On the topic of $400,000 debt

[Ostracized]

I wanted to start a new topic on this since another thread was recently side-tracked. A lot of posters here are attending or planning on attending Australian schools or US private schools for up to $400,000 in total debt. I am currently a practicing dentist so I thought I would opine further on the feasibility such a debt load - from my point of view. I apologize if I ramble.

 

I don't want to discourage anyone from the profession. It is a great job and I am very happy that I chose it. I would recommend it to anyone - but I wouldn't recommend anything unless it first makes sense financially.

 

About myself: I am a recently graduated dentist from a Canadian school and I have been working for 14 months now. I was fortunate to get a good associateship right out of graduation (I know that not all my classmates had such an easy time). My income level is likely at or probably above average for recent graduates. After paying for all my professional expenses (licensing, various insurances, continuing education, some equipment, etc.) and then paying income tax, I'll likely be left with about $80,000 per year after-tax. This of course is variable and can go up or down - I am estimating this based on my recent general income level.

 

That sounds like a great amount of money, and it is - since I kept my debt quite (relatively) low. I have seen some pre-dents mentioning in other threads and in PMs to me that they plan on paying off their heavy debt as fast as possible by living cheap for several years. When you examine that approach, you'd find that if you were in my shoes (average or better) it would take you 6 years to pay off the debt (+interest) if you paid 100% of your after-tax income towards the debt [correction, edited]

 

That means no rent or mortgage. No car. No travel. Not even clothes or entertainment for 6 years. Obviously that's unrealistic - but hopefully you get my idea that even if you want to live very poorly it would take you over a decade to pay the debt down.

 

So I don't consider that to be a practical option. More likely you'll pay it off over 25 years, where it will consume somewhere between 25% and 40% of your after-tax income. You'll be able to live well enough but it's a big burden to be paying for the majority of your career. Practically it will put your real income down to the level of teacher or nurse, rather than dentist (minus the benefits!)

 

Anyway, I just thought I'd bring this up since I have noticed that some people have the attitude of 'if the school charges that much, then dentists must be able to pay it off'. The schools do not care about you after you graduate, and they don't take your economic reality into account when they set fees.

 

Some notes: I am unsure about whether or not some or all of foreign education can be used as a tax credit. If it can then that will speed up your repayment for the first couple of years.

 

Another point: If my income increases then obviously my ability to repay debt would increase. True, but I don't personally see a major increase in my income in the next 5 years. I am already fairly close to the mean income for Canadian dentists. I am working 5 days/week and I haven't taken vacation in a year, with none planned. I might one day buy a practice if I can find one for a good price in a good area but good practices are very expensive and from what I've seen only about 20% of dentists will buy a practice in their first 5 years of working.

[rmorelan]

I wanted to start a new topic on this since another thread was recently side-tracked. A lot of posters here are attending or planning on attending Australian schools or US private schools for up to $400,000 in total debt. I am currently a practicing dentist so I thought I would opine further on the feasibility such a debt load - from my point of view. I apologize if I ramble.

 

I don't want to discourage anyone from the profession. It is a great job and I am very happy that I chose it. I would recommend it to anyone - but I wouldn't recommend anything unless it first makes sense financially.

 

About myself: I am a recently graduated dentist from a Canadian school and I have been working for 14 months now. I was fortunate to get a good associateship right out of graduation (I know that not all my classmates had such an easy time). My income level is likely at or probably above average for recent graduates. After paying for all my professional expenses (licensing, various insurances, continuing education, some equipment, etc.) and then paying income tax, I'll likely be left with about $80,000 per year after-tax. This of course is variable and can go up or down - I am estimating this based on my recent general income level.

 

That sounds like a great amount of money, and it is - since I kept my debt quite (relatively) low. I have seen some pre-dents mentioning in other threads and in PMs to me that they plan on paying off their heavy debt as fast as possible by living cheap for several years. When you examine that approach, you'd find that if you were in my shoes (average or better) it would take you 8 years to pay off the debt (+interest) if you paid 100% of your after-tax income towards the debt.

