what to do with high student loans (PAYE vs. private refinance)

[altoidarctic271]

Hi this is my first post here.
Im not sure if this is the right place to ask

In short, I am a recent graduate pedo dentist with a student loan around 570k
I have started working and ready to start paying my student loans back

my projected salary this year is 200k at where i started working.
My husbands salary is about 100k.
This might sound like a good enough income but we also have parents that are depending on us for some monthly help as well.


We are torn between how to tackle my student loans.
If we go PAYE (govt) it will cap payment at 10% of my income.
They say that any forgiven amt will be taxable at the end of 20 year payment term.
(at my interest rate, paying 10% will increase my student loans actually... and will likely to get hit with a big fat tax bomb at 20th year mark)

As opposed to if we decide to refinance privately, this will make monthly payment around 5k for next 15 years.
Refinancing privately sounds like an organized and sure way to pay back the loan but it will be tough to make other long term plans (babies, mortgage, retirement and etc)

How are other recent grads dealing with this? I know some folks have less loans obviously or some might have similar amount. Just want to hear how other people are handling this so that we can make a good decision. Thank you in advanced and good luck with yall!

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[Awarara]

you need to greatly increase your income...

to answer your question, you need to calculate your expected average income over the next 20 years and then take into account the tax bomb at the end. then you compare PAYE vs paying it off in full. you also have to take into account the stress of losing your job if you refinance. the hard question is what you expect to earn in the next 20 years.

i did a rough calculation. assuming you make 250,000 dollars a year for the next 20 years

paye: 250,000 * .1 * 20 = $500,000 + tax bomb
15 years (4.5k/month) @ 5% = approx $811,000 spent to pay off your loans
10 years (6k/month) @ 5% = approx $725,000

The decision is pretty clear if you decide to make 250,000 dollars or less. When you start making more, it kind of evens out and you have to make a personal decision.

 

[altoidarctic271]

you need to greatly increase your income...

to answer your question, you need to calculate your expected average income over the next 20 years and then take into account the tax bomb at the end. then you compare PAYE vs paying it off in full. you also have to take into account the stress of losing your job if you refinance. the hard question is what you expect to earn in the next 20 years.

i did a rough calculation. assuming you make 250,000 dollars a year for the next 20 years

paye: 250,000 * .1 * 20 = $500,000 + tax bomb
15 years (4.5k/month) @ 5% = approx $811,000 spent to pay off your loans
10 years (6k/month) @ 5% = approx $725,000

The decision is pretty clear if you decide to make 250,000 dollars or less. When you start making more, it kind of evens out and you have to make a personal decision.

Wow thank you for taking your time to look into this.
well if i make 250k lets say, what is the clear decision here? are you saying paye sounds good?
Thank you again

 

[siliso]

Make sure you are aware of any and all benefits you will forgo by having private rather than federal debt. Not just PAYE but discharge in case of disability or death, forbearance and deferral options in case of a financial hardship...likely more. Tax bomb is offset to the extent that you’re insolvent (net negative balance sheet) at the time. I don’t know what’s right for you but I do know I’d be very hesitant to surrender the benefits and protections of the federal loans I signed up for.

 

[Awarara]

There's another concern for me that I haven't been able to clarify which may cause problems with your PAYE strategy.

Government covers leftover interest for 3 years. However, at $250,000 a year, your loan will balloon up to $900,000 dollars.

I've read that when your loan is discharged, it is treated as taxable income. If that's the case, that would be over $300,000 dollar federal tax bomb which would be insane. Can someone clarify?

 

[altoidarctic271]

There's another concern for me that I haven't been able to clarify which may cause problems with your PAYE strategy.

Government covers leftover interest for 3 years. However, at $250,000 a year, your loan will balloon up to $900,000 dollars.

I've read that when your loan is discharged, it is treated as taxable income. If that's the case, that would be over $300,000 dollar federal tax bomb which would be insane. Can someone clarify?

