I grew up being interested in serving my country because both of my grandfathers had done so.  My only dilemma was how I could accomplish that. While applying to dental school, I realized that I could be a dentist, serve my country, and have my schooling paid for. All of my ducks were nicely lined up and I began my journey to become a dentist. Now let’s dive deeper into my decision to serve.

My life in dental school is much easier thanks to my military commitment. The full ride scholarship is welcomed, especially during a time when dental schools are charging 4 year tuitions that equate to a full mortgage. You graduate with a foundation but no house to show for it. My fellow militia and I also receive a monthly living allowance that can be fairly generous if you live within normal means. Oh, and cross your T’s and dot your I’s at the right time and you may qualify for a large signing bonus!

I know what you are thinking, “With all of these benefits, there must be a catch, right?”. Well yes there is…kind of. A military lifestyle is not for everyone. A 4-year scholarship requires a 4 year pay pack while living in about 2-3 different locations. As an officer, it is expected that you will move about every 2 years, and you might not have much say in where you will be going next. This nomadic lifestyle can be stressful on a family, and difficult for a spouse with their own career. If you do not like taking orders, clearly, the military is not for you. Many people choose dentistry for the autonomy. Autonomy does not mix with the military for obvious reasons.

Besides financial benefits, there are many other great reasons to choose the military route. Every day you are serving individuals who are sacrificing their lives for this country. This is an intangible gratification. You can travel and have the opportunity to live almost anywhere in the world. You have 4 years to focus on improving your dental skills. Another overseen aspect is that your patients are not limited by finances and are able to receive the best possible care. This will not apply to the civilian side, but will allow dentists to hone many new skills.

Now lets do some rough math. Out-of-state tuition is roughly $75k a year, roughly $300k at the end plus about $50k in interest at an average rate of 7%. For the military, you can add on an income of $25k a year while in dental school. That is a total scholarship value of $450k. Now the field evens out because the military salary will range from $80-95k. As compared to the average new dentist making $90-130k a year minus debt payments. I did a full break down but I will spare you the minutia. After paying off some of the debt, both parties make out pretty even after 4 years post graduation.

I view my scholarship as a tool to advance my career. I know that it will be hard on my future family and moving around will be cumbersome. There will be days when I envy my civilian counterparts as I float along on a ship in the middle of the ocean. There will be plenty of hardships and unfortunate circumstances. I like to live life with an open mind. I know that this experience will help my career and my family to grow. I will gain experience working with specialists of all kinds and have unique experiences that only a military dentist can have (helicopter rides, aircraft carriers, etc.)

I was given some advice years ago, “Do not choose the military scholarship for the money. Choose to serve your country and the finances are a perk.” I think this sums things up nicely. The money looks really nice in order to avoid the student loan debt, but there are many costs of every day life as a military dentist. I like to put it this way: You have to pay someone either way, it just depends on how you want to pay it. The traditional student is paying monetary debt. The military student is paying with their time. If you want to serve your country and do dentistry, the scholarship is a good choice for you.

One sunny spring evening, I had the pleasure of attending a Colorado New Dentist Committee study club meeting focused on ‘success as a New Dentist in the first 5 years.’ We had the honor of listening to guest speaker Mark Bonnett of North Star Resource Group give a lecture on what it takes to start a practice or be a successful associate employee. What I found most interesting (due to its relevance to me as a current dental student) was his later focus on loan repayment, and managing finances once the big paychecks first start coming in.

As soon-to-be dentists, the idea of ‘what the heck am I going to do after graduation?’ is a thought that weighs heavily on our minds. Sure, some of us will head to residencies (aka school forever), but for the rest of us, finding jobs right out of the gate is imperative as our student loans suddenly turn from Monopoly money into the real deal. After listening to Mark speak, one theme of his lecture became very clear: cash is king!

Since the day I signed my life away to the federal lenders, I had one thing in mind… “I’m going to pay these suckers off as quickly as possible.” What I came to realize in the first 5 five minutes of Mark’s lecture, is that this might not be the best thing to do. There are several alternatives all focusing around the idea that while we’ve amassed a large sum of debt, we should take our time in paying it off. Say you did choose to pay off your loans quickly by applying entire paychecks at a time to them. … What if you have an emergency? Or lose your job? Sure, you’ve got no debt… , but you’ve also got no money. The following are some suggestions for different ways to maximize your cash and minimize your loan payments:

Income Based Loan Repayment/Pay As You Earn Repayment

This is essentially setting your payments to correspond with your income:

Earn a lot --> pay a lot

Unemployed --> pay little (or even nothing.)

