Going to dental school is often a good idea if you’re capable of studying hard and have an aptitude for the work. If you graduate, you’re well on the path to dentistry, a potentially lucrative career that should set you up nicely for financial independence.
However, the average dental school debt is over $300,000. That is what an education in the field typically costs. In 2021, the average yearly pay for a practicing dentist was $178,260. That means you’ll probably carry some debt from dental school, at least for a while.
What’s the best way to pay off that debt? We’ll talk about some strategies right now.
Know Your Debt-to-Income Ratio
Let’s say you graduate from dental school and enter the profession. The first thing you’ll need to do when trying to figure out how to pay off your debt is to calculate your debt-to-income ratio.
To determine this ratio, you divide your monthly debt payments by your gross monthly income or your income before taxes. The result is called your DTI, which comes in the form of a percentage. This number can help you figure out which repayment method will work best for your particular situation.
Taxable forgiveness is something you should know about as you enter the dental profession. If you start working in dentistry and enter into an income-driven repayment plan, you can make qualifying payments on your student debt for 20-25 years. At the end of that term, the entity that granted you the loan will forgive any remaining debt you have.
There are no employment qualifications for you to be eligible for taxable forgiveness. You can open a private practice and be eligible, or you can work for a nonprofit. Taxable forgiveness will probably make sense if you have a debt-to-income ratio of 1.25 or higher.
Public Service Loan Forgiveness
As a dentist, you usually have the opportunity to qualify for PSLF, or public service loan forgiveness. This is tax-free debt forgiveness you can attain after you’ve met specific qualifications.
You generally have to make 120 on-time monthly payments on that debt, amounting to ten years, through an income-driven repayment plan. While making those payments, you must work for a government employer or nonprofit entity, like a dental school, veteran’s affairs hospital, or nonprofit hospital.
If you do that, you’re serving the public good. You can reap the financial benefits from that in the form of loan forgiveness. If you plan to work in a private practice, though, this is not a viable option.
Private refinancing is also possible for those with dental school debt. If you have federal student loans that you refinance as a private loan, you can get a lower interest rate and new repayment period from a private lender. You only want to do this if you can secure a lower interest rate.
If you’re looking at a debt-to-interest ratio of lower than 1.25, private refinancing is likely your best bet. Refinancing and getting a lower rate can be your fastest path to being debt-free.
Which One Should You Choose?
Usually, two factors will determine how you can best pay off your dental school debts. The first is your debt-to-income ratio, which you can calculate using the formula we mentioned. The second is the kind of dentistry job you want to hold.
If you’re opening a private practice, taxable forgiveness or private refinancing are probably your better options. If you’re going to work somewhere like a dental school or nonprofit hospital, you’re likely better off trying to secure public service loan forgiveness.
Once you figure out what position you’re going to hold and your debt-to-income ratio, you can choose the way to pay off your dental school debt that makes the most sense. In time, you’ll get out from under that debt, and you can also enjoy a stable career path.
Name: Michael Bertini
Job Title: Consultant
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