Ask the Readers: How Do You Prepare for Enormous Debt?

Most dentists who make a lot of money run their own offices (or buy into a practice), rather than work as employees. Therefore, they are as much small-business owners as professionals.

$200k is not a huge investment if you are looking at starting a business of any kind. Perhaps you and DH could benefit from (re-)reading The Millionaire Next Door about how small-business owners think and live to become wealthy. If your DH has a vision for how he plans to practice dentistry, you can and he can formulate goals and plans for how to build up his (and your) incomes to get out of debt as soon as possible.

I’m a big planner, and like you, freaked out when we had our first “big debts”. As a pp suggested, thinking through the worst-case scenario and coming up with multiple ways of surviving everything makes life a lot less stressful.

As to comments about “living like adults” — did that, bought the t-shirt. Then we decided we’d rather be semi-retired ASAP, and are back to shopping at Tar-JAY, accepting hand-me-down furniture, driving beaters, and eating at home and cooking almost every meal. We spend money on what we love, but don’t spend to impress. As soon as they fix health care to make it accessible and affordable without employer benefits, we’re there.

Wait a second. $200k to be a dentist?!?! That’s crazy. And it’s not good debt. There’s a myth out there that any cost of college is worth paying. Treat it like a business transaction, how much is he making now? How much will he make as a dentist? How much income will you loose over those 4 years? For that kind of debt, he better make $150k a year more than you are making now. Also, where is he going to dental school? Harvard? The cost seems outrageous.

My husband is in his last year of chiropractic school and when he graduates our combined student loan debt will be ~$140K. My suggestion to you is to live on your income and do not have your husband get a job – he’ll need to spend all his time at school and studying. We have friends who are taking out loan money that goes toward their living expenses and tuition and their loans are much much higher than ours. If being a dentist is really what your husband wants, just minimize the debt as much as you can and plan to not make any major modifications to your lifestyle for a few years after he graduates. Good luck!

as someone going through a divorce, after paying for a husband’s education, with a future once ensured and now gone, i definitely want to make sure that both parties have not just a mutual understanding but a legal contract for future earnings to be geared toward paying off the debt first, then paying the salary on the wife’s end (for giving up all the niceties in the first place.)

I think you need to stop worrying so much. I also think that a lot of the people commenting here don’t fully understand the situation. I graduated 3 years ago from pharmacy school with $100,000 in school loans. I’ve accepted that for the next 30 years $400 of my monthly paycheck will go toward these school loans. I find myself grateful that I was able to have the opportunity to go to school and wind up with a stable career. I obviously don’t like “losing” such a large chunk of my income, but I also am very happy that I still live quite comfortably with my pharmacists salary (which I would have never come close to earning if not for the school loans)!

Carrie:

for federal loans, to get an in-school deferment you have to be in school at least half time. for most applications, this is 6 credits. that would have to be substantial interest for the tuition, fees and books to be cheaper than paying interest. never mind the extra time it would take from the important early stages of his career.

also, the only loans for which you are not responsible for interest during the in-school period are subsidized federal loans. the subsidized amount you can take out is limited and is determined based on your financial need.

either way, they are going to be paying interest on his student loans. i don’t see where remaining in school will reduce costs.

from studentaid.ed.gov:
“When you graduate with a graduate or professional degree, the maximum total debt allowed from Stafford Loans is $138,500. No more than $65,500 of this amount may be in subsidized loans.”

There is a reason most people call student loans “good debt.” It’s because if you really go and do what you are supposed to do, then your income will make such “debt” look miniscule. This isn’t always the case- if you go into massive debt for a liberal arts degree at a below-average college, for example. However, advanced degrees or degrees in fields that pay very well can usually pay for themselves several times over.

Also most student loans have the payments deferred until several months after graduation. So if you complete your studies and arent just there screwing around, you will already have a well paying job before the first payment is even due. Even if the starting salary isnt that high, in a few years it probably will be. Eventually the loans will be paid off and you will be making a lot more money than the average worker.

If the wife or the student is that worried about it, perhaps she doesnt have much faith in her husband to complete his studies and become at least an average dentist with a paying job.

Of course there are always unforseen circumstances, but I think you have to live life going for the win and the odds are on your side.

It also depends on the situation and marginal benefit of the degree, time and other opportunity costs,etc. If you have a choice of working at mcDonalds for the next 50 years or taking a student loan and being almost guaranteed of at least a comfrotable middle class existence- it’s a no brainer.

But if you are someone who makes $90,000 ( and is happy with current career path) a year and six figures of loans and 4 years of lost paychecks will bump you upto $100,000- you probably need to think more about it.

I wish I were exaggerating, but there are bloggers ( and other people out there in the world) out there who live in poverty but refuse to go to college because they might need a student loan. They are proud to live a Dave Ramsey “all debt is evil” certified lifestyle and actually put down and criticize people who go to college to better themselves. Talk about missing the big picture. The same people are trying to cut any penny they can just to survive but wont take on any “debt” to actually make more money.

Of course this isn’t always the case, but most people aren’t Bill Gates. Many people without higher education are pretty much stuck in low wage jobs for life. it’s either go to college and get a “real job” or toil in low wage no benefit work for decades. there is no in between.

