Janice Lozano
Orthodontic student loans can be a heavy burden, with dental school debt averaging $286,000 to $300,000, and some students taking out loans of up to $800,000. However, there are strategies to manage and pay off this debt. Federal loan forgiveness programs such as PAYE and REPAYE can be beneficial for those with substantial debt, as they tie repayments to a percentage of discretionary income. Refinancing can also help reduce the financial burden by consolidating loans and securing lower interest rates. Owning a practice can be a solution, as it allows for greater income and the ability to write off a percentage of building costs and equipment expenses each year. Additionally, loan repayment strategies may involve working part-time or taking on temporary assignments to increase income allocated directly toward loan repayment.
| Characteristics | Values |
|---|---|
| Average orthodontic student loan debt | $286,000 to $300,000 |
| Loan repayment period | 10 years for standard loans, up to 25 or 30 years for dental school loans |
| Loan forgiveness programs | Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), PSLF |
| Loan forgiveness eligibility | Public service, education, social work, public health, military |
| Strategies to pay off loans | Owning a practice, refinancing, part-time work, loan consolidation, income-driven repayment plans |
| Benefits of owning a practice | Higher income, lower taxes, write-offs, tax deductions |
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What You'll Learn
Loan forgiveness strategies
Orthodontists frequently graduate with over $500,000 in student loan debt, with some owing more than $1 million. The high cost of becoming an orthodontist means that loan forgiveness strategies are often necessary.
One strategy is to own your own practice. As an owner, you can make more money and ensure that a lot of it doesn't show up on your Adjusted Gross Income (AGI). This is because, as an owner, you can write off a percentage of your building on your taxes each year, deduct a portion of the cost of equipment, and deduct the cost of employer contributions to your 401k plan. This means that you can make more money while keeping your taxes low.
Another option is to work part-time, reducing your income and overall cost of living. This strategy may require a more frugal lifestyle, but it can still be lucrative. For example, an orthodontist earning $150,000 as a part-time employee on a PAYE plan saw their total payments reduced from $524,000 to about $245,800. While their tax bill was higher, the difference in payments more than made up for it.
Additionally, there are federal and state loan forgiveness programs available for dentists and other healthcare professionals. For example, the Public Service Loan Forgiveness (PSLF) program forgives the remaining balance on federal student loans after 120 qualifying monthly payments while working full-time for a qualifying employer, such as a government or non-profit organization. Similarly, the National Health Service Corps (NHSC) offers repayment assistance of up to $50,000 for qualified federal and private student loans for licensed primary care medical providers, including dentists, who agree to a two-year service contract in a Health Professional Shortage Area (HPSA).
Finally, Income-Based Repayment (IBR) plans are intended for individuals with more debt than annual income. Under an IBR plan, you can minimize monthly payments and maximize unpaid principal and interest. At the end of the repayment period, typically 20 or 25 years, the remaining loan and unpaid interest are forgiven. However, it's important to note that forgiven debt is treated as taxable income, which can result in a large tax bill.
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Refinancing
Additionally, before refinancing, it is worth considering other options such as loan forgiveness strategies. For example, the American Association of Orthodontists (AAO) has developed resources to support colleagues in exploring student loan forgiveness programs. State-funded forgiveness programs are also available in some states, such as Nevada's Health Equity and Loan Assistance (HEAL) Program.
If you are set on refinancing, it is worth shopping around for the best deal. Different banks will offer different rates, and it is also possible to negotiate cash-back bonuses.
It is also important to consider the potential savings that refinancing could bring. For example, one orthodontist with $800,000 of student loan debt at 7% on the PAYE plan could save almost $300,000 by using a loan forgiveness strategy instead of refinancing. However, refinancing could also reduce monthly payments, freeing up cash flow for other financial goals. For example, one orthodontist with a $350,000 income would pay $2,728 per month on PAYE, compared to $3,500 per month with refinancing.
Finally, it is worth noting that the large student loan debts of orthodontists are influenced by the lengthy and costly education required to become an orthodontist. The average orthodontic resident graduates with almost $600,000 in student loan debt, and the debt can influence where they choose to practice, with most opting for cities or suburbs to pay down their loans faster.
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Federal loan forgiveness programs
Another option is to sign up for an Income-Driven Repayment (IDR) plan, where your payments are based on your income and household size. Under this type of plan, your payments may be limited to a percentage of your discretionary income, and your remaining balance can be forgiven after 20 or 25 years, depending on the specific plan. Examples of IDR plans include Income-Based Repayment (IBR) and Pay As You Earn (PAYE).
Additionally, there are service-based loan repayment programs (LRPs) offered by national organizations such as the National Health Service Corps (NHSC). Licensed primary care medical providers, including dentists, can receive up to $50,000 in repayment assistance for qualified federal and private student loans by agreeing to a two-year service contract working full-time or part-time in a Health Professional Shortage Area (HPSA) approved by the NHSC.
