By Dr. Jim Dahle, WCI Founder
I spoke recently at a conference for orthodontists. For the most part, a doctor is a doctor, but there are a few unique things about dentists, particularly dental specialists, that are worthy of their own post. Due to the way the numbers work out, the bottom line is that the “Live Like a Resident” period is very different for them than it is for the typical physician. Before we get into that, and the dilemmas they face, I thought we'd take a little side journey and point out that while a dentist may have it a little worse than a physician, they're certainly not the worst off among the high-income professionals! Let me explain.
Professional school is expensive stuff. But the cost varies significantly by the profession. The anticipated income when you start practicing that profession also varies highly. Not only between professions, but between specialties, and even within specialties. In fact, I've honestly been more impressed by the intraspecialty income differences than the interspecialty differences for physicians. The debt from school also highly varies. 25% of physicians graduate from medical school debt-free. Yet others manage to leave residency with over a half-million dollars in debt. But we can work with the averages to see who has it the worst, and frankly, as bad as physicians have it, they're probably one of the best off. Let me explain. This chart is worth at least a few hundred words.
First, a caveat about this data. This isn't super scientific data. This just comes from me Googling around and taking what seemed to be the best free data I could find within a few minutes. In addition, as noted above, the range of both income and debt can be quite wide. So don't post a bunch of complaints in the comments section that the data in this chart isn't perfect. It'll do for the purposes of this post.
What Is an Acceptable Student Loan Debt to Income Ratio?
Now, let's put these ratios into perspective. My general recommendation is to keep your student loan debt to income ratio to 1X. (Incidentally, I think 2X is fine for a mortgage.) At 1X, that education was a good investment. At 1X, living like a resident for 2-3 years will eliminate your debt just fine and you'll go on and have the financially awesome life you expected.
Moving up to 2X, this is still doable but will require more sacrifice. Perhaps a 5 year “live like a resident” period. If your parents couldn't help you pay for school, if you had undergrad debt too, if your spouse couldn't work during your school, you could easily end up in this place. You'll still be okay, but won't build wealth as quickly as your peers.
At a 4X student loan debt to income (DTI) ratio, this whole thing just becomes pretty much impossible. Consider a dentist making $100K with a $400K 7% loan on a 10-year payment plan. The interest alone is 32% of her gross income. The total payment is $60K a year, which might be 75% of net income! You want to argue that going to school was worth that? No, of course not. It was a bad investment if it leads to a DTI ratio like that.
As you can see, the ratios are fine for all professions so long as you're average. Average debt. Average income. But those with higher than average debt, or lower than average income, or both, can get up to the extreme and ridiculous ranges pretty quickly.
The Issues Dental Specialists Face
I used to have this image in my mind of orthodontists just absolutely killing it. I think that comes from many orthodontists I've met with 7 figure incomes. These folks came from the top of their dental school classes. They ran a tight ship in their practice, saw tons of patients, and had great results, leading to even more patients.
The average incomes, however, are sobering. And they're nowhere near 7 figures.
Not only are the dental specialist incomes way lower than you'd expect, but they're not exactly trending upward, at least on an inflation-indexed basis. Meanwhile, tuition is going through the roof and giving them the big squeeze.
It seems appalling that the situation is so much worse for the dental specialists than the physician specialists. Specializing for physicians typically IMPROVES your debt to income ratio (why I jokingly say “pray you don't fall in love with pediatrics”). Specializing for dentists doesn't really do that, and may even make ratios worse.
How Does That Happen?
Well, three factors come together to cause this phenomenon.
The first is that dental school is really expensive. It costs more than medical school. Tuition is higher and debts are higher. They don't get as favorable terms on the additional loans.
The second is that many dental residencies not only do not pay a salary, BUT CHARGE TUITION. I tell this to groups of physicians, and they think I'm lying. Nope, that's the way it is. Dental residents are actually taking out more student loans, both for the tuition and for living expenses. In some ways, it's like going to dental school twice.
Finally, there is just the factor of deferring payments on the debt. For a typical medical resident, the student loan burden goes up by 30%-50% during residency because any payments made aren't even covering the interest. Dental residents have that factor going against them, too, in addition to the new loans.
But Wait, There's More
Many physician specialists come out of residency and take a job and are essentially at or very close to their peak earnings capability. So the average income for the specialty can be used to calculate a reasonable debt to income ratio. However, the ramp-up in income seems to be much longer for a dental specialist. If it takes you 5 or 10 years to boost income from $200K to $400K, it can be tough to wipe out $800K of student loans in less than five years.
Some Thoughts on the Dilemmas Faced by Dental Specialists
I'll be discussing the Return On Investment (ROI) of doing a dental residency in another post. In this post, I'm just going to focus on the issues those who already made the decision to specialize are facing and make some recommendations. Although the chart above shows the DTI ratio for specialists being much better than that for generalists, that's misleading because it doesn't account for the higher debt we know specialists will have. In reality, the DTI is usually similar and sometimes worse. It is not uncommon for a new dentist to have a $500K student loan, a $500K practice loan, and a $500K mortgage, all on an income of under $200K. This happens to specialists, too, just with somewhat larger numbers. Here are some guidelines.
#1 You Still Need a “Live Like a (Medical) Resident” Period
I don't expect you to live like a broke student, but I do think you can live like the average American household for a few years. I tell physicians that this period should last 2-5 years. All the questions I get seem to be some variant of “How much should I invest?” and “How much should I put toward my student loans?” That's the wrong question. The answer to that question doesn't matter all that much. The question that should be asked is “How much of my income can I put toward wealth-building?” Once you fix the question, you'll end up with the right answer to all of your questions. Paying down debt is good. Investing is good. At the extremes, the pay debt or invest question has right answers, but not in the middle of the spectrum.