Yes! well if i use some calculators online to figure out my loan standing, it does look like i will have a ballooned up loan amt of 900k dollars
that will more or less look like 300k in tax bomb
but i do read in some places that 300k will only be applied if i have 300k to begin with. in other words, if my asset is actually negative, it might not apply
but this isnt too sure.. because im not sure if anybody actually went through whole 20 years of PAYE yet...

 

[altoidarctic271]

Make sure you are aware of any and all benefits you will forgo by having private rather than federal debt. Not just PAYE but discharge in case of disability or death, forbearance and deferral options in case of a financial hardship...likely more. Tax bomb is offset to the extent that you’re insolvent (net negative balance sheet) at the time. I don’t know what’s right for you but I do know I’d be very hesitant to surrender the benefits and protections of the federal loans I signed up for.

thank you for your feedback
yes, i guess refinancing privately will get rid of all the benefits from government loans. but my combined rate will be around low 7 percent and that is just ridiculously high....

 

[DDS2017]

Hi this is my first post here.
Im not sure if this is the right place to ask

In short, I am a recent graduate pedo dentist with a student loan around 570k
I have started working and ready to start paying my student loans back

my projected salary this year is 200k at where i started working.
My husbands salary is about 100k.
This might sound like a good enough income but we also have parents that are depending on us for some monthly help as well.


We are torn between how to tackle my student loans.
If we go PAYE (govt) it will cap payment at 10% of my income.
They say that any forgiven amt will be taxable at the end of 20 year payment term.
(at my interest rate, paying 10% will increase my student loans actually... and will likely to get hit with a big fat tax bomb at 20th year mark)

As opposed to if we decide to refinance privately, this will make monthly payment around 5k for next 15 years.
Refinancing privately sounds like an organized and sure way to pay back the loan but it will be tough to make other long term plans (babies, mortgage, retirement and etc)

How are other recent grads dealing with this? I know some folks have less loans obviously or some might have similar amount. Just want to hear how other people are handling this so that we can make a good decision. Thank you in advanced and good luck with yall!

Look into the REPAYE, they will pay 50% of your unsubsidized loan interest and 100% of the subsubsidized for the first 3 years then down to 50%. This will help your loans from ballooning out of control. However, it’s for 25 years instead of 20 years. But from my understanding and I have asked multiple people, if you do the REPAYE the payments count towards the PAYE. So, you could do the REPAYE for 19 years and on the 20th year switch over to PAYE. That’s what I’m planning on doing. Thus far, after asking Great Lakes, they said I could do it. Also, I have not done the math, but with the REPAYE the interest is much lower than 7%.

 

[altoidarctic271]

Look into the REPAYE, they will pay 50% of your unsubsidized loan interest and 100% of the subsubsidized for the first 3 years then down to 50%. This will help your loans from ballooning out of control. However, it’s for 25 years instead of 20 years. But from my understanding and I have asked multiple people, if you do the REPAYE the payments count towards the PAYE. So, you could do the REPAYE for 19 years and on the 20th year switch over to PAYE. That’s what I’m planning on doing. Thus far, after asking Great Lakes, they said I could do it. Also, I have not done the math, but with the REPAYE the interest is much lower than 7%.

thank you for this tip, i should perhaps look into this.
But how is the rate different from PAYE and REPAYE? I thought all the rate was same.

 

[Manic324]

you need to greatly increase your income...

to answer your question, you need to calculate your expected average income over the next 20 years and then take into account the tax bomb at the end. then you compare PAYE vs paying it off in full. you also have to take into account the stress of losing your job if you refinance. the hard question is what you expect to earn in the next 20 years.

i did a rough calculation. assuming you make 250,000 dollars a year for the next 20 years

paye: 250,000 * .1 * 20 = $500,000 + tax bomb
15 years (4.5k/month) @ 5% = approx $811,000 spent to pay off your loans
10 years (6k/month) @ 5% = approx $725,000

The decision is pretty clear if you decide to make 250,000 dollars or less. When you start making more, it kind of evens out and you have to make a personal decision.

