its a common misconception that you will be living like a "scum" if you choose to pay off ur debt in 10 years - thats just ludicrous. considering you can take home 90k a year after taxes and other deductions (come on guys...this should be feasible 5 years from now considering a 2% inflation rate per year), and you use 45k towards loan payments, ur telling me you can't live decently on a 45k income? yeah probably not in beverly hills or orange county or manhattan or san fransicso or the likes of those areas - but assuming you live in a semi decent yet not as expensive area, 45k should be a decent amount of income. i plan on living off 15k a year while in school (although with housemates and such) so 45k a year should definitely be a boost for me. and all those of you looking to raise families, don't you think your significant others will also have some source of income? considering a worst case scenario that your significant other only has about a bachelors degree worth of education, they should themselves be able to pull 30k a year after taxes - thats 75k a year for a family. I don't know if ya'll have been brought up in mansions and 10 cars, but in my family, 75k a year after taxes would be considered pretty darn comfortable.

 

[cowboy17]

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[dmd87]

paying off your loan is not that cut and dry. for example, in economic times such as the ones we face today, investing in the stock market may be a better alternative than quickly paying off your loan. we aren't i bankers here, so and S&P index fund would even suffice and out earn the 6.8% interest on your loan. basically, look at your alternative investments, and if they fare better than your interest rate, then you should take off a longer time paying off your loans, esp if you consolidate your loans (you will have a really low % rate).

 

[Atu14]

How feasible it is for a specialist? Randomly thrown numbers- D school loan 200K and then lets say 4 years of surgery residency.

 

[cowboy17]

.

 

[dmd87]

well currently the market is at an all time low (or was a few months ago). the market should be expecting SOME growth in the long term that is larger than 6.5%. historically the S&P is about 10% per annum (maybe a bit higher?). apple has gone from arnd 130ish 6 months ago to topping 200+ right now (not that many of us shoudl be investing in individual stocks), but just an example. speaking of mr buffett, GE has gone from arnd 12 to arnd 17 in the last 6 motnhs as well. Google has gone from arnd 400 to arnd 600 now. even ford has almost doubled in last 6 motnhs. in the last 6 motnhs the S&P has gone from arnd 940 to 1100ish, 15%+ increase --> greater than 6.5%.

 

[BiomajorPreDent]

When you talked to the finance people, did they take into account rising income once you buy into a practice or take one over?

Assume you make $120,000 as an associate (remember you can end up making less)

$120,000 - $27,320 in tax (http://www.moneychimp.com/features/tax_brackets.htm)

= $92,680 which is $7,723 a month

Subtract the $4,000 a month in loans that you figured that leaves you with $3,723 left to live off of.

I don't know about you guys, but down here in Florida, you will end up paying $1,200 of that just in rent for a 2 bedroom decent place.

$2523 a month left.

Now you have to have malpractice insurance (about $500/month) and disability insurance ($500-800 ballpark) and health insurance

If both malpractice and disability insurance is $500 a month, you are down to $1523 a month left...

We havent even figured for food and other living expenses OR health insurance..

And theres also no figuring for any kind of emergency savings of any kind...

See how fast that $120,000 gets eaten up? And thats only if you're lucky to pull $120,000 as an associate.

Do you want to live like that for 10 years? 10 years is a loooong time.

Forget about even saving ANY money to buy into a practice of your own for the first 10 years, unless you take out a zero down loan.

I respect your views to get the loans paid ASAP, but my point is, you can atleast have some breathing room your first few years out so you can start making money.

My point is NOT to actually pay the loans over 30 years, that would not be smart.

 

[dmd87]

Forget about even saving ANY money to buy into a practice of your own for the first 10 years, unless you take out a zero down loan.

I respect your views to get the loans paid ASAP, but my point is, you can atleast have some breathing room your first few years out so you can start making money.

My point is NOT to actually pay the loans over 30 years, that would not be smart.

Good point. Your practice is probably a much better investment than your loan. As a dentist, your student debt won't work against you that much because of the high earning potential of the profession. One dentist told me (i know this is where most ppl start digging into others) that you can get up to a $1 million PLC as a dentist. This may be to start ur practice etc. Health professions are known to be stable, and dentistry is a business oriented health profession.

