Paying off Your Monster Student Debt Wisely

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My guest this week is Travis Hornsby, the founder of Student Loan Planner, a student loan advisor company. Behind every great man there’s a great woman, they say. In Travis’s case, the great woman is his wife, a physician in Saint Louis. When they first started dating, she had a lot of student debt. So Travis decided to help her out by making a model of how they can pay off her student debt. He used all the knowledge he got from bond trading and modeling complex debt instruments and started researching what are the most advantageous choices you can make while repaying your debt. His then girlfriend, now wife, started spreading the word about what he was doing, so he started helping more and more dentists. He advised about 250 dentists and dental specialists in the past 18 months. Key takeaways: The grim current landscape of student debt Choose your plan according to your goals The current state of student loans is not sustainable, and that might change Links: Student Loan Planner Want to receive our podcast on a weekly basis? Subscribe to our newsletter! The grim current landscape of student debt Student Loan Planner is mostly involved in borrowers that have six figures of student loan debt, so they are focusing on pharmacists, lawyers, chiropractors, veterinarians, physicians, assistants and so on. The landscape for student debt nowadays is, unfortunately, a lot grimmer than before 2006. What happened in 2006 was that the government passed a program, the Grad PLUS, that allowed unlimited borrowing for graduate degrees. When this got instituted, every graduate school realized that they can charge as much as they want. Then, at about the same time, the income-based repayment programs also came into existence. The result of this combination was an explosion in dental school costs. Nowadays the range of debt for going to a dental school, for instance, is between $200k to as much as $550-600k if you choose a higher-cost private school. Choose your plan according to your goals In Travis’s opinion, the best way to achieve financial independence as a dentist is to focus on practice ownership. If you want to pay off your debt as soon as possible, it’s preferable to look into working in a corporate setting after you graduate. So let’s take the first example: if your goal is to go for a big income in a private practice, Travis would advise you to make sure your payment plan reflects that. It’s all about deciding what you want to do. One of the payment plans, called “Revised Pay As You Earn”, gives borrowers an interest subsidy. The government pays a portion of your interest regardless of what sector of the economy you work in. This tends to work out really well for new grads who are associates transitioning to private practices that plan on making a bunch of money. If you’re one of them, you will want to get the maximum interest subsidies because you will eventually pay the debt back in this scenario where you will be making a lot of money. So the best way to go is to focus on practice ownership. When your practice is stable and your income is stable and high, that’s a great time to refinance and cut your interest rate to a lower rate and start paying the debt back really aggressively. If, on the other hand, you’re someone who doesn’t care about making a lot of money, or if you want to work part-time, or you want to have a family, you should look at a different repayment plan, for instance, “Pay As You Earn”. What you should ask yourself is “How do I minimize my payments so that I can have the most forgiven and also have enough to pay the tax penalty one day?” Another thing to keep in mind is that you can consolidate your federal loans into a direct consolidation loan. This is a useful thing to do particularly if you’re a recent grad. When you consolidate all your loans, you will only have one loan to think about, with one servicer,

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