I believe your math is inaccurate here because you cant just simply multiple 250k by 10%. They take 10% of your discretionary income not your overall income, I think you would pay significantly lower than the 500k estimated here. I would go REPAYE or PAYE all the way with a loan balance that huge because unless you start making an absurd amount of money that 10% will be pretty low and hopefully youll be able to handle the tax bomb, which we dont even know how will work since no one has gone through that yet.

 

[DDS2017]

thank you for this tip, i should perhaps look into this.
But how is the rate different from PAYE and REPAYE? I thought all the rate was same.

The rates are the same, I’m paying 10% of my AGI and they’re paying 50% of my interest every month. They pay $650 every month of my interest.

 

[DDS2017]

One more thing I would like to add. After doing some digging, I believe Trump is trying to get rid of the programs and make just one program. He wants to make it where you pay 12.5% Of your AGI for 15 years and have the rest forgiven (for undergrad loans) and 30 years for (graduate loans). I really hope he does not do that. I hear from some friends that these IBR programs are very risky to do. But I really don’t have an option with my high debt, unless I want to pay 5k a month for 10 years. The only thing I can think of is if the government made all student loan payments tax deductible. That would help us out tremendously, one can only dream.

 

[Big Time Hoosier]

Let this be a lesson to future dental students. Student loans are no joke. Go to the cheapest dental school you get into or be prepared to suffer the consequences!

Big Hoss

 

[altoidarctic271]

One more thing I would like to add. After doing some digging, I believe Trump is trying to get rid of the programs and make just one program. He wants to make it where you pay 12.5% Of your AGI for 15 years and have the rest forgiven (for undergrad loans) and 30 years for (graduate loans). I really hope he does not do that. I hear from some friends that these IBR programs are very risky to do. But I really don’t have an option with my high debt, unless I want to pay 5k a month for 10 years. The only thing I can think of is if the government made all student loan payments tax deductible. That would help us out tremendously, one can only dream.

thank you for your input. That does sound like a scary change but I'm assuming people who are in the program would stay, no?
like being grandfathered in? Has other government loan payment programs in the past changed drastically before as well?

 

[Big Time Hoosier]

thank you for your input. That does sound like a scary change but I'm assuming people who are in the program would stay, no?
like being grandfathered in? Has other government loan payment programs in the past changed drastically before as well?

The loan forgiveness programs are going to cost the government, i.e. taxpayers, hundreds of billions of dollars more than originally projected. The programs were never intended to bail out high income individuals like doctors, dentists, and lawyers. Think more along the lines of teachers and social workers. If I were you, I wouldn't count on any loan forgiveness programs. Then President Obama even wanted to cap forgiveness to around $60,000. Changes will inevitably have to be made.

Big Hoss

 

[DDS2017]

thank you for your input. That does sound like a scary change but I'm assuming people who are in the program would stay, no?
like being grandfathered in? Has other government loan payment programs in the past changed drastically before as well?

If I had to bet, I would say that if you are in the program you will be grandfathered in and it will not affect you in anyway. It’ll affect students who take loans out after they remove any program and implement a new one. From the history of these programs, it looks like nothing has been removed in the past only added onto. I believe the order is IBR was the first program then ICR, then PAYE and the newest (2014) REPAYE. So they’ve never removed programs but changed the existing one and modified it.

 

[DDS2017]

The loan forgiveness programs are going to cost the government, i.e. taxpayers, hundreds of billions of dollars more than originally projected. The programs were never intended to bail out high income individuals like doctors, dentists, and lawyers. Think more along the lines of teachers and social workers. If I were you, I wouldn't count on any loan forgiveness programs. Then President Obama even wanted to cap forgiveness to around $60,000. Changes will inevitably have to be made.

Big Hoss

That’s what everyone is saying, they are trying to remove these programs. IBR is very risky, plus 20 years is a long time, anything can happen from now until then. My plan is to stay in REPAYE and use the 50% interest subsidy and pay off my loans. That way I can stay in federal loans in case anything happens to me and have a low interest. With that interest subsidy it changes that 7% interest to like 3-4%.