 

[Palmetto914]

sorry man...i had to read my own post 3 times before i posted it. i sorta lost myself too :-\

the bottom line is your financial advisers are pretty much right. pay off ur debt as fast as you can. besides, its a common misconception that you will be living like a "scum" if you choose to pay off ur debt in 10 years - thats just ludicrous. considering you can take home 90k a year after taxes and other deductions (come on guys...this should be feasible 5 years from now considering a 2% inflation rate per year), and you use 45k towards loan payments, ur telling me you can't live decently on a 45k income? yeah probably not in beverly hills or orange county or manhattan or san fransicso or the likes of those areas - but assuming you live in a semi decent yet not as expensive area, 45k should be a decent amount of income. i plan on living off 15k a year while in school (although with housemates and such) so 45k a year should definitely be a boost for me. and all those of you looking to raise families, don't you think your significant others will also have some source of income? considering a worst case scenario that your significant other only has about a bachelors degree worth of education, they should themselves be able to pull 30k a year after taxes - thats 75k a year for a family. I don't know if ya'll have been brought up in mansions and 10 cars, but in my family, 75k a year after taxes would be considered pretty darn comfortable.

The point I was trying to get at is not trying to take on too much at once. If you can swing the 10-year repayment while still putting away some for retirement, awesome. Paying back $300k plus interest over 10 years is around a $3500 monthly payment. A 25 year plan for the same amount is around $1500 less. Looking at a $1500 monthly contribution at 8% intersest compounded quarterly for 25 years comes out only $100k or so ahead of $3500 at the same interest for 15 years.

So, playing the numbers game again...$120k a year, 10% before tax to retirement, 28% Fed tax (estimate...not messing with state tax, either), works out to $6480 a month take-home. After that $3500 loan payment, you've got just under $3000. Going by experience, $3000 monthly take home is the equivalent of a $60,000 salary with 10% going to 401k and around $50/mo pre-tax going to health insurance (single, not family). It's definitely doable. You'll probably be living in a starter home (assuming you're the only source of income), and you'll probably not have a benz in the driveway. Then again, I drive a 2004 vehicle, have a decent home, and my fiance and one child live just fine.

So, you make the call. Is $3000 enough, or do you need $4500? Keep in mind you (hopefully) will be making more than $120k.

So ignore everything else I said before...do what you want...it's your money. You've got bigger problems if you're looking for financial advice on a pre-dents forum...j/k...haha.

 

[cowboy17]

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[StirrinIt]

considering a worst case scenario that your significant other only has about a bachelors degree worth of education, they should themselves be able to pull 30k a year after taxes - QUOTE]
haha i agree that u should be able to live comfortably on 75k, i just find this statement funny/harsh.. first of all "your sig other ONLY has a bachelors".. ouch for them, some people work hard as heck for that! and i wouldnt consider having a bach degree a "worst case scenario"! second of all, my sig other has a bach and is in the ballpark of at least 60 right out of school, and i have a good amt of friends making 50k right now 7 months out of school.

just a little reminder to watch ur words, it's statements like "worst case scenario-they only have a bachelors degree" that makes many dentists look..well....

 

[iwannabadentist]

haha i agree that u should be able to live comfortably on 75k, i just find this statement funny/harsh.. first of all "your sig other ONLY has a bachelors".. ouch for them, some people work hard as heck for that! and i wouldnt consider having a bach degree a "worst case scenario"! second of all, my sig other has a bach and is in the ballpark of at least 60 right out of school, and i have a good amt of friends making 50k right now 7 months out of school.

just a little reminder to watch ur words, it's statements like "worst case scenario-they only have a bachelors degree" that makes many dentists look..well....

LOL sorry i think i might be misunderstood or i should have phrased it better. what i meant was that assuming they have a bachelors degree, they should be able to pull of 30k in the worst case scenario. sorry if it sounded like i was trash talkin on bachelors! my father has a bachelors (and nothing else) and has been comfortably supporting my family of 6 for the past 25 years very well.

 

[StirrinIt]

LOL sorry i think i might be misunderstood or i should have phrased it better. what i meant was that assuming they have a bachelors degree, they should be able to pull of 30k in the worst case scenario. sorry if it sounded like i was trash talkin on bachelors! my father has a bachelors (and nothing else) and has been comfortably supporting my family of 6 for the past 25 years very well.

ooh ok! hah yeah that makes sense.

 

[ucla2134]

I am praying so hard that Buffalo accept me. 16 K per year. They put me on waiting list
I am happy with case but they are so pricy

 

[SiemReap]

There is a simple answer to this question.

If you believe your investment return will exceed the interest you pay on the loan, use your liquid assets to invest rather than pay off debt.

Let's say a CD from a bank is guaranteeing 8% annual return. I'd be foolish to forgo this opportunity to pay off a loan accruing at a 6%. In this situation until the rates change, you'd be better off (by 2%) to invest in a CD.

