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Paying down student loans vs investing liquid

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Mrwesson
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Paying down student loans vs investing liquid  Reply with quote  

I am a dental student and my graduation situation listed below.
~300k in loans ~100k @ 7.9%/128k @ 6.8%/ 32k @4.5%(these are all fixed rates)
125k (paid cash for my townhome) and will be liquidated upon graduation

My employment plan
Public health 2 yr contract dentist 120k yr salary 30k tax free loan repayment bonus(equal to 47k taxable) and can extend up to 6 yrs repayment plan details: 30k for first 2yrs, 3rd year 40k, 4th,5th,6th year 30k with loan forgiveness at the end of 6 years. My plan is to only stay for 3 years max(2yr ideally).

1 yr private practice(to build certain skills) ~130-160k yr salary

3yrs out finally purchase a practice from a retiring dentist(specifics not known) purchase price will be between 250k-500k. Getting a practice loan is almost a sure thing through certain lenders.


option 1 consolidate loans for 25yrs the lowest payment and save/invest my 125k for a down payment on a practice or retirement. Once your practice is successful pay down on the debt x3 or more with a goal of a 10-15yr payoff.

option 2 is to pay down the higher interest debt(100k @ 7.9) with the 125k liquid.

option 3 is to take the public health job + put 100k of the 125k towards loans and live frugally with a goal of a 3-5yr payoff. I should be honest and say after 8yrs of college living extremely frugally wouldn't be desirable and may lead to jumping off a building Shocked.

Thanks in advance for any help
Post Mon Feb 21, 2011 5:18 pm
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oldguy
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I retain the use of low interest, long term loans as long as possible, and I invest my own capital elsewhere. But the consolidation rate would be over 7% - that's a bit high.

So I would probably pay off the $100k with some of the $125k and retain the $200k loans for the full term - no prepayment. In most cases you will make money by directing your income stream to the highest and best use where it is likely to earn well above your 6.5% cost. Either stocks (protected in an SEP?) or a business or both.

And I agree that it is probably better to get out of the loan forgiveness plan early - it 'sounds' like free money but it is usually better to go into the private sector, earn enough extra salary to offset the 'free' money, and advance from there.

There may be times in the next 30 year period where 6.5% capital will look very good - and you will be glad that you retained the use of the $200k.
Post Mon Feb 21, 2011 5:40 pm
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Mrwesson
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Thanks for the advice.

In public health the starting salary is pretty close to the same private salary in private sector. The potential for salary growth is almost non existent in public health(reason for staying 2 years).

An example starting salary would be 120,000(you can make more in public health) + 30,000 tax free loan repayment which if made from taxable wages = 47k.

167k would be the top tier salary for a 1st year dentist in any sector(average is around 110-120k). 3rd year gets interesting because they offer 40k repayment and with raises accumulated over the 2 previous years may be very competitive as well.

My motivation to go to private practice(associate dentist not owning practice) in year 3 is because in public health you do not experience complex procedures for the most part this experience is well worth a pay cut because you will need this experience before opening your own practice.
Post Mon Feb 21, 2011 6:53 pm
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MrPolarZero
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Well, that seems a rather good foresight. Looking at the details that you have provided here, it would definitely be a good route for you to take.

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Post Tue Feb 22, 2011 4:44 am
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KatherineLee88
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Dang....
I didn't realize dentists made so much! Now I sort of understand why someone would chose that career path.

But is dentistry school seriously more expensive than medical school!? Shocked

Oldguy's advice sounds logical to me. No shame in taking the full term to pay off student loans. I likewise am going to slow down and not "prepay" my student loans and invest some of the money elsewhere such as Roth IRA.

Sounds like you don't want to do the public health thing. I would suggest you maintain whatever sanity you still have left and avoid 2 years in a short-position public health job.

If what is said about dentists is true...

...well, you've been tortured enough as a student, and as a dentist you need to maintain whatever sanity you have for the long-term.
Post Tue Feb 22, 2011 7:46 pm
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Mrwesson
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Dentistry costs a little more than med school. It was once true that med school drop outs became dentists but it is now much harder to be accepted to dental school because of a growing field and very few schools compared to med school. You also get to practice immediately after dental school while docs have 4yrs undergrad, 4yrs med, 3 yrs residency.

Once you own your own practice 250k is the norm. I know 7 dentists and only one makes 250k and one owns 3 practices and makes about 1.4mil a year. others are closer to 300k yr.

It is hard work but you are not on call like md's and most dentists work 4 days a week and under 40hrs a week.
Post Wed Feb 23, 2011 1:39 am
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MrPolarZero
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From the looks of it, you are now in a rather good position. So I think it would be a good idea to pay off the student debts first.

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Post Wed Feb 23, 2011 5:16 am
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KatherineLee88
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I guess I have a biased perspective on how many people are entering dentistry since my undergraduate and graduate universities have dentistry programs (University of Minnesota and University of Iowa).

Apparently I'm becoming the wrong type of doctor altogether (PhD)!

Not only do I get to look forwarding to working longer hours than you, I also will get paid less than half that amount if I'm lucky.
But, at least I don't pay for graduate school. Razz

Honestly, I would just go with whatever option you think will make you happier... so not public health. You'll be making significant bank to cover those loans in no time anyways.
Post Wed Feb 23, 2011 10:29 pm
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Benstoke
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