Should You Worry About Your Student Loans?

Shortly after I graduated dental school back in 1992, I would spend my weekends out in the middle of the Atlantic Ocean fishing for big fish like Shark, Marlin and Tuna. We’d go out on a boat owned by “Gene”, my next door neighbor and an accountant by trade. It wasn’t until years later that I learned that Gene wasn’t just an accountant, but rather a partner in one of the biggest and most respected Accounting firms in our area.
Sitting on a boat, 30 miles from land with a case of beer while waiting for fish to bite can lead to some great conversations and every week Gene would give me nuggets of advice on finance and management. I distinctly remember the time he asked me how much debt I had. I told him and his response was: “Personal debt is a bad thing. Make sure your home is paid off. Make sure your cars are paid off. Don’t live above your means. BUT…business debt is an altogether thing. It’s OK to have debt as an investment in your company’s future. Don’t be scared of it and if have a way to pay it off, it’s gonna help you grow.”
Fast forward almost 30 years and even with radically different tax laws, much of Gene’s advice rings true. However, one thing that many of us face that wasn’t an issue 30 years ago is the presence of significant school debt. I remember back in 1992 when my dental school buddy told me that he was going to graduate with about $80,000 worth of student loans for him and his wife. I almost collapsed when I heard that but today most of us have far, far more student loans than that. So, should we feel bad about our student loans?
There are lots of great articles out there discussing how investment in ones education is a great idea and how to calculate how much student debt is considered OK. (Forbes Article) Thankfully, Orthodontics is a profession that when diligently practiced allows a nice income. However, there is a huge difference in lifetime earning potential depending on whether one wants to be an associate or a practice owner and that plays into the long-term equation. Each model comes with significant pros and cons, but for lifetime earnings, owning will almost undoubtedly come out on top.
I see school loans as a necessary investment in ones future, but graduating from a residency program isn’t a lottery ticket; You aren’t guaranteed anything. The end of school simply means the beginning of your financial life and you’d better take your loans seriously. But, if you work hard and develop your own practice, you’ll be able to overcome almost any school debt over time.
Should you pay off your student debt as quickly as possible?
Not necessarily. While there are many orthodontists out there who are proud to tell you how they paid off their loans in a couple of years, not all financial advisors agree with that philosophy. You see, many loans can be refinanced to very low rates and money invested early in your career has the time value associated with it. This means that $300,000 loan (refinance at 4.25%) paid off in the first 5 years of your practice life may have saved you a few of hundred thousand dollars in interest, but had you been aggressively saving it into a retirement plan, 27 years after saving it (at 8% annual return) that $300,000 would be worth  $2.4 million.
Of course, the peace of mind of paying off your student loans may be more important to you now than any far off retirement plan, but the bottom line is that most reading this have no control over what their loan is; It’s already been done. So, don’t sweat your loans. Think of them as a part of your business investment in your future earning potential. Be as smart as you can with your lifestyle, find a great financial advisor and follow their advice.
Orthodontics is an amazingly fun and fulfilling profession. You did what you had to do financially to get through school and get your degree/certificate. Enjoy the fact that you are changing lives on a daily basis, do the absolute best care you can but realize that orthodontics is a profession AND a business.
Just remember this quote from Henry David Thoreau, one of the greatest American writers of the 20th century: “If one advances confidently in the direction of his dreams, and endeavors to live the life which he has imagined, he will meet with a success unexpected in common hours.”
Sounds like you, right? Don’t worry. You’re gonna do great!
All the best,
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