Episode 6: The Breadwinner Loophole with Pediatric Dentist Dr. Quinn Yost

“I went to a private college, UCLA dental school, went to residency, got married and had a baby all while milking the almighty student loan cow. Now I look back and say, “what was I thinking?!” My student debt is large, and my income is good, but not high enough to put a serious dent in the loans at this time.”

Dr. Quinn Yost graduated from dental school and owes $518,819.58 in student loans including with $439.261.14 in Federal loans and $79,558.44 private.

From a young age, Dr. Yost knew he wanted to live in California during some point in his life.

He received the best scholarship that his private school offered and that only took care of half the tuition. Going through clinicals and actually working with the children changed his mind. Now a recent grad, he works for practice four days a week and is close enough that he can ride his bike to work.

Dr. Yost is just one of many dental school graduates working hard to pay down massive student loan debt. I feel grads in a similar position can definitely relate to his story and implement some of the strategies he’s using to pay his debt off faster.

In today’s episode, you'll find out:

• The factors and decisions leading up to Dr. Yost's choosing which school to attend when he knew he wanted to go into pediatrics.
• How much extra it can cost to get a specialty in pediatrics.
• What his biggest mistake was in dental school and residency
• What he has done about his private loans so far, and what his future plans are
• How important it is to shop around with at least 3 companies when considering refinancing your private school loans
• When I suggest you shouldn't refinance your loans
• How he has dealt with his 15K in credit card debt while having student loan debt
• What the breadwinner loophole is and where it is offered
• What an in-school deferment wavier request is and how it can benefit you
• How to best compare PAYE and revised PAYE
• Options to prepare for the tax bomb

Links Mentioned:

• Dr. Yost's Practice
• Refinance Private Student Loans
• Investment Accounts
• Choose FI Podcast – Check out College Hacking Toolbox Interview With Travis here

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Episode 6 Transcript

Quinn Yost: Right now we're leasing a 2017 Subaru because we have a brand new baby. I was riding a motorcycle and I couldn't find car seats for a motorcycle you know kind of like what you saw with the refinancing I just didn't do enough research. Now that I'm out I realize the actual expense of that and I'm trying to get out of it.

Travis Hornsby: Hello and welcome to the Student Loan Planner® podcast. I'm your host Travis Hornsby founder of Student Loan Planner® and today we have Dr. Quinn Yost calling in from sunny California.

Travis: How are you doing today Quinn?

Quinn: Hey Travis I'm doing awesome. I'm really excited to be here.

Quinn's Journey

Travis: Great. Well, why don't you tell our listeners a little bit about your journey on the road to becoming a pediatric dentist?

Quinn: Yeah. So I went to undergraduate college in sunny San Diego. I grew up in Washington state and I always wanted to go to California. So I went down there to a private school. It was beautiful. Literally, my dorm was, my dorm, beach volleyball court, and then the ocean, so you can imagine I paid for that. I had some scholarships so I got about half of it paid for and then my parents paid for the first year but still was a private school. And so you know I racked up a bit of debt there and then I went to UCLA for dental school and I had in-state tuition.

Quinn: It was a fantastic school. It was really tough. But I learned a lot. I enjoyed my time. And after that I went to university Washington for pediatric dental residency and that was great. Seattle was a beautiful town. I was kind of back in my home state and we loved it. But we had a daughter up there and so we decided to after I come back here get some help my wife's family is fantastic they're all right around here where we're living. And so we've been able to have a lot of help from them. So it's been great.

Travis: That's awesome Quinn. So what is your family setup look like right now?

Quinn: For right now it's me and my wife and then we have a little 15-month-old daughter. Her name's Brightlyn and she is just so much fun. She's a little spitfire, passionate girl and you know independent as all get out even at age 15 months. So it's been a whirlwind but so much fun.

Owed Debt

Travis: That's awesome. So you have $439,000 federal student loan debt and then another say like $60,000, $70,0000 ish in private student loans right?

Quinn: Yeah that's it exactly. So just a bit above $500,000

Travis Hornsby: OK. So tell us a little bit about how somebody racks up $500,000 of student loan debt?

Quinn: Yeah just you just aren't very aware. I know it's funny I actually was relatively aware of it and I try to take some path to reduce it. So you know I got the best scholarship that that private school offered and that was only half tuition. And then after that I was concerned about the debt that I had at that point which was in hindsight small you know is about $60,000 back then.

So I went to dental school I knew it was expensive and I kind of researched everywhere and in state was gonna be the cheapest for me and so I got into UCLA which is a great school and I had California residency. So that was the best cost for me. I even thought about the Navy.

Quinn: So I applied for the Navy I went all the way through it and in the end didn't pull the trigger because the military will cover all your school expenses and then even in dental school I was conscious of it. So my second year I applied for something through the National Health Service Corps to try to get my second two years paid for in exchange for two years working in a an area of need after dental school and I and I didn't get that. So I was I was very aware of it but also I just felt kind of helpless. And so I would do everything I could that I knew of at that time but I just didn't have a lot of outside help. And honestly I just couldn't see another way to get to this kind of dream that I'd had for such a long time.

Travis: Yeah I mean it's it sounds like a very typical journey into dentistry. Now what about going to residency program and becoming a specialist made you excited like why did you decide to take that jump from being a general dentist to being a pediatric dentist.

