Podcast (Dental)

Dental School Debt: How to Manage and Pay it Off

March 24, 2021

For dentists who have student loan debt, learning how to best manage and ultimately pay off that debt is one of the keys to being more profitable in your dental practice. According to the American Dental Association, the average debt per dental school graduate is now nearing $300,000.

In this episode of The Art of Dental Finance and Management podcast, Art meets with Mark Johnson, founder of Student Loans RX. Mark discusses ways to help dentists adopt the best strategy to pay off their student loans and make long-term financial plans. In the episode, Art and Mark also discuss:

  • New rules passed by Congress on student loan payments
  • What has changed with the COVID-19 pandemic
  • How income-based repayment plans work
  • Pros and cons of refinancing federally subsidized student loans with private lenders
  • How student loans work if a dentist chooses to work in the public health sector
  • Why student loan repayment is a critical part of overall financial planning

Reach out to Art if you have any questions regarding dental finance and management for your dental practice. More information about the Eide Bailly dental team can be found at www.eidebailly.com/dentist.

Managing student loan debt, as well as finances can lead to more profits.

Today's Guest

Mark Johnson
Student Loans RX


Show Notes and Resources:

The Transcript

Art Wiederman, CPA: And hello, everyone, and welcome to another edition of The Art of Dental Finance and Management with Art Wiederman, CPA. I am Art Wiederman, CPA and thank you for joining us on the podcast today. We are date stamping all of our podcasts here in 2021 as things change every single week, every single day. We got more guidance on the PPP program today. We're not going to get into that. And we got some updated news for you, which I'll give you in a second.

But I have a great episode for you today. As I've told you, I've made friends all along my thirty six year journey as a dental CPA and one of my friends is in the beautiful Midwest. And in fact, as I look at him on the computer, he's got the St. Louis Arch right behind him. His name is Mark Johnson. And Mark is one of the leading experts in the country on how to help dentists repay student loans, having a financial plan to get out of student loan and other debt. And we're going to talk about student loans.

We had Mark on the podcast early in my series back in early 2020 early 2019, I think it was. And he did such a great job. And our clients love them and he does he does just a wealth of knowledge and want to talk about, you know, should you refinance your debt, what kind of loans are out there and available and what is a great strategy to get your debt paid off. And I know that it is a big weight on people's shoulders is student loan debt. And I have the man with the plan today to talk about that. So we'll get to Martin in a moment.

A couple of announcements. First of all, again, our wonderful partner, Decisions in Dentistry magazine, a fantastic clinical magazine, which has been on top of all of the clinical issues in the pandemic in the past 12 months. Go to their website at www.DecisionsinDentistry.com. They've got a great website. They have over one hundred and forty continuing education courses and they change them up about every month. And you can buy those courses access to all of them for one low annual fee, if you like. So again, go to our partners, www.DecisionsinDentistry.com  

If you're not working with a dental specific CPA. Again, I am the dental director at Eide Bailly CPA firm and we work with about 800 dentists across the United States. I'm in Southern California. It's a real nice sunny day here. And so, you know, if you're in my neighborhood, give us a call. If you need some help with all of this alphabet soup, the employee retention tax credit, PPP, HHS, you know, whatever you got going on, we've been on top of this for a year. Again, my email address is awiederman@EideBailly.com. That's Eide Bailly dot com. Phone number 657.279.3243. And if you're around the country, we have twenty four CPA firms, part of the ADCPA Academy of Dental CPAs that represent over ten thousand dentists go to our website at www.ADCPA.org.

So a couple of updates for you. I've been giving webinars on this, my podcast last week. We are at March 18th of 2021 and actually, yesterday my podcast came out on the interaction between the Paycheck Protection Program and the Employee Retention Tax Credit.

Real simply, folks, if you had a reduction in your dental practice of more than 50 percent of gross receipts, more than likely in the second quarter of 2020, you are eligible potentially for an up to a five thousand dollar federal tax credit if you meet that rule or if you were shut down by a government agency. The shutdown is not as good for this credit as the fifty percent reduction.