 

That means no rent or mortgage. No car. No travel. Not even clothes or entertainment for 8 years. Obviously that's unrealistic - but hopefully you get my idea that even if you want to live very poorly it would take you over a decade to pay the debt down.

 

So I don't consider that to be a practical option. More likely you'll pay it off over 25 years, where it will consume somewhere between 25% and 40% of your after-tax income. You'll be able to live well enough but it's a big burden to be paying for the majority of your career. Practically it will put your real income down to the level of teacher or nurse, rather than dentist (minus the benefits!)

 

Anyway, I just thought I'd bring this up since I have noticed that some people have the attitude of 'if the school charges that much, then dentists must be able to pay it off'. The schools do not care about you after you graduate, and they don't take your economic reality into account when they set fees.

 

Some notes: I am unsure about whether or not some or all of foreign education can be used as a tax credit. If it can then that will speed up your repayment for the first couple of years.

 

Another point: If my income increases then obviously my ability to repay debt would increase. True, but I don't personally see a major increase in my income in the next 5 years. I am already fairly close to the mean income for Canadian dentists. I am working 5 days/week and I haven't taken vacation in a year, with none planned. I might one day buy a practice if I can find one for a good price in a good area but good practices are very expensive and from what I've seen only about 20% of dentists will buy a practice in their first 5 years of working.

 

Wow, interesting post!

 

I have to ask though from reading this - what would be the interest rate on that 400K you are using for the math? 12ish%? I ask in particular because beyond a particular rate you are just treading water - I mean at some point if you cannot pay the debit off in a 8-10 period at max income basically you cannot pay off the debit with a more realistic spending profile.

 

That all being said servicing a 400K debit at any interest rate with that income is not an easy thing.

[DDSDMD]

If you don't mind me asking what is the average pay for recent graduates practicing in rural areas? Don't they easily make 150K+?

[rmorelan]

If you don't mind me asking what is the average pay for recent graduates practicing in rural areas? Don't they easily make 150K+?

 

150K income is only about 100K after tax. How much would be these professional expenses mentioned be? - (licensing, various insurances, continuing education, some equipment, etc.) - granted most of those are pre tax expenses.

[Ostracized]

Wow, interesting post!

 

I have to ask though from reading this - what would be the interest rate on that 400K you are using for the math? 12ish%? I ask in particular because beyond a particular rate you are just treading water - I mean at some point if you cannot pay the debit off in a 8-10 period at max income basically you cannot pay off the debit with a more realistic spending profile.

 

I'm actually assuming a very low rate of 3-4%! The prime rate is currently at a record low, but if you have a variable 'prime + X' loan, you should absolutely expect your rates to go up (considerably) in the future.

 

If you don't mind me asking what is the average pay for recent graduates practicing in rural areas? Don't they easily make 150K+?

.

 

That sounds reasonable, but my income isn't too far off from that figure. Working in a rural area may help you knock a couple of years off of a very aggressive repayment plan.

[Ostracized]

150K income is only about 100K after tax. How much would be these professional expenses mentioned be? - (licensing, various insurances, continuing education, some equipment, etc.) - granted most of those are pre tax expenses.

 

For me about $10-12K per year depending on what kind of CE I take. CE is important in that it increases your skills and future income potential.

[rmorelan]

I'm actually assuming a very low rate of 3-4%! The prime rate is currently at a record low, but if you have a variable 'prime + X' loan, you should absolutely expect your rates to go up (considerably) in the future.

 

By my math (which could be wrong of course - wouldn't be the first time) 6500 a month would pay off in about 5.75 years a 400K loan at 4%. That is about 80K a year.

 

All this is just a a mental exercise though and glossy over the point - and it is an extremely valid point - no one is going to be paying 4% or paying it for long, no one can pay their entire income to debit, and your income is above average in a setting that many people are hoping to practise in. 400K is a huge load to carry starting off.