Becoming a Specialist

Quinn: Yeah it's funny I actually during my first two years of dental school was open to a lot of specialties but I wanted nothing to do with pediatrics. We had a professor who in hindsight I actually love but in the beginning she talked to us like we were off five year olds like we were her patients and that really kind of turned me off to it.

Quinn: So when I finally got into clinic and started seeing kids it was so much fun and I really enjoyed it and it was just so incredibly rewarding this idea that you're building a patient from the ground up and you're making somebody who loves going to the dentist and has a good time about it. And so that was obvious for me that that was hands down the most rewarding and fruitful thing I could do in dentistry. So I mean there really was no choice. After I realized that and I was definitely going to do it the specialty.

Travis: OK so how long is pediatric dentistry on average usually?

Quinn: Most of them are two years. So and that's what that's what mine was. So it's not too long you know it's just a couple of years afterward. And half of them you can get paid for or just about break even and then half of them you'll actually pay for. So I looked at my loan debt burden already and I said there's no way I'm going to go anywhere that doesn't pay me. So I only applied to places that paid me. And then after that I just based it off of the quality of the program reputation and then location. So that's how I ended up at the University of Washington. Which unbiased opinion you know one of the best programs out there so I was really fortunate and happy.

Travis: OK. It's really interesting. What percent of your classmates at UCLA do you think went to a specialty program?

Quinn: You know UCLA is an interesting school it's very heavy on specialties so a large number of people one the specialty probably over 60% I would say at least which is very high compared to the average dental school. They may have even been as high as 70% So so it was kind of the norm to specialize at UCLA.

Travis: OK did you start undergrad in August 2008. Is that right?

Quinn: Yeah.

Covering Living Expenses

Travis: OK. So I was the first time ever and then so you literally took out loans for you know this 10 year period. And did you have to take out any debt in your residency program to cover actual living expenses?

Quinn: Yeah I did. I had to take out a little bit. We got paid a resident salary. And my wife worked but we had a baby and she stopped working. And so I took out some. Loans to cover living expenses and I also took out residency relocation loan it was called because I was a student I had no money and then we had to move up put a downpayment on a rental and all so I took out a few thousand for that too.

Travis: OK. So how much debt did you take out in residency if you had to guess?

Quinn: Yeah residency wasn't too much. It was probably about $30,000 a year so probably about maybe $50,000.

Travis: OK. That's that's not too bad then yeah. OK. Interesting. So what would you say.was is your biggest financial mistake in dental school and residency?

Quinn: That's I honestly really hard to say I'm not entirely sure I think probably would have been my wife and I just living like everyone else and like the rest of our friends and I've always been relatively frugal and my wife has helped and joined me on that journey. But we didn't live as people talked about your parents talk about I lived off of ramen and this and that and so I borrowed more to keep a comfortable lifestyle. And so I think that that's where my biggest mistake and I think a lot of my friends did as well.

Vehicles in Dental School

Travis: Yeah. What would you say was the typical car that people drove in dental school?

Quinn: You know actually most people didn't drive anything to do it kind of depends on who's who it is because you know most people probably drove what they drove in college. A lot of the kids had nice cars but I don't think that that's because they were taking out loans to pay for them. I think that their parents probably didn't make sense.

Travis: So like sort of like the just L.A. kind of rubs off on you a little bit. Yes, I remember when I was in Miami I'd never seen so many nice cars in my life. And then I realized the brand new Mercedes was just like a kind of like you know your day car.

Travis: You see like Bentley's driving by Lamborghini's, Ferraris.

Quinn: I know I had never experienced that either and I lived in West L.A. and it was the same thing we would see the muzzle rises and all these crazy cars and it was just the norm for people so yeah it was definitely a big change. I thought you I'm from Spokane Washington. I grew up outside of that too. So just smaller simpler mindset.

Travis: I grew up in a small town in the Florida Panhandle and you know a BMW whenever one of those passed we were like well wow what is that.

Quinn: Yeah exactly. Everyone around me was in pickups.

Travis: Yeah yeah. And then I went I went to university Florida so when I hung out with friends down in Miami and just like a whole nother world now. Yeah, that's funny yeah. So for your debt, you're on the revised PAYE we're in program right now. Yes. I'm assuming that your thought process has been that you want to pay all this back one day. Yes. Now for your private debt.

Refinancing

Travis: Talk to me a little bit about that because it's right now it's about for our listeners it's about seventy nine thousand five fifty eight about a 6.8% interest rate and it's through SOFI. So did you refinance this debt with them?

Quinn: I did refinance. I had three private loans going back to undergraduate. Well two were from undergraduate and they were running about an 8.6% interest. And then I had that I had a $20,000 residency relocation loan which was from dental school to Seattle and that was private and that had a 10.4% or so interest rate. And so I refinanced all of those into one with so far just a couple months ago and then got that 6% interest.

Travis: How many places did you shop around?

Quinn: Two. That's all I did was two.

Travis: OK. I think we can get that lower.

Quinn: OK well that's good to know.

Travis: So if you go tostudentloanplanner.com/refi which you'll find there is a list of about eight different lenders with cash bonuses ranging from it depends on the season. Right now it's like $200-$2,000 for a cashback bonus for refinancing.

Quinn: That's awesome.

Travis: What I suggest to people is if you're shopping around debt you search at least three. So I don't have anything against SOFI. But what I find is most people will search them and maybe one other because dentists just kind of maybe shop a couple and then they stop their search and that usually cost people a lot of money. So I'll give one example I had somebody who had a 5.75% loan from that company a couple of years ago and then I had them apply around a little bit more and we got them down to like a 3.8% or something like that.