If you forsee your investment return to be less than the interest accruing on your loan, pay the loan.

Although, its hard to compute, I like to believe that an investment return in a dental practice will heavily outweigh the interest rate you'll be paying on your student loans.

 

[sketo43]

I am praying so hard that Buffalo accept me. 16 K per year. They put me on waiting list
I am happy with case but they are so pricy

Buffalo cost $16,200 in-state in 2007-08 and also in 2008-09. For 2009-10 it is $19,650 - that's a 21% increase! I wish that schools would tell us what next year's tuition will be...

Getting back to the payback of student loans, why not take the 30-year loan for the flexibility? You can overpay each month with the goal of paying it off in 10 years, but if money is ever tight, it will be easier to make the lower payments. You would also have the option to invest more money into your practice. And several years down the road, hopefully we will all have more cash and can make a large lump sum payment.

 

[iwannabadentist]

I am praying so hard that Buffalo accept me. 16 K per year. They put me on waiting list
I am happy with case but they are so pricy

i sincerely hope you realize that you would be SO wrong if you think ur gonna be paying 16k a year! considering that you do get in-state tuition after the first year, you will be paying approx 35k a year (this is an average of all 4 years including 1 year of out of state and 1 year in state) including the tuition + all the fees. and this 35k is not including living - room, board, transportation, personal etc all of which will at up to 15k a year if you live frugally. thats 50 *4 = 200k over 4 years. this is a very conservative estimate because i haven't even factored in the increase in tuition over 4 years. now if you think you are going to really enjoy ur time at buffalo considering the weather etc. then by all means buffalo is the way to go. but just realize that its still not THAT much cheaper for an out of stater.

http://www.sdm.buffalo.edu/programs/dds/documents/estexpsheet0910Sheet1.pdf

 

[iwannabadentist]

There is a simple answer to this question.

If you believe your investment return will exceed the interest you pay on the loan, use your liquid assets to invest rather than pay off debt.

Let's say a CD from a bank is guaranteeing 8% annual return. I'd be foolish to forgo this opportunity to pay off a loan accruing at a 6%. In this situation until the rates change, you'd be better off (by 2%) to invest in a CD.

If you forsee your investment return to be less than the interest accruing on your loan, pay the loan.

Although, its hard to compute, I like to believe that an investment return in a dental practice will heavily outweigh the interest rate you'll be paying on your student loans.

first, show me a LEGIT bank in the US guaranteeing 8% on a CD, and I will sell my house right now to invest in that bank.

but i do agree with you that an investment in your dental practice will definitely be worth more than paying off your debt. but to me, paying soo much interest just seems dumb. who knows, if the numbers work out so that investing seems more profitable than to pay off debts, then i guess a 20 or even a 30 year plan works. but i just don't see any short term investments that would exceed 8% return. and long term investments also don't make too much sense cuz you will have already paid soo much towards the interest on ur student loans!

 

[BiomajorPreDent]

Getting back to the payback of student loans, why not take the 30-year loan for the flexibility? You can overpay each month with the goal of paying it off in 10 years, but if money is ever tight, it will be easier to make the lower payments. You would also have the option to invest more money into your practice. And several years down the road, hopefully we will all have more cash and can make a large lump sum payment.

Exactly

Also, I don't think we will be seeing 8% CD's any time soon lol. Although it would be nice.

 

[yuppers]

There is a simple answer to this question.

If you believe your investment return will exceed the interest you pay on the loan, use your liquid assets to invest rather than pay off debt.

Let's say a CD from a bank is guaranteeing 8% annual return. I'd be foolish to forgo this opportunity to pay off a loan accruing at a 6%. In this situation until the rates change, you'd be better off (by 2%) to invest in a CD.

If you forsee your investment return to be less than the interest accruing on your loan, pay the loan.

Although, its hard to compute, I like to believe that an investment return in a dental practice will heavily outweigh the interest rate you'll be paying on your student loans.

You have to factor in the amount of money that is under each interest rate. For example, 6% interest on 200k is a lot more money than 8% interest on 20k.
Also, I understand that a bank can see you as a good investment, but isn't pretty hard to get a loan to open a practice as a new DS grad (especially if you could be $300k-ish in debt).

 

[yuppers]

Buffalo cost $16,200 in-state in 2007-08 and also in 2008-09. For 2009-10 it is $19,650 - that's a 21% increase! I wish that schools would tell us what next year's tuition will be...

