I remember one of my more unpleasant surprises after graduating dental school-the payments I'd have to make, every month, for 10 years. I didn't know how lucky I was. Now, student loans are much more substantial, even accounting for inflation. Loans are a widespread issue for college graduates, but for many of us they're an onerous burden.
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The good news is that there are excellent ways to manage this debt, ways that will allow dentists to thrive in their personal lives and dental careers. Here are some of the best ways to manage your loans:
know your loans-Get a firm grip on exactly how many loans you have, what types they are, and who the loan servicer is. The loan servicer collects the monthly payments and is the go-to entity you'll need to contact to take advantage of lower monthly payment programs, deferrals or other hardship situations, and loan forgiveness programs. (More on these later.) Make sure to have the name and contact information of the loan servicer for each loan that you have. Also, confirm that they have your current contact information. You are responsible for making all loan payments on time, and you will not receive notice of payments due if the servicer has inaccurate information.
Pay your loans on time-Why? Because late payments significantly affect your credit rating. This rating in turn will determine the rates on future loans for mortgages and practice and equipment purchases. A lower rate will save you many thousands (often tens of thousands) of dollars in interest payments.
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Check your credit report-I recommend visiting annualcreditreport.com. There's no cost to see the report from each of the three credit reporting companies once a year. There's a lot you can discover in this report. You can look for any student loan that you have but may not be aware of. You can check for any incorrect listing of missed payments or defaults. If you find anything that's not accurate, contact the credit reporting company. If you're the victim of identity theft, this is one way to discover it.
Take the tax deduction ON interest-Payments on student loans are tax deductible up to $2,500, depending on your income. That's a gift to you from Uncle Sam. Tell your tax preparer about your loan payments, and check to see that they're listed on your 1040 tax return. If you miss this tax break, you lose it.
Automatic payments-Many loan servicers will reduce the interest rate on your loan 0.25% to 0.50% by arranging for automatic payments, where the monthly payment is transferred from your bank account. This alone can save you many thousands of dollars, and can help your credit rating by assuring there are no late or missed payments. Just make sure there's enough in your account to cover each payment.
Income-based repayment plans-Income-based repayment plans are for federal student loans, which account for over 90% of all student loans. This provides significant relief for dentists with large loan balances. The monthly payments are based on either your earnings or your total income, which can potentially result in much lower payments than with the standard 10-year repayment period. The most recent version of these plans is called Repaye, for "revised pay as you earn," which can cut the monthly debt payments to a small share of your income.
The other outstanding feature of these programs is that any remaining loan balance is forgiven after 20 years of payments (25 for some programs). Is there a catch? Well, yes, in that the total amount of interest you pay over the course of the loan will be higher than it would be for the standard 10-year repayment period. So, is income-based repayment for you? To determine this, you should consider all the other aspects of your financial life. You might want to review the choices with your financial advisor.
Public Service Loan Forgiveness (PSLF)-This is a special bonus for those on an income-based repayment plan. If you have a full-time paid job (minimum 30 hours per week) with almost any government or nonprofit institution, you can receive complete forgiveness of the loan balance after making 10 years' worth of payments. So your monthly payments are already reduced, depending on your income. Also, if you have the "right" jobs during these 10 years and make your payments on time, you're off the hook for the balance of the loan at the end of this period. What are the "right" jobs? Any government (federal, state, or local), public health service, most hospital, and dental school jobs qualify. Any position is acceptable. You can be an attending in a hospital, teach, conduct research, or be an administrator; it really doesn't matter as long as it's a paid position. You can also combine different jobs, as long as they add up to 30 hours per week. Can you have a private practice or nonpublic job at the same time as a public service job? Yes, as long as you average 30 hours in qualifying jobs.
We've discussed several ways to manage student loans. Some have many confounding details. Make sure to carefully research the details of any payment plan you're considering. I would also advise speaking to a financial advisor regarding consolidating loans, tax issues, matters involving your credit rating, and strategies regarding which loans to pay off first.
Michael Woloch, DDS, CFP, is a registered investment advisor and president of Financial Strategy Advisors, LLC. He uses his knowledge of finance and experience as a practicing prosthodontist to guide fellow dentists to realize their financial goals. Contact Dr. Woloch at [email protected] or (212) 685-3212.
