How to Pay Off Your Dental School Debt Douglas Carlsen, DDS

How to Pay Off Your Dental School Debt
by Douglas Carlsen, DDS
Finally, I’m a doctor! I have $400,000 in loans. Can I ever live like a doctor?

My immediate response for how to pay off your debt:
  • Don’t own a car newer than when leaded was outlawed.
  • Don’t dine out anywhere except Taco Bell and then only original crunchy tacos and bean burritos.
  • Work within biking distance of your parents’ house, because that’s where you’ll live... for a very long time.
  • Use only hand-me-down electronics, such as Atari for gaming, a cell phone that weighs more than the above burrito, curved-screen TV, any computer that still takes floppies and no iNothing.
  • Marriage, house, new car, iStuff, the cloud and any dental gear that doesn’t have belts attached will have to wait.
Since some of the above is slightly unrealistic, I offer the following:

The Scary Part of Debt
A classic Dentaltown post begins, “I will be graduating from school in May and am absolutely terrified of my debt right now... $337,000. The debt is all I can think of and I have become fairly depressed over the past few months as graduation and repayment looms.” Signed: BigTimeDebt.

There are a number of these posts on and many seasoned dentists offer ideas and strategies to overcome debt.1 BigTimeDebt is not alone. In 2011, graduates of public dental schools often have $200,000 in debt while those from private institutions often owe more than $400,000.

Let’s first look at repayment options:
For the sake of example, I assume seven percent average interest for all loans.

For debt of $400,000:
25-year repayment: $2,800 per month
15-year repayment: $3,600 per month
10-year repayment: $4,650 per month
Five-year repayment: $8,000 per month

For debt of $200,000:
10-year repayment: $1,750 per month
Five-year repayment: $3,000 per month
A newbie dentist can expect to have an associate income of between $100,000 and $150,000, depending where one practices and the type of practice. With a starting dentist income of $125,000, all federal and state taxes will be about $35,000, leaving $90,000 to attack loans and live. Can a dentist live on $30,000 per year and pay off $60,000 ($5,000/month)? Yes, indeed.

Yet can’t a dentist lengthen that $400,000 student loan to 25 years and pay $2,800 per month, buy a house with a payment of $2,200 per month, and live better than the dentist paying off loans at $5,000/month?

The Psychology of Debt
Let’s take a look at the psychology of debt. Psychotherapist Phil Tyson2 writes of two factors.

First is a psychological principle called future discounting. An example is planning your day thoroughly, and then finding that you rarely finish all tasks. We often underestimate our ability to accomplish all. With debt, we often take it on with little thought of the details of changes needed to accommodate it. We look to the future and discount the pain of making payments. Credit card companies, banks and especially car dealers recognize this principle well. For a dental student, tuition, fees, supplies and books are non-negotiable. Most live in less-than-ideal circumstances during those four years. To work part-time during school is normally not an option, so the young dentist is stuck with a large debt load. Dr. Tyson’s second principle is the relationship between consumption and personal identity. Advertising has brainwashed us all to consume brands that provide us an identity. As adults, we wish to become a part of something bigger, to promise us the narrative of youth, beauty and health. Our selfesteem becomes captive to products. According to Tyson, “On their own, each of these two psychological processes are dangerous; put them together, and they are toxic.” For the young dentist with a $400,000 albatross following four tough years of sacrifice, the lure of autos, homes, nice clothes and cool electronic devices to prove one’s worth is extremely powerful. Many new docs buy the Beemer and upgrade their lifestyle to match the “doctor look” with little attention paid to future financial struggles. I have personally encountered dentists in their fifties who still are paying off re-re-consolidated student loans. This is in addition to auto leases, home mortgages, college loans for kids and credit card debt, all of which can explode to well over $150,000 per year! An income of more than $225,000 is necessary just to service that debt! And this income does not pay for mortgage, car payments, food, shelter, vacations, clothes and flat screen TVs.3 Hang in there docs! All the news is negative for a while yet, but in the end, BigTimeDebt can retire with wealth by age 55. Let’s now look at methods to handle large student debt.

Dave Ramsey and “Doc-itis”
Dave Ramsey, a popular radio and TV host, has published several books on debt and its destructive influence on personalities and families. The Total Money Makeover and Financial Peace Revisited are both easy reads.

Ramsey tackles debt head-on. His methodology is to attack all debt except one’s home loan aggressively until it is stone-cold dead. Yes, there are mathematical approaches that occasionally show one can pay down debt slowly, invest the difference and create more wealth over time, yet Dave knows Tyson’s psychology. He has worked with thousands who didn’t invest “the difference” for retirement and suffer years later. There is no such thing as “good” debt to Ramsey.

