HPSP Value Analysis

[w4nt2baDDS]

I just made a decent value analysis for the HPSP. I punched the numbers for UCLA (aprox. $240K of debt just from tutition and mandatory supplies) and am amazed at just how financially valuable this scholarship really is.

Take a good look at the excel spreadsheet I made and let me know what you guys think. From my analysis, the HPSP comes out to a total gross annual average value of $177,303.36 for the first 5 years in the military. I specifically chose to do a 5 year spread because many applicants ultimately end up serving a total of at least 5 years when considering a 1-year AEGD residency.

To make sure the values are not overly biased or optimistic I placed the loans interest at a relatively low 6%. I did however calculate the increase in principle due to interest while in school which rose the debt from 217K up to 239K. Using a loan payment formula and double checking it with this loan calculator, I determined how much the HPSP would have to cover to payoff the loan in 5 years. In 5 years they would have to make 60 monthly payments of $4,621.27 which comes out to $55,456.44 a year. I then added 10.5 months of living stipend (for 4 years), 1.5 months of O-1 pay (for 4 years), 20K bonus/5, O-3 pay, the extra 20K you get for being a dentist, and both the housing and sustenance allowances. While the gross pay is only $89,751.20 the true value is substantially greater. Have in mind you're not having to shell out 4.6K in loan payments each month! From my calculations, during the very first year out of dental school you earn a true value of 176K which is better than many if not most new dental graduates!

I adjusted the O-3 pay after each pay bump by following the 2015 military pay-chart which I have also attached. Also, GladiatorSwens' post "what does an army dentist make" helped me gather additional information, especially the YouTube video he posted about military expenses. Without even getting into health-care benefits, malpractice insurance, vacation time, and other hidden benefits such as retirement and 401K options the HPSP stands strong at 177K.

UCLA's $239K is only a tiny sliver away from the national average dental student debt of $241,097 and serves as a good bench mark. Obviously, if your school's tuition and fees are even greater than 239K then the HPSP becomes an even better opportunity for you.

I also projected what a dentist's salary would be like after being in the military for 5 years to see if it would still be a valuable option. The figures are decent but there can be a larger variance in pay at this point due to rank, retention pay, board cert. pay, and differences due to specialties but overall it's not bad.

I know many people have roughly stated, "from a purely financial standpoint the HPSP doesn't make sense." After crunching the numbers though, I can imagine that in many cases the HPSP is indeed the better choice, especially for the first 5 years.

I tried to keep the overall analysis simple by just focusing on a 1 year AEGD and 4 year pay-back scenario. However, I also believe that residency programs in the military are also an exceptional opportunity. Largely because you don't have to worry about unsub. loan interest accruing while in these programs and the military pays you your full active duty salary which pretty much comes out to 90K+ from the get-go.

I'm not telling anyone to join the HPSP for the money. If you want to do the HPSP you need to be ready and willing to deploy and understand that the military needs will take priority over your own. I just wanted to share this so that people who are considering applying, have applied, or are currently on the scholarship can better understand the financial aspect of the scholarship and realize that many of the naysayers only see a gross income of 89K upon graduation and don't understand that it's true value is closer to 177K+.

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[customx]

Thanks so much for putting this together. I plugged in the numbers for the school I attend and it's startling to see the actual value of the scholarship. Year 1 is worth approximately $244k before taxes. To pay off the expected bill upon graduation, which includes tuition, fees, housing and other living costs, one should expect to pay $10.2k/month for 5 years , $5860 for 10 years or $4456 for 15 years. I don't think a lot of my classmates know what's about to hit them in a few years.

 

[Screwtape]

@w4nt2baDDS So if you found a job that paid $177, 303.36 for five years after graduating dental school, that would be a wash financially compared to HPSP? Or would you have to net that amount?