Advanced degrees are a whole other ballgame but in many cases are comparable in the relative benefits. I personally would have confidence in myself and wouldnt worry that much about part-time jobs, frugal tricks, and all that. id be concentrating on my studies and looking forward to the bigger bucks. Of course this depends on how rigorous the studies are ( I would assume they are) and the support at home ( wife works, any kids?, and so on). If it all works out, in a few years there will be plenty of money for the retirement accounts and everything else.

“from studentaid.ed.gov:
“When you graduate with a graduate or professional degree, the maximum total debt allowed from Stafford Loans is $138,500. No more than $65,500 of this amount may be in subsidized loans.””

I would just like to point out that this is incorrect. I don’t have any source on what the real rule is, but I went to med school and ended up with $185K in all Stafford loans, graduation last year. I maxed out the Stafford every year, it paid my ~$40somethingK tuition and left me with a grand or two to spare each semester.

p.s. thanks to JD for posting this Ask the Readers question, I’m sure he noticed I posted on this a few days ago in the Forums.

After doing this myself I have no great tips on dealing with the mental anguish, which I’m also currently suffering, but I second the emotion on scholarships. In professional schools there are fewer than for college, but they still exist, as well as special loan opportunities from some professional organizations that can give you greatly discounted interest rates and the like. At least search the web with your career choice and ‘scholarship’ as well as your state/county/town and scholarship and see what you turn up!

As a health professional with a solo practice my advice would be to spend your free time and breaks from school learning how to run a business, professional school teaches you required skills, but not always business skills.

If you have the best hands, and best skills you still won’t fill your office unless you know how to market your practice.

Someone (Helen?) mentioned insuring your life, but remember to insure your husband as well, since it is his future income that you are mortgaging. It is essential that you insure your husband’s life well enough to cover the debt you are taking on.
_______________________________
Wishing you a prosperous future
Daiko

I wanted to reply to post #65 about rural communities. A family dental practice in Houlton, Maine, a town on the Canadian border, had offered to provide a full ride for dental school just to bring a new professional to the area as I understood from recent conversation with relative living there. That they had no takers was stunning and heartbreaking.

I have skimmed some of the above responses and read several, and I don’t think anyone has mentioned the following “trick” I have used very successfully with my student loan repayment.

I have $44K total loans for a Masters in Music, probably a number higher than I will ever make in a year. Talk about scarry!

I graduated in 2001, so for 6 years I did what Sallie Mae said, paid the level monthly payment, it is about $232 a month. This was doable for me ONLY during the academic year for a long time, so each summer I would apply for forbearance. Then I would make a few large payments ($500) when I had some money. BUT I was sooo frustrated when I would calculate how much I had payed IN and how little had come OFF the principal! And to add insult to injury, they compound yearly any unpaid interest, and smack it on to the principal!! It’s like pretty evil!!

BUT after researching on Sallie Mae’s website, I discovered the formula that they use in calculating daily simple interest. The formula is:
Principal * interest rate (mine is 4.25 after consolidating) * NUMBER OF DAYS BETWEEN PAYMENTS / 365 (or a decimal to account for leap year)

So, January 08 my calculated daily interest amount (that Sallie Mae calculates EVERY DAY including holidays and weekends) was $4.97. This # adds up daily, BUT as the days between payments add up, the daily interest gets bigger and bigger (by a few pennies, but it adds up!) because they add the daily interest to the principal everyday.

SOOO the trick! If one pays the interest down as soon as it accrues, it won’t get any bigger than it is on day one. I set up automatic payments from my checking account to pay $15 on Mondays (to get the interest for Sat. Sun. and Mon.), $13 on Wednesdays and Fridays. These amounts ZAP the daily interest, any leftovers go toward principal. Then I make a bigger payment of $100 on the loan due date, which ALL (minus any interest, which is never more than one days worth) goes toward principal. All in all I am paying a little more per month than Sallie suggests, but like $30-40 more, not a huge amount extra. I calculated the percentage of interest paid the “normal” way of making payments, and one will pay appx. 60% or more in interest, as opposed to 35-40% doing it my way.

And it is exponential. I keep making the same amount in payments, but the smaller the principal gets, the lower the daily interest, the more principal I am paying each month. My daily calculated interest is now down to $4.69 (I have been paying this way for 9 months). AND when the evil yearly interest “compounder” tries to smack that interest onto the principal, HA There is only a bit, or none, depending on the day it decides to do it!

I can actually see the difference I am making in the Principal, which is liberating, not burdensome!! I love checking the Sallie Mae website now, to see how low my daily interest is this week, month, etc.

I used to track it in an excell spreadsheet, but my computer crashed. Also, I love the “automaticness” of it, I am only parting with $13 or $15 at a time, and $100 once a month (also, my boyfriend and mom chip in a bit each month through their auto bill pay) so psychologically it is doable. And it really works for my low income summers.

SOO everyone should pay student loans off this way!! I would love any comments or suggestions JB has on this – wondered if anyone else knows this “trick” out there?
Also, hope Sallie Mae doesn’t come after me one day for “hacking” their interest calculator. BUT the information is all there, for everyone to see. Or hope they don’t start charging for more than one payment a month like Mortgage companies do. Too bad people can’t use this system on Mortgages!!