The best dental school loan repayment strategy depends on your career path. A dentist starting a general practice has different challenges and priorities than an orthodontics resident, for instance.
Based on your post-graduation plans, use these guidelines as a starting point for mapping out your repayment approach.
- Private practice: Standard repayment or refinancing.
- Residency program: Income-driven repayment, deferment or refinancing.
- Public sector: Dental school debt forgiveness and income-driven repayment.
Dental school loan repayment
There are five main options for dental school loan repayment:
Refinance to save on interest
Best for: Private practice dentists.
For dentists working in private practice — whether as a solo practitioner, as part of a group or in a corporate dentistry setting — dental school loan refinancing is likely the best option if you want to pay off debt aggressively.
Refinancing can lower your interest rate, which may save you money and help you pay off debt faster. For instance, refinancing $285,184 — the average dental school debt among the class of 2018 — from 7% interest to 5% would save you $286 per month and more than $34,000 over a decade, assuming you had 10 years of payments remaining before refinancing and kept the same repayment schedule.
Recent dental school graduates may be able to qualify by providing a signed job contract to prove future income.
To qualify for student loan refinancing, you need good credit and a relatively low debt-to-income ratio. Recent dental school graduates may be able to qualify by providing a signed job contract to prove future income, says Barbara Thomas, executive vice president at SouthEast Bank, which has a student loan refinancing division called Education Loan Finance.
Before refinancing federal student loans, be confident that you plan to remain in the private sector and won’t want to use an income-driven repayment plan or pursue Public Service Loan Forgiveness. You lose access to those benefits when you refinance federal student loans.
Stick with the standard repayment plan
Best for: Private practice dentists.
On the federal standard repayment plan, you’ll make equal monthly payments for 10 years. Choose this option if you’re in private practice and don’t qualify for refinancing. Among all federal repayment plans, you’ll save the most in interest on this plan.
Switch to income-driven repayment
Best for: Dental residents and dentists working in the public sector.
Income-driven repayment is the best option for many dental residents. For dentists pursuing Public Service Loan Forgiveness, it’s also a strategy to maximize forgiveness.
There are four income-driven repayment plans that cap monthly payments at 10% to 20% of your income and extend your repayment timeline to 20 or 25 years, depending on the plan.
Payments can be substantially lower on an income-driven plan, making them affordable even during residency. With a $56,000 annual income — about the average salary for dental residents, according to the job site Glassdoor — monthly payments could be as low as $315. Payments are subject to increase annually as your income increases.
However, your balance will probably increase on an income-driven plan because your payments likely won’t be large enough to cover the interest as it accrues. If you’re not pursuing PSLF, revisit refinancing once your residency is complete and you’re employed.
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Pursue dental school debt forgiveness
Best for: Dentists working in the public or nonprofit sector, or in an underserved area.
There are several dental school loan repayment and forgiveness programs that will pay off debt for dentists who work in the public sector or in an underserved area for a certain period of time. This route is a good option if your career plans align with one of the program’s requirements.
For instance, Public Service Loan Forgiveness eliminates your remaining federal student loan balance tax-free after you make 10 years’ worth of payments while working for the government or a nonprofit. Only 5% of class of 2018 dental school graduates plan to pursue Public Service Loan Forgiveness, according to a survey by the American Dental Education Association.
Defer loan payments during residency
Best for: Dental residents in programs that charge tuition.
Whether you’re pursuing a dental specialty or doing a general practice residency, it’s possible to postpone federal loan payments during your training through in-school deferment or mandatory forbearance.
Avoid deferment if you’re in a paid residency, because it increases your loan balance.
If you’re in a residency program that charges tuition, deferment will likely be necessary. But if you’re in a paid residency program, avoid deferment if possible, because it increases your loan balance. Most loans — except any subsidized loans from your undergraduate studies — continue accruing interest during deferment.
For example, postponing payments for one year on $285,184 — the average dental school debt among the class of 2018 — would add more than $50 in interest per day for a total of $18,000, assuming you had a 6.5% average interest rate, didn’t make any interest payments during that time and had no subsidized loans.
To limit the amount of extra interest that accrues, make at least partial payments during residency if possible, even during deferment.