 

[Awarara]

That’s what everyone is saying, they are trying to remove these programs. IBR is very risky, plus 20 years is a long time, anything can happen from now until then. My plan is to stay in REPAYE and use the 50% interest subsidy and pay off my loans. That way I can stay in federal loans in case anything happens to me and have a low interest. With that interest subsidy it changes that 7% interest to like 3-4%.

can you explain how you plan on doing repaye and paying off your loans? if you plan on paying off your loans, i don't see how you are taking advantage of the 50% interest subsidy

 

[DDS2017]

can you explain how you plan on doing repaye and paying off your loans? if you plan on paying off your loans, i don't see how you are taking advantage of the 50% interest subsidy

I will make an X amount of payment towards my loans on the 1st of every month. Throughout the month my interest will accumulate and at the end of the month I will get the interest subsidy and then make a payment the following month. Haven’t done it yet but that’s the plan.

 

[FanOfCostco]

correct me if im wrong, but doesnt the tax bomb only occur if you run it for 25 years and theres a balance left? meaning if you pay everything off before the 25 years, there would be no tax bomb?

 

[Awarara]

I will make an X amount of payment towards my loans on the 1st of every month. Throughout the month my interest will accumulate and at the end of the month I will get the interest subsidy and then make a payment the following month. Haven’t done it yet but that’s the plan.

i've been reading and that seems to make sense. i'm gonna have to take a look!

 

[FanOfCostco]

i've been reading and that seems to make sense. i'm gonna have to take a look!

me and my friends are actually doing this. you just gotta make sure you know when your auto debt date is and then select which loans to put a little more $$$ on the next day.

easiest way is to ask them to change the due date to the first of every month and then pay more on the 2nd

 

[DDS2017]

correct me if im wrong, but doesnt the tax bomb only occur if you run it for 25 years and theres a balance left? meaning if you pay everything off before the 25 years, there would be no tax bomb?

You are correct. There will be no tax bomb if you pay it off before the 25 years.

 

[DDS2017]

i've been reading and that seems to make sense. i'm gonna have to take a look!

It’s worth looking into! That way you can keep your loans in federal loans and not have to worry about private loans.

 

[Awarara]

It’s worth looking into! That way you can keep your loans in federal loans and not have to worry about private loans.

i think the best way is to refinance whatever you're comfortable with. then pay the minimum on that and then put all your money into the highest interest rate on REPAYE.

also to be clear, you're talking about paying the minimum on REPAYE, getting the interest subsidy, and then making another gigantic payment towards your highest interest rate loan right?

 

[DDS2017]

i think the best way is to refinance whatever you're comfortable with. then pay the minimum on that and then put all your money into the highest interest rate on REPAYE.

also to be clear, you're talking about paying the minimum on REPAYE, getting the interest subsidy, and then making another gigantic payment towards your highest interest rate loan right?

Yes, make the minimum payment, make a gigantic payment and get the interest subsidy, like what FanOfCostco said.

 

[Manic324]

thank you for your input. That does sound like a scary change but I'm assuming people who are in the program would stay, no?
like being grandfathered in? Has other government loan payment programs in the past changed drastically before as well?

YEs! basically current dental students (along with all other grad students who are already taking student loans) and probably ones starting in then next year or two would have all the same old loans and repayment plans available.

The new bill (if passed) would only affect future students and it sounds pretty detrimental with capped borrowing limits and unclear repayment plans. I do believe this change is needed though the tuition has gotten so ridiculous with limitless student loans being given out so of course the schools got uber greedy. It will however be an adjustment and probably hurt students from poor families the most.