Getting back to the payback of student loans, why not take the 30-year loan for the flexibility? You can overpay each month with the goal of paying it off in 10 years, but if money is ever tight, it will be easier to make the lower payments. You would also have the option to invest more money into your practice. And several years down the road, hopefully we will all have more cash and can make a large lump sum payment.

However, the flexibility and lower stress level of a 30yr plan comes with a higher interest rate. The nice thing is that if you have a profitable practice going you can always reconsolidate your 30 year plan and get a lower interest rate.

 

[SiemReap]

Disclaimer, i was a finance major.

The financial model details are as follows:

30 year outlook

A $200,000 debt payed off over 30 years with a 6.5% interest requires payments of $1257 a month

A $200,000 debt payed off over 10 years with a 6% interest requires payments of $2209 per month

The difference of payments per month is $952

First scenario, $952 is invested monthly into an investment earning 8% annually over 30 years. Total value after 30 years is $1,428,337.

Second scenario, ten years pass and the loan is payed off. $2,209 (same amount spent on investment + 30 loan) is now invested into an investment earning 8% annually over the course of 20 years. Total value after 20 years is $1,310,033

Given these details, you're smarter to pay off the loan over 30 years to the amount of $118,304. In fact, this savings could be a big chunk of your kids college fund.

 

[iwannabadentist]

Disclaimer, i was a finance major.

The financial model details are as follows:

30 year outlook

A $200,000 debt payed off over 30 years with a 6.5% interest requires payments of $1257 a month

A $200,000 debt payed off over 10 years with a 6% interest requires payments of $2209 per month

The difference of payments per month is $952

First scenario, $952 is invested monthly into an investment earning 8% annually over 30 years. Total value after 30 years is $1,428,337.

Second scenario, ten years pass and the loan is payed off. $2,209 (same amount spent on investment + 30 loan) is now invested into an investment earning 8% annually over the course of 20 years. Total value after 20 years is $1,310,033

Given these details, you're smarter to pay off the loan over 30 years to the amount of $118,304. In fact, this savings could be a big chunk of your kids college fund.

you are a finance major...and you are giving us these numbers?
did you forget the amount of money you'd be saving when you consider total interest you pay for 30 yrs vs. total interest you pay for 10 years on a 200k loan? using your numbers (200k @ 6.5%) - the total interest paid after 10 years is approx 72.5k vs. the total interest paid on 30yr is 255k. simple math will tell you that 255k-72.5k = 182.5k > 118k by 64k!!!

only if the average human lived for 150 years....30 years wouldn't seem so long. if you are going the 30 year route for a sense of security/you want to save up for a rainy day, by all means go ahead. but in terms of pure numbers, it becomes very hard to justify.

 

[SiemReap]

you are a finance major...and you are giving us these numbers?
did you forget the amount of money you'd be saving when you consider total interest you pay for 30 yrs vs. total interest you pay for 10 years on a 200k loan? using your numbers (200k @ 6.5%) - the total interest paid after 10 years is approx 72.5k vs. the total interest paid on 30yr is 255k. simple math will tell you that 255k-72.5k = 182.5k > 118k by 64k!!!

only if the average human lived for 150 years....30 years wouldn't seem so long. if you are going the 30 year route for a sense of security/you want to save up for a rainy day, by all means go ahead. but in terms of pure numbers, it becomes very hard to justify.

The interest is accounted for in the payment scheme. In my simple model, you are spending $2209 each month in both scenarios; i dont see how there is any room to argue with my logic. Although its over-simplistic, it proves a law that most people learn in finance 101, thats the law of compounding interest. As i said earlier, It works solely because your investment is earning a greater return than the interest accruing on your loan. Not to mention, if you're guaranteeing a bank that you'll be saving over the course of 30 years, you're likely to garner a better return than 20 years (i did not account for this as i had accounted for the nominal higher interest rate of a 10 vs. 30 year loan). I kept the rates the same. After giving it some thought, there is one likely hypothetical that could put the 10 year loan ahead of the 30 year loan: once the loan is payed off it will reflect in your credit and you'll be able to leverage more debt at that time increasing any returns on further investment. However, this seems unlikely since the ones who pay loans off in such a short period are too debt averse to take on such a rewarding strategy.

