Three Financial Mistakes that Hold Dentists Back
With the average dental school graduate accumulating more than $241,000 in student loans, there is little wiggle room for mistakes when it comes to taking good care of finances. To achieve your financial goals, you need to efficiently pay off your student loan debt and make the most of the income that is coming in.
Easier said than done – especially when you’re trying to balance a growing practice with having a life. But if you can keep an eye out for and avoid these common slip-ups, you’ll be in a much better place.
Mistake #1: Using income-driven repayment for too long
During the cash-strapped early years, some student loan borrowers turn to income-driven repayment plans like Income-Based Repayment (IBR) and Pay As You Earn (PAYE) because of its flexible structure. The reduced monthly payments typically aren’t large enough to cover interest, which continues to accrue and all or part of it (depending on which plan you’re on) is added to the loan’s principal as soon as you switch to a standard repayment plan. Due to this, the longer a borrower takes advantage of lower payments, the higher your total debt will be and it doesn’t take long for that debt to spiral out of control
Mistake #2: Neglecting to refinance dental school loans
As your income grows and your student loan payments become manageable, it’s usually a good idea to consider moving on from income-driven repayment plans. At this point, you may be eligible to refinance your student loans at a lower interest rate.[i] Refinancing can have big benefits like lower monthly payments or a reduced payment term, and can save you a significant amount of interest over the remaining life of the loan. Having one lender and one bill will also save you the time and hassle of multiple monthly payments.
Need the hard numbers? Let’s say you have $200,000 in dental school loans at a 6.8% weighted average interest rate and 10-year term (6.8% was the going rate for federal unsubsidized loans from 2006 to 2013). Your monthly loan payment would be about $2,300 per month, and you’d pay about $76,000 in interest over the life of the loan. If through refinancing you slash that rate by even 1 percentage point to 5.8%, your monthly payment goes down by $100/month, and you save about $12,000 in total interest. Cut it even more, and you save even more.
Not sure where to begin with exploring your refinance options? Check out SoFi, a leading marketplace lender and the largest provider of student loan refinancing.
Mistake #3: Holding off on owning a home
When you have six figures in student loan debt, buying a home can feel like an unattainable fantasy. How can you save for a down payment when your income is being eaten up by student loan payments? And what lender would give you a home loan given the amount of debt you already have on your plate?
Fortunately, there are a growing number of lenders who cater to this exact demographic. SoFi, for example, offers a mortgage that allows for as little as 10% down on loans up to $3 million (no expensive private mortgage insurance required). And with a unique underwriting approach that allows for more flexible debt-to-income limits, even people with student loans can potentially qualify for greater financing than they would with a traditional lender.
While dealing with student loans can be daunting and scary at times, some dental professionals have reported positive experiences from programs such as SoFi. Dr. Jared Pool, who graduated from the University of the Pacific said, “I graduated when the recession was in full-swing. No bank would talk to me, no one would listen to what I needed to say. I tell everyone about SoFi – it’s the easiest thing. Before, I had three different loans and it was frustrating. Now, I pay one, and I’m saving 2% in interest every month – that is a huge savings for me every month. Mentally, SoFi has been great. I know I’m making progress and it’s given me the freedom to invest that money in other assets. My debt is there, but it isn’t holding me back. As a Dentist, SoFi has been great. I’m saving money and paying down my loans. That money has been helpful as I started my own practice and achieved other life objectives.”
Want to learn more about accelerating your financial success? Check out SoFi today.
[i] Understand that when you refinance federal loans, you forfeit certain flexible repayment options and other benefits. If you expect to incur financial hardship that would affect your ability to repay, you should consider federal consolidation loan options.
For more information on Student Loan Refinancing, visit sofi.com/DentalGeek