Ramsey’s books are must reads for anyone graduating from college, graduate or professional school. Ramsey’s intellect, common sense and math IQ are off the charts. Below is an abridged version of a phone-in call to Dave’s show.4

Dear Dave,

I’m 33 and a resident doctor with $250,000 in student loan debt. Next year I’ll finish my residency and increase my income dramatically. The interest rate on my student loan is just 3.5 percent, so I’d like to postpone paying it off and make house payments and begin saving for retirement instead. I’d put off paying the student loans as long as possible. Is this a good idea? – Derrick

Dear Derrick, That loan hanging over your head is unbelievable. I’ve worked with many doctors over the years where 20 years later they are still playing math games with the student loans like they’re a stupid pet!

I’m thrilled that you’re going to be making that kind of money. You’ve spent most of your life going to school, training, living on nothing and working yourself to death. But if you’re not careful, you might catch a nasty disease called “doc-itis.”

“Doc-itis” is an ailment that afflicts lots of new doctors. Some of the symptoms include two or three leased BMWs and a fully furnished house with a pool on the golf course. That student loan can just wait a while to be paid. It’s a financially debilitating disease.

You’ve been used to living on nothing (less than $40,000) for a while now. Just keep on doing that for a little bit longer. With the kind of money you’ll be making, you can have that student loan debt knocked out in a few years.

I’d postpone any retirement savings and buying a home until you’ve completely knocked out the loan and have an emergency fund ($50,000+) in place. If you stay smart and play this right, Derrick, you’ll have no problem living well and retiring a very wealthy man! – Dave

Additional comments from a Dentaltown thread read:

Get out of debt! My wife and I had the same story. We got her loans out of the way first and are just about done with mine. We threw big chunks at hers, knocked it out really quick. There is no better feeling than getting that debt behind you… Some will say that the interest rates are good and I can understand their reasoning (to delay paying down quickly), but there is no better feeling than pulling in a great double income and no loan payments... Read Financial Peace by Dave Ramsey; it is an easy read and will change your outlook on debt and wealth building. – Dr. AK

Charles Farrell and Money Ratios
If you are a young dentist, how much debt can you really afford? How much savings should one have at a given age? A book released in 2010 by attorney/certified financial planner Charles Farrell, JD, LLM, is called Your Money Ratios: Simple Tools for Financial Security.5

According to Farrell, any education debt that totals more than 75 percent of one’s initial income is onerous. BigTimeDebt, mentioned at the beginning of this article, assuming he will have a starting salary of $125,000, will have a ratio of 337/125, or 270 percent! I don’t include Farrell’s Student Debt to Income chart, as BigTimeDebt (BTD) is far off it! If BTD can tackle his student loan at $5,000/month, he will be able to pay off the loan in about seven years. If he is 28 now, he will be able to buy a home and start significant savings at age 35.

Let’s look at capital to income (savings) ratios. Table 1 shows the ratio between retirement savings and one’s income needed over time to retire by age 65.

Capital (savings) includes the current values of all tax-deferred and taxable investments, including all IRAs, profit sharing, brokerage accounts, the fair market value of any investment real estate and the value of your practice. This does not include the value of your home, autos or personal possessions.

Using Farrell’s Capital to Income chart above, we find that BigTimeDebt should normally have $60,000+ in savings by age 30. Because he is just out of school, zero is expected now. If he starts to save in earnest by age 35, he will be fine.

Farrell’s Savings Ratio column indicates to save 10 percent of one’s income early, increasing to 13 percent later on. Because dentists are not able to save much before age 35, the proper savings ratio to retire by age 65 is 15 percent from age 35 on. To retire in his 50s, BigTimeDebt (BTD) will need to save at a 20 percent ratio.

How much of a home loan can BTD afford when his student debt load is gone? Farrell’s Mortgage to Income Ratios are in Table 2.

At age 35, assuming BTD has paid off his student loan and increased his income to $175,000, he can afford a mortgage of about $330,000, according to this table. To provide a 20 percent down payment, BTD will be able to purchase a $400,000 home by age 35 or so. And he will begin saving for retirement in earnest.

I know you are probably thinking “doctors at age 35 should be able to afford more than a $400,000 home!” $400K will buy a 1,500 square-foot older home in Costa Mesa (Orange County) California or New Rochelle, New York, yet will grab a 3,500 square-foot beauty in Plano, Texas, outside Dallas.

As I’ve preached for years, the expensive home provides the biggest obstacle to achieving real wealth. Later on, I’ll reveal the secrets of those that retired by age 50.

Note that I have not mentioned practice purchase yet.

Farrell doesn’t include it in his calculations, assuming that it is short-term debt that will eventually result in a profit. This is true, yet practice debt might interfere with net income and stall one’s ability to save. Make sure practice debt never interferes with your ability to either pay off student loans quickly or save 15 to 20 percent per year!