#2 New Debt Better Lead to Higher Income
When it comes to borrowing money to do a residency or to buy a practice, it had darn well better lead to a higher income. Are you better off sticking with a $250K associate job or taking out a big loan and opening a practice that will allow you to make $350K and maybe more in the future? What if that means I only make $100K the first year and $200K the second year? Well, I'm partial to ownership, so in those situations, I'll usually advocate for owning the business. That assumes, of course, that you don't suck either at your specialty or at running a practice. You've got to analyze the decisions like a business owner—am I going to get a good return on my investment? That becomes especially important when the investment is paid for with debt.
#3 You Can Skip the Fancy House
There are typically three big debts a generalist or specialist is balancing—student loans, practice loan, and mortgage. But guess what? You can completely avoid one of those or at least make it so small that it is trivial. Now you've only got two to wrestle with, and that's a lot better.
#4 Be a Serial Refinancer
Assuming you'll be paying back your loans like most dentists, you should be contacting these student loan refinancing companies every six months to try to get better rates and terms. Your income, your debt, and your credit score should all be gradually improving, and unless interest rates are skyrocketing, you can usually leverage that into a better loan. Moving from a 10-year loan to a 5-year loan or even taking on variable interest rate risk can also lower your rates, making it so more of your payment can go to principal instead of interest.
#5 You Don't Get a Pass on Math
The worse your debt to income ratio and the longer it takes you to ramp up your income, the longer your live like a resident period is going to be. A doc with a 0.5X DTI may only have a 2 year period. With 2X it might be 5 years. With 3X it might go out toward 7 or even 10 years. I'm sorry. You're the one who chose this career and this method of paying for it. You're going to have a harder time than someone whose parents paid for their school. Some docs without the means to pay for school sacrificed by agreeing to serve in the military. You might not have realized it, but you also signed up to make some sacrifices to pay for school. Live your net worth, not your income.
#6 Moderation vs Focus
Now, for the questions that everyone seems to have. Now that we've maximized your discretionary income by boosting income and limiting spending, what should you do with it? Should it go toward a down payment, toward the mortgage you already have, toward a tax-deferred retirement account, toward Backdoor Roth IRAs, toward the practice loan, or toward the student loans? There's no right answer here, so if you don't like my answer, do whatever you like short of buying a fancy car.
Personally, I would first make sure I was getting any sort of an employer match. If you have a practice loan, presumably you're the employer. Why not just NOT put a 401(k) in place for a while? It'll make the business even more profitable (since you don't have to match any employer contributions or pay any administration costs).
Next, I'd come up with a plan to get rid of my student loans. You make too much to deduct the interest on them, and even if you could deduct that $2500 a year in interest, you're probably paying a heck of a lot more than that. I would start with the end goal for that plan and work backward. If I wanted to have them gone in 7 years, then I would figure out how much I would need to pay each year to be rid of them in 7 years. If I knew my income was likely to gradually increase over that time period, I might backload the payments a little bit.
Then, I'd figure out a plan to get rid of the practice loan. At least the interest on this one will be deductible. It is probably at a higher rate than your mortgage and maybe even higher than your student loans if you've refinanced them, so it is still a reasonably high priority. Maybe a 10-year plan on it.
Now, you've earmarked money toward the student loans and practice loans. With those two loans hanging over my head, I probably wouldn't save up a down payment. When it comes time to buy (stable social and professional situation), then I'd buy using a doctor loan. If you're still in the “live like a resident” period, that means buying a “resident house” and staying there for at least 5 years. If you're out of that period, then buy the doctor house. If you have less than 5 years left in your “live like a resident” period and still don't own, then you may consider renting for a little while longer so you can go straight to your “doctor house.”
The rest of your discretionary income should be invested. If you can't max out all available retirement accounts, choose the ones that will provide the most significant benefit. That usually means HSA first, then tax-deferred accounts with low costs and good investing options, then tax-free accounts, then anything else available. Chances are you'll run out of discretionary income before you get to the end of the list. Notice 529s aren't on the list. I see no reason to start paying for your kids' education until you're done paying for your own.
This approach is what I call the “moderation” approach. There is an alternative—the “focus” approach. With this approach, you focus all your energy and money on one goal and knock it out as soon as possible. Perhaps you start with the student loans. You refinance them into a 5-year variable loan and start sending 50%+ of your paycheck to the lender. When that's gone, you move on to the practice loan. Then the mortgage. Then retirement. Focus is a good thing for many of us and if that appeals to you, then feel free to do that.
#7 What About IBR/PAYE/REPAYE Forgiveness?
If you're an academician or otherwise employed by a 501(c)(3), be sure to take a careful look at PSLF, although without a period of time where you make a whole bunch of tiny payments like a medical residency, it may not result in much being forgiven. That's not an option for most dental generalists or specialists. However, the IBR/PAYE/REPAYE forgiveness option is available to everyone. The problem, however, is that it isn't a very good option. Not only does it take 20-25 years of payments to get forgiveness, but any doc with a reasonable DTI ratio will also pay off the entire loan well before 20-25 years. So what did you get for being in the program? Probably a higher interest rate than what you can refinance to. But wait, there's more! You also get to pay taxes on the amount forgiven, which in some cases, could be as much or more than you initially borrowed (not counting the time value of money).
This is really only an option for those in extreme situations like 4X DTIs, and not something I advocate frequently. But even in those situations, I have no idea how that doc is going to save up enough to pay off the tax bill upon forgiveness. As bad as it is to owe a student loan servicer, it is even worse to owe the IRS! But if you have that much debt, it's worth running the numbers and knowing exactly what your options are. If you need help with that, these folks can assist you.