Although with how useless government is I wouldn't be surprised if by the time this bill passes it gets amended so much that there is basically no noticeable change to the current system lol

 

[arlmay]

OP this is a huge financial decision that I believe you already know should not be taken lightly. It has the potential to drastically affect the life of you and your spouse as well as any children you will have in the future. SDN might be a place to consult with other dentists in a similar situation but it would not be advisable to accept this advice as fact and to make a financial plan for the foreseeable future for your family following the guidance of several anonymous users. It would be a gamble I would not be willing to make with my family. You need to seek the counsel of a professional who is familiar with tax law and financial planning that exclusively works with this sort of subject matter. A reputable financial advisor living in your area might be a good place to start. @Student Loan Planner has posted several topics in the past on this topic and offers services out of St. Louis, MO. To be transparent, I do not know him personally or have ever worked with him, so I can't comment anything more than saying he has credentials in advising for this sort of financial matter.

 

[Shunwei]

Haven’t been back in a long time, but seems like more and more people are getting that being a dentist nowadays is not worth the financial cost. I agree completely. I graduated in 2012 with about 270k (and that’s with going to a state school with some scholarships that shaved about 10-15% of the total costs). Came out and got my own place in 2014, and last July paid off all of my student loans.

The ironic thing is that I tried to refinance my loans at first with Sofi and they turned me down because my office at first wasn’t profiting really well as I was trying to fix up the previous owner’s mess. The denial actually helped me because soon after I started to do well and decided to just pay off rather than refi or play the PAYE/repaye/ibr game. I managed to pay off all 270k in just about 12 months (see attached), felt great. Must be some kind of record.

Now, some of you might look at this and think that “If he can do it, then I can do it too.” I don’t think that’s the message here. I happened to do well with my own abilities and most of all I am an extremely frugal person. No one else from my class has paid off their loans like me, so I am definitely an outlier. Most are swimming in debt from everything and trying to play the PAYE/repaye gambit. So most cannot do this and honestly I wouldn’t do this again either. Rather, the message is for you to think about how much sacrifice, stress, and financial pressure it is to become a dentist nowadays. Only you can make that decision, but it is a life-altering one. Right now I am projected to finish paying off my business loans in 10 months or so with a large balloon payment. By then I will have paid off something like 700k in 30 months, and be completely debt free. Should be some kind of record again. It is my firm opinion that one cannot accrue real wealth and enjoy the (traidtiona) dentist lifestyle while having a tremendous debt burden. A small mortgage like 100k over 15 years is fine, but not like 500k for school, plus another similar for office, plus another house, etc. There is no enjoyment to being in that of career.

I am not a fan at all of the ibr/PAYE/repaye gambit. First of all things can change extremely fast. You might get grandfathered into the policy but because it is an executive decree they can change up the fine terms fast. 20-25 years is a long time and if people are going to ‘save’ to pay the balloon payment at the end, why not just take it a step further and pay it off? Besides, people seem to forget the inherent risks of relying on the market to get you the final tax bill, not taking into account the market’s fluctuations, and forgetting that any gains you make there you would have to pay capital gains tax, dividends tax, etc. And in the final year when the tax balloon comes, it also means that your earnings that year which would otherwise be at a lower tax bracket would also be taxed at the max, i.e. 40%, meaning more more as well. Look, the government is a sly fox. Their ‘forgiveness’ program will always be designed so that on paper it looks good, but in reality they still recoup their portion. Perhaps not as much, but they will get their cut.

 

[schmoob]

There's another concern for me that I haven't been able to clarify which may cause problems with your PAYE strategy.

Government covers leftover interest for 3 years. However, at $250,000 a year, your loan will balloon up to $900,000 dollars.

I've read that when your loan is discharged, it is treated as taxable income. If that's the case, that would be over $300,000 dollar federal tax bomb which would be insane. Can someone clarify?

I apologize if someone clarified for you. I haven't read past your comment at this point.
If the loan balloons up to $900K, like you said it counts as taxable income. Assuming OP and spouse maintain their current income of $250K and $100K, that means their taxable income is now $1.25M. That's going to be a huge tax bomb!!!

 

[FanOfCostco]

Why not use repaye/IBR/blah blah blah program's as flexibility? Are you guys really going to do the 10% for 25 years? Why not just put more into it and pay off the loans faster and avoid the tax bomb?