 

[chill45]

Can you explain what the O-3, dental pay, housing, and sustenance allowances for the first 5 years are exactly? Is that for your payback years? Just kind of confusing that you have it on the first 5 years and then the side chart with O-4 pay

 

[distressstudent]

@w4nt2baDDS So if you found a job that paid $177, 303.36 for five years after graduating dental school, that would be a wash financially compared to HPSP? Or would you have to net that amount?

Same question here. Did you calculate what you need to net to pay off 240k student debt? Also, the hidden income that is described is also savings; so that is pre-tax as well. Don't have computer access right now so I can't see the excel sheet.

Personally, I have done calculation for what will be in my bank account at age xx via military vs civilian (with hypothetical salary as an associate). It makes it easier for me to understand the value of the scholarship by seeing the amount of $ in my imaginary piggy bank.

 

[w4nt2baDDS]

@w4nt2baDDS So if you found a job that paid $177, 303.36 for five years after graduating dental school, that would be a wash financially compared to HPSP? Or would you have to net that amount?

The HPSP works out better than if you obtained a job that paid $177,303.36 for five years.If you were not on the scholarship then you would have to take out a loan for your living, transportation, and personal expenses. These expenses could range pretty drastically but for me, living in Los Angeles, the total expenses could add up to 20K a year. So, after 4 years that is an additional 80K. This value would turn out to about 87.5K by the end of 4 years of dental school due to interest on the loans for these expenses. This would increase the overall debt to over 327.5K and subsequently increase your monthly payments to over 6K in order to pay this off in 5 years! 72K+ a year in loan repayment is a big deal and definitely shows how the monthly stipend and sign-on bonus have a value that is actually greater than their face value -- due to not having to take additional loans witch would only makes the interest hurt that much more. Now, this scenario is inherently difficult to calculate because determining how much of the monthly stipend, 1.5months of O-1 pay, and the 20K bonus becomes extra and would not hypothetically require a loan to cover is then considered to be of true value and would not require interest calculations applied to it (this is why I didn't put any interest on these values when I calculated the values... even though a large portion would actually accrue interest and increase the overall value of the scholarship even more). I'm not a finance major but I do believe that because of these reasons you would need to have a job that is closer to 190K+ for it to wash out the value of the HPSP. These hypothetical are also tough to work through because it makes the assumption that you would be able and willing to make 6K monthly payments which is a commitment many people are not willing to do. If you wanted to decrease your monthly payments then you would likely have to increase the payback on the scholarship to 10+ years which ultimately would increase the overall capital you would have to payback over the lifetime of the loan -- this further increases the value of paying of the debt in 5 years.

As far as net vs gross income. You would have to gross even more for the net value to match the average net value of 157,293.98. This is because in the civilian sector all of your income will be taxed (also your tax bracket increases as you keep earning more) while in the military your allowances are not taxed which helps just a little bit. Now, if things work out well you might be able to write-off a lot of taxes so the higher gross income needed to offset the increase taxes might not be very substantial.

I also forgot to mention that with the post 9/11 G.I. bill you can now apply your GI bill to a child meaning that in 15-20 years you would be able to send a child to college or even professional school for free. Now that would be a nice gift.

Can you explain what the O-3, dental pay, housing, and sustenance allowances for the first 5 years are exactly? Is that for your payback years? Just kind of confusing that you have it on the first 5 years and then the side chart with O-4 pay

I read that many health professions in the military are promoted to O-4 around or at the 6 year mark which is why that changed. No, the military gives these allowances un-taxed to active duty officers so it's money you will see every year.

As a dentist in the military you earn an extra 20K a year on top of your officer pay and allowances. If you become a specialist or board certified then you will end up earning even more than 20K a year.

 

[chill45]

Yeah but you don't get the O-3 pay, dental pay, housing, and sustenance while you are in school, which is what your chart shows. That's why it is kind of confusing.

 

[w4nt2baDDS]

Yeah but you don't get the O-3 pay, dental pay, housing, and sustenance while you are in school, which is what your chart shows. That's why it is kind of confusing.