What do you think? What tips do you have for dental specialists? Did you realize how badly new grads have it these days? What do you think early career financial priorities should be for these folks? Comment below!
As a general dentist, I can say, and this goes for specialists too, you need to own your own practice as soon as possible. In dental, the only way too make the good money is practice ownership unless your are some sort of production superstar and probably overtreating your patients.
I agree that ownership is generally the pathway to a higher income.
Enjoyed the article. As an ortho, I would like to point out that your first chart on average debt/income may be off for dental specialties. Typically, Ortho training is on top of dental school, and usually 3 years of paying high tuition, living expenses, and loss of income. The chart shows the same average debt for a general dentist as a specialist. That may be off by a 150K at minimum.
I do agree that the golden age of Ortho may have passed to some degree. Increased debt, competition, DIY ortho, have all played a role in squeezing us. We are graduating more dentists with more debt than every before in history. The bubble has to pop. I see dental enrollment dropping like it did from 1980-1995. I wouldn’t be surprised if a few schools close and the solo practicing dentist becomes extinct due to corporate pressure. We are usually 10-20 years behind our MD colleagues.
I agree, do you have the data on average Ortho debt?
Dentist here. The average of $260k student debt number seems low to me. My “cheap state school” is over $300k. I personally graduated with $440k at a different school (only one I was accepted into unfortunately). I don’t know a single dentist with less than $300k in debt other than a classmate who had his parents pay for everything. Unless there are tons of students with free rides from their parents, those numbers feel low. At any rate, still a very high number.
I disagree with you saying you need to be at 4x debt to income in order to consider IBR/PAYE/REPAYE. It was a no brainer for me to do PAYE and I was at about 2x debt to income. Otherwise it was putting life on hold for at least 7-10 years shoveling everything into student loans. At that point it made sense to do a 20 year plan and be able to enjoy life and save for retirement along the way.
Thanks for a post highlighting dentists. I always grumbled reading posts about physicians making $400k on Day One with their W-2 job wondering how in the world they are going to pay off their $200k debt. Other professionals are in a much worse position.
I know it seems low because I keep meeting dentists who owe $800K. But that’s what is reported on the only reliable data we have. Remember many students aren’t borrowing the whole cost of education and some schools are cheaper than others.
I disagree that PAYE at 2X is a no-brainer. Is it possible to come out ahead doing it? Sure, but that relies on a lot of things including equity returns for you to outperform the tax burden on your taxable forgiveness. Add in the hassle of relying on any government forgiveness program (a recent podcast guest who got PSLF spent 60-100 hours on the phone to get his) and the weight of being in debt for 20 years instead of 5 and I wouldn’t do it at that ratio. I disagree that you have to “put life on hold” for 7-10 years to pay off a 2X ratio. You may have to live like the average American for five though.
You’re right, with PAYE there are more variables and it could backfire. In my case, a paying a debt of $440k in 5 years means putting 90% of my paycheck into loans each month. That’s too high and too much wiggle room for my taste. Really need to drag it out for 8-10 years to have some breathing room, and at that point it becomes more challenging than your typical advice to live as a resident for 2-5 years (which I wholeheartedly agree with if you can pull it off). I think the raw numbers affect it too more than just the ratio (300:150; 400:200; or 200:100 etc).
At any rate, education is grossly overpriced and things need to change soon or it’s not going to make sense for anyone to dedicate 4-12 years of their life beyond university to become a professional.
That doesn’t add up. You’re saying it’s a 2X ratio but would require 90% of your paycheck.
Let’s walk through the math and you can correct my bad assumptions.
Let’s say you make $220K. You owe $440K. Since you’re paying it off you refinance to a 5 year variable at 3%. Payments are $96K/year, or about 44% of gross income.
What am I missing?
My 90% number is definitely off. Some very poor mental math between patients.
I used 5% interest. I graduated in 2015 and I don’t think banks were refinancing to 3% at that time but I could definitely be wrong.
You’re right that $440k:$220k is doable. Thinking back to my personal situation, at that time I didn’t know what my income was going to be. Not many guaranteed contracts in dentistry. Sure, the numbers work if you do $220k a year, but if numbers go down, or the job doesn’t work out and you’re all of a sudden only making $150k as an associate? You’re screwed if you’re locked in on a 5 year plan with that payment. Didn’t want the stress of having to produce just to make sure I covered my loan payment, or stick to a job I maybe wouldn’t like just because it was better paying so I could cover my loans. Hard to predict the future.
Hindsight is 20/20 but I’m content with PAYE. The payment is comfortable, and barring drastic changes, I’ll either come out ahead or slightly worse off in the long run. Oh well.
Some call it stress, others call it motivation! Having that hanging over your head does certainly incentivize you to work hard.
Ortho here that has been out 25 years. Things have changed a lot over my time in the profession. The first chart has dental specialties and general dentists with the same average debt. That is not accurate. Ortho is 3 years of high tuition after dental school. Add on loss of income and living expenses and those three years could easily add another 150-200k of debt.
We are graduating more dentists with more debt than ever before in history. The bubble has to pop. Like it did in 1980-1995 when dental enrollment dropped and a few schools actually closed. This environment is easy pickings for corporate dental companies to exploit the labor market. I think this will lead to the solo dentist becoming extinct. We have always been 10-20 years behind our MD colleagues.
Yes, that is an issue with the data. Do you know anywhere with reliable data on loan burden at completion of training for dental specialists? I couldn’t find any.