Quinn: Wow that's huge.

Travis: Yeah. And it was on like $400,000 something so it was like savings of like $8,000-$10,000 on their loan balance. So you know it is worth shopping around. I know it kind of feels like OK I'm just going to shop a couple of places. But yes. So that's one thing that certainly I think that if you shopped on that list at studentloanplanner.com/refi you could market like earnest, and common bond, and maybe lend key you know Laurel road basically it takes like five minutes per lender to check. So I would probably do that even though you very recently did that refinancing that you can refinance as often as you like as long as you're getting a lower interest rate.

Travis: The only reason Quinn why I would suggest refinancing is if you were going to get a practice loan. Kind of like tomorrow or if you were going to buy a house within the next month or two. So if you were gonna do that refinancing has a similar impact on your credit. Like opening a credit card does.

So it takes it takes a temporary hit and it's a very modest hit but it does take a slight hit because they have to do a hard credit check to verify you are who you say you are right. Sure. So yeah. So in your case you know I don't really see any reason why I wouldn't basically immediately try to shop around and see if you can get a better deal on that. And then there's there's a loan at 9.8. That's a light stream. Tell me what that is.

Quinn: Yeah. That is a loan that we took out on the other end. So that was coming from Washington to Seattle. We didn't have any savings and I had a little over a month and a half after residency and then moving down here. And so that was just new house rental down payment and moving truck and living for a month and all that fun stuff.

Travis: So this is really your first couple paychecks even getting the past couple of months right?

Quinn: Yeah. This is the first time I've ever actually made anything of significance.

Travis: That's good. Well that's that's good.

Travis: Feels good doesn't it?

Quinn: It does feel good and you know it's funny it feels really good. But we were so excited to be doing this and to think well now we're just going to shovel it all into this debt. And it's interesting how challenging it is to do that and how much of it goes to taxes and then I have all these million other things so it's been fantastic but it's been it's been challenging to see it not going the way I want it to always.

Travis: Oh yes. So you're probably taking home about $13,000 a month. I would guess that after taxes. So the couple credit cards from back during the residency period I'm guessing writes about a $13,000 credit card debt. You've been able to pay that down at all since you've been working.

Quinn: Yeah. So I've put a few thousand that started that I think it was $15,500. So we've got about a couple grand. You know I'm trying to do a grand of fifteen hundred per month into that.

Travis: OK good. So the $79,500 loan again I think you can refinance that for sure. In your area and not like that L.A. area you can also get refinancing through the first republic bank and we have a referral deal with them where you get $200 if you get a rate through them. So that would help in the sense that you could cut six point eight down to as low as like 1.95 if You went with a five year but to do that you basically have to have an absolute pristine balance sheet. You have to have no credit card debt. Tons of cash in the bank. You have to have like 15% of your overall indebtedness in liquid assets.

Travis: So if you have $518,000 in student loan debt and they're going to want to see like $75,000 of liquid assets, for example, to be able to approve you. So that's why that you could start off with one of these other lenders to get maybe hopefully like a five something with a cashback bonus. And then once you prove your finances a bit then you might take that rate and refinance it once again to an even better deal. Right.

Quinn: I see what you're saying.

Travis: So basically a lot of people think that you know refinancing is like a one and done kind of thing and actually nothing could be further from the truth.

Quinn: That's really good to know. So you don't just refinance at once you're out and then write it until the end you kind of are always checking it and seeing what you can do to make it.

Travis: You actually tell people that there's basically something called a refi ladder except that you start off at the top and work your way down. So what happens is the longer the term that you choose for a refinancing the higher the interest rate. Which kind of makes sense because you're gift. You're gaining a lower payment in exchange for something. Right, you have to pay for that lower payments. Generally, you're going to pay in the form of the higher interest rate.

Travis: So say you have a 5.5% Interest rate for a 15 year refinance and you choose that 15 years because you're worried about that payment being required of you and you want to keep a flexible cash flow balance while you're starting your practice. So you might start off with that 15 year. Say it like you don't earn earnest or somebody like that and then you work your way down by making extra prepayments or over and above what you actually owe. So maybe you pay down you know $400,000 to $300,000 and once you get it down to $300,000 you refinance from a 15 year to a 10 year.

Quinn: Right. I see. OK.

Travis: And then you pay $300,000 down to $150,000 and then you refinance $150,000 down to a five year. And so you went from like a 5.5% with a 15 year maybe 4.5% with a 10 year and then maybe like a 3.8% On the five years. That's a way that you can work your way down that refinance ladder and you pick up cashback bonuses every time. But that's not the main reason you would do it. The main reason you do it is for cash flow flexibility and for saving money on the interest rate.

Quinn: Yeah. That's great.

Travis: But we're gonna drop some bombs on you later in the interview because I actually do not think that refinancing is the right thing for your long term.

Quinn: OK. I'm really interested to hear what you said because I've read your article on a few things and I'm very interested to hear that.

Breadwinner Loophole

Travis: So just a little bit more about your background right. So you're making roughly like $200,000 to $240,000. You think that you're going to be making $400,000 at some point soon and we think that your wife is going to kind of maintain a very low-income right?

Quinn: Yeah I think so I think my wife talking about going doing some night school and going back and doing teaching or counseling which would be really cool and something she could take on when our kids go back to school but that would be a few years from now.