These programs are designed to base payments on income and family size, and payments are the same no matter how much you owe. Essentially, these programs are great for the dentist not making a lot of money because you’ll have more cash flow, rather than applying entire paychecks to student debts. A drawback of these programs is that while you’re not paying too much income into loans, you’re still collecting interest on every dollar that remains. That being said, if after 20 or 25 years (depending on the program) you haven’t paid off your loans, they are forgiven and your debts are eliminated!   Too good to be true? Probably. The catch is that the amount forgiven is taxable, meaning that if $50,000 of your debt is erased, you will be expected to pay taxes on that in a lump sum amount. Should this be the route you choose to pay back your loans, make sure you’re saving setting some of your cash aside to pay this.

Public Service Loan Forgiveness

These programs are tied to income-based repayment programs but follow a different set of rules. In order to qualify you must work full-time for 120 months in a non for profit capacity- potentially in a setting that doesn’t pay well. Some residency programs can even count toward your time commitment, as long as they’re not-for-profit university or hospital programs. Basically most 501(c)3 (not for profit), state, federal (yes military counts) or academic opportunities could count. A benefit of the public service IBR is that the amount of debt forgiven is not taxed!

Consolidation

By consolidating your loans, you extend your payback window to 30 years, lowering your monthly payments. Consolidation also allows you to blend your interest rates, should you have some higher and some lower. A benefit of loan consolidation is that by lowering your monthly payments, you’ll have more cash flow. A couple drawback are that, once again, you’ll be collecting interest on those loans over the 30 years to it takes to pay them back.   Also you could potentially be increasing your interest rate when the low rates are combined with higher rates for the weighted average. Keep in mind you can always pay the loans off early. Even if the loan repayment period is 30 years, there is nothing stopping you paying off the debt in 10 years or even sooner, once you get on your feet and have more stable cash flow.

(Some popular loan consolidation companies include SoFi and CommonBond, check these out if you're interested!)

After reviewing some of these loan repayment options, I hope you realize that there is no right or wrong way of paying back your loans. Every individual’s situation situation is different, and the pros and cons of each option should be reviewed before choosing which is right for you. The idea of lengthening your payment window stems from the idea that cash is king, meaning that having money set aside opens many doors for different options. When banks are deciding whether or not to loan you money for a house or a practice, they look deeply into your Debt : Income Ratio (This is the amount of monthly payments you are committed to make like credit cards, car payments, mortgages, etc., verses the amount of income you make on a monthly basis). By keeping your minimum payment lower, you have more flexibility to take on debts like a home or a practice.  With this in mind, taking the time to pay back your loans while stashing away some funds will help you immensely when you’re trying to make a large purchase or investment.

After wrapping up discussion of loan repayment options and the idea of holding on to some of your debt in order to save money, Mark closed the lecture by answering a couple of FAQ’s questions proposed by the audience.

Q: Which loans should I pay off first?

A: Not considering consolidation? Put your money where the interest rates are higher, and pay those off first.

Is it smart to make large purchases even though I have a mountain of loans?

A: Historically speaking, it is not necessarily a bad time to be in debt. What does this mean? Interest rates are relatively low and will only go up from here. If you’re going to make a large purchase, such as a new car, it is smarter to finance it now that interest rates are low, rather than waiting until you have less debt and biting the bullet on higher interest rates.

Which comes first, the practice or the house?

A: It depends on how much debt you have, and what your debt:income ratio is. Banks are used to seeing dentists graduate with a massive accumulation of debt, take out a loan for a practice, then become successful and be able to pay the loans back. Purchasing a practice is more about the cash flow of the practice than your personal debt load. Banks look at Practice Loans differently than home loans because the practice produces income to pay the debt. Homes are just an expense, and thus the banks look at these types of loans only by looking at the strength of the borrower. If you have a bunch of practice debt, a mountain of Student Loan debt and minimal income because you started your practice in the last year or so, it will be more difficult to purchase a home.

More Information:

For more information on student loans and repayment options, check out the following resources:

http://studentloanhelp.org

https://studentaid.ed.gov/sa/

https://www.alltuition.com

If you've still got some questions, or would like to talk to Mark Bonnett himself, feel free to email him at Mark.Bonnett@northstarfinancial.com