It seems to be well concealed and cost will vary among the different specialties. Some specialties may offer a stipend. It has been a long time since I was in school. My Ortho training was 23k/year in a two year program in 1994. I have heard of cost today anywhere from 50-100K. USC is 101K/year and it is three years. My income over the course of my career has not gone up 4 or 5x. Fees have remained stable for the 10 years or so due to increased competition from more orthos, general dentists doing ortho, DIY aligners, etc. Just about every Ortho I know is not running at max capacity and has not for a number of years. IMO, if you want to succeed in in private Ortho practice you better be lean and watch your bottom line. None of my 3 kids have had an interest in Dentistry, and as a second generation doc, I am not upset. When outgo exceeds income, upkeep will be your downfall!
https://dentistry.usc.edu/admission/paying-for-dental-school/
Surprisingly well concealed eh?
EMAC, I too have been at it awhile (35 years). I am shocked at the current costs of higher education. I was fortunate to get out of training with no debt despite being dirt poor. The advantages I had were being poor in the US , living in a low cost state (Texas) which subsidizes education costs- albeit not as generously now as was done in the 1970’s-1980’s, the ability to work all the way through to avoid debt, and the willingness to live a very low (frugal) lifestyle. Our specialty is definitely facing challenges that we did not and could not have foreseen. I do not believe I would have chosen this path under the current circumstances although I enjoy what I do. Geographic arbitrage is a important factor. I practice in a large urban area. Patients have many more options to choose from depressing treatment fees not to mention DIY options offered online. I agree with you that keeping expenses down is very important. None of my three children chose to go the medical/dental school route despite my offer to pay for undergrad/post graduate if they kept their grades up and went to public state run schools. I was privately sad but realize that they have to find their own way. I am first generation college, grad school etc. in my family. I recognize the importance of education–it gave me opportunities that I likely would not have had otherwise. I enjoy reading the information on this website. I did not receive training in financial matters. I learned a lot on my own the hard way but this website has helped me find information to fine tune my plans as I get ready for retirement in a few more years. Despite all of the challenges we face I am feeling very thankful going into Thanksgiving week.
Congrats on your success!
I have a child who is contemplating a career in medicine, so I have been researching med school tuition fees. My research indicates a much worse situation for MDs that your figures suggest. The local state schools have CoA of 75k/yr and private medical schools have CoA close to 100k / yr. While I can cover most of the undergrad tuition for my child, I do not plan to cover grad school tuition. At these rates, MDs graduating in 4 / 5 yrs time will come out with 400 k (500k) debt if they went to state schools (pvt med schools). [75k / yr x 4 yrs] x 130% roughly equals 400k. At these amounts, the new MD is looking at loans that are 1.6X to 2.0X.
Do you have advice / comments for a high-schooler / college student contemplating an MD career
Yes, debt will be higher in the future than it was for those who graduated last year. But remember those average debt numbers include students who had partial scholarships, whose parents paid part of it etc. The student who borrows the entire cost of attendance is going to have higher than average debt.
I think medicine is a fantastic career, a noble profession, and a good investment.
I am not sure I can say the same about dentistry, law, veterinary medicine etc for someone borrowing the entire cost of attendance. I think it is a bad investment to borrow $800K to become a general dentist for example or to borrow $400K to become a veterinarian. I think it’s a big gamble to borrow $200K to become an attorney. Sure, someone in Big Law can handle that, but those who don’t go into Big Law may end up making $50K coming out.
How did you get 75k per year at a state school? Tuition should be 20-30k per year. Living 15k. Choose the right location. Focus on low cost of living towns where you don’t need a car. Maybe avoid rent by using your savings to just buy an apartment for child. They’re gonna be there 4 years so it makes sense and after you can keep it as a rental for students
Secondly consider medical school abroad. I only paid 25k per year total (tuition plus living) to do medical school in europe. I could of gone to medical school in the USA but I chose the more financial option. It surprises me that people would rather go 400k in debt than be an IMG.
If you don’t care too much about what kind of doc you’ll be, sure go IMG. But if you want your pick of specialties youre going to want to be a US MD.
Have you looked at the MSAR from AAMC? You’re in-state numbers don’t seem right, or privates for that matter. Unless maybe you’re in Illinois.
Thank you WCI and everyone else for your comments.
SUNY upstate COA = 68.5k for MS1 (instate)
I will find the MSAR and do some detailed research.
Orthodontist here. Thank you for this post! Dental specialists are certainly in a different financial situation than physician specialists. I’m only a little over a year out of residency. I consider myself lucky to go to a relatively cheap dental school, and a little above average tuition based ortho residency. I graduated with $437K of debt, and my income is in the $350K range working for big corporates, not bad DTI ratio. I refinanced my student loans to a 5-year variable when I graduated, and now my interest rate is at 0.4%. I’m also a husband and a parent of 2 children with non-working spouse. I learned doing all the good stuff, no CC debt, 6-month emergency fund, maxing out 401K (no match), backdoor Roth x2, live like a (medical) resident.
But the good side of being an orthodontist is that I can open my own orthodontic practice which is not the usual route as far as I understand for most medical specialists. This can significantly boost my earning potential into the 7-figure range over time or at least very close, specially when you consider tax benefits for a business owner. My current income is not bad for a recent grad, but there is a very little potential for it to significantly grow as a W-2 employee. Of course the practice loan is huge, specially that I’m considering owning the property I will practice in (and renting it out to my future landlord self for tax purposes), but that would only make me take the debt longer for both student and practice loans and unfortunately losing my current 0.4% rate, but again not the thing that would stop me from owning. One way I look at practice and real estate ownership (and loans) is that I’m actually contributing to my retirement. My future practice would probably be one of my biggest assets that, when sold, would be a major portion of my retirement money.