Community Property State Law

Travis: Sure. So there is a loophole that I like to call the breadwinner loophole in approximately I think it's nine states in the country that are community property states. So if you have you heard about community property state law before Quinn?

Quinn: No I have not.

Travis: So community property is it an idea that originated because of the fact that Mexico used to rule the entire southwestern part of what's now the United States prior to the Mexican-American War in the 1840s. So what happened is and this is like really deep. Zachary Taylor president of the United States like the kind of became famous because you know he went down and let all these people and basically beat Mexico in this war and then they basically forced Mexico to give away half of their country.

And so the half of their country they had to give away was basically like Texas. And while Texas won their war of independence. But then you know you have like Arizona, New Mexico, California. Right. Like this giant swath of the country.

Travis: But there was already civil codes that existed in these states that were based on Spanish law instead of English law like the 13 original colonies. And so rather than the United States coming in and just completely ripping apart all the civil codes what they said is like OK let's leave the Spanish civil codes kind of roughly in place and Spanish civil codes had this idea of community property which is basically a little bit more oriented towards the woman having more property rights roughly. Right. So like you know not a not a legal expert but you know this is like the origin of this stuff.

Travis: So the states that are community property states are generally places like if you basically draw a line from Louisiana all the way to California then that's most every one of those states is a community property state. That's touching the Mexican border. In Addition, I think that Washington state is and I think Wisconsin is very really random one that is.

Quinn: Yeah it's all that cheese.

Travis: Yeah I guess I don't know why it is but. But California is a community property state. And here's why this is important when you file a separate income tax return for taxes and a community property state. What you do is you split the spouse's incomes equally on the tax return.

Quinn: Oh interesting. Wow.

Travis: And that's required. Well, it's I think highly encouraged at least. But I've talked to CPA is in California about this and it's what they do when they file a separate income tax return. You take here your incomes and you equitably distribute them. So if you're a breadwinning pediatric dentist you're making $200,000 to keep the math very easy and you have a wife who's at home with your young daughter. Then if you file a separate income tax return then your income would be $100,000 and then her income would be a $100,000.

Quinn: That's great.

Travis: And why is that important. So if you file taxes separately then what you can do is make your payment either on the PAYE or the IBR plan be based only on your income instead of both of your incomes while in a non-community property state. You'd have to claim your full two hundred something thousand income.

However, in a community property state, you are filing separately so you're paying based off of approximately half of your income. And it's even better than that because in a non-community property state you have to pay income taxes that are way higher. By filing separately because basically if you have a $240,000 income and your wife has a $0 income then you'd have to pay taxes in a tax bracket that would be basically equivalent to double what you earn.

Travis: So you'd be paying like a $480,000 tax bracket or something like that.

Quinn: Oh wow.

REPAYE Program

Travis: Right. So it's a very high percentage tax rate that they would put you in if you file separately in that kind of an environment. But because you're in California if your plan is to make a home and stay in California long term or in any one of these community property states then the ability here is to reduce your income a lot. And it's also to minimize your tax penalty.

So when you file separately for taxes and a community property state your incomes are almost equalized so you will have a little bit of additional tax cost for doing this every year but it's not going to be that large because your incomes are equal. So the penalty is not too bad. So why does that matter? So right now you're on the revised PAYE or I'm program. If you did the consolidation immediately after graduating you're probably able to base your payments legally on what you earned as resident. Right.

Quinn: Yeah exactly. So that's why right now they're very low. That's what I learned last year right.

Travis: So there's nothing wrong with being on the REPAYE program right now because if you recertified right now he probably would not get to use this loophole because you didn't file taxes separately in 2017. I'm assuming.

Quinn: Yeah we did not.

Travis: OK. So you know you can be on the REPAYE plan and the REPAYE credit can count towards the 20 years on PAYE Right now there's a bill in Congress that would lock everybody into their plan that they are already on. But if that started to happen it would take a long time for them to pass that. You'd have a little bit of advance warning. So I think that you could be on the REPAYE plan because of just your situation for the next year or so but with the PAYE your own plan.

The reason why this is is such a big deal is paying back your loans on a private refinancing over 10 years. If you pay just I'm just cutting your federal loans here. But if you paid back your federal loans over 10 years with really good primary financing deal would cost you about $545,000. Now if you paid your loans back on the PAYE you in filing separately path then what that would look like. And I'm just double checking the math here. What that would look like would be payments of about will be about $164,000 of total payments over 20 years.

Quinn: that would be assuming an income sorry of $200,000 or so.

Travis: It's assuming an income of basically $200,000 that grows to about $380,000. And what happens is you split that income equally every single year by filing separately and then on top of that the goal would be that you would own your own practice or be a partner in your practice right. Yes. So say you become a partner in practice or your own practice. So what I see a lot of people do legally is they will give some sort of tasks outsource to their spouse and have their spouse be on the payroll for the practice.

401K

Travis: The reason why this is helpful is that then you're 401 k if you have can contribute $19,000 to your 401K and then your wife can contribute $19,000 to her 401K for 2019. That's the new limits for the contributions.

Quinn: Sure.

Travis: And then on top of that you can make the employer matching contribution to if you are running everything and you're making all the decisions with the 401K. If you're a partner it might be a little trickier to add your spouse on because the partners might not like that. But generally I see a lot of dentists do that and a lot of specialists do that.

Quinn: I've heard about that. That would be a fantastic benefit to owning.

