Reader Questions – What to do with a $1,000,000 Student Loan?
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Some readers have questions and I hope to answer them here. If you have a question, send me an email using the contact form, and I will do my best to answer it. If I think the question has value for all of us, I will publish the question and my response on this blog for all of us to read. Your name and email will be kept confidential.
“Just finished the 20 day posts, it was very interesting, scary, and puzzling at first. I’m still in dental school so I barely know half of the things going on after we graduate and how to go about our finances. However, after reading all the 20 posts I have a better idea. My fiancée and I will both graduate with about 1 million in loans to pay back, so the IDR programs are something that gives peace of mind. I always thought I’d be broke paying back loans, and then I thought I’d just pay the minimum for however long it took. My only question is what would you do if you and your significant other had 1 million in debt together? Rush to pay it back, or extend as much as possible and pay the minimum or the 10% of income?”
Thanks for the email. 1M in loans is a lot but I’m assuming you’re both professional students? Will you both be dentists or is your fiancée in a different field?
Reader Answer:[Both the reader and his or her fiancée will be general dentists.]
Honestly, nobody will refinance that much debt so you’ll be stuck at your current interest rates until it gets paid down. Depending on your age, future family plans, and financial goals you’ll have to develop a strategy to manage your debts. The biggest hurdle will be how much interest accumulates on your loans while in school and during the first 3 or 4 years of your careers as you both ramp up your earnings.
If you follow through with an IDR plan, there’s the potential that your tax bomb at the end of all of this will be enormous. Your CPA would have to run the numbers with you and your fiancée after you both graduate to help develop a preliminary plan.
It will be very difficult for 2 GPs to handle a 1M loan around 6% interest…If we’re just talking about money, the best advice I could give is that one of you needs to pursue an OMFS residency (a 4 year program, not 6), then move to somewhere that needs an OMFS. You would be able to pay back a 1M loan as an OS in a town that needs an OS. My wife and I don’t carry 1M in debt at this time – the trouble here is that your student loans are just one part of the picture. Eventually you’ll have a home loan and probably a practice loan (nobody will pay you enough to pay back a 1M student loan – you’ll need to own your own practice at some point) so it’s difficult to say what my wife and I would do if we were in your position.
I will share with you that my family income could not support a 1M student loan on the standard repayment plan so we would be stuck with REPAYE. I live in San Diego now; I think the first thing we would do is move to a cheaper place to live – probably a state with no state income tax – and plan to ride out REPAYE and pay the taxes at the end.
You won’t really know what to do until you graduate and start earning a living. Then, you’ll be able to see what your monthly cashflow looks like.