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Six Ways for Dentists to Pay Off Student Loan Debt

As of 2022, the average dental school graduate carried $293,900 in loans, according to the Education Data Initiative.

Unfortunately, there is no one-size-fits-all repayment method for student loans. Every dentist has a unique situation that must be considered. However, it is possible to find the best way for your own life circumstances. Let’s look at six ways for dentists to pay off student debt.

Debt-to-Income Ratio

Before we consider any repayment methods, you need to know your debt-to-income ratio. This ratio is your student loan balance divided by your gross income. For example, if your student loan balance is $190,000 and your gross income is $225,000, then your debt-to-income ratio is 0.84. If your student loan balance is $250,000 and your gross income is $150,000 your debt-to-income ratio would be 1.7.

This value gives you a starting point to determine which repayment method could be best for you.

Income-Driven Repayment Programs

Although federal student loan borrowers are automatically placed on the 10-year Standard Repayment Plan, this is not the only repayment option available. For one, dental professionals, as well as all other federal student loan borrowers, can look into income-driven repayment programs if their monthly payments are too high. Note: these programs are not available for private loan borrowers.

Currently, the following income-driven plans exist:

  1. Revised Pay As You Earn (REPAYE): Your monthly payments for this plan are capped at 10% of discretionary income. A key difference between this plan and the original PAYE plan and other programs is there is no cap on payments, which means that your payment amount could increase if your income also increases. These loans have different repayment periods, depending on the level of education pursued with them: 20 years for all undergraduate loans, and a 25-year payment period for loans for graduate-level studies.

  2. Pay As You Earn (PAYE): Your payment amount with this program is typically 10% of your discretionary income, and it can never be more than the 10-year Standard Repayment Plan amount. The repayment period for this loan is 20 years.

  3. Income-Based Repayment (IBR): IBR caps student loan payments at 10% of your discretionary income if you’re a new borrower on or before July 1, 2014, and 15% otherwise. You’ll have a repayment period of 20 years if you’re a newer borrower, and 25 years otherwise. The amount you would owe on this plan must be lower than what it would be on the Standard Plan.

  4. Income-Contingent Repayment (ICR): Your monthly payment under this plan will be the lesser of 20% of your discretionary income or what your payment would be on a fixed 12-year payment plan, adjusted based on your income, with a repayment period of 25 years. There are no income eligibility requirements for this plan.

    Any balance still remaining on your loan at the end of the repayment period will be forgiven. While these plans can be helpful for professional students who need help repaying their loans, you should understand that there are also potential drawbacks, including that you may stay in debt longer and ultimately pay more in interest. You should make sure you fully understand what you’re getting into if you choose one of these plans.

  5. Student Loan Refinancing. Another way to make student loan payments more manageable and save money in the process is through refinancing. This process involves paying off existing student loans with a single new loan at (hopefully) a lower interest rate. Not only can this make managing student loans easier by consolidating the debt, but it can also cut down on total interest paid. It’s also possible to refinance to a longer loan term in order to reduce monthly payments even further, though doing so could cancel out any savings because you may pay more in the end.

    In addition, it’s important to note that refinancing is performed by private lenders only. Refinancing federal student loans into a private loan means permanently forfeiting access to federal benefits such as income-driven repayment, deferment, forbearance, and more. It’s important to consider this consequence before making the decision to refinance into a private loan.

6. Public Service Loan Forgiveness. To be eligible for Public Service Loan Forgiveness (PSLF), you must:

  • Work full time for a qualifying employer. This includes government employers through federal, state, local or tribal organizations; nonprofits; and the AmeriCorps or Peace Corps.

  • Make 120 qualifying payments. You must make 120 qualifying payments under one of the four income-driven repayment (IDR) plans. This equates to 10 years of payments.

After meeting these requirements, you can apply to have your remaining federal student loan balance forgiven tax-free.

Own a Dental Practice to Pay Off Student Loans Quickly

No matter if you’re planning to do a loan forgiveness strategy or refinancing, owning a practice is the way to go as opposed to being an associate. Do you need to make a lot of income to cover monthly payments of $3,000 or more? Owning a practice is going to give you the opportunity for a high income, more so than being an associate.

Are you looking for tax shelters to reduce your adjusted gross income (AGI) and receive lower loan payments so you can benefit from dental school debt forgiveness? Most of the tax code is written to give employers the advantage instead of employees. You have a better chance at reducing your AGI by being an owner as opposed to an associate paid with a W-2.

Contact Gulf Coast Accounting & Tax Services about paying off your student loans or other questions or concerns. We can demystify accounting and tax for your dental practice.

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