[rmorelan]

For me about $10-12K per year depending on what kind of CE I take. CE is important in that it increases your skills and future income potential.

 

So even at 150K after tax and all these expenses you are still not in a good way. Assuming you can write all of that off (which is best case scenario and unrealistic) you are still looking at 93K after tax.

 

If you live on 35K of that afterwards (which is the same as about 45K pretax salary) you would have about 60K to throw at the loan, and pay it off in almost exactly 8 years if some how you could get the miracle low rate of 4% for the full 8 years.

[Ostracized]

By my math (which could be wrong of course - wouldn't be the first time) 6500 a month would pay off in about 5.75 years a 400K loan at 4%. That is about 80K a year.

 

All this is just a a mental exercise though and glossy over the point - and it is an extremely valid point - no one is going to be paying 4% or paying it for long, no one can pay their entire income to debit, and your income is above average in a setting that many people are hoping to practise in. 400K is a huge load to carry starting off.

 

I apologize - you are correct and my math was wrong. At current rates it would have taken me 6 years at 100% payment, not 8. Still unrealistic.

[rmorelan]

I apologize - you are correct and my math was wrong. At current rates it would have taken me 6 years at 100% payment, not 8. Still unrealistic.

 

No worries - it changes absolutely nothing and just reinforces the risks involved. As you say we are still doing unrealistic max repayment anyway - which is obviously impossible.

 

Looking at those numbers is very scary - I mean take a more realistic interest rate and a more realistic bare bones income required to survive and then don't look particularly good.

 

again I have to say thanks for posting this! It is important to get a clear picture out there.

[DRUNKEN GORILLA]

I wanted to start a new topic on this since another thread was recently side-tracked. A lot of posters here are attending or planning on attending Australian schools or US private schools for up to $400,000 in total debt. I am currently a practicing dentist so I thought I would opine further on the feasibility such a debt load - from my point of view. I apologize if I ramble.

 

I don't want to discourage anyone from the profession. It is a great job and I am very happy that I chose it. I would recommend it to anyone - but I wouldn't recommend anything unless it first makes sense financially.

 

About myself: I am a recently graduated dentist from a Canadian school and I have been working for 14 months now. I was fortunate to get a good associateship right out of graduation (I know that not all my classmates had such an easy time). My income level is likely at or probably above average for recent graduates. After paying for all my professional expenses (licensing, various insurances, continuing education, some equipment, etc.) and then paying income tax, I'll likely be left with about $80,000 per year after-tax. This of course is variable and can go up or down - I am estimating this based on my recent general income level.

 

That sounds like a great amount of money, and it is - since I kept my debt quite (relatively) low. I have seen some pre-dents mentioning in other threads and in PMs to me that they plan on paying off their heavy debt as fast as possible by living cheap for several years. When you examine that approach, you'd find that if you were in my shoes (average or better) it would take you 6 years to pay off the debt (+interest) if you paid 100% of your after-tax income towards the debt [correction, edited]

 

That means no rent or mortgage. No car. No travel. Not even clothes or entertainment for 6 years. Obviously that's unrealistic - but hopefully you get my idea that even if you want to live very poorly it would take you over a decade to pay the debt down.

 

So I don't consider that to be a practical option. More likely you'll pay it off over 25 years, where it will consume somewhere between 25% and 40% of your after-tax income. You'll be able to live well enough but it's a big burden to be paying for the majority of your career. Practically it will put your real income down to the level of teacher or nurse, rather than dentist (minus the benefits!)

 

Anyway, I just thought I'd bring this up since I have noticed that some people have the attitude of 'if the school charges that much, then dentists must be able to pay it off'. The schools do not care about you after you graduate, and they don't take your economic reality into account when they set fees.

 

Some notes: I am unsure about whether or not some or all of foreign education can be used as a tax credit. If it can then that will speed up your repayment for the first couple of years.

 

Another point: If my income increases then obviously my ability to repay debt would increase. True, but I don't personally see a major increase in my income in the next 5 years. I am already fairly close to the mean income for Canadian dentists. I am working 5 days/week and I haven't taken vacation in a year, with none planned. I might one day buy a practice if I can find one for a good price in a good area but good practices are very expensive and from what I've seen only about 20% of dentists will buy a practice in their first 5 years of working.

 

This question is somthing like this.

If you have 400k cash now, will you buy Lisence of Dentistry, or buy Timhorton,s franchise( It can make easy money 10k/month).

What,s your choice?

[donnadee]

interesting points...unless the ndeb and appropriate organizations do something about this, i forsee that eventually the banks will end up regulating this..at some point, this may become a financially unfeasible situation for them (by that time, dentist incomes would have probably be driven down to the ground), and they will stop giving out the locs for exuberant tuition fees...wasnt it only after the 2008 crisis that banks began to require a cosigner for international apps?

[rmorelan]

This question is somthing like this.

If you have 400k cash now, will you buy Lisence of Dentistry, or buy Timhorton,s franchise( It can make easy money 10k/month).

What,s your choice?

 

You mean like magic instantly become a dentist for 400K? (because otherwise you have 480K of income being generated during the training period with the store and the 400K is a business asset which can be used to your advantage. Plus you could potentially yourself as a manager etc with the store - someone has to do it - and actually have an income on top of this).

[DRUNKEN GORILLA]

You mean like magic instantly become a dentist for 400K? (because otherwise you have 480K of income being generated during the training period with the store and the 400K is a business asset which can be used to your advantage. Plus you could potentially yourself as a manager etc with the store - someone has to do it - and actually have an income on top of this).

 

Owner dont work, staffs do. Only watch Exel program and survill monitor.

And every 4 years can expand double. 1 store - after 4 y -- 2 stores --- 6 y -

4 stores --- after 7 years -- 8 stoters wow. Now you need your own accountant. You cant expand your practice to 2 or 4 locations.

[McMarauder]

You make really good points, and I've taken it into consideration in determining how long it will take for me to repay my debt. It's great that you're helping people look at all aspects before making the decision.

 

Just a few things that I wanted to share. I know you said UP TO $400K, but at the rate I'm going, the whole experience would have been ~$350K(AUD). If the CAD continues to be at the level that it's now (CAD has been worth more than AUD for a few months. currently 1 CAD=1.08 AUD but subject to change) then you would spend a bit less than ~350K. Still a monstrous amount, but not $400K. Of course, the amount you spend will depend where you live. Eg. Living in Sydney is insane compared to Melbourne, which is comparable to Toronto.

 

I also want to point out that most of the Canadians in my class are not funding their education entirely on LOCs, government loans, or second mortgages. I only know of one girl whose family put their house up for $400K. A lot of our families are able to fund significant portions of our education in Australia (>50%). It's still money that we are (at least I am) expected to pay back, but the term is flexible and it's interest free. I probably wouldn't have gone off to Australia if I didn't have this type of support or if my parents had to put the house up for the full $400K. . There are cheaper accredited options out there..........

 

 

 

I wanted to start a new topic on this since another thread was recently side-tracked. A lot of posters here are attending or planning on attending Australian schools or US private schools for up to $400,000 in total debt. I am currently a practicing dentist so I thought I would opine further on the feasibility such a debt load - from my point of view. I apologize if I ramble.

 

[rmorelan]

Owner dont work, staffs do. Only watch Exel program and survill monitor.

And every 4 years can expand double. 1 store - after 4 y -- 2 stores --- 6 y -

4 stores --- after 7 years -- 8 stoters wow. Now you need your own accountant. You cant expand your practice to 2 or 4 locations.

 

Used to work at McDonalds and the owner took a direct active hand in managing things. As in being on the floor running things. I guess my note would be whether that watching excel etc actually takes up all the time or if there is enough extra time available to do other things for revenue

[McMarauder]

^^Nice signature. Wish I saw their show when they were in melbourne. I digress.

[Jbergs]

If you're looking for a reasonably quick debt repayment out of school, partner up in Nowheresville.

 

Example: http://www.cda-adc.ca/jcda/classifieds/view_ad.asp?adid=1855&pid=8&cid=1

[Genemo]

I wanted to start a new topic on this since another thread was recently side-tracked. A lot of posters here are attending or planning on attending Australian schools or US private schools for up to $400,000 in total debt. I am currently a practicing dentist so I thought I would opine further on the feasibility such a debt load - from my point of view. I apologize if I ramble.

 

I don't want to discourage anyone from the profession. It is a great job and I am very happy that I chose it. I would recommend it to anyone - but I wouldn't recommend anything unless it first makes sense financially.

 

About myself: I am a recently graduated dentist from a Canadian school and I have been working for 14 months now. I was fortunate to get a good associateship right out of graduation (I know that not all my classmates had such an easy time). My income level is likely at or probably above average for recent graduates. After paying for all my professional expenses (licensing, various insurances, continuing education, some equipment, etc.) and then paying income tax, I'll likely be left with about $80,000 per year after-tax. This of course is variable and can go up or down - I am estimating this based on my recent general income level.

 

That sounds like a great amount of money, and it is - since I kept my debt quite (relatively) low. I have seen some pre-dents mentioning in other threads and in PMs to me that they plan on paying off their heavy debt as fast as possible by living cheap for several years. When you examine that approach, you'd find that if you were in my shoes (average or better) it would take you 6 years to pay off the debt (+interest) if you paid 100% of your after-tax income towards the debt [correction, edited]

 

That means no rent or mortgage. No car. No travel. Not even clothes or entertainment for 6 years. Obviously that's unrealistic - but hopefully you get my idea that even if you want to live very poorly it would take you over a decade to pay the debt down.

 

So I don't consider that to be a practical option. More likely you'll pay it off over 25 years, where it will consume somewhere between 25% and 40% of your after-tax income. You'll be able to live well enough but it's a big burden to be paying for the majority of your career. Practically it will put your real income down to the level of teacher or nurse, rather than dentist (minus the benefits!)

 

Anyway, I just thought I'd bring this up since I have noticed that some people have the attitude of 'if the school charges that much, then dentists must be able to pay it off'. The schools do not care about you after you graduate, and they don't take your economic reality into account when they set fees.

 

Some notes: I am unsure about whether or not some or all of foreign education can be used as a tax credit. If it can then that will speed up your repayment for the first couple of years.

 

Another point: If my income increases then obviously my ability to repay debt would increase. True, but I don't personally see a major increase in my income in the next 5 years. I am already fairly close to the mean income for Canadian dentists. I am working 5 days/week and I haven't taken vacation in a year, with none planned. I might one day buy a practice if I can find one for a good price in a good area but good practices are very expensive and from what I've seen only about 20% of dentists will buy a practice in their first 5 years of working.

 

Thanks for such a good analysis! It is so useful for someone that's going to start dental school soon like me. Could you elaborate a bit on the job market for new graduate these days? What would be a realistic income for new graduates? As you mentioned your job is a pretty good one, what would be a typical one? Thanks!

[Ostracized]

If you're looking for a reasonably quick debt repayment out of school, partner up in Nowheresville.

 

Example: http://www.cda-adc.ca/jcda/classifieds/view_ad.asp?adid=1855&pid=8&cid=1

 

This might be true, but I remain skeptical that an associate can make that much, even if fully booked. If you work 5 days/week, and assuming you get 50% of production (standard is 40%), you'd still need to produce $2400/day. That's an awful lot.

 

Thanks for such a good analysis! It is so useful for someone that's going to start dental school soon like me. Could you elaborate a bit on the job market for new graduate these days? What would be a realistic income for new graduates? As you mentioned your job is a pretty good one, what would be a typical one? Thanks!

 

Honestly, no one can answer the question of income. I am certain that I have classmates making less than $100,000 and also more than $175,000. Jobs can still be found well enough as long as you don't mind where you live.

[z3u2]

This might be true, but I remain skeptical that an associate can make that much, even if fully booked. If you work 5 days/week, and assuming you get 50% of production (standard is 40%), you'd still need to produce $2400/day. That's an awful lot.

 

and with the town with 1100 people for population according to wikipedia...

[DDSDMD]

Yeah, but surrounding area may be a lot more.

I'm in a town of only about ~1000, but there are 60000 people in the area and only 2 dentists.

 

I guess it's safe to assume that it's still possible to make 200K+ as an associate straight out of dental school as long as you are willing to move to undesirable locations?

[cleanup]

Tackling nearly half a million dollars in debt on your own is absurd. To be frank, most of the people I know studying in the States, whether for dental or medicine, where both are mind-bogglingly expensive, are doing it via a combination of loans and a family contribution, or entirely through their family (ie. they are "debt-free").

 

It also must be said that in order to truly succeed financially as a health professional, you cannot simply expect a high income just from your job. The grand majority of health professionals earn a significant portion of their income through investment and smart money management. I anticipate anywhere from 25-40% of my income is NOT going to be from any practices I own or actual care I provide.

[Dr. Jan Intor]

It not like dentistry is free in Canada either, all in all, assuming u dont live at home while doing dentistry at say UofT going abroad to australia will cost you about $100,000 more than it would to be at UofT. Now $100,000 is a lot of money but in the grand scheme of things it's not an insurmountable hurdle. But you do need outside help still because LOC and OSAP will be enough just to cover tuition and you are on your own for cost of living/travel etc. Most people can get $225,000 LoC with a cosigner and about $36,000 from OSAP so at the end of the day you will owe about $260,000 if you can manage to cover cost of living from personal savings and or help from parents. So if we go with the assumption of $80k post tax/deductions income and living off about $30k a year means that you can pay off your loan in about 5-6 years. In terms of not being able to afford to buy into your own practice, I'm sure you can just absorb your debt towards the loans you take out to buy a practice. Paying $1.2 mill (for practice alone) vs $1.4 mill (practice + debt from tuition) isn't going to going to be life changing and won't really affect your quality of living.

[DRUNKEN GORILLA]

It not like dentistry is free in Canada either, all in all, assuming u dont live at home while doing dentistry at say UofT going abroad to australia will cost you about $100,000 more than it would to be at UofT. Now $100,000 is a lot of money but in the grand scheme of things it's not an insurmountable hurdle. But you do need outside help still because LOC and OSAP will be enough just to cover tuition and you are on your own for cost of living/travel etc. Most people can get $225,000 LoC with a cosigner and about $36,000 from OSAP so at the end of the day you will owe about $260,000 if you can manage to cover cost of living from personal savings and or help from parents. So if we go with the assumption of $80k post tax/deductions income and living off about $30k a year means that you can pay off your loan in about 5-6 years. In terms of not being able to afford to buy into your own practice, I'm sure you can just absorb your debt towards the loans you take out to buy a practice. Paying $1.2 mill (for practice alone) vs $1.4 mill (practice + debt from tuition) isn't going to going to be life changing and won't really affect your quality of living.

 

Top Secret : Just know only you, dont tell even your soul mate.

1. Every year, Deans of Dentisries in CANADA and Directors of small business loan dept ( most major banks like CIBC, TD, ROYAL, SCOTIA etc)

have a meeting.

2. They decide tuition fee and loc based on expected future income of Dentist. ( They calculate 3 to 5 years payback.)

3. I posted this with fluctuational IP adress coz they will kill me if if