 

[free99]

50% of the interest subsidy comes after you make your REPAYE payment (10% of income) so it doesn't matter when you pay. Also, your effective interest rate won't be half since 10% of your income (>$100k expected general dentist's income) will likely cover most of the interest. The only scenario where the REPAYE is useful is for OMFS residents earning a resident salary of ~$60k for 4 years hoping to minimize the accumulating interest. There is no guarantee that PSLF will be here 10 years from now so pay off your student loans aggressively in the shortest time possible.

I think you're kind of answering the question above, but I need a little more clarification from anyone who can help --

In the instance where 10% of your discretionary income doesn't cover the interest and the government pays 50% of that balance, can you make a second payment and pay down the remaining 50% so your total loan balance doesn't grow?

 

[FanOfCostco]

I think you're kind of answering the question above, but I need a little more clarification from anyone who can help --

In the instance where 10% of your discretionary income doesn't cover the interest and the government pays 50% of that balance, can you make a second payment and pay down the remaining 50% so your total loan balance doesn't grow?

Yes you can do that. You just gotta figure out what your interest is every month.

 

[free99]

Yes you can do that. You just gotta figure out what your interest is every month.

Thanks for the response- have you taken this approach too? If your principle isn’t changing at all then the interest should theoretically be the same each month

 

[FanOfCostco]

Thanks for the response- have you taken this approach too? If your principle isn’t changing at all then the interest should theoretically be the same each month

Sorta. I pay the minimum and then I pay more. I'm trying to get the principal down as well. You can all the servicer and they will tell you what your monthly interest is.

 

[schmoob]

Sorta. I pay the minimum and then I pay more. I'm trying to get the principal down as well. You can all the servicer and they will tell you what your monthly interest is.

So with the 50% interest subsidy combined with your minimum payment, your 2nd payment goes directly towards servicing the principle?

There is no guarantee that PSLF will be here 10 years from now

True. No one knows if the program will be around in the future, but it is unlikely to affect people grandfathered in IMO. It's written into the MPN. However, I can't comment on potential future caps on the program.

 

[FanOfCostco]

So with the 50% interest subsidy combined with your minimum payment, your 2nd payment goes directly towards servicing the principle?
.

In theory yes. From what my servicer says yes (my servicer people kinda suck). But in reality it's probably going into the interest you accrued since day uno.

 

[schmoob]

In theory yes. From what my servicer says yes (my servicer people kinda suck). But in reality it's probably going into the interest you accrued since day uno.

Gotcha. That makes sense because that's your new principle balance since the interest capitalized after your grace period.

 

[FanOfCostco]

Gotcha. That makes sense because that's your new principle balance since the interest capitalized after your grace period.

Yeah honestly... just take advantage of the 50% by paying a little more the day after your payment is due. And select the highest loans with the highest interest

 

[free99]

Yeah honestly... just take advantage of the 50% by paying a little more the day after your payment is due. And select the highest loans with the highest interest

Sorry to pester you with questions about this, but when you make your payment, do you somehow see evidence of the 50% subsidy? like does it show it on a ledger somewhere that the government's 50% was paid for?

 

[FanOfCostco]

Sorry to pester you with questions about this, but when you make your payment, do you somehow see evidence of the 50% subsidy? like does it show it on a ledger somewhere that the government's 50% was paid for?

Depends on your servicer. Mine does not (sucks) but my friends does.
I have to base everything on faith. I've called my servicer a lot and I get different answers every time.

 

[NITRAS]

At the OP, I'm going to be a minority on this forum, but I think you should do crazy stuff and pay your loans off super fast.

First I would keep them federally insured student loans. There are really good and bad things about student loans. The bad news is that you cant get rid of them by bankruptcy, and they can garnish your wages without suing you if you default. The good news if you be die or become disable, they are forgiven. You can use the REPAYE to save on interest, but remember interest is not your problem, you have a $570k problem.

If I were in your positions, I'd pay your loans off in about 5 years.