Travis: Right. So why does that help from a tax perspective? So obviously federal and state income taxes you get to deduct those on for a 401k plan. So that's in California probably like 10 % pretty high state income tax. Yeah. Yes. And so say you have like a 33% federal income tax bracket just to make some numbers up sets 43 %.

Quinn: That's about right.

Travis: Now if you were saving in a 401 k plan and reducing your adjusted gross income then your student loan payment would go down 10% of whatever you contribute to your 401 k as well. So that would cut your payments quite a bit. In other words your savings you know for every dollar you contribute to retirement would be in like the 53% ish savings range which is really quite high. Right.

Quinn: That's fantastic, and that's something my wife and I would like to do anyways we want to save a lot of her retirement we're not big into spending in the lavish lifestyle. So yeah that sounds right up our alley.

Travis: So then what could happen here is you have an income that's approaching $400,000 but you reduce that with having a business interest deduction and writing off equipment for your dental practice or your pediatric dental practice. You might own the building. So you have write-offs for that too. There are all kinds of write-offs that you get when you're no longer an employee and you're a private practice owner. Now in addition to that, you also have to write to us for retirement.

Travis: So if you are doing everything right. Your retirement write-offs should be at least $38,000 probably more. And then you should be able to write off a lot of the business interest a lot of the depreciation a lot of the equipment that kind of stuff. So if your adjusted gross income is is really up over $400,000 then that is truly unbelievable in terms of the success that you would have had to have an adjusted gross income of $400,000 by yourself. Because of what that would represent.

Travis: So that $400 in our income even though it's unlikely that you would hit if you did then by filing taxes separately your income can basically be $200,000 instead of $400,000. So even with that really high level of success you still have that possibility of having your income be low. So the way the rules are written for these regulations is that the loan servicer can request additional documentation that they don't think that your tax return is reflective of your current income. So this is something that it's not necessarily guaranteed to work. But right now it does work. So what I would say to that is in a situation where you have a plan a strategy that works very well right now but you're not totally convinced it's going to work for the long term.

Student Loan Interest

Travis: You want to have a lot of money going into a side fund to protect yourself so that you could throw a bunch of money at the debt and pay it down and then refinance it if it were ever to come to that.

Quinn: Right. Sure.

Travis: The reason why this doesn't concern me too much is if your balance grows and it's increasing instead of decreasing the student loan interest grows at a rate of interest that's linear instead of compound. So the rate of interest growth is at worst very predictable and not nearly as bad as the credit cards that you're dealing with.

Quinn: OK I see. So the student loans are only interest growing on the principal not on the on the accrued balance.?

Travis: Right. If you are on an income-driven repayment plan and you keep certifying every year.

Quinn: OK.

Travis: What what a lot of residents do they defer are they for bear. They don't make payments right. That's a big mistake that cost you quite a bit of money long term because your interest is compounding or it's going to compound and then you're also giving up payments that could be like $200 a month when you know at the end of your career you're going to be having to pay based on you know a three or four hundred thousand other income.

Quinn: Right yeah.

Quinn: That's one thing that I tried to do going into residency is to begin a Pay As You Earn but they would not let me since I was a resident and I was still in education. They wouldn't let me start paying things back.

Travis: So there's actually a way around that you have to call and ask for a supervisor and ask for an end school deferment waiver request. So it's a little difficult. It's a lot easier if you're not taking out any additional student loan debt. So if you if you enter residency you don't have any more debt. That's a lot easier to cancel that deferment.

But if you are currently taking out more debt than what you can do is request that in school deferment waiver request form for the dental school portion of your loans and then you can get that into getting subsidized and making small payments and things like that. But it does take a lot of effort. I've had some people that have sent me the transcripts of e-mails they've had with people and it's not pretty.

Travis: I mean it's not easy.

Quinn: But it's possible.

Travis: It's possible.

Quinn: We should have met two years ago.

Travis: I know. Exactly.

Travis: So if you look at the cost of your tax bomb so in your case I think your tax bump is going to be over $300,000. If you did this PAYE your strategy and the total cost of your loans is about $ 484,000. If you sum up the payments and the taxes on PAYE filing separately for your case. And then if you compare that to private refinancing the absolute cost is about $70,000 less. But the cost in today's dollars. Basically, this is present value is showing savings in the neighborhood of like $220,000.

Quinn: That makes sense.

Travis: Compared to refinancing. Yeah. So. So I know that we exchanged e-mails and you're gonna be doing our consult service and your case was interesting enough that I wanted to highlight it on our podcast. And I know that there was a little bit of hesitancy right because you're like well I'm already on the plan that I think that I'm supposed to be on. Right, and you know what else is this guy going to tell me? And You know the truth be told it's sometimes difficult to realize what you don't know.

Quinn: Yeah that's the truth.

PAYE

Travis: So I would not be shocked at all if there's a lot of people in your situation and community property states that are the breadwinners for their families who could take advantage of this that just don't know about it and actually you got very lucky because the PAYE cut off is October 2007.

Quinn: I know. I saw that

Travis: If you started undergrad a year earlier than this pay as you earn strategy would not really have been available to you. You would have had to look into income-based repayment filing separately versus REPAYE and that would have been a lot more complicated.

Quinn: Pay As You Earn is that a 20 year or also a 25 year?

Travis: So PAYE a 20 year and revise PAYE is a 25 year but the Pay As You Earn plan one that I typically suggest to people going for loan forgiveness. So it's generally a little bit better than the downside of that one is you know you have to be prepared for a big tax bomb sooner.

