Your 7-Step Battle Plan to Crush Student Debt
By Dr. Albert (Ace) Goerig
Dental school has become extraordinarily expensive. In the past 40 years, general inflation has gone up an average of 3.2% annually, while dental school tuition has gone up an average of 7.1% annually. That’s more than double the rate.
However, it is the cumulative effect over time where we see the staggering costs fully exposed. In terms of dollars, general inflation has increased prices by 3.7 times over 40 years. During the same period, dental school costs have increased by more than 16.5 times.
Tuition and fees have become a significant barrier to entry into the dental profession, and specialties like endodontics add on even more costs. For most dental students and endodontic residents, taking on student debt is an unfortunate necessity. It’s not uncommon for residents to graduate with more than $300,000 in debt … with the clock ticking on when payments need to begin.
It’s an incredible financial pressure at the start of a career that pushes many residents to jump at the first opportunity they get to start earning an income in endodontics, even when they know it’s not the best opportunity for their long-term goals. Student debt is an
emotional burden that can hang over your head for decades to come, siphoning away your income and interfering with your plans for practice ownership, home ownership and lifestyle.
However, there are key steps you can take to manage your debt wisely. You can dramatically cut down how long it takes to pay off your debt and how much of your income ends up fattening the wallets of bankers, rather than your own wallet. Here is your 7-step battle plan to crush student debt like a financial pro:
1. Understand the true cost of debt.
Just like the inflation discussion above where seemingly small percentages disguise and deceive you about the cumulative effect in dollars, every debt loan works the same way. There is an interest rate that seems small, but the compounding over time adds up.
For example, a $300,000 loan at 8% with a 30-year term will result in monthly payments of $2,201. Over 30 years, you will pay a total of $792,466, which means nearly half of million will be in interest charges. In other words, every single dollar you borrow will cost you over $2.64 to pay it back.
2. Only take on debt for essential needs.
Because debt is so expensive, it is vital while you are in school or residency to only take on debt for essential needs. Just because they approve and offer an amount, it doesn’t mean you have to take it all. Take the bare minimum you can get by with. If you can cover some of your living costs with a part-time job while in school, do that.
I know it is hard to live on a student’s budget, and there is the temptation with student loans and credit cards to splurge sometimes. However, just remember that everything you buy with student loan money is costing you 2.64 times more than the price tag. Even worse, credit card money will cost you double or triple student loan money.
3. Refinance as soon as possible.
Once you are earning an income in endodontics, it’s important to refinance your student loans to lower your interest rate as soon as possible. The example loan of $300,000 at 8%, if refinanced at 5%, reduces your total amount paid from $792,466 to $579,767. That’s an instant savings of your debt cost of $212,699. Sofi.com is a good place to start when researching your refinance options.
Keep in mind that interest rate you can get refinancing your student loans is going to depend on your credit score, so it is essential that you keep your credit report clean throughout your education years. Keep credit card balances low and paid on time. Make all other payments on time (rent, utilities, etc.).
4. Maintain your payment commitment.
Using the example of refinancing from 8% to 5%, the monthly payment on the 30-year loan decreases from $2201 to $1610. That’s a $591 drop each month. It’s tempting to pocket that difference, but to get the most value from refinancing, you should not. Instead, stay committed to a $2201 debt payment each month and use the $591 to make extra payments on the balance of your loan.
By doing this, your loan balance gets paid down in an accelerated way compared to the amortized payment schedule. What is the result for our example? By adding a $591 principal payment on top of the $1610 loan payment each month, you save an additional $135,623 in interest AND the loan is completely paid off in 16 years and 10 months instead of 30 years. That’s huge.
Compared with the starting point of 8% over 30 years, you have saved yourself over
$350,000 in interest and over 13 years of payments. A great place to see loan costs and try out different saving scenarios is https://www.calculator.net/amortization-calculator.html
5. Avoid investment advice until debt-free.
One thing you will get a lot of pressure about as soon as your working is to start saving money in an investment account or 401k. If you are still in debt, advice to invest money in the market does not make sense. Let me tell you why. Consider a $10,000 amount that you can invest or pay toward your debt.
Using our original $300k/8%/30yrs student loan, what is the impact of a single $10,000 extra payment in the first year of the loan? Incredibly, it saves you nearly $85,000 in interest PLUS eliminates 3.5 years of loan payments. That’s a guaranteed tax-free return of 850%.
6. Continue to live like a student.
I’m sure the last thing you want to hear is that you should continue to live on a very limited budget once you are practicing. You probably chose dentistry and endodontics in part because of the potential for a great income and lifestyle. I’m not saying that you should deprive yourself of a good life. But you should resist any excessive or luxury purchases, especially anything that puts you further in debt. It’s tempting to buy the fancy car, glitzy condo or exotic vacation.
If you can manage your spending, and the result is that you can add just $1000 to your loan payment each month toward the principal, what is the impact assuming you’ve already refinanced and are maintaining your original payment commitment? The loan term is now down to just 10 years, and your total interest paid is under $90,000. Remember we started with 30 years and nearly half a million in interest costs.
7. Choose the right income opportunity.
Of course, the more money you make, the easier it is to come up with extra loan payments … which is the secret to getting out of debt quickly. Most endodontic residents initially move into associate positions, but all associate positions are not the same. Some associates, in weak practices, are only earning $200,000 per year. Very strong doctor- owned independent practices like we work with at Endo Mastery often have associates earning $500,000 or more annually.
Obvious that is a huge difference, and it makes a massive impact on both your debt repayment plans and your overall lifestyle. You must be very thorough in your search for an associate position and do the necessary due diligence on the practice before making any decisions. Imagine how quickly you can be debt free if you are earning at the right level. 30 years can become 7 years or 5 years or less.
Your life. Your vision.
This 7-step battle plan is proven to get doctors out of debt and to escape financial stress. For young endodontists, my goal in coaching is to help you achieve your vision and love the profession as much as I do. Whatever your long-term goals are, they are 100% more achievable when you follow a proven plan and use every resource available to you to stay on track.
Ace Goerig, DDS, MS, is a Diplomate and owner of Endo Mastery, which coaches endodontists and teams to create highly productive and enjoyable growing practices, as well as associate integration, startups and practice ownership coaching for new endodontists. For more information, visit www.endomastery.com.