So my 2 cents for other dental specialists is to focus a bit more on cashflow not only on getting out of debt asap. We probably need to find the sweet spot of balancing both sides, so we won’t drag the loans too long, and at the same time save for practice ownership down payment for long-term career goals, and possibly earlier financial independence.
Congrats! Even after 25 years I still enjoy practicing ortho. It has been a great profession. I wish you all the best in obtaining the goal of private practice. I cant imagine working for someone. I think you have a lot of financial advantage to running the show. I would caution against depending on your practice sale as a retirement plan. You never know what will happen. I know of a couple of GP’s that have been trying to sell their practices, but they cant find any one that can get a loan. Also, I am at the age that I still love practicing but maybe not at a level that I used to practice. I am debt free, have a good nest egg and other investments. If I slow down and it devalues my practice, so what. I still have a place to work at my own pace. In the end, if I just shut the door or sell to some young doc at a reasonable price, I will be happy. Go wrestle some teeth and get out of that corporaste gig!
Thank you for your best wishes and advice! I can’t wait to open up the doors and start practicing on my own. And congratulations on your career 25 year milestone. This is a significant achievement!
Thank you for thinking of the young doctors outthere when you sell your practice.
Would love if someone could offer me a practice as direct sale instead of envolving the 10% profit middle man.
I have a little different story that can hopefully offer hope.
I’m a general dentist and graduated dental school in 2012 and was on a 3 year Air Force scholarship meaning I still had loans. $165k between my wife and I at graduation (she’s a dental hygienist, but hasn’t worked due to having kids). Got out of the AF in 2016 and bought into a practice. Net worth at the time was still about negative $50k. I moved to a low cost of living area and did my homework on a practice situation to buy into. I’ve made about $430k-440k each year before practice loan (might be closer to $500k this year). We bought what I consider the doctor house, but spent $420k due to the low cost of living area. The student loans were gone in 2017 and I’ll pay the practice loan off in the next 5 months. No other debt besides the house. I should hit $1 mil net worth next month (I’m 37 soon to be 38).
The debt burden without doing something like the military can be tremendous. I know GPs that have over $500k and orthodontists with $800k. If I could do it over again, I would do the military again. I spent 4 years in (including a residency). It is definitely better to own than to work as an associate. Do your homework on where to practice and a situation to buy into. I spent my last year in the military researching what to do afterwards. Taking advantage of geographic arbitrage helps out tremendously. Do a budget and tell your money where to go. Don’t try and live the rich doctor life right away.
Congrats on your success. I agree the dental HPSP deal is significantly better than the medical one due to the lower incomes and higher costs of education, plus fewer issues with the military match.
The dental HPSP is a lot better than the medical. On the medical side you may not get the residency you want due to the needs of the Air Force. If you do an AF residency you end up being in for 8 years active duty as opposed to my 4 years active service.
On the dental side, if you want to specialize, it is very competitive for some specialties. Many will finish their dental school service commitment and then attend civilian programs after separation. Overall, dental HPSP is a good deal. I may have come out even had I bought into my current situation right out of dental school, but I personally needed that last year in the military to research, plan, and make arrangements.
Thank you!
As a current OMFS resident completing a 6-yr integrated MD/OMFS residency (unlike other dental specialty residencies we are an American College of Surgeons surgical specialty and our residency is paid normally like all other surgery house officers through GME).
Because of the years of our residency training, I’m currently on REPAYE and will end up qualifying for 4.5 yrs toward PSLF (18 months don’t qualify because I was completing medical school rotations necessary to get my MD).
I am interested in academics or hospital-based OMFS and the starting salary is anywhere from 375-500 at different hospitals I have looked in to. Obviously the debt-load for OMFS is as high (if not higher) than the 400k or 500k debt of graduating general dentists, and even some finish with 800k+ debt after their 6yrs of residency.
Is there any benefit in pursuing PSLF (as in my case in which I’ll have 5.5yrs left) vs just going out and buying into a private-practice partner group based on your experience?
Yes. If you qualify for PSLF it will almost always come out ahead, although if you really crush it in private practice compared to what you’ll make as an employee that may not be the case. You’d have the run the numbers when you get a job offer. But if you have $500K in loans that will be forgiven after 5 years, that’s like an after-tax raise of $100K/year.
You could also switch medical specialties now that you have an MD and become an ENT or Plastics. You’d remain in PSLF and finish debt free. That sounds like it has better job prospects after residency as well.
WCI-
I’d you could find someone to write about buy ins for dental practices I think that would be very helpful. It seems as though buy ins for dental practices vs medical practices have very different valuations as well. I’ve known several dental specialists that have bought into practices in the 7 figure range and nearly 80% of the valuation is based off good will with no appreciating assets like the practice building/surgery center. I’ve also heard of very profitable orthopaedic surgery practices having buy ins of only 100-300k. What are your thoughts on the huge difference?
I’m an orthodontist. I can vouche that the debt load is high. I’ve talked with many ortho’s with 600k+ debt. I think a large problem is all the lower tiered ortho residencies that have popped up over the past 15 years. These programs charge 70k+ with some charging 90k+ per year of a 3yr residency and are largely geared to dentists who weren’t top in their class so you can pay a high price tag to be an orthodontist but don’t necessarily need the grades or school rank. What results is a lot of orthos graduating willing to take any job and so the pay of orthos in corporations is going down quickly. Thus you end up with pay decreasing.
When I finished ortho my debt ratio was 4x, but that was largely because I took a job making pennies my first year out because it had a good potential.
It’s not just orthos, it’s also pedos. I know many pedos that are graduating pedo with 500K of student debt and that includes pedo residency as a paid time. Dental school is super expensive, no doubt about it.