Quinn: Yeah and that's yeah that's fine. But you know like you mentioned in your article you start planning for that. And so you just consider that another loan payment basically that you're putting in a fund you know a savings account or easily accessible investments.

Travis: Exactly. So one of the ways to do that is as you can open up an account where you just have to make the deposit not worry about it at all. So for example like studentloanplanner.com/betterment. That's one option. That's an option that will allow you to put money every month with a goal in mind so that like you can say I'm saving for something 20 years in the future and I want to put aside you know a certain amount every month automatically has withdrawn from my bank account and I want it invested for 20 years now.

That's great. So that's one option. That's that's a little bit extra costs but it's it's not very much cost extra it's like 0.5% And then if you do want to manage it yourself you can do that to replace it I would suggest for that as is Vanguard because they have the lowest fees as really anybody in the industry.

Quinn: OK perfect. Yeah. I've been going for Vanguard recently.

Travis: Yeah exactly. So they're really quite excellent when it comes to having very low costs. Right now we're talking like point 0.5% for a lot of their mutual funds which is just really insane.

Quinn: Yeah exactly. Well let me ask you for this PAYE you're in to because I really thought about that and I called up Great Lakes and talked with them about that to switch myself over to it. My understand is do we have to demonstrate financial hardship to get into it. And then they were under the impression I had to do that every single year that I was in the plan.

Partial Financial Hardship

Travis: So partial financial hardship is not what people think it is. Partial financial hardship. Sounds like I'm having trouble putting food on the table for my family.

Quinn: Exactly.

Travis: That's not what it is. Is your payment on the standard 10-year plan greater than 10% of your income. If you were paying in on that direction. So for example, if you're making $240,000 your payment is about $24,000 a year and about $2,000 a month. It's actually a little less than that because of your daughter you're you're married like you get a bigger deduction but say it's $2,000 a month.

Travis: Well on the standard plan was $400,000 you're paying like $4,000 four something a month. So yeah based on that difference you have a partial financial hardship. And based on that filing separately strategy you would always have one. And even if you didn't have a partial financial hardship one year your payment just gets capped just gets capped at the standard tenure. So it's really kind of interesting to think that that you could get that amount of loan forgiveness despite making a lot of a lot of money.

Quinn: Yeah. OK. So that's something that that's good to hear because it's something I was really worried about. Hey, I'll get to this plan and then one day they'll say Oh you're no longer in financial hardship you're out but that is not written in there.

Travis: Right. Exactly. So you know if you if you got out of a partial financial hardship your payment it just turns into the standard 10 years basically and you stay on PAYE your payments still count for the 10 years. So the worst case scenario is you'd pay this all off in total. Sure. And your situation that would not happen unless you were making like truly unbelievable amounts of money. Sure. So the only way that would happen is like say you get kicked out of this strategy for some reason and you're making over $500,000 a year adjusted gross income at that point that you refinance at your federal debt would be the better choice.

Quinn: Yeah. At that point, it's like Boo hoo poor you. You're rich

Travis: So what problems do you have?

Quinn: Right.

Living in California

Travis: So you know one thing I wanted to pick on you a little bit about outside of just the student loan debt right. This is Obviously Calfornia is absurdly expensive. So that's kind of why your rent is high right about $3,000 month for rent. So tell everybody about what kind of house you're. You guys are living or what kind of maybe a studio apartment.

Quinn: Yeah right. Exactly. No, we're in a little house. It's old. We just had a treat for termites and aunts. We're renting but it's small it's 900 square feet and just two bedrooms. We have a little yard which is great but yeah it's nothing fancy at all but $3,000 is just the norm to live in this area and it's fantastic for me because I'm able to bike to work and at this point, we only have one car. So that makes it work out really well. But that is yeah that's a huge payment I mean that's a mortgage in most states right.

Travis: Yeah. Yeah that's It's insane, right?

Travis: One thing about people that are in California is that you will have a hard time making really high incomes. I think in the future so I would love to hear your thoughts about this but like my theory is that if you look at the number of dental graduates it's doubled over a relatively short timeframe. And places like Utah New York Southern Cal for general dentistry Nor Cal for general dentistry.

Travis: These places are really quite saturated. And you know when you have more and more people entering a profession obviously incomes go down. I'm wondering if you have seen any saturation in Southern California for specialists and if you've talked to people as if that's holding down their incomes at all.

Finding Work As A New Graduate

Quinn: Yeah. No that is the thing definitely as a thing. So I am very very lucky in my situation as a new graduate to be able to be at one of these working four days a week so essentially full time. All of my other friends who are new specialists out and even I'm have been out for a while. We'll work two to three even four offices because they can only get one day week and they'll drive an hour one way an hour.

The other wage each day and that this speaks to because there are too many whether it's pediatric dentists or whatever special PAYE it may be and not enough patients right. So even as a specialist, it's definitely felt that I have friends and because I met a lot of people in residencies either at YouTube or other places. And yes certainly the majority of states here in the Midwest or you're elsewhere. That doesn't even make sense to them when I tell them that.

Travis: So what I tell folks is a lot of times like the natural thing to do is ask what are specialists thinking now that are 20 years into their career that on their own practices right. That's kind of how you would look to ask like how much you know I'm going to be making when I'm in my 50s.

And the issue is at that I'm very concerned about is practice valuations now are much higher than they were back in the day because you have all this private equity in dentistry you know and it might not be as big of an impact in the specialty world but you know the existence of all those private equity money pushes up valuations. So if a practice is really an attractive practice with the doctors bringing home a million a year or half a million a year then there's going to be a lot of buyers for that and you're going to have to pay more than the traditional multiple for what dental practices sell for.

