Most of the content about refinancing dental school loans talks about how much interest you could save and how fast you could pay down your debt. While that’s true, if you focus on only your dental student loans, you’re missing the forest for the trees. To get the best dentist student loan refinancing deal, you need to act in concert with your long-term practice goals.
Here’s three strategies to figure out if you need to refinance, when to refinance, and how.
Do you need to refinance dental school student loans?
Here’s a good rule of thumb: If your household debt-to-income ratio is below 1.5-to-1, you probably need to refinance your dental school loans.
You might not hit that ratio until you’re a practice owner. After all, the typical dental school debt these days is $200,000 to $400,000. If you’re starting at a $120,000 associate salary, a 1.5-to-1 debt-to-income ratio would mean owing less than $180,000.
Here are the only dentists I see who come out with less than $200,000 these days:
- Military dentists under HPSP scholarships
- Received family help from parents, grandparents, or spouses
- Went to a public in-state program, lived like a pauper, and waited tables every weekend
- Worked a prior job and saved money
That means most dentists aren’t in a position to confidently refinance right out of school.
When is forgiveness better than dentist student loan refinancing?
From my experience consulting with over 400 dentists and dental specialists, if your debt-to-income ratio is above 2-to-1, then refinancing could be a poor decision. The income-driven repayment (IDR) forgiveness programs could be better.
Pretend you earn $180,000 a year and have $450,000 of dental school loans at a 7% interest rate. You can refinance them at a 5.5% for 20 years, or you can use Pay As You Earn (PAYE) and pay for 20 years. Here are the results:
|Remaining Balance |
(When Loans are
|Cost in |
(20 year at 5.5%)
You could pay less money with PAYE over refinancing. Furthermore, because much of the cost comes at the end with PAYE’s tax bomb, you’ll pay even less in today’s dollars. You can model this scenario yourself with our free calculator.
When you should refinance your dental school loans
Imagine you owe $300,000 of dental school debt and earn $200,000 as an associate. You’re going to earn even more as an owner. So you should refinance right away, yes?
The practice bankers I’ve spoken with prefer you to have as low a monthly payment as possible so you can qualify through underwriting when you’re buying a practice.
That makes sense, since the banks want to feel comfortable that you’ll be able to take over the production of the practice if it’s an acquisition. If you’re doing a startup, having low expenses at first is even more important.
Of course, if you owe a modest amount and refinance $100,000 into a 10-year rate, that’s not going to cause a problem. But if you refinance a typical dental school debt amount, there could be some issues.
Refinancing too soon can also create problems with qualifying for a home purchase. I’ve had to help a reader refinance again from a 10-year to a 15-year loan because he was trying to get a mortgage, and the percent of his income going to debt was too high.
Recall that if your current debt-to-income ratio is above two, you should qualify for interest subsidies on the Revised Pay As You Earn plan (REPAYE).
Here are three rules to follow for when to refinance dental school loans:
- The required monthly payment should be easy to make (i.e., less than 20 percent of income). Feel free to pay more than that since none of our partners charge prepayment penalties.
- You should generally use REPAYE before a practice purchase or partnership buy-in because of the interest subsidy. Remember you can update your income to a lower number once you quit your associate job.
- Once you’re comfortable in your practice, you only need one year of good tax returns to refinance.
How to refinance dental school student loan debt
Unless you live in an area serviced by First Republic Bank, you’ll probably find the best deal through one of the following lenders:
- Laurel Road (especially if you’re a member of the ADA)
- Commonbond (special rate discounts applied for dentists)
- Earnest (flexible payment options)
- SoFi (Well known, The American Association of Orthodontists (AAO) has a special relationship with them.)
If you apply with one of the referral links above, you’ll generally qualify for cashback bonuses or rate discounts you wouldn’t receive if you apply directly.
It only takes a few minutes to get a pre-qualified rate at each lender. I suggest going with the best two and taking the next step of including payoff statements and pay stubs or tax returns and consenting to the hard credit check.
Sometimes dentists ask me if they should be worried about refinancing hurting their credit score. The answer is no since it’s generally an impact of only a few points.
What you should be concerned about is if it’s the right time to refinance your dental school loans or not.
It takes a couple of weeks to get a finalized offer in many cases, particularly with the more complicated proof of income needed for some dentist practice owners. Luckily, lenders have eased up on requirements and now generally require only one year of tax returns as an owner.
Of course, you should feel comfortable refinancing as an associate too as long as it doesn’t risk inhibiting your career and personal life goals.
Once you sign the offer and the loan gets funded, you should get a welcome bonus from the lender in most cases if you use the links above (unless you get a higher professional society rate bonus applied that supersedes the cash back bonus).
We’re the experts in dentist student loan refinancing
To be a top-performing dentist, you probably want a team of professionals to help you maximize your earnings and chances of success. If you use this free info to make a decision on your own, I totally respect that.
If you’d prefer to get professional expertise, our team has made custom plans for more dentists than any other group in the country. No one understands the dental and dental specialist field better when it comes to navigating dental student loan debt.
Reach out to firstname.lastname@example.org or use one of the contact buttons, and let us know what you’re thinking about doing with your dental school debt. We’ll do our best to give you an unbiased opinion.
Have experience refinancing your dental school loans? Have questions for our experts? Ask below in the comments!