I feel sad for the orthos coming out. 600k of student debt isn’t going to be paid off quickly unless your dad was an ortho and you took over his practice.
One thing I never fully realized while in dental school and early in my career was how powerful an income generator it is to own both the real estate and the practice. When looking at the average salaries, it is easy to be guided into a dental specialty from a financial position. However I continue to be shocked at how many general dentists are absolutely crushing it. I’ve certainly exceeded any income goals I had in dental school. If you have reasonable business skills and a good dentist, definitely look for an opportunity to buy both the practice and real estate if its in a good location. And don’t go into a specialty only because you think you will make more money.
WCI,
Could you have someone post on private practice buy ins for dentistry? Along with student loan discrepancies it seems like the buy into private practices in medicine va dentistry is very different. I know of several dental specialists who bought in for 7 figures and 80% of the valuation was based on good will with very few actual assets and no assets that grow in value like real estate. Compare that with medicine where I’ve never heard of a physician purchasing onto a private practice for that type of crazy evaluation What are your thoughts?
Anyone want to volunteer to do this? I’m not sure I have the data.
I’d be happy to talk about buy ins for dental specialist and GP’s. What do you want to know. There are lots of different ways to buy in and lots of different ways to valuate a practice. I agree with Dondds that it is expensive to buy in as a dentist or specialist , and might even be more than MD’s if their numbers are only 100-300k, I’m not entirely sure about MD’s buyins.
https://www.whitecoatinvestor.com/contact/guest-post-policy/
I dont know if there is any research available. I do know that typically, stabilized/established general dental practices with a normal overhead (55-65%) sell for something like 60-65% of previous annual historic collections. For orthodontics (I’m an orthodontist), the national average value is 78-80% of previous annual historic collections where the practice overhead is 50-55%. But ortho practices are an illiquid scarce commodity. The seller can charge whatever they want. If you want a good cash flowing practice in a good city with an up to date facility, expect to pay 100% of annual collections. I paid more than that. I am glad I did as I followed the market for 5 years and it was the only opportunity available over that time that generated enough cash to sustain the business overhead, practice loan, a decent owner salary and my student loan. I live exactly where I want (Austin, TX), but had to borrow over a million dollars (for the second time, this is my second practice, first one I bought was in Houston) and pay more than I thought the practice was worth on paper to get it.
Doesn’t seem too bad. If overhead is 60%, paying 100% of collections isn’t a bad multiple. Using round numbers, a practice with $2M in collections, $800K in profit selling for $2M is only a multiple of 2.5. That’s very low even by small business standards. That’s even less than what you should expect to pay for a speculative online business. Now you may not be subtracting out the value of the orthodontist. Let’s say you pay an associate $300K. So now you’re getting $500K in profit for a $2M investment. That’s a multiple of 4. Still quite fairly priced IMHO for a business. I wouldn’t sell my business for that. That’s like an investment with a yield of 25% and a return that’s probably even higher if it is growing.
But if I could get it for 60% of collections, I’d take it for sure.
You are correct in your discounting of the value of the owner orthodontist. You cannot/will not consistently sustain a practice that generate $2M annually with a hired hand/associate, no matter how much you pay them; unless you are in a market where there is no competition. Referral sources will leave, the associate will leave, staff will turn over, etc. Its not the same experience for the patient as an owner operated place. You can’t just buy it, establish systems, replace yourself with an associate and expect it to continue to perform.
Just adding a reliable source for the average orthodontic graduate student loan debt amount.
The “2017 Orthodontic Workforce Report” published by the American Association of Orthodontists in April 2018 states:
“Student loan debt is perhaps the most glaring issue among new and younger orthodontists. Results from the Student Loan Survey indicate the average student loan debt is $418,722 for graduates between 2008 and 2017. This equates to a monthly payment of about $4,819 at a 6.8 percent interest rate. Compared to graduates between 2008 and 2012, it appears the average student loan debt could be even higher among graduates between 2013 and 2017.”
The report cited the numbers to be $348,052 among 2008-2012 graduates and $456,036 among 2013-2017 graduates
Thanks.
What is the dental school tuition breaking point? Are they admitting large numbers of foreign students for economic reasons only(like double tuition)?
Thank you for posting about dental specialists. My husband is an OMFS and just graduated his 4 year residency. In dental school he decided to pursue a specialty because he didn’t think he could comfortably pay his loans back on a GP salary. His dental school tuition ranged from $65,000-$75,000 by the end of his 4 years. Dental schools list the average student debt a lot lower because a large number of students have full parental support. Few have very little support and take out the full amount without thinking about the consequence. Therefore, the average debt for students seems low. We were rare in that we only took out student loan debt for his tuition and not for living expenses. We lived uncomfortably on my teacher salary.
In dental school he was having a hard time understanding why no one was talking about the financial burden of being a dentist or why tuition was more than it ever was. His moms a physician and she kept saying he’ll be fine. She graduated medical school 35 years ago with 20K in debt and started her first job with 80k. His math showed he’d be out of dental school with 350k+ in debt and lucky if he’d make $150k as a GP. But talking to his mom was like talking to a wall. His dental school friends (who took out loans) were closer to $400-$500k of debt because they also took out a cost of living loan. In residency, his co residents had similar amount of debt even though they all attended different dental schools. So yes, if you have no parental support the average student debt for dental school is $400-500 at the end of dental school. The financial aid offices at dental schools gave very little helpful advice when applying.
OMFS is unique in that you are paid in residency if you are in a 4 year program, but not much, in fact he was paid the same as I was as a teacher but with twice the required work hours. 6 year programs require some tuition for part of residency. Going to a 6 year program would’ve been a million dollar mistake for us because of lost income, interest on loans, and medical school tuition.
