Dental school graduates have almost $275,000 in cumulative student loan debt on average — the most of all graduate degree holders, according to available data from the National Center for Education Statistics. That means they also could see the biggest savings from student loan refinancing.
Dentists have relatively low incomes compared with their debts, given an average annual income of $174,110, according to the Bureau of Labor Statistics. Some graduates may want to choose an income-driven repayment plan to make monthly bills more manageable. Refinancing could save more money overall.
How much could refinancing dental school debt save?
The average dentist could save $44,032 from refinancing.
Refinancing to a 3.5% interest rate saves the average dentist $367 per month.
The median dental school debt plus undergraduate debt was $274,120 as of 2016, according to the National Center for Education Statistics. Assuming that dental students took a mix of federal direct unsubsidized loans and graduate PLUS loans — and attended school from 2010 to 2018 — their average interest rate would be 6.25%.
Refinancing debt to a 3.5% interest rate drops the monthly payment from $3,078 on the standard 10-year repayment plan to $2,711. That would help you save $367 per month and $44,032 over 10 years.
» CALCULATE: How much you can save by refinancing
How to create a refinancing strategy
If you’re a dentist who is deciding whether or when to refinance your student debt, consider taking the following steps:
Beef up your credit
Lenders look for credit scores in the high 600s or above. Before refinancing, make sure to pay all bills on time and keep your credit card balances low.
Refinance during residency
Some lenders will let you refinance debt once you’ve been matched with a residency program, and will give you a reduced monthly payment during residency.
Take advantage of low interest rates
The Federal Reserve plans to keep increasing interest rates in the next two years. Now may be a good time to lock in a low fixed interest rate through refinancing, before rates rise again.
Refinance high-interest debt
You may not be able to refinance all of your cumulative debt. Some lenders refinance a maximum of $250,000 for dentists, for instance. In that case, make sure to include your highest-interest loans in the bundle.
Alternatives to refinancing
If refinancing wouldn’t make your monthly payment affordable, consider choosing a federal income-driven repayment plan instead.
On the REPAYE plan, the government pays some of the interest that accumulates if your monthly payment doesn’t cover it.
On the Revised Pay As You Earn income-driven plan, for example, the average dentist’s monthly payment would be $1,300. Plus, borrowers on REPAYE get their remaining debt forgiven after they make payments for 25 years.
Of all the income-driven repayment plans, REPAYE is the best option for those with a lot of debt. The government pays some of the interest that accumulates if your monthly payment doesn’t cover it. However, be aware that:
- Student debt forgiven through income-driven repayment — $150,000 in this example — will be taxed as income.
- Your spouse’s income will be factored into how much you pay each month. Use an income-driven repayment calculator to see if the savings under that plan are better than under refinancing.
- You’ll pay more in interest over time: almost $65,000 more, in this example, than if you had refinanced.
» MORE: PAYE vs. REPAYE: How to choose
You can refinance your debt after spending time making payments on an income-driven plan, once your income and credit score have increased. You also may want to choose an income-driven plan to get some breathing room to pay down other debts, such as credit card balances, before refinancing.