Some states also offer their own loan forgiveness programs. For example, Missouri participates in the Health Professional Student Loan Repayment Program (SLRP), which provides funding for educational loan repayment to Missouri-licensed practicing medical and dental health professionals in exchange for services in areas with a shortage of healthcare professionals. Similarly, the North Carolina Loan Repayment Program offers loan repayment of up to $100,000 for dentists and up to $60,000 for dental hygienists who provide services in eligible facilities serving those with high needs.
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Owning your own practice
Owning your own orthodontic practice can be a great way to pay off your student loans. Here are some key considerations and benefits of owning your own practice:
Increased Income Potential
As a practice owner, you can significantly increase your income compared to being an employee. Orthodontists who own their practices can make up to twice as much income as an employee, while their taxes may only reflect a 25% to 50% increase. This additional income can be used to pay off student loans more quickly.
Tax Advantages
Owners of orthodontic practices have more control over their taxable income. You can minimize taxable income by reinvesting revenue into the business, such as through marketing, advertising, and other business expenses. Additionally, you can take advantage of legitimate business deductions, such as equipment depreciation and business interest, to further lower your taxable income.
Retirement Planning
As a practice owner, you have more flexibility in choosing a retirement plan. You can contribute to a 401(k) or similar retirement plan, which can reduce your taxable income and, in turn, lower your student loan payments. The ability to maximize retirement contributions can help secure your financial future while also reducing your tax burden.
Loan Accessibility
Banks are often willing to lend to orthodontists, even with large student loan balances. They understand that orthodontists have strong income potential and are typically good loan customers. However, it is important to ensure that the practice you purchase can support your student loan payments and living expenses.
Location Considerations
When establishing your own practice, consider the location carefully. Avoid the coasts, as you will face higher costs for labor, real estate, and living expenses. Instead, consider a mid-sized metro area in the Midwest, where you can own your building, find quality staff for lower salaries, and have less competition.
Practice Management
Keep in mind that owning a practice comes with additional responsibilities and stress. You will need to manage all aspects of the business, including finances, marketing, and human resources. Ensure that you have a comprehensive business plan and seek advice from experts in practice management and financial planning to optimize your chances of success.
In summary, owning your own orthodontic practice can provide significant financial benefits, including increased income, tax advantages, and retirement planning flexibility. With careful planning and consideration, you can put yourself in a strong position to pay off your student loans more quickly and effectively.
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PSLF program
The Public Service Loan Forgiveness (PSLF) program is designed to encourage students to enter public service careers that are necessary but often low-paying. These include careers in firefighting, teaching, government, nursing, public interest law, the military, and religious work.
The PSLF program offers an average debt forgiveness of $73,400 per borrower. To be eligible for the PSLF program, you must have federal direct loans, including Grad PLUS loans. Private student loans are not eligible for PSLF. If you have other types of federal loans, such as Federal Family Education Loan Program (FFELP) loans, you must consolidate them into a Direct Consolidation Loan to make them PSLF-eligible.
To qualify for PSLF, you must also work for an eligible employer. You can verify this by submitting a PSLF Employment Certification Form annually or whenever you change jobs. It's a good idea to submit this form regularly, even though it's not required every year, to ensure you're on track for loan forgiveness. Once you're eligible, you can apply for forgiveness and certify your employment retroactively.
The PSLF program has undergone temporary changes due to the pandemic. From March 2020 to October 2023, all federal student loans were placed into interest-free administrative forbearance. Additionally, the Education Department is temporarily including months spent during the pandemic payment pause towards PSLF forgiveness, as long as borrowers also worked a qualifying job during that time. These changes will continue to be implemented until early 2025.
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Frequently asked questions
A good debt paydown strategy will depend on your personal financial goals and circumstances. However, some general strategies for orthodontic student loans include refinancing, taking advantage of federal loan forgiveness programs such as PAYE and REPAYE, enrolling in the PSLF program, or exploring locum tenens opportunities.
One way to reduce the cost of your orthodontic student loans is to refinance and secure a lower interest rate. Another way to reduce costs is to own your own orthodontic practice. As an owner, you can write off a percentage of your building and equipment costs each year on your taxes, which can significantly reduce your Adjusted Gross Income (AGI) and, consequently, your loan payments.
Balancing orthodontic school debt repayment with your career can be challenging. One option is to work part-time and use loan forgiveness strategies. This may require a more frugal lifestyle but can allow you to have more time off while still making progress on your loan repayment. Another option is to take on part-time locum tenens assignments, which can provide additional income to allocate directly towards loan repayment and help you regain control of your finances while pursuing your career.
