When I graduated from dental school in 2011, I remember thinking that my student loan debt of $180,000 seemed insurmountable. My wife also had law school loans of about $175,000. Between the two of us, that’s $355,000 of student debt we paid off in less than seven years. Believe me, I know there are circumstances that mathematically will not allow for “early” payoff of student loan debt. However, if you are like me and don’t want to be paying student loans for the next 25 years, there are a few strategies that anyone can employ to help pay them off in five to 10 years instead.
1. Keep lifestyle inflation in check
A sneaky killer of an early payoff goal is lifestyle inflation. I get it — you’ve worked hard. You’ve been through decades of schooling and now you can finally start making a respectable salary. Whether it’s exotic vacations, a fancy new car or owning a beautiful home, lifestyle inflation comes in many forms. My first two years out of dental school, my goal was to live like I was still a student. I had roommates, took public transportation, didn’t travel much and worked long hours, including Saturdays, so that I could maximize my income. All of these choices were helping me achieve my goal of paying down the principal balance on my loan. Keep in mind, though, that working and living like this for too long will quickly burn you out, so plan accordingly.
2. Location, location, location
Living like a student is not practical or realistic for the long term. Living and working in a location with a lower cost of living can have an even bigger impact on your cash flow. Choose the less popular city with less competition and likely higher pay. Some of the corporate DSO offices that are in less desirable locations will offer signing bonuses, larger salary guarantees and sometimes loan repayment in their employment packages. If your goal is to open your own private practice, I think that the same advice would apply. The business property itself would likely cost less to rent or buy, which keeps your monthly overhead low. Most importantly, however, is to work and live in a location that makes you happy.
3. Employee vs. self-employed
Being considered an employee or self-employed can have valuable tax implications that can impact your ability to pay back those loans faster. I have been classified as both at different points in my career. As an employee, generally, you will pay less in taxes, but you will not be able to write off as many business expenses. Some employee-dentists may receive benefits such as a 401(k) with or without company matching, profit sharing, yearly bonuses or paid time off.
As an independent contractor or owner-dentist, you will able to write off more business expenses and effectively lower your tax bill. This could free up more cash flow to put toward your loans. Being an independent contractor allowed me to put away more money for retirement, lower my tax bill and pay off my loan faster. This is not always the case, though; everyone’s situation is different. The point is that your employment classification can have a significant impact on your financial plan and cash flow.
4. Get professional advice (and refinance your loans)
Get professional financial help, if you can. My wife and I decided to formulate financial goals together with the help of a financial adviser and a tax accountant. They showed us how to refinance our student loans to a much lower interest rate and actually encouraged us to save in our retirement accounts before putting extra money toward the loans. The compounding interest you can earn on retirement savings long-term often outweighs the interest you are losing on your student loans.
Paying off your student loans early is possible with careful planning and financial discipline, but it’s not for everyone. You have to find a balance you are comfortable with. Enjoy your profession and try not to stress too much about those looming student loans that seem to never go away. One day, they will be gone, and it feels truly liberating.
~Dr. Gary Palsis Jr., Florida ’11, General Dentist