Deciding to become an orthodontist is an expensive commitment. We have already learned about Mike Meru (the first orthodontist to be highlighted for his outrageous student loan burden by the Wall Street Journal). Some interesting conclusions have been drawn from Mike’s student loans and Business Insider does a good job of explaining why dentists, doctors, and lawyers are no longer that rich in comparison to their tech or business counterparts. You can read the Business Insider article here.
Recently, another orthodontist called Dave Ramsey to talk about the cost of his education. You can watch the video by clicking on this link or clicking play below.
Dave Ramsey doesn’t offer good advice here. While he offers reasonable advice for most Americans, his reluctance to use one of the income-driven repayment plans to optimize this student’s cashflow is unfortunate. An orthodontist with a seven-figure student loan balance would benefit from Revised Pay as You Earn (REPAYE). Ignoring that REPAYE exists, and the benefit that the interest subsidy will have for this borrower is negligent.
This borrower is not necessarily doomed because orthodontists have excellent earning potential if they acquire or build a great practice. A reasonable strategy for this borrower would be to:
- Do not consolidate student loans (assuming all loans are direct).
- Enter REPAYE and take advantage of the interest subsidy.
- Spouse improves her income by pursuing a more lucrative position.
- Begin associating at multiple practices part-time, creating a flexible full-time schedule
- After 12-24 months of working full-time and building cash reserves, start searching for an ortho practice to acquire.
- After acquiring the practice, analyze cash flow and decide if it makes financial sense to begin paying down the student loan balance or if the most appropriate strategy is to pursue taxable forgiveness after 25 years.