You are going to make 300k (I really hope you do, but lots of dentists don't make 200k, more like 150). That means your federal taxes are $65k-$70, give or takes. A free state, will be another $6k and not free state, like CA will take $30k. That leaves your about $200k to live on. I'd advise you to put about $150k a year (about $13k a month). Its will be an EXTREMELY hard 4-6 years realistically. If you can bump your income up to $450k, your time frame gets to less than 3 years, which is a lot more palatable.

I wouldn't put any money into retirement, I'd live in as inexpensively as I could, I'd work extra, and I'd drive cheap cars. What I'm suggesting is extreme, but you put yourself in an extreme position. Also imaging having no debt. You can do awesome things with $300k income and no debt.

Good luck!

 

[DDS9994]

Haven’t been back in a long time, but seems like more and more people are getting that being a dentist nowadays is not worth the financial cost. I agree completely. I graduated in 2012 with about 270k (and that’s with going to a state school with some scholarships that shaved about 10-15% of the total costs). Came out and got my own place in 2014, and last July paid off all of my student loans.

The ironic thing is that I tried to refinance my loans at first with Sofi and they turned me down because my office at first wasn’t profiting really well as I was trying to fix up the previous owner’s mess. The denial actually helped me because soon after I started to do well and decided to just pay off rather than refi or play the PAYE/repaye/ibr game. I managed to pay off all 270k in just about 12 months (see attached), felt great. Must be some kind of record.

Now, some of you might look at this and think that “If he can do it, then I can do it too.” I don’t think that’s the message here. I happened to do well with my own abilities and most of all I am an extremely frugal person. No one else from my class has paid off their loans like me, so I am definitely an outlier. Most are swimming in debt from everything and trying to play the PAYE/repaye gambit. So most cannot do this and honestly I wouldn’t do this again either. Rather, the message is for you to think about how much sacrifice, stress, and financial pressure it is to become a dentist nowadays. Only you can make that decision, but it is a life-altering one. Right now I am projected to finish paying off my business loans in 10 months or so with a large balloon payment. By then I will have paid off something like 700k in 30 months, and be completely debt free. Should be some kind of record again. It is my firm opinion that one cannot accrue real wealth and enjoy the (traidtiona) dentist lifestyle while having a tremendous debt burden. A small mortgage like 100k over 15 years is fine, but not like 500k for school, plus another similar for office, plus another house, etc. There is no enjoyment to being in that of career.

I am not a fan at all of the ibr/PAYE/repaye gambit. First of all things can change extremely fast. You might get grandfathered into the policy but because it is an executive decree they can change up the fine terms fast. 20-25 years is a long time and if people are going to ‘save’ to pay the balloon payment at the end, why not just take it a step further and pay it off? Besides, people seem to forget the inherent risks of relying on the market to get you the final tax bill, not taking into account the market’s fluctuations, and forgetting that any gains you make there you would have to pay capital gains tax, dividends tax, etc. And in the final year when the tax balloon comes, it also means that your earnings that year which would otherwise be at a lower tax bracket would also be taxed at the max, i.e. 40%, meaning more more as well. Look, the government is a sly fox. Their ‘forgiveness’ program will always be designed so that on paper it looks good, but in reality they still recoup their portion. Perhaps not as much, but they will get their cut.

That is beyond impressive in one year, that translates to paying 22,000 a month towards loans with after tax income!! That office must have done well. IF possible I would advise OP and husband to try and do the same thing. Counting on govt programs for 20 years is not a great plan. I doubt there will be a big outcry if they cut these programs from the general public given there views of dentist, physicians, and constant polls of dentistry being such a great job.

 

[DDS9994]

At the OP, I'm going to be a minority on this forum, but I think you should do crazy stuff and pay your loans off super fast.

First I would keep them federally insured student loans. There are really good and bad things about student loans. The bad news is that you cant get rid of them by bankruptcy, and they can garnish your wages without suing you if you default. The good news if you be die or become disable, they are forgiven. You can use the REPAYE to save on interest, but remember interest is not your problem, you have a $570k problem.