A Look at Those Able to Retire by Age 50
There is a very small and quiet group of dentists who amass wealth early and then fall off the radar before the rest of us even notice. Yet, they are the ones who were able to work – or not work – on their own terms. I outlined characteristics of this group in an article published in 2007 called “Retire by 50.”6

  • All bought one home and remained in it until retirement.
  • All were massive savers – more than 20 percent of net income per year after student loans were fully paid.
  • All paid cash for cars, and kept the cars for more than five years, usually for eight to 10 years.
  • All paid off any credit cards monthly.
Additional characteristics not listed in the article:
  • All attacked debt mercilessly, having paid off student loans and practice loans as quickly as possible.
  • All paid cash for everything but their home and practice.
  • All had their homes paid off well before retiring.
  • All started to save for retirement by age 35 or earlier.

Dr. Howe, an early retiree, comments on his ability to retire early. He says, “Any decision to spend capital is a decision to work longer to pay for that decision. Your retirement age will be extended accordingly. Don’t get caught in the sizzle of the moment. People use shopping as a recreational activity. They become addicted to the next big thrill and purchase.” Howe’s mantra: “The ability to discipline and delay gratification in the short term in order to enjoy greater rewards in the long term is the indispensable prerequisite for financial success. Those greater rewards provide less stress with the ability to purchase items for cash that one only dreamed about in dental school, without worrying about financing or credit.”

This is your key to wealth, docs. It’s simple, yet requires living like no other dentist for 25 years so you may live like no other dentist afterward.

A Plan for BigTimeDebt and a Possible Early Retirement
Can BTD survive, and even thrive with the $337K burden of debt to start his career? Yes, indeed, with the following plan:

  • Make massive payments on the $337,000 student loan at the rate of $5,000 per month.
  • The psychological effect of paying off such a large debt is huge. Paying cash in the future for all purchases, except a home and practice will become automatic.
  • Meanwhile, BTD will live like a dental student until the student loan is gone. It’s easy to do now and will be impossible at a later date.
  • As soon as the student loan is paid off, save at the rate of 20 percent of income per year. $50,000 per year saved in a conservative mix of 60 percent stock index funds and 40 percent bond index funds, starting at age 35 and ending at age 55 compounds to more than $1,800,000 in real, or age 35 dollars. With the sale of an average practice netting $400,000, total retirement savings would be $2.2 million at age 55, within the $2 million to $2.5 million range the average dentist needs to retire.
An alternative posited by various dental financial advisors would be for BTD to invest $1,000 per month for retirement now and pay off his loan at $4,000 per month (adding up to the same $5,000 per month as above). They feel the jump start on retirement savings is crucial. In working out the math, BTD would then have his student loan paid off in 10 vs. seven years. Having BTD invest $12,000 per year for 10 years, then $50,000 for 17 years, provides only $1,700,000 at age 55! And BTD is stuck living a Spartan life for three years longer! Even the math doesn’t add up for stringing out the huge loan.

Final Thoughts
The early retirees and I have found no good reason to ever carry debt. Yes, it’s unavoidable at times, yet should always be paid off as quickly as possible. After graduating and paying off student debt, only your home loan should have long-term payments, and a 15-year loan is best. Leveraging debt is a very slippery slope. Please listen to the docs that created wealth early. You’re entering a wonderful profession full of wild new equipment, crazy staff members, weird patients and the occasional hug or note that makes it all worthwhile. Is it worth $337,000, BTD? You bet!

You can contact me at the information given below and I love to give seminars on financial topics.


1. To read the entire thread, go to f=214&t=106176&g=1&st=BigTimeDebt.
2. Phil Tyson, Ph.D., “Do You Understand the Psychology of Debt?”, downloaded at www.mens-well on April 28, 2011.
3. For a more complete view of a spending disaster view my Dentaltown article “A Visit to Dental Camelot?” at
4. You can listen to the full encounter at
5. Charles Farrell, J.D., LL.M., Your Money Ratios: 8 Simple Tools for Financial Security. New York, NY: Avery, 2010.
6. Doug Carlsen, DDS, “Retire by 50”, downloaded at si=+&collection=&keywords=retire+by+50&x=21&y=12 on April 29, 2011

Author's Bio
Douglas Carlsen, DDS, owner of Golich Carlsen, retired at age 53 from private practice and clinical lecturing at UCLA School of Dentistry. He writes and lectures nationally on financial topics from the point of view of one that was able to retire early on his own terms. Carlsen consults with dentists, CPAs and planners on business systems, personal finance and retirement scenarios. Visit his Web site: www.golichcarlsen. com; call 760-535-1621 or e-mail at You can find Doug on by searching for “dcarlsen.”


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