Quinn: Yeah exactly.

Travis: So that's one thing too is like you're gonna have to buy a practice at today's valuation, not yesterday's valuation. So that's one thing that I think a lot of people don't understand. And then kind of the other thing is with the overproduction of graduates you know the new dental schools that have gone in and everything. I do think that that's going to be an issue in places that are desirable to live in.

So you know your salary we hope that it hits $400,000, Quinn. It certainly has a decent chance of hitting that but it could also top out like $300,000 because of the saturation and the concern that I have is if you're going to pay $5,000 a month to pay down your student loan debt. What happens if the environment for dentistry changes midstream?

Quinn: Yeah exactly. Yeah. And those are exactly those are concerns that I have in my wife and I talk about all the time because it's an ever changing thing and yeah living here is very expensive and the reimbursement for living here is less.

Travis: What about reimbursement rates? What's the word on Southern California. Is it just everybody accepts everything? Just have to take whatever people pay you.

Quinn: Yeah kind of. I've been at this practice. We're lucky now it's a Delta Premier practice so they have very good reimbursement rates. And then that's the only insurance we're taking right now. So we will work with any other insurance to help patients with them but just only contracted with the one. However for me in the future Delta Dental premium is no longer taking new providers. So if I buy in that better reimbursement Essentially it goes away.

Dental Reimbursement Rates

Travis: Interesting. So what's the new reimbursement rates. Is it Delta Dental dumpster fire or what's the.

Quinn: Yes. That's about what it is. Yeah. It's just going to be Delta Dental. You know maybe not quite as low as half as what it is but quite a bit lower.

Travis: And that's what happens when you have the power of leverage. Right. So like in. Yeah exactly. I had to consult with somebody it was dentist. General dentist in Beverly Hills he was a pretty sharp guy and he's like You know I had to say I love living here I would never move but three bad Yelp reviews would sink my dental practice.

And I'm like That's funny because I just had a consult with a Dentist in rural Texas and all of his patients you know they he asked him what Yelp was like. Yelp What? Was that the thing that my dog does like when I step on his tail and you know so like if you're listening out there and you want to you know you're a health practitioner and all I can.

Options Outside of California

Travis: In general it's amazing to me that the power of geographic arbitrage. You know Quinn you obviously you want to live in California that's where your family is your friends or that's where do you want to be. That's fine. But you know it does come with the cost of being the only dentist for the entire Dubuque Iowa Region.

I just made up the most random mid-sized city that I could think of. Apologies if anybody's from that area but you know I've had people in Iowa that are general dentist producing not earning but producing revenue of two million dollars a year industry which is just really kind of insane and no dentistry is interesting in that because you know a lot of places you go to a bigger city and  you make more proportionally but dentistry oftentimes it's the other way around.

Quinn: So the smaller more rural you go oftentimes your costs living goes down. But then your income increases. So it's it's funny.

Travis: So if you like cowboys and farmers and you know a little house on the prairie that dentistry can be a great career for you. Right exactly. But if you're more of like you know Sex and the city and friends and you know those are kind of your shows then you know maybe you should. I don't know. Don't sell your soul to work on Wall Street. Well, what are some alternatives to being in dentistry?

Quinn: Maybe go into finance or go into software engineering and live in Seattle.

What Were Some Alternatives to Being in Dentistry?

Travis: What would you have done if you had not become a dentist. I'm just curious.

Quinn: Yeah I probably would have done something outdoor related. I spent a year off between undergraduate and dental school in Colorado just doing outdoor stuff and working on a ranch. I love the outdoors so I don't know maybe I would have I have a good buddy who I just saw who worked with osprey backpacks for a long time. So and he just did a lot of outdoor things.

Quinn: I would probably have done something like that. That's funny. You know like you said dentistry today is certainly different than dentistry 20 years ago and so when I was 12 years old and decided I want to be a dentist it was very different than what it is today and I love it. Like I said I really wouldn't change it. It's very rewarding but it is it is changing and changing rapidly.

Travis: Yeah. So if you are thinking about going to dental school be careful. Just know they're going to have a lot of debt now that said Going for this forgiveness strategy the cost of this if it's managed well could be as low as about two hundred twenty thousand in today's dollars. So if you think of the benefit of giving up seven years of earnings of working like Osby backpacks after college right because for four years if I get six years right four years of dental school two years of a pediatric residency. Right.

Quinn: Sure.

Travis: So six years of earnings after college plus the $220,000 cost of the debt in today's dollars. Was that worth trading for an income of like two hundred, three hundred thousand dollars a year for the rest of your life living in Southern California. I would probably say yes for somebody who's not somebody who is a hardcore entrepreneur or software developer tech kind of a person.

That's not your personality then actually think you made a great decision and I think yeah I think that people that are making the decision to go into dentistry now would be making a good decision if they understood all the math behind it. The folks that I'm really worried about are the folks who buy cars on lease and I know that you said well you're joking about earlier I guess on the form you're going to get rid of those right. Right, Quinn?

Leasing a Vehicle?

Quinn: Yeah. So we're now we're leasing a 2017 Subaru we got that when we were in Seattle because we had a brand new baby. I was riding a motorcycle and I couldn't find car seats for a motorcycle so I decided to sell that. And then my wife had an old car that she'd had it was her first car and it was the only car she'd had. So we're like We want something safe for the baby. And kind of like what you know the refinancing I just didn't do enough research and I was in residency on call like crazy and we decided to go with the Subaru lease because we could afford the payments and it was a nice safe car with all wheel drive for Seattle.