I just went through all of our clients here at Eide Bailly that I work on and I would say about fifty five percent of them are going to be eligible and we're starting that work. So if you want to have us help you do these calculations and file for the forgiveness, because the idea is you want to use enough of your wages to get your forgiveness for the PPP and get ten thousand dollars per employee to get you a 50 percent credit, we are dialed in on that. We've got this all figured out. We've got spreadsheets that do all this work and we can help you with that. And we're getting dentists tens of thousands of dollars in tax credit. Email me if you just want to be added to the list and we'll send you an intake form. awiederman@EideBailly.com.

One update. As of the last couple of days, if you haven't heard, the Internal Revenue Service has announced, I don't know if it is official, official yet that they are postponing the federal tax filing deadline for individual returns from April 15th until May 17th. They are not postponing from what I'm reading, they're not postponing your need if you're a sole proprietor or partnership to make your first quarterly estimated tax payment by April 15th. That makes absolutely no sense whatsoever. But I don't make the rules. Please don't shoot the messenger. That also does not apparently apply to estates, trusts and c corporations who will have to file by April 15th. So just keep that in mind.

All right. Let's start talking about getting you all out of student loan debt. I use the all I'm thinking of my good friend from our ADCPA group. I want to congratulate him, my good friend Robby Apple of Apple Guerin and Associates. Robby and his beautiful, wonderful, fantastic wife, Jessica, just welcomed a baby boy into the world a couple of days ago. And we are very excited about that. So congratulations to Robby.

And so let's get to our topic right now. Mark Johnson is the founder of StudentLoanRX.com is the name of his company and he's also a wealth advisor for RBF Wealth Advisors. Mark's been in the financial services industry since 1991. Before he was with RBF Wealth Advisors, he was a regional sales manager for Oppenheimer Funds, Lincoln Financial Distributers and Voyageur Asset Management. Mark is a veteran of the US Air Force and furthered his education at University of Minnesota, University of Maryland. Mark teaches all over the place. He was telling me the other day he does webinars and talks to the dental schools all the time, and his specialty is student loan repayment planning, retirement planning. You know, he has workshops on women and investing and international investing, very active in his community and has done a lot to help a lot of dentists. So, Mark Johnson, welcome to the Art of Dental Finance.

Mark Johnson: Art, it's nice to be with you again.

Art Wiederman, CPA: It's nice to have you. I mean, I love working with people who are experts in their field and know what they're doing. And thank you for your service to our country. And you tell me you've been busy these days.

Mark Johnson: Yeah. So as we approach graduation season each year, most dental schools are graduating students in May and June. And so we start to get a lot of inquiries as folks start thinking about, OK, I've been able to defer my student loans while I've been in school, but getting a job and I'm going to have to start paying these things off. So what do I need to do? So we start getting a lot of inquiries this time of the year.

Art Wiederman, CPA: Well, we're going to jump into all of that. I want to start off with just and we're not going to spend a lot of time on this. But I just want to start off with kind of if we have any young dentists who are starting to think about going to dental school and we get some of those listening, what are the and again, not a lot of time. What are the options for students going into dental school? What are the three or four main options that they have to get student loans? And then we'll jump into the now they've got the loan what do we do.

Mark Johnson: Sure. So typically what's going to happen is they're coming out of undergrad and obviously they have to be accepted into a dental school. The financial aid office is really going to be the go to. There's basically, I would say, three main categories of loans that they're going to be eligible for, perhaps, and those would be federal student loans. There's a what's called unsubsidized loans and then subsidized loans. And for most folks that are going on to a graduate school, whether it's a dentist or an MD or what have you, pharmacist, they're going to apply for what's called graduate plus loans. And those are unsubsidized loans. Right now the interest rates on those things are probably six and a quarter percent, something in that ballpark. And, you know, the financial aid office at school will kind of, you know, help them do the paperwork on getting those loans so that the federal loans, obviously, we got one point, I think seven trillion. So that's going to be the bulk of where the financing comes for dental schools through the federal. Now again, that's for US citizens, obviously.

Art Wiederman, CPA: Right. And I've seen some items on the news where very wealthy gentlemen will go to a school and say, your senior class, I'm paying off all your student loans. If you know of any of that by the way, let us know for our listeners.

Mark Johnson: Yeah. Now, that's a, I was going to say, you know, a wealthy grandparent or wealthy aunt or uncle, too, is not a bad first call. But, you know, the second category is the private loan market. So you got the federal loan market, financial aid office at school is going to really help you with that. Some financial aid offices will also help you with private loans. So some of those lenders would be like Sallie Mae, Discover, Wells Fargo. There's some other ones, Sofi or Laurel Road. Those are pretty popular in the in the dental industry. Most the last two Sofi and Laurel Road I think they do a lot more refinancing than initial loans, but so private loans and many dental students, especially if you go to an expensive private school or a school on the coast, you know, you might not get enough federal student loans to cover both your tuition as well as living expenses.