Careful with how you interpret the spreadsheet. The bottom table is not directly associated with the top table. The top table shows the expense of dental school that the HPSP pays for. I am counting the O-3 pay, dental pay, and allowances only once you have gone active duty. That is why those values are present for all 5 years of active duty. However, to calculate the true value of the scholarship you have to add the HPSP monthly stipend and O-1 pay that you obtained while in dental to these values. Notice that I did not add the O-1 pay or monthly stipend pay to the 5th year of active duty because you only acquired these for 4 years. I did however split the 20K sign-on bonus across the first 5 years of active duty.

Without the monthly stipend, 0-1 pay for 1.5month, and 20K sign-on bonus during school you would have to take out loans to pay for your living, transportation, and personal expenses. Upon graduation you have to start paying off these loans plus interest. That is why you have to add these values to your first 4 years of active duty to see what the scholarship is truly worth.

 

[coolslugs]

Many school's tuition and fees is around 80-90K / year, which makes HPSP that much more attractive. Also don't forget about the hidden savings of being in the military (free DEA, NPI, disability insurance, free medical/dental care, low cost group life insurance, low cost medical for your dependents, no state taxes for some states, and military discounts etc.). The value is even greater if you decide to do a residency because you will still get paid the same, while your civilian counterparts do not.

 

[chill45]

Careful with how you interpret the spreadsheet. The bottom table is not directly associated with the top table. The top table shows the expense of dental school that the HPSP pays for. I am counting the O-3 pay, dental pay, and allowances only once you have gone active duty. That is why those values are present for all 5 years of active duty. However, to calculate the true value of the scholarship you have to add the HPSP monthly stipend and O-1 pay that you obtained while in dental to these values. Notice that I did not add the O-1 pay or monthly stipend pay to the 5th year of active duty because you only acquired these for 4 years. I did however split the 20K sign-on bonus across the first 5 years of active duty.

Without the monthly stipend, 0-1 pay for 1.5month, and 20K sign-on bonus during school you would have to take out loans to pay for your living, transportation, and personal expenses. Upon graduation you have to start paying off these loans plus interest. That is why you have to add these values to your first 4 years of active duty to see what the scholarship is truly worth.

Your chart makes it look like you are going to get paid $90-$100k a year while in school like it was a salary and then $150k a year during your payback. There is no "bottom table and top table" for those things I listed, they are all just stacked on top of each other. I'm on the Navy HPSP right now so I understand the full value of the scholarship, I just think your spreadsheet is poorly organized. The total value of the scholarship for an average instate the school is roughly $800k-$850k, that includes everything the military pays for in school, stipend during school, and roughly your salary during the four years of payback. So you can look at it as being worth about $100k each year ($800k/8 years total, school and payback), or you can think of it as being paid around $35k each year you are in school and then about $160k each year during payback. I think your chart is great if you understand it and I commend you for taking into consideration the interest that people will have to pay back with their loans etc., I just think a lot of people that aren't in the HPSP now and familiar with all of the perks or pay tables etc. are really going to be able to decipher the "true value" of the scholarship from your chart. Also I have no idea what this "AEGD retention pay" is that you have.

 

[w4nt2baDDS]

Your chart makes it look like you are going to get paid $90-$100k a year while in school

They do not imply that. You are misinterpreting the data.

 

[coolslugs]

AEGD retention pay is misleading. The OP is talking about retention pay (currently worth $35,000/yr for a 4 year contract) you are qualified for as a general dentist after your initial HPSP/residency obligations are over. You do not need to do an AEGD to qualify for this retention bonus.

Also, you do not pin on O-4 until after 6 years.

 

[w4nt2baDDS]

AEGD retention pay is misleading. The OP is talking about retention pay (currently worth $35,000/yr for a 4 year contract) you are qualified for as a general dentist after your initial HPSP/residency obligations are over. You do not need to do an AEGD to qualify for this retention bonus.

Also, you do not pin on O-4 until after 6 years.

This is why my main focus is on the value of the scholarship for the first 5 years. I'm glad you clarified that this retention pay is given even without having to complete the AEGD program and that O-4 pay kicks in one year later than my projection.

The more information from members who are in or have done their active duty years and understand the finer details the better.

 

[chill45]

They do not imply that. You are misinterpreting the data.

I agree and that's kind of my point. I am just interpreting it the way I see it and I have a pretty good understanding of what all is involved. Somebody who sees this spreadsheet and is just trying to learn about the HPSP is going to really misinterpret it. Kind of like a biochem teacher who says a test was easy that had an average of 55. Yeah it was easy to you because you wrote it, for people seeing biochem for the first time in their life it can be tough to understand.

 

[chill45]

This is why my main focus is on the value of the scholarship for the first 5 years. I'm glad you clarified that this retention pay is given even without having to complete the AEGD program and that O-4 pay kicks in one year later than my projection.

The more information from members who are in or have done their active duty years and understand the finer details the better.

It is my understanding and I may be wrong on this so maybe @coolslugs can clarify, but you won't be promoted to O-4 pay until after 6 years of practicing as a dentist for the military. The years in school don't count towards those 6 years (unless you are doing HSCP for the Navy).

 

[chill45]

I think I see where the confusion is and it's because you have 8 or 9 years of serving in the military AFTER school. When most people think of HPSP and doing 8 years in the military they think of the 4 years in school and the 4 years of payback and then being done. You have 9 years shown but the first 4 or 5 years are your payback years and the last 4 (years 6-9) are if you continue to practice dentistry in the military after your commitment is over, right?

 

[w4nt2baDDS]

I think I see where the confusion is and it's because you have 8 or 9 years of serving in the military AFTER school. When most people think of HPSP and doing 8 years in the military they think of the 4 years in school and the 4 years of payback and then being done. You have 9 years shown but the first 4 or 5 years are your payback years and the last 4 (years 6-9) are if you continue to practice dentistry in the military after your commitment is over, right?

Yup, that is exactly right. I'm showing 5 years of payback and then an optional 4 years which are not part of the requirements. I showed the extra 4 years just to get a better idea of the long term potential of the military.

 

[chill45]

Yup, that is exactly right. I'm showing 5 years of payback and then an optional 4 years which are not part of the requirements. I showed the extra 4 years just to get a better idea of the long term potential of the military.

Alright, makes more sense now. Could prob show the distinction a little better instead of cramming them together lol. If you were thinking about making a career out of the military though you definitely 100% need to try and do the HSCP with the Navy. With tuition costs rising it is slightly less money over all for school, even for instate unless you are in Texas, but your 4 years of school count towards your 20 years needed for retirement. Would probably have to take out a little bit of loan money for it but your salary increase will more than make up for that. You could retire with a pension 16 years after graduating school, which for most people will be around age 42. Pension at 42 then go into private practice for 2 or 3 days a week is not a bad life.

 

[distressstudent]

Can you work full-time and still collect military retirement pension?

 

[chill45]

Can you work full-time and still collect military retirement pension?

To the best of my knowledge you can. I did a quick google search and it seems that as long as you don't work for the same employer, or I think in this case any government job, then there is no limit to what you can make and still collect your pension. Someone on here that is a career military dentist should know and hopefully chime in. Another thing I guess to consider is what the situation will be 20 years from now, nobody knows lol. Most civilian dentists don't work a 40 hour week though anyways so I don't see why anybody collecting a pension would want to work a 40 hour week too. If you are that money hungry then a military career isn't necessarily the best option.

