5 Tips to Repay Student Loan Debt for Doctors, Dentists and Lawyers
June 29, 2016 | Your Finances
When Deborah Sweeney started at the Pepperdine School of Law in a joint JD/MBA program, she did so knowing that she would graduate with a significant amount of student loan debt. Even though her debt grew to $60,000, she didn’t worry too much. After all, to her it was just an abstract number, and its effect on her future was unclear.
But when Sweeney graduated, that changed. “I remember feeling shocked at what my monthly payment was,” said Sweeney, 40, CEO of MyCorporation.com. “I felt very overwhelmed.”
Sweeney, who graduated in 2000, was “lucky” to have only $60,000 in student debt. According to the American Bar Association, law school students who attend private colleges graduate with an average debt of $122,158. While that might seem like a lot, dental grads face the highest student loan debt, according to the American Dental Education Association, graduating with $241,000 in debt; and doctors aren’t far behind with an average of $183,000 in student loans, according to the Association of American Medical Colleges.
These large amounts of debt can seem overwhelming to graduates like Sweeney, but with good job prospects and a number of repayment options, experts say that professionals shouldn’t worry about their loans. There are a number of things they can do to ease the repayment process.
1. Consider refinancing your student loans. One of the things that Sweeney did to pay off her debt was consolidate and refinance her loans, which allowed her to qualify for a lower interest rate. Devin Salinas, a financial advisor with Northwestern Mutual, believes that refinancing loans can be a great way to help accelerate repayment.
But Salinas suggested that borrowers “make sure they understand the fine print in the loan agreements.” Many refinancing options offer variable rates, which could rise significantly if interest rates increase. For this reason, he recommends having a financial advisor look over the fine print or sticking to fixed-rate loans.
2. Investigate your repayment options. Depending on your loan servicer, there are a number of different repayment options for student loans. Sweeney chose an aggressive approach to paying off her debt. She decided on a 10-year repayment plan and made extra payments so that she paid her loans off in five years.
“I always paid at least $250 more than I owed,” she said. This allowed her to pay less interest over the life of the loan.
Like Sweeney, many graduates accelerate their repayments, but Salinas cautions that it could have unexpected consequences if not part of a larger financial plan. “One of the mistakes that I see a lot of people make is they get so focused on reducing their debt that they are foregoing saving, investing and funding retirement plans.”
3. Look into student loan debt forgiveness. Like other borrowers, doctors, dentists and lawyers who go into the public service or work for the military can qualify for public service student loan forgiveness programs. There are also additional forgiveness programs available to dentists and doctors who work in underserved areas.
Salinas has had clients take advantage of these programs. It’s important, he said, that the borrower weigh the loan forgiveness against the potential reduced earning capacity. “The financial opportunities from an income perspective,” he said, “are typically lower than what you would earn elsewhere.”
4. Find ways to increase your income, and then protect it. One of the reasons Sweeney was able to pay off her student loan debt in just five years was because she focused on making more money. This opened up new job opportunities and allowed her to increase her salary.
Salinas suggested that it’s also important that professionals pick the right job upon graduation. For example, dentists should gauge the potential flow of patients in a practice before joining.
Salinas also stressed that it’s crucial for professionals to take out disability income insurance to protect their educational investment and enable them to repay their debt if something happens. “This should be one of the first things that they do,” he said.
5. Live a modest lifestyle. Many professionals graduate with a pent-up desire to spend extravagantly. They have often been pinching pennies while in school; and when they finally start making money, they want to spend it. But it’s important that they find “a balance between rewarding themselves,” said Salinas, “and creating the long-term lifestyle they want.”
This balance between immediate gratification and long-term prudence was what helped Sweeney achieve success in paying off her loans. Her advice for others in a similar situation is to find that equilibrium for themselves. “Don’t spend frivolously,” she said, “but also don’t panic and do nothing so that you are miserable.”
Look at the Bigger Picture
“I think for a lot of folks debt is incredibly overwhelming,” said Salinas, but he reminds clients that “this debt is just another financial tool and should be looked at as an investment in themselves that will pay off in higher income over the course of their careers.”
For that reason, Salinas believes it’s important that professionals work with a financial professional to understand their debt in context. “One thing we always do,” he said, “is run a future income projection for a client.” That usually helps them realize that their debt will soon be paid off and that “they can still go buy that house they want, they can still start their family, they can still start a practice.”
Sweeney acknowledges that having a strategy really helped her stay focused. “I am a planner,” she said, “so putting a debt payoff strategy in place really helped.” She suggests that those who are concerned about their debt shift their focus: “Rather than focusing on the debt,” she suggested, “focus on a strategy to pay it off.”
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries. Devin John Salinas is a District Agent of NM.