Right now he is working for a corporate office because getting a business loan to buy a practice was too large of a task. The only way would’ve been an owner financed option that we didn’t have. Also, owning and operating a business with the constant fear of being sued, stolen from, in more debt while perfecting your craft isn’t something that a 30 something year old wants to do after living like a resident for 8 years. Working for a corporate office allows him to make more money than an associate while he gets better at practicing so that in a few years when he’s reached his earning ceiling he’ll be ready to take on private practice. As a bonus, working in corporate vs owning allows him to study for his boards.
He’s only been out a couple of months, but we have finally been able to make significant payments on his loans. In residency we used his salary for living costs and most of mine went to the loans/max out ROTH. We’re hoping to pay off the rest of his loans in 15 months.
We love your podcasts and posts. Thank you for your time and bringing light to this issue. There was a podcast by planet money about dentist being up in their high castle. I was about to punch them because in dental school we were living on a teacher salary with mice in our apt, no hot water, broken stove, and store brand food. I didn’t think anyone would understand. Even now, a lot of people assume we’ve “made it”. We still have a long way to go. But with my husbands strong sense of math and listening to your podcasts we’re a lot better off than most recent dental/resident grads.
Another dentist here. I graduated in 2013 with 290K student debt. I worked as an associate until this summer and slowly worked my way up to 215K income last year. I just purchased the practice I had been working in in August. I expect Income after servicing the practice loan to be low-mid 300s. (Who really knows what the next year brings with Covid though) first 3 months will be just north of 250k production
With the stress and physical toll of dentistry and the high student loan burden, I don’t think it would be worth it to me for a 150K associate salary. I wouldn’t want to do this job for 150K unless o was doing it completely debt free
As a periodontist that has been in practice for 15 years, I’ve seen a major shift in referral trends that could be ANOTHER reason why specializing in dentistry doesn’t make sense.
General dentists (especially younger ones) are learning specialty procedures such as dental implants, orthodontic treatment, etc. If I was a general dentist, I’d also be doing this too.
In medicine, an generalist typically doesn’t do heart surgery but you can do this in dentistry. Being a specialist is much different and unless you just have your heart set on it, it may not make financial sense.
If I could do it over, I’d serve in the military and have them pay for my dental school and residency.
I am a general dentist that that took a slightly different path which has worked very well for me. I graduated in 2012 with “only” 280K in loans because I borrowed just for tuition as we delayed having kids so my wife could work to provide for our living expenses. Our intention was to buy a practice in a high cost of living area where I grew up. However after learning that it would cost between $600-$900k to buy a practice and another $500-700k to buy a home with an expected take home of $120-160k I realized we needed a new plan.
Instead I opted to work for a FQHC (Federally Qualified Health Center aka public health clinic) in a lower cost of living area where I could receive loan repayment through the NHSC (National Health Service Corps). I ended up getting $110k of my loans forgiven over 5 years and we refinanced the rest on a 5 year variable loan, lived like we were still in dental school, and where student loan free after 5 years.
The plan was to then buy a practice but the valuations continue to be mathematically untenable. Also, as another commented mentioned above, I had fears that this asset may not be very liquid or very valuable in the future as solo dental practices eventually go the way of solo medical practices i.e. become nearly extinct as primary care gets absorbed into larger health care entities.
So instead I have decided to make a career in public health. My salary is predictable because it is not based on the volume of patients I see, I make more than the average dentist according to the DoL, I have 8 paid weeks off a year, a 403b with generous match, full health benefits, I don’t hire or fire anyone, have an administrative role so I don’t have to be in mouths all the time, and generally don’t have to own/run my own business.
There are of course drawbacks to this plan. I can’t grow my income in the way a private owner can, I don’t control which staff I work with, I don’t do high end dental procedures, I work with people who tend to be pretty physically and/or mentally unwell, and I don’t get to make any unilateral decisions in the way an owner would.
It is definitely a trade-off but 8 years out of school I have hit a million dollar net worth and am on track to be mortgage free by 45 at which time I can cut back to half time and still be able to FIRE by 55. I’ll never be “a rich dentist” but I’m very confident I will be a happy dentist with a financial outlook that will allow me to have anything I want even if I can’t have everything I want.
I’m curious how the DTI numbers play out when accounting for PSLF. I work with peds residents who are either going into general peds (130-150k around here in a high COLA area) and some of the subspecialities which have similar salaries for 3 more years of training. However, many are doing PSLF. If you are doing PSLF and can get loans forgiven does going into a lower paying field make financial sense (putting aside what your passion in life is).
First I wouldn’t put aside what your passion in life is. It’ll give you career longevity, which matters more than salary in most respects.
Second, if you qualify for PSLF, you should almost always go for it unless the difference in salary between the qualifying job and the non-qualifying job is dramatic.
Third, I don’t think JUST qualifying for PSLF is going to make up the difference between a higher and lower paying specialties over a 30 year career. I mean, it’s only going to be worth a few hundred thousand dollars. If you make $500K for 30 years that’s $15M. If you only make $200K for 30 years, that’s $6M. Adding a few hundred thousand to $6M doesn’t get you to $15M. But honestly, intraspecialty pay differences are much greater than interspecialty pay differences anyway.
However, it might make going into a lower paying specialty doable, where it otherwise isn’t. For example, consider a doc who owes $800K and wants to take a job in preventive medicine paying $150K. That just doesn’t work unless you do PSLF. So with PSLF, it’s possible. Without it, it really isn’t.