 

[yuppers]

The interest is accounted for in the payment scheme. In my simple model, you are spending $2209 each month in both scenarios; i dont see how there is any room to argue with my logic. Although its over-simplistic, it proves a law that most people learn in finance 101, thats the law of compounding interest. As i said earlier, It works solely because your investment is earning a greater return than the interest accruing on your loan. Not to mention, if you're guaranteeing a bank that you'll be saving over the course of 30 years, you're likely to garner a better return than 20 years (i did not account for this as i had accounted for the nominal higher interest rate of a 10 vs. 30 year loan). I kept the rates the same. After giving it some thought, there is one likely hypothetical that could put the 10 year loan ahead of the 30 year loan: once the loan is payed off it will reflect in your credit and you'll be able to leverage more debt at that time increasing any returns on further investment. However, this seems unlikely since the ones who pay loans off in such a short period are too debt averse to take on such a rewarding strategy.

What you are saying makes sense, but a few quick things. Can you run the numbers for me using a $300k debt? Also, how feasible is it to get a 8% return on an investment consistently for 10 or 30 years?
Lastly, it might be better to take that money and invest into a private practice instead of a CD, stock market, etc.

 

[Homing Swan]

Great analysis of the loans SIEMREAP! honestly everyone always says to pay loans off asap so it was interesting to see an alternative that is more profitable.

I am a business major as well and I would like to make a small adjustment to this idea. I feel you are dead on in your numbers, but most people want the 30 year option to be able to not make the full-sized payment for the first 2-3 years. If you miss the first year of payments to the investment account the 30 year option becomes less profitable by $4,000 and every payment you miss after that makes it better to do the 10 year re-payment. Also the strength of this idea lies in money going into an account that will not ever be withdrawn. If your investment is what you are going to use for a practice or a house or if your children are going to be younger than 30 when they go to college that money is not going to be available. To make this idea work you cannot touch that money until 30 years after graduation.

Honestly unless you are going to be the type of investor that will be diligent in saving the 10 year plan will be better. It is a lot easier to pay an obligatory debt than it is to save that money and not touch it. Remember dentists are in the top 5% of wage earners in the nation and only 20% report that they are on track to be set up for retirement.

Good job everyone on getting into dental school.

 

[jmt1984]

Hahaha let me know if you can find some investments right now that beat 6.5%. If you can, Warren Buffet will soon be calling.

exactly. the stock market is never a sure thing, plus almost 10 years of gains have been wiped out in the last 12 months. I would hate to count on a certain % return as justification for not paying back loans sooner and then lose a bunch 10 years from now when the next bubble bursts from the policies now.....(not trying to be political, just an observation about interest rates)

 

[SiemReap]

exactly. the stock market is never a sure thing, plus almost 10 years of gains have been wiped out in the last 12 months. I would hate to count on a certain % return as justification for not paying back loans sooner and then lose a bunch 10 years from now when the next bubble bursts from the policies now.....(not trying to be political, just an observation about interest rates)

Here's one investment: our education and a future dental practice. Whether or not we understand the finance behind it, we're all here because we believe that the reward for taking on such a loan is well worth the interest paid. Addtionally, the latter in proven in the fact that most dentists take on more debt to invest in a dental practice 3-5 years out of school, surely a large majority of these dentist still carry a large % of their student loan burden. 99% of us wouldnt be here if we didnt believe so. Perhaps, Buffett should consider dental school because as for now it remains our profitable secret.

 

[cowboy17]

.

 

[prazmjou]

This thread makes me very thankful in getting into my state school. 30 years to pay off loan wow

 

[cowboy17]

.

 

[ozzie33]

if you do NHSC before entering DS, ur obliged to work in underserved areas for 4 years. if you decide to do repayment with them, you have time to decide if you want to do it, and you have 2 yr contracts during which time they pay u a certain amount of money (i think its something like 25k/year) for 2 years to pay towards ur loans.

also, with the 30 yr repayment plan - you guys need to realize that lenders will want their interest before you start paying towards the principal. so according to the loan calculator on finaid.com, here are some numbers for you to consider:

with a 30 yr plan on 350k loan at a 7.5% fixed interest rate (7.5% is an approximate average between stafford and grad plus loans):
you will be making cumulative payments worth approx $881 k meaning the total amount of interest you will have paid over 30 years is appros $531k. if your monthly payment is approx $2500, you will be making ONLY interest payments for approx. 18 years. doing this just seems very counter intuitive to me...but then again im no financial whiz...just trying to make some sense out of what seems to be the reasonable thing to do.

The idea is that you are only FORCED to pay the minimum, as opposed to a 10 year plan where you are forced to pay more. With the 30 year plan, you can pay more if you can afford it, but if you can't then you don't have to. Sure you will probably pay more in the long run, but at the beginning of your career when you need the money most, you won't have as big of payments. That is my understanding of it at least.

 

[yuppers]

This thread makes me very thankful in getting into my state school. 30 years to pay off loan wow

Do you want to rub it in some more?