 

[coolslugs]

Alright, makes more sense now. Could prob show the distinction a little better instead of cramming them together lol. If you were thinking about making a career out of the military though you definitely 100% need to try and do the HSCP with the Navy. With tuition costs rising it is slightly less money over all for school, even for instate unless you are in Texas, but your 4 years of school count towards your 20 years needed for retirement. Would probably have to take out a little bit of loan money for it but your salary increase will more than make up for that. You could retire with a pension 16 years after graduating school, which for most people will be around age 42. Pension at 42 then go into private practice for 2 or 3 days a week is not a bad life.

HSCP is great for state schools, area with low cost of living, and someone with dependents, or prior service. Not so much for private schools with high tuition and cost of living like USC, NYU, Tufts etc.

 

[NMC2010]

Nice thread! There are some corporate dental firms that offer high starting pay (Ex: Heartland Dental = $170k), but seems like it would be hard to equal that $177k/year HPSP average in most cases - especially if you start as an associate somewhere, and with the debt interest. I don't know if any corporate companies match up to the $190k/year washout you mentioned.

 

[krmower]

Can you work full-time and still collect military retirement pension?

Under the current military retirement/pension, the minute you leave active duty at the end of 20 years you begin to collect your pension and can work anywhere else and "double dip". You can even work for the government as a civil servant - you would just have to work an additional 25 yrs to get their pension.

The new retirement system the military is putting together is like most traditional employers where you contribute to your 403k (like a 401k) and the military will match it. Therefore when you leave the military you will walk away with your 403k as well no matter how long you served.

http://www.militarytimes.com/story/...15/11/23/reiterment-changes-choices/76049640/

 

[w4nt2baDDS]

Under the current military retirement/pension, the minute you leave active duty at the end of 20 years you begin to collect your pension and can work anywhere else and "double dip". You can even work for the government as a civil servant - you would just have to work an additional 25 yrs to get their pension.

The new retirement system the military is putting together is like most traditional employers where you contribute to your 403k (like a 401k) and the military will match it. Therefore when you leave the military you will walk away with your 403k as well no matter how long you served.

http://www.militarytimes.com/story/...15/11/23/reiterment-changes-choices/76049640/

Wow, thanks for sharing that article Krmower!

Will these changes automatically affect HPSP students who commission this year? The quoted text below says it will take effect for anyone who enters after Jan. 1st of 2018 but since I'll be in school until 2020 and go active duty in 2020 then does that mean I'm entering in 2020 or 2016? Or will these changes only be mandatory for HPSP applicants in 2018?

"Not everyone will shift to the new model; it will cover all troops who enter service after Jan. 1, 2018, but anyone already in the ranks or who signs up in the next 24 months will be grandfathered into the traditional, 20-year retirement system.
However, troops who entered service after Jan. 1, 2006, will be given the choice of opting into the new 401(k)-style system — creating some complex financial decisions for midcareer service members once 2018 arrives."

This new option is tough to gauge but for me it doesn't seem to favor 20+ year careers in the military as much as the sure-proof 50% retirement system currently established. With the current system it would be pretty silly for someone to leave the military after 13-17 years of service because they would receive zero retirement money. However, with the new system it wouldn't be the worst decision since they can expect non-taxed 403k earnings to kick in when they are 59.5 which will only pad the income they are earning from the new career they were able to start up to 7+ years earlier than someone who stayed in the military for 20 years for the now reduced pension.

"In exchange, the traditional pension-style payouts are reduced by 20 percent of their current value. And money in the savings plan is not available without tax penalties before age 59.5.
And unlike the pension payouts, which are guaranteed, TSP investment growth depends on fluctuations in the stock market and economy. Riskier investment options could leave some troops with far less or far more than their peers when retirement arrives.

With the switch being optional to anyone who enters between 2006 and 2018 the article's title really hits the nail on the head: "Retirement changes mean tough choices for troops ... eventually"

I know everything is still rather preliminary... but if I get the scholarship in 2016 and my enter date is indeed 2016 then will I have to decide on the new or old system in 2018? Before I even really get a taste for what military life is all about...?