If I were in your positions, I'd pay your loans off in about 5 years.

You are going to make 300k (I really hope you do, but lots of dentists don't make 200k, more like 150). That means your federal taxes are $65k-$70, give or takes. A free state, will be another $6k and not free state, like CA will take $30k. That leaves your about $200k to live on. I'd advise you to put about $150k a year (about $13k a month). Its will be an EXTREMELY hard 4-6 years realistically. If you can bump your income up to $450k, your time frame gets to less than 3 years, which is a lot more palatable.

I wouldn't put any money into retirement, I'd live in as inexpensively as I could, I'd work extra, and I'd drive cheap cars. What I'm suggesting is extreme, but you put yourself in an extreme position. Also imaging having no debt. You can do awesome things with $300k income and no debt.

Good luck!

Good advice, I would try to do this plan if possible, sadly many wont, its near impossible to convince someone who has been thru school for 10 years and delayed gratification, tell them " you need to sacrifice for just a little longer like 5 more years." ughhhh what a mess.

 

[vsx3]

So... how did you do it? Did you get a finanical advisior? Did you do simple math 270k/months you wanted to pay is off.. and just pay that amount/month? What did you do for two years post graduation? GPR? or Did you buy the practice 2 years after graduating? You said you paid of 270k in 12 months, but you graduated in 2012?

Just trying to learn from your technique as I'm in similar situation and trying to explore all the options.

Haven’t been back in a long time, but seems like more and more people are getting that being a dentist nowadays is not worth the financial cost. I agree completely. I graduated in 2012 with about 270k (and that’s with going to a state school with some scholarships that shaved about 10-15% of the total costs). Came out and got my own place in 2014, and last July paid off all of my student loans.

The ironic thing is that I tried to refinance my loans at first with Sofi and they turned me down because my office at first wasn’t profiting really well as I was trying to fix up the previous owner’s mess. The denial actually helped me because soon after I started to do well and decided to just pay off rather than refi or play the PAYE/repaye/ibr game. I managed to pay off all 270k in just about 12 months (see attached), felt great. Must be some kind of record.

Now, some of you might look at this and think that “If he can do it, then I can do it too.” I don’t think that’s the message here. I happened to do well with my own abilities and most of all I am an extremely frugal person. No one else from my class has paid off their loans like me, so I am definitely an outlier. Most are swimming in debt from everything and trying to play the PAYE/repaye gambit. So most cannot do this and honestly I wouldn’t do this again either. Rather, the message is for you to think about how much sacrifice, stress, and financial pressure it is to become a dentist nowadays. Only you can make that decision, but it is a life-altering one. Right now I am projected to finish paying off my business loans in 10 months or so with a large balloon payment. By then I will have paid off something like 700k in 30 months, and be completely debt free. Should be some kind of record again. It is my firm opinion that one cannot accrue real wealth and enjoy the (traidtiona) dentist lifestyle while having a tremendous debt burden. A small mortgage like 100k over 15 years is fine, but not like 500k for school, plus another similar for office, plus another house, etc. There is no enjoyment to being in that of career.

I am not a fan at all of the ibr/PAYE/repaye gambit. First of all things can change extremely fast. You might get grandfathered into the policy but because it is an executive decree they can change up the fine terms fast. 20-25 years is a long time and if people are going to ‘save’ to pay the balloon payment at the end, why not just take it a step further and pay it off? Besides, people seem to forget the inherent risks of relying on the market to get you the final tax bill, not taking into account the market’s fluctuations, and forgetting that any gains you make there you would have to pay capital gains tax, dividends tax, etc. And in the final year when the tax balloon comes, it also means that your earnings that year which would otherwise be at a lower tax bracket would also be taxed at the max, i.e. 40%, meaning more more as well. Look, the government is a sly fox. Their ‘forgiveness’ program will always be designed so that on paper it looks good, but in reality they still recoup their portion. Perhaps not as much, but they will get their cut.