Quinn: Now that I'm out I realize the actual expense of that and I'm trying to get out of it.

Buying A Practice

Travis: Yeah well and that's OK. It takes time. You know the first thing I tell people get $20,000 in the bank and if you want to buy a practice if you're a health care practitioner wanting to own your own business you're going to need 3% of the practice purchase price and liquid assets to have a good shot of getting a good long term right now. So if you want to buy a practice it's a million dollars you're going to need $30,000 in cash.

Quinn: OK. Yeah, I've heard that that's good to know.

Travis: Yeah. And then for certain practices that can't qualify with conventional financing, you might even need 10% if you're going to go an alternative financing route. So the importance of having a very high savings rate early in your career is very high. And buying a $100,00 car to have something that's safe enough that you feel like you know you can put the family in there without having to worry on the on the highways like that's important. But you know that car lease is definitely throwing money in the furnace. Although that was a terrible analogy because you guys don't have furnaces in California right?

Quinn: That's right.We definitely don't.

Travis: Yeah. So. So I think that the most important thing in your case Quinn is a high savings rate. So I would say at least like a 25% savings rate during retirement savings also putting money into the brokerage account that you're going to open up where you're putting money into mutual funds or ETF or something like that. And so that would be very important. Now the only other thing would be having good term life insurance. You know it's to make sure that you have adequate protection there. Now you have a child so hopefully, you have something there in place.

Work Benefits

Quinn: Yeah we've got I've got all the fun stuff. The term life insurance and the disability and the malpractice.

Travis: Good. So that's all covered. Yeah. So then all you got to do is worry about how do we cut back the expenses that don't bring us joy and put all the money into places that do. And a lot of times that means putting money into future consumption by putting money into investments. That's the whole point. Putting money into investments is buying freedom in the future.

Financial Independence

Quinn: I love that we listen to the choose F I podcasts. Have you heard of that? It's like Choose Financial independence.

Travis: Yes one of my favorite podcasts I was actually on that on that podcast.

Quinn: Oh were you? I'll have to look at up to I'm versus still early on and that about Episode 30 or 40. So I'm just going chugging through it one by one out and check your episode out. That's awesome yeah.

Travis: I'm episode 78 it looks like.

Quinn: Perfect.

Quinn: That's great. We'll, listen to that soon. Yeah, I love those guys. So when they talk a lot about lifestyle and being aware of your expenses.

Travis: Yeah. So that's really key. So recap and everything you know pay as you earn filing separately getting some money put away into that retirement account getting prepared to buy a dental practice that's for pediatric dentistry or buy into one. And at some point you know you could hit financial independence like that choose FI podcast you know they talk about 25 times your expenses and having an investment portfolio that can actually cover your lifestyle.

So that's another thing is if you don't want to work until 50 which actually is a possibility even though you have all this debt you could try to get 25 times your expenses and investments and then on top of that you'd also need about three hundred thousand set aside for that tax form. So once you have the tax bond plus that 25 times your expenses you could be financially dependent even though you have all the student loan debt.

Quinn: That's really encouraging to hear because yeah we think about that. We talk about that we go well is it really possible with where we're at or do we need to aggressively pay this down. And even with my income probably 10 years would be the soonest we could do that. And that's just discouraging to we'll finally in 10 years we're starting at zero and we haven't been saving. That doesn't seem right you know.

Travis: Right. And just to show you how individualized this really is. If you had been in New York and had this conversation and you were a Jets fan your family lived in North Jersey you're never leaving. Right. This is probably a different conversation. This is probably talking about refinancing and talking about the importance of paying down your debt as fast as you can when you would refinance in terms of your life kind of path in terms of buying a practice buying a house those kinds of things. So really it really does depend on a lot of things that people don't necessarily know if they don't do this every day. Yeah. So let me ask one last question here. Quinn, what would be your number one piece of advice for a new dentist or dental specialist just starting out?

Advice

Quinn: I mean if you're just finishing up. I think doing exactly this conversation that we're having now I think that finally, we're very excited to be out in the working professional. And you know the obvious thing you hear from everyone is lifestyle creep and don't let that happen.

But I think the other thing is becoming scarcely aware of the finances and all those things we were never taught in dental school and having conversations with people like you have conversations with your accountant and choose if I all those things that were so out of touch when we're in dental school and to start to realize that because we have an amazing career and let that start on the right foot and not the wrong foot.

How To Reach Us

Travis: Awesome. Thank you so much to Dr. Quinn Yost for being on the show today. If you have questions or comments or ideas for a future podcast reach out at podcast@studentloanplanner.com and if you realize that you would like to get a professional review of your student loan debt reach out at studentloanplanner.com/c/book to schedule a time or studentloanplanner.com/ help if you want to get more information. So thanks so much. And pay down some debt.

Travis: Thanks for listening to today's show. You can e-mail us your comments at podcast@studentloanplanner.com You can also find show notes at studentloanplanner.com/ the number of today's episode. If you know that you need a custom student loan plan schedule one today with one of our team members at studentloanplanner.com/c/book or if you want to learn more visit studentloanplanner.com/help if you like the podcast please share it with someone who owes more student loan debt then you do. Keep calm and build wealth and have a great week.