This is a great article; I’m an endodontist and 6.5 years out of training. I graduated with $316K in loans, paid them off in 18 months by throwing every penny I made at them. My first year’s income was about $500K, working SIX DAYS A WEEK for a multi-specialty practice in a HCOL. My husband fortunately has been working since age 22, has made some great investments and we are very comfortable. After I had my daughter 3 years ago, I cut back to three days a week and I couldn’t be happier. I’ll probably only make about $315k in 2020 but I’m fine with that. I work as an associate and I never plan to own my own practice. I like to clock in and clock out.
Becoming an endodontist was the best decision I ever made; it has given me a great income and the flexibility to be with my child.
6 days a week of awful root canals sounds terrible. Good for you for pushing through.
Impressive. Way to smack those loans down so you can have the freedom to live like you want to.
The main main advantage of the IBR/PAYE route allows you to have liquidity to own a dental practice ASAP. More money to invest in retirement/real estate/etc is a secondary benefit.
A successful dental practice trumps any w2 employee job. Of course there are higher risks going this route and success isn’t guaranteed. However the most optimal route is not the one with the lowest or highest risk, but the one with a moderate amount of risk. DSOs are taking advantage of docs who are scared of more loans. If you are working as an associate and can produce enough to take home 450k (30 percent of your production for example); you are generating the company 1.5 million! Not to mention you are building equity for someone else.
I do think throwing everything into your student loans will lead you to success. It’s the safest and pretty much guaranteed route to financial success. However, I do not think it is optimal. Optimal routes involve taking on calculated risk and leverage.
If you’re making $450K, you’ll pay off those student loans long before qualifying for PAYE/IBR forgiveness. It might not be in 2-5 years, but it’ll be in a lot less than 20-25.
450K isn’t normal for an associate but I just used that number because of the post above mine. I do agree with you that if you are successful, you will end up paying off the loan before forgiveness. But the key is PAYE/IBR allows you to have the liquidity to get a loan to own ASAP. Whereas throwing everything into your loan makes you illiquid. You will make more as an owner, build equity, have tax advantages of a business owner, etc.
The person who goes on PAYE/IBR and owns a buisness asap will end up ahead of the person in the long run who pays down debt for 2-5 years, takes another few months to build liquidity to be approved for a practice loan, and then opens a practice.
If you intend to be a practice owner, then why delay it? Only way I see paying off debt ASAP as the optimal route is if you are part of the FIRE movement to retire early or intend to be a w2 employee for life.
I think I mostly agree with you, but that is with the caveat that the doc does a good job running the new practice. I’m a big fan of ownership, even if it means some more debt.
Thanks for everything that you contribute to the financial well being of docs everywhere. I have learned much from you over the years and am tremendously appreciative.
Just wanted to put in an anecdotal plug for “You Don’t Get a Pass on Math.”
Dental School is undoubtedly less of a slam dunk than it used to be, but for those who are calculated and careful from the outset, it can still be a winning proposition.
I’m a 2018 general dentist grad. I left dental school with a combined household debt of $150k. My wife and I finished undergrad together and she continued on to do two additional years of schooling in the arts before we had our first child. No inheritance or help of any kind in paying for school. We both worked odd jobs all through school and lived in a 375 sq ft apartment after we got married.
I work 8-4pm M-F. First year income out of dental school was $210k. $242k in year two. This year in spite of a 6 week COVID closure and the subsequent recovery will be about $260k. and will acquire 50% equity in my practice for $288k which should see my income grow considerably.
We’ve been saving about $70k/yr since I graduated. Paid off student loans in September at the 2yr 4 month. Not pretending to get a perfect score from the WCI by any means, but it’s a balance that’s worked out well for my family dynamic and is an attainable goal for both spouse and I.
I’m definitely not crushing it by anybody’s standards. Plenty of dentists and obviously physicians doing far more from an economic standpoint. But I guess my point is that if dentistry is appealing to you for whatever reason, be it the nature of the work, the work-life balance, lack of residency/fellowship, whatever the case may be, you can still go for it.
The problem for far too many prospective students out there is that there’s not enough forethought and preparation. Dental school admissions can be almost predatory in nature and continue to bring in students by the droves with promises of a care-free future and financial success equivalent to generations past. That’s just not the reality and far too many people are sabotaging their future financial stability and personal happiness by skipping the financial planning phase of their career decisions. Don’t go to the first school that accepts you. Don’t borrow/spend loan money just because you can. Don’t live like your wealthier student peers. Don’t take the first job you’re offered or buy the first practice that’s available.
Don’t take a pass on math.
You’re crushing it by my standards. Nice work. Congrats on your success. Of course, I agree you don’t get a pass on math.
Great work. You are crushing it.
I agree that you don’t get a pass on math. In your case, your math is very favorable. Great DTI ratio. You helped yourself by working through school to reduce your debt load and it has paid off well.
Not everyone has that much control over their situation. For reference, $150k would have paid for 1 year and maybe 3 months of my dental school costs. I worked part time in undergrad to save up some money, but at $7/hour it didn’t really make a dent. Why did I go to such an expensive school? Only place I got accepted, and I was an above average candidate based on GPA and test scores (Maybe I interviewed poorly and sabotaged myself? Could be).
Choosing a cheaper school is a no brainer, if you have that option. Not everyone does.
Borrow less money? Sure, but not always an option. I don’t know many 22 year olds that have $400k to their name before they enter school.
As you know, it’s a competitive field. Lots of candidates just go where they are accepted regardless of costs.
Not taking anything away from what you have accomplished. You’ve worked hard and are reaping the rewards. I just don’t like seeing blanket statements like “choose a cheaper school, or borrow less money.” It’s not always that easy for everyone.