Understanding and Evaluating Associateship Opportunities
Student Loan Debt Management

Course Author(s): David G. Dunning, MA, PhD;Robert D. Madden, DDS, MBA

Student Loan Debt Management

Student Loan Debt Management

We would be remiss if we failed to address student loan debt management in the context of associateships. The length and interest rates of educational loans for dental school can vary greatly depending on type, but a blended average interest rate of 6% is used here for illustrative purposes only. Your situation will be individually fact-dependent. The ADEA website has excellent modules posted on loan repayment, including possibly more affordable income-driven repayment options developed and narrated by Dr. Paul Garrard. We highly recommend you review these modules for more in-depth information. (ADEA modules.)25

Below is a table with the approximate monthly payments for the listed loan amounts and the number of years to pay off the loan listed on the left.

Monthly Payments

10 Years$967$1,933$2,900$3,867$4,833$5,800
25 Years$322$644$966$1,281$1,611$1,933

A portion of the interest on these loan amounts may provide a tax deduction in the first year or two for some recent graduates. However, that deduction phases out at higher income levels and disappears completely once taxable income exceeds a certain threshold (as of 2016, $80,000 in adjusted gross income for single tax payers and $160,000 for married tax payers). See this IRS link for more information: Student Loan Interest Deduction.

As a rough rule of thumb, figure you will need to make these student loan payments with AFTER tax income and any other taxes such as social security. Your gross (before taxes) income will need to be about 20 to 30% more than your monthly payment amount. For example, to make a monthly payment of $2,000, you will need to make approximately $2,400 to $2,600 in gross (before tax) monthly income. The standard period for paying off education loans is 10 or 25 years, though other options are available (see the ADEA modules mentioned above).

If allowed, should you pay off your student loan earlier than required by the lender or by law? This is a very complicated question highly fact-dependent on your individual/family situation. Generally speaking, at today’s interest rates for other loans, 6% is fairly high. In the long-term, if you could realize a greater rate of return on investments in a tax qualified retirement account (no income tax on the amount contributed and no income tax on your investment growth until you take money out upon retirement), you might be better served to invest in tax qualified retirement plan through your dental practice rather than pay-off loans earlier than required. Of course, there is no guarantee your retirement account investments will yield a rate of return that would exceed your 6% student loan rate; on the other hand, contributions to a tax qualified retirement account will reduce your income tax.

As with any major financial decision, you should consult with a trusted and highly competent financial planner and a certified public accountant when deciding about options for paying off student loans early vs. investing in some other way such as practice or a retirement account.