You know, one of the things that really escalated the student loan crisis is, you know, back when we went to school, you know, we couldn't get student loans for living expenses. Student loans were really only for books and tuition and stuff like that. And so now that now I think even, you know, it's spring break everywhere in the country. And I just wonder if there weren't student loans, how many people would be on the beaches enjoying spring break this year.

Art Wiederman, CPA: Eating at upscale restaurants. I remember when I went, I won't say how much my quarterly tuition was at Long Beach State University where I went to school because I'll lose all my podcast listeners, they'll get mad at me. It's gone up incredibly. I mean, I put two boys through college and it's and then you get into graduate school. But again, it's a great, great investment that they're making. So let's start so now I mean, most of the folks that are listening to our podcast here today.

And by the way, before I go any further, I forgot to mention this at the top. We are doing a Business of Dentistry, 12 month series for six local dental societies in Southern California. And it's funny, I made the agenda for this series in November of 2020. I told Mark and Mark Johnson was on my list to do June. He just didn't find out about this until yesterday. I've been a little busy. So on June 9th, put that on your calendar. Mark is going to be on our Business of Dentistry webinar, which is six to eight p.m. on the second Wednesday of every month.

So we just did ours last month. They all live on our YouTube channel, Eide Bailly Dot com, just Google Eide Bailly YouTube and you'll see all the webinars we've done. We did one on the interaction of the ERC and the PPP. So on June 9th, you will get to see Mark. You may have the same. He may bring the St. Louis Arch with him or he may not. I don't know. That's your choice. But we'll go ahead and do that. And he'll be on for a couple of hours and he'll be able to answer your questions about all your student loans and the strategies to repay. So let's get into that Mark. Number one, how is the COVID-19 pandemic impacted the advice that you're giving to dentists regarding student loan repayment?

Mark Johnson: Sure. Good question. So, as you know, on March 13th of 2020, President Trump suspended interest on federal student on most federal student loans and then Congress backed that up by passing the CARES Act on March twenty seventh. And President Biden has further extended student loan relief through September 30th of this year. So for those who had federal student loans, they've had no interest accruals from March 13th, 2020 through September 30th on a four hundred fifty thousand dollars student loan balance, and that's forty three thousand dollars roughly in savings. So there's been tremendous student loan relief since last March.

So that has impacted our advice. So obviously, the first obvious thing is I wouldn't recommend and haven't recommended anyone refinance their federal student loans during this period of time because they've had a loan that's had zero interest accrual, right. So that was that was probably the most obvious one. But there's also been clients that, for example, maybe were graduating with and going into public service. Maybe they weren't going to be a private practice owner, or at least they wanted to go into a public health clinic for 10 years and get public service loan forgiveness. Some of our advice around that has changed a little bit.

There's been some back and back last summer, about a year, not quite a year ago now, a lot of dental offices were closed down for two or three months. So in our financial planning, we always recommend as an initial goal, three months of living expenses saved up in an emergency savings fund. And, you know, I used to get a little bit of pushback prior to COVID on that. Why do we want to have, you know, 15, 20 thousand dollars sitting in an account that's not earning anything? Well, come COVID-19, it was really helpful to have those funds available because a lot of young, especially younger dentists, you know, got laid off and furloughed for two to three months.

Art Wiederman, CPA: I think a lot of the reason, Mark, that we financial planners have used that, you know, three to six months worth of personal living expenses. Obviously, the pandemic, like you said, is a perfect example of how many people, I mean, are dangerously close to not being able to buy food and not being able to pay their rent and all this stuff. It's also I mean, as I remember, it was like it had to do with disability insurance because if you got disabled, nobody was thinking about a pandemic back then. But if you get disabled, most disability policies have either a 90 or one hundred and eighty days, what's called an elimination period, which meant if you got disabled and you stopped working and you couldn't earn a paycheck, you didn't get your disability insurance for 90 to 100 days. And that was one of the reasons. But obviously, this pandemic is has shown this up big time as to how people I mean, you know, you don't want to be going to bed at night, everybody worrying, how am I going to make my rent payment or my mortgage payment or my car payment next month?

Mark Johnson: No, well the old saying Art is cash is king, right. So having a little bit of dry gunpowder is never, never hurts. And so that's part of our planning is to help them, you know, allocate money into the different buckets. And emergency savings is certainly one of those.

Art Wiederman, CPA: So, Mark, and you were saying about this a little earlier. So when the dentists come out of school, are most of the dentists that you're seeing, are they are they looking at a 15 year, 20 or 30 year, a kind of a combination of both as to how long their repayment is?

Mark Johnson: Yeah, so there's a number of different repayment options out there. But I don't want to scare off your listeners, but as a financial advisor, I have a personal goal of trying to help clients pay down student loan debt in around 10 years.

Art Wiederman, CPA: Right, but when they get started, when they come out, before they come and see you, they've got do they have all their loans, 30 year loans or some 20 or what do you sell?

Mark Johnson: So there's actually not a there's not a term on the loans. OK, so you get a loan, let's say a graduate plus loan. And you have when you graduate, you have what's called a six month grace period.

Art Wiederman, CPA: Right.

Mark Johnson: OK, where you don't have to make any payments. Interest is still accruing, but you don't have to make any payments. Once that six month grace period expires, if you don't do anything, the default is a 10 year standard repayment. So for a four hundred thousand dollar loan, you know, that's a few thousand dollar a month payment. So I start to get phone calls as people's six month grace period expires because they get a notice from their loan servicer that they got a payment coming up that's forty two hundred dollars and that usually gets me a few calls. So that's the default is a standard year 10 standard repayment.

Art Wiederman, CPA: So with that said, Mark, when is the best time to start planning your repayment? These young men and women are coming out of dental school. They maybe they have a six month deferral and they've got these loans. So when do we start planning this?

Mark Johnson: So my recommendation is you start planning your student loan repayment at the same time you're interviewing for your first job. Because dental professionals have four, maybe five tracks when they leave dental school. OK, I'll use the military first because I just got off a call, a Zoom session with a young lady who's in the Air Force in Tampa, Florida. She's going to listen to your webcast when it gets published. So call out to her. Her and her husband are in the Air Force in Tampa, Florida. She's going to be getting out of the military in September. So some people go into the military out of dental school. You've got a group of people that go into residency. You have a group of people that go into public health. You've got a group of people that become associates with a question mark on whether or not they're going to be practice owners or not. And then the fifth group is the group is they're going to be an associate first but they got an exclamation point. They are going to be practice owners.

And so there's really five tracks of planning that we build a student loan repayment plan around those five tracks.

Art Wiederman, CPA: OK, so we can get into all of all that as we go along here. So I would suspect that you probably get a lot of calls from dentists who are maybe not just out of school, but they're you know, they hear you, they hear you on this podcast. They hear you in other places. You get referrals and maybe they're two, three, four or five years out of school. So somebody a couple of years out of school it's not too late to start planning a repayment, is it?

Mark Johnson: Well, no. I mean, we would do an analysis to see if they're on the right payment plan to begin with that's consistent with their career goals and their family situation. We had a client last year out of New York City that had been out of school for ten years. And unfortunately, based on our analysis, she'd been on the wrong plan for quite some time. And we were able to help her make some adjustments to her plan. And, you know, she's off to the races from there.

Art Wiederman, CPA: That great. So let's get into the weeds about OK, I come to you, Dr. Art Wiederman. I get a lot of mail Dr. Art Wiederman, it's amazing. I'm trying to gain additional respect from my wife and my two boys. They're not buying it. They know it's a mistake. But anyway, so Dr. Art Wiederman comes out of school. I know they talk about the average student loan debt in the United States for a dentist in the two hundred and fifty to three hundred and fifty thousand dollar range. I would answer that by saying, don't come to the beautiful state of California because those numbers are a little higher than that. And, you know, I tell I always tell the story of and I've told it on the podcast before of two dental students who came up to me when I was speaking at the USC dental school. And they said, Mr. Wiederman, we both did a general practice residency a year and we're five hundred and fifty thousand dollars each in debt. Do you have any golden bullets for me?

And I'm standing there and it's like nine o'clock at night, I was a little punchy and I said, well, you know, there's a 7-Eleven around the corner that sells lottery tickets. Other than that, at this moment, I don't have much for you, but. But Mr. Johnson does. So, Mark, let's get talking into, you know, what elements do you deal with in helping a dentist to structure a replacement strategy? So I come to you. I've got three hundred three hundred fifty thousand dollars of debt. I'm you know, maybe I'm four or five years. I'm 32, 33 years old. I'm married. Maybe I got a kid, maybe got a mortgage. What are you going to think about for me?

Mark Johnson: So the first thing I'm going to do is I'm going to do an analysis of your finances. So we're going to create a budget. You know, what's your income, what's your expenses, and then I'm going to ask you, where do you where do you plan on going in your career? Now if they're on track to be a practice owner that'll be one set of advice. You know, typically, I don't recommend refinancing private loans, federal government. So we're assuming they got three hundred and fifty thousand in federal student loan debt. I typically don't recommend refinancing those loans until you've secured a practice loan, because when the bank looks at you as a borrower for to give you a practice loan, they really don't care how much you have in student loans. What they look at is your payment.

And so if you're on, let's say, an income driven repayment plan, which is 10 percent of your discretionary income, if you're making about two hundred thousand dollars as a dentist and let's say you're married with a couple kids, you're probably looking at a 12, 14 hundred dollars a month student loan payment. If you'd refinance that on a 10 or 15 year loan, you're looking at a thirty five hundred dollars a month payment or something like that. And so you want to keep your student loan payment fairly low as you're approaching practice ownership. So clients that are coming right out of dental school, typically they're going to get enrolled on an income driven repayment plan for the first two or three years, build up some liquidity. So when they walk into Bank of America or whatever bank is going to finance their practice loan, maybe they've got a pot of money of 40, 50 thousand dollars and a fairly low student loan payment.

Art Wiederman, CPA: So, yeah, and that's a great point, Mark, because, again, I'm a dental practice broker and we advise dentists on buying practices also. And what ends up happening is, is that the bank has what's called a one point two or one point two five times multiple. In other words, they're taking the payment and they're saying you've got to cover the payment based on your living expenses and your debt and all this stuff, plus twenty or twenty five percent. And you're right, if they go and they refinance, that just becomes private debt, just like a car payment or something like that. And then they are you know, they have a higher personal requirement, which makes it maybe a little more difficult to apply to buy your dream practice.

Mark Johnson: Right. And so I think. You know, we have a little bit of competition in this space, not much. You can't walk in to name your, rattle off the top five or six largest financial firms that you can name. And, you know, no one is going to walk in there and get any student loan repayment advice. They just don't do that. That's not their deal. But there is some companies out there that do give some student loan repayment advice. But, you know, they don't sit down and put together a budget and really explore the career path that this dentist is looking for.

And unfortunately, a lot of dentists end up getting sucked in to doing a private refinance way too early, in my view. And it can cost them considerable amounts of money in the short term. You know, we can talk about this a little later maybe. But, you know, a lot of first year dentists coming out of school or residency had very little income as a fourth year dentist, or maybe they made 40 or 50 grand in a residency program for a year. You know, most orthodontic residents don't get paid anything, and so they qualify for a significant interest subsidy on one of the income driven repayment plan. So I would just encourage any listeners not to rush to do a private refinance until they've really crunched the numbers and understand exactly what their options are.

Art Wiederman, CPA: I mean, they might want to go out and buy a bigger house. Who knows? And we don't want them to get themselves into a bigger nut than they have to because they're going to look at that interest rate and they're going to say that's a lower interest rate if I refinance. That may not be the best. So let's say I've got somebody that's looking at a practice. They've got a you know, maybe they're on a 20 or 30 year repayment and they get you get them and they're in a practice. Right. And they don't know what to do with their student loans. How do you because a lot of these folks live paycheck to paycheck, unfortunately, and with a pandemic and everything. How do we get them to a point what's the I don't know how much of your secret sauce you want to talk about today, but how do we get them to a point that they can pay their loans off in 10 years?

Mark Johnson: So obviously, it's not rocket science, it's income and spending. So, you know, I'm a little old fashioned in that way. And we look at their income and we look at their spending. And, you know, I'm not an advocate for kicking the can down the road 20 or 30 years. I think that's a really bad idea. And there are some student loan planning firms that advocate for what's called one of the strategies is called the tax bomb strategy. I don't know if you're familiar with that.

Art Wiederman, CPA: I haven't heard that one. Maybe I'll learn something today.

Mark Johnson: Yeah, well, I want you to be aware of it, but I don't want you to recommend it to anybody. Anyway. The tax bomb strategy suggests that you get on an income driven repayment plan for twenty or twenty five years. You make a very low payment initially. So on an income driven repayment plan, that is 10 percent of your discretionary income. So you have to provide an income source document. So a first year dentist coming out of dental school probably had zero income. So one of you said a golden bullet. I call them the golden nuggets. One of the golden nuggets I'll drop today is if anybody's listening and they're in school or dental school or residency, make sure you file a tax return every year, even if it's got a big zero on the bottom of it, because you can use that that income tax return to establish your first 12 months of payments. If you've got a zero income tax return that you won't even have to make a payment on your student loans in the first 12 months.

But anyway, so people get on this tax bomb strategy, they get on an income driven repayment plan for twenty or twenty five years. They have a low payment starting out. As their income goes up, their payment goes up. But the idea is have a low payment and invest the difference. And at the end of twenty or twenty five years, you're going to have this great big investment account. If you've got any student loans at the end, Uncle Sam forgives it, but it's taxable income to you. So let's say 20 years from now you're making six hundred thousand dollars as a dentist, which hopefully that's three hundred thousand today. Right. So 20 years from now you're making six hundred thousand. You got two hundred thousand left. So that year you're going to get taxed on eight hundred thousand dollars. Now the concept is, well that's OK. I'm going to have this big investment account that I can just pull the money out of.

Art Wiederman, CPA: OK, good luck with that.

Mark Johnson: Well, I'm not saying it won't turn out that way, but there's a 50 50 chance over the next 20 years that everybody listening is going to get divorced. And now how is that going to work out in divorce court? Your student loan balance is actually higher under this tax bomb strategy, the first few years out of school because you're making not even an interest payment, just barely making a payment at all. And so what happens in divorce court? You're a practice owner. You've got a bunch of student loan debt. Maybe you got a couple kids. Maybe you ought to pay alimony and the tax bomb. I mean, I was in the military and I was trained to avoid and respect bombs whenever possible. Right.

So I'm not a big fan of this tax bomb strategy. And there's a lot of people out there that are talking it up, get in on a low payment and stay on that for twenty or twenty five years. And I would just remind people that aren't familiar with the history of the stock market, you know, from 1964 to 1981, that's a 17 year period of time. The stock market went zero was what the Dow Jones was one thousand points at the beginning of 1964 and it was a thousand points at the beginning of 1981. And so there's no guarantee that the stock market is going to. Now again I'm an investment guy, so I'm, you know, if I liked this idea of tax bomb, it would accrue more business to me because my clients that have more money to invest. Right. So I feel I've got a little credibility to kind of pooh pooh that strategy.

Art Wiederman, CPA: Well, and, you know, we see that strategy. Some of the banks, when a dentist will start or buy a practice, they'll say, OK, no payments for the first nine months or 12 months. And then for the next 12 months, there's ninety nine dollars a month payment that looks really good. And then your payment goes to seven thousand eight hundred and sixty three dollars. And the theory in a similar thing that you're talking about is the theory is that they would then have built their practice up. Well, there again, this is assuming that people that dentists are going to have the discipline to save the difference. That's like buy term life insurance and invest the difference. Well, you know, people spend money. You know, when people get raises in this country, my experience is, they don't save it, they spend it. Now, the last 12 months, they've been saving it because there's nothing to do in a pandemic. But I mean, is that your experience?

Mark Johnson: Well, our experience well, when we build a financial plan for somebody, I mean, we start saving and investing right out of the gate. So fortunately, our clients I mean, that's what they hire us for. The people that come to us, you know, say, hey, I want to be successful financially. What do I need to do? I know about dentistry. You can help me with finances. And so we build that into the plan. We have savings and investing as part of the path.

Now, I'm not suggesting that people shouldn't get on an income driven repayment plan for maybe two, three or four years. There's different circumstances. Most of my clients, most of our clients do get on an income driven repayment plan for a period of time. But it's usually two to four years. And then once they're established in their career, then we pivot to maybe a private refinance and lock in a payment and then hammer that student loan debt off and again, try to get that student loan debt paid off in 10 years or less. And it can be done. I've got clients that have paid off four hundred thousand in four years. Now, if you go buy your starter home in Seattle for nine hundred thousand dollars are out where you're at it makes it a little bit more difficult. So what you should have told that young person that came up to you in the conference instead of buying a lottery ticket is move out here to the Midwest.

Art Wiederman, CPA: Yeah, right, exactly. Housing is a little bit cheaper. I mean, it is just ridiculous out here.

Mark Johnson: It's a beautiful place. I love the coast. We've got clients on both coasts. We've got clients in Hawaii. But I'm like, you know what? You can buy a bunch of Southwest Airlines tickets and you can fly the coast pretty cheaply and you can have a beautiful home here in St. Louis for four hundred thousand dollars, big backyard and a couple of dogs.

Art Wiederman, CPA: Yeah, and in Southern California, you can have a double wide for four hundred thousand dollars. I mean, what can I tell you right now? That's crazy. So you were talking before about discouraging people, Mark, in refinancing their student loans, their federal government student loans, and through a private lender. Talk a little more and maybe you covered this, but when would a good time to do it? Like they're on an income based repayment plan, they're paying a thousand, twelve, fourteen hundred a month and then they're two or three years in. Do we do we want to do something like that, you say after we buy the practice, right?

Mark Johnson: I think so, yeah. Under most now, again, we're talking about students. There's several variables here. So how much talking about those, how much student loan debt do you have? So if you got one hundred thousand dollars of student loan debt, then maybe doing a refinance now is not a bad idea. But if you've got four or five hundred thousand or more, OK, then you're looking at a several thousand dollars a month payment. Most of the private refinance companies, you know, based on rates today, you're going to be looking at a 10 or a 15 year repayment.

OK, so that's a several thousand dollars a month payment. And again, as we discussed, you want to keep your payments low as you're approaching the bank to get your practice loan. So typically, I have no problem with private refinancing. I just think that there's a lot of people that do it too early.

Art Wiederman, CPA: So a good time to do it might be. I'm in my practice. What about if they want to buy? I mean, because I always get the question, as I'm sure you do. So, Mark, should I buy a house first or should I buy a practice first? And I'm sure. How do you feel about that?

Mark Johnson: Well, I need to know if you're married and you have kids and happy wife, happy life, right? So it depends on your priorities. I mean, the real estate market is pretty hot today. I'm not sure I'd be a buyer today. You know, unless somebody put a gun to my head, I probably wouldn't be in the market to buy a house today. I just visited with somebody today on that very topic. And, you know, I said you may not like what I'm going to say, but I'm a financial adviser. I'm not you know, I'm not a marriage counselor. So you guys are going to have to work out, you know, when the right timing is. But from a financial perspective, I'm not sure buying a house today. I think all this money that's been pushed into the economy, once that money gets spent and it's kind of petered its way through the system, I think. And interest rates have already gone up almost three quarters of a percent here in the last few weeks on the ten year Treasury. I think interest rates of interest rates have to go up and that's going to be negative for the real estate market.

Art Wiederman, CPA: Right. And that's going to cause inflation.

Mark Johnson: So maybe 12 to 18 months from now might be a better time to buy a house. The other thing I would tell folks, especially coming out of school or residency, is you're going to get a job. And I hope that that job works out well for you. But you know what happens if you need to switch places or you want to move? I visited with somebody earlier this week that moved to New Hampshire. They didn't like the cold weather. Now they're moving to Atlanta. And they were happy that they didn't buy a house there.

Art Wiederman, CPA: Oh, yeah.

Mark Johnson: So, yeah, it takes, you know, two or three years to recoup closing costs and real estate fees and those types of things. You know, if you know for certain you're going to be someplace for fifteen or twenty years, then it probably doesn't matter if you buy a house now or not. But I think from a banking standpoint, they'd rather have you have fifty thousand dollars in an investment account than fifty thousand equity in a home to give you a practice loan.

Art Wiederman, CPA: Liquidity, folks, if you're going to go to the bank and you want to buy a practice, especially a big one, liquidity is so, so important. A lot of the banks will require you to have, you know, one of the major banks requires 10 percent of the purchase price, not in the IRA or a retirement plan, but in personal liquid savings. They want to see that you can save money, that's important. So if I go and refinance to a private, are the interest rate, you said that the federally insured student loans are in the five six percent right now. Is that where they are?

Mark Johnson: Yeah. So folks that are graduating this year with federal student loan debt are probably coming out of school when interest gets turned back on October 1st. Right. Their loans will be accruing interest at around six, six and a quarter.

Art Wiederman, CPA: So if I go to the private lender, what are their interest rates?

Mark Johnson: So private lenders have much lower rates right now. Their rates are probably in the three and a half to four percent range. Now, a lot of the private lenders, though, are going to want to see a few months of income. I mean, before they're going to refinance three or four hundred thousand of student loans unless you unless you have a cosigner. But here's the thing I would say is, again, many, many students coming out of school or residence had very little income, their last year of dental school or residency, in some cases zero income. And if that's the case and they don't have a spouse making a lot of money, they're going to qualify for an interest subsidy on specifically the revised pay as you earn, which is one of the four income driven repayment plans.

Revised Pay As You Earn offers up to a 50 percent subsidy for qualifying individuals. And basically, if you're single and you had no income last year and you filed a tax return, you pretty much qualify for this interest subsidy. So on four hundred thousand dollars, if you're coming out of school, that would be twenty four thousand dollars. While with this subsidy, you know, I just gave you a twelve thousand dollar gold nugget if you're listening and you're graduating this year under those scenarios.

Art Wiederman, CPA: So that's interest. That was one of the things we were going to talk about today is that's the interest subsidy that would be available through the income driven repayment plan situation, right?

Mark Johnson: Yeah. Revised pay as you earn.

Art Wiederman, CPA: Yeah. And that so the government might pay for some of your interest is what you're saying.

Mark Johnson: On revised pay as you earn, they could pay for up to 50 percent of your interest that first 12 months out of school.

Art Wiederman, CPA: OK, so let's take a minute here, Mark. Talk a little bit about the you talked a little about your process. I'd like you to give out your contact information to our listeners. Folks, I'll tell you what I do get a lot of questions about student loans. Dentists, a lot of times when I talk about. Well, I'm just going to be paying student loan debt till I'm 80 and I go, well, you know, maybe not. So a little bit about what you guys do at your at Student Loan RX and your financial consulting firm. And then we'll have this in the show notes, folks. But please, Mark, give out your contact information of how people can get a hold of you.

Mark Johnson: Sure, they can go to our website. Student Loans - that's student loans plural - StudentLoansRX.com. And up in the top right hand corner of the home page is the free consult button. So we do offer a free 30 minute consultation. And so you can click on that button and fill out. It takes you two minutes to fill out our short needs assessment and then we offer a free consultation. If somebody wants to text me, they can text me at 314.347.3499. That's just a secure text number, it's not a voice. It's just my text. You can email us at StudentLoansRX@RBFadvisers.net. So several different ways to get a hold of us.

Art Wiederman, CPA: Sounds good. And for those of you that are listening, we have a lot of young dentists who are listening one to three years out of school, folks. I'll tell you what. You know, I was fortunate, I did my podcast a couple of weeks ago on Art's Golden Rules, and when I did it, I got three or four emails. And again, you've all been listening to me for a couple of years now. I don't toot my own horn, but this time I'm going to do it for a second. I got a couple of emails, almost the same as like, wow, I heard your podcasts. And boy, I'm glad you started planning early with me because now I can retire.

And Mark, I'm sure that you've started with people, that you're moving along their career and folks, you know, it's just so important. And I know you're all busy. We're busy. We're busy with our kids and we're busy with our practice and we're busy trying to figure out when we can start traveling again. And we're busy with our with everything. But I'll tell you what, when you get to 50, 60, 70 years old and you turn around and you look and say, wait a minute, I'm done, I don't want to do this anymore, and you've got one hundred thousand dollars saved up, you're going to wish that you know, you're going to wish that you went and met with somebody like Mark Johnson and let him do your planning for you.

And my legacy in this podcast and in my practice is to try and help as many people as possible and kick ya in the behind to get you to do this is real important. So we're getting close to the end of where we're talking. But I've got one big topic I want to talk to you about is some of the biggest mistakes that you see in the repayment planning. Let's go through some of those.

Mark Johnson: Yeah. So I think what are the biggest mistakes is people take advice from unqualified parties so, you know, armchair financial advisