With student loans, consider options in repayment strategy

Dr. Timothy Oh

Dr. Timothy Oh

Dr. Timothy Oh, of Ellsworth, Maine, graduated from dental school in 2008 with over $300,000 in student debt — a mixture of federal and private loans from various lenders, along with an education loan acquired prior to dental school.

“I feel student loan debt is one of the most serious burdens facing today’s graduates,” said Dr. Oh, New Dentist Committee District 1 representative.

He received some help from the Finance Authority of Maine, a state-based financial aid program. He received $80,000 in loan assistance for treating patients at a nonprofit clinic in an underserved and rural area for four years.

“The grant enabled me to get started with my loans,” Dr. Oh said. “But I was still left with a six-figure loan.”

The average dental student in the class of 2014 left school with about $247,000 in student loan debt, according to the American Dental Education Association.

For new dentists seeking ways to ease the burden of staggering student loan debt, there are options — such as loan consolidation, refinancing and government base repayment programs — that are worthy of consideration as part of a repayment strategy. But like all major financial decisions, they come with advantages and drawbacks.

Consolidations vs. refinancing

Federal loan consolidation combines multiple government-sponsored loans into just one loan. It takes the weighted average interest rate of the loans being combined.

Refinancing is when a borrower applies for a loan under new terms, and uses that loan to pay off one or more existing student loans. Unlike consolidation, refinancing is only available from private lenders. Interest rates are not based on a weighted average of the existing loans’ rates. Instead, a private lender will typically use a borrower’s credit score and other financial information to provide a new interest rate on the consolidated loan.

Consolidation: Pros, cons

One good reason to consolidate federal loans is convenience: There is only one loan, one loan servicer, one payment and one place to file forms.

Dr. Oh consolidated a “batch” of his student loans to reduce the number of monthly checks he had to write. Consolidating federal loans also allows borrowers to convert former nondirect loans to direct loans. Only direct loans (Stafford, Grad PLUS and Federal Consolidation Loans borrowed through the federal government’s Direct Loan Program) are eligible for Public Service Loan Forgiveness.

Also, repayment terms may be extended to 30 years, which lowers monthly payments but adds to total repayment costs if it takes the full 30 years to repay.

Drawbacks in consolidating federal loans include a lengthy and cumbersome process (may take 60-90 days), potential for a slightly higher interest rate (interest rate on consolidation loans is a “weighted” rate of all loans being consolidated, rounded up an eighth of a percent then fixed for the life of the loan) and loss of grace periods on loans being consolidated if students consolidate too early.

Refinancing: Pros, cons

Even before graduating from dental school, Dr. Adam Shisler, a pediatric dentist in Houston, had decided to refinance his loans, about $241,000, all of which were Federal Stafford Loans.

Dr. Shisler

Dr. Shisler

In spring 2014, he began the application process to refinance his loans through SoFi, a peer-to-peer lender based in San Francisco. Refinancing can help borrowers pay lower interest rates on their student loans, thus saving thousands of dollars throughout the life of the loan, though it comes with some risks as well. Similar to taking out a mortgage, borrowers can choose between a fixed rate loan and a variable rate loan, or both.

Fixed rate loans typically have higher rates than variable rate student loans but will remain the same over the life of the loan. Variable rate student loans generally are lower but may change, including the risk of going up, on a monthly, quarterly or annual basis.

Dr. Shisler said he was approved for a five year, fixed rate loan in an accelerated repayment program, lowering his interest rate from 6.8 percent to 4.3 percent — saving him about $70,000 in interest.

However, there aren’t many lenders that will include federal loans as part of a refinancing plan. Dr. Shisler found only three to four other institutions that would refinance his loans.

As for disadvantages, graduates who refinance federal student loans will lose many of the benefits that come with federal loans, such as loan forgiveness and income-based repayment programs. If there is hardship, a dentist won’t be able to apply to defer monthly payments.

Federal, state loan repayment options

Federal and state programs offer student loan repayment assistance, often in exchange for services in a health care shortage area.

Federal options include programs sponsored by the Army, Navy, Air Force, Veteran Affairs, U.S. Public Health Service, National Health and Human Services, Indian Health Service and more. States have their own programs — such as the FAME program that Dr. Oh participated in — that are independent of the federal programs.

“(FAME) is a competitive program, with an extensive application and interview process,” said Dr. Oh.

In addition, many dental schools and advanced education programs may have financial assistance and loan repayment options. Contact your school’s financial aid office for more information.

Research and resources

Dr. Oh recommends that dentists conduct research before signing up for a repayment program. He is now considering refinancing as a next move.

“I just started talking to companies about refinancing and haven’t made a decision,” he said. “It’s sometimes too depressing to think about, but there are options that can help.”

In addition, Dr. Shisler said the most important thing a soon-to-be dental school graduate or new dentist can do before making any decisions is to go on a fact-finding mission on the status of their loans.

“They need to ask, ‘Where are all my loans from?’ ‘Are they subsidized, unsubsidized?’ ‘What are the interest rates for each of them?’ ‘What is their loan health?’” said Dr. Shisler. “Know your loans before applying because you’ll need that information in your application.”

For more information on consolidation and refinancing, visit the Center for Professional Success here. You can also find information at ADA.org/student. ADEA also

has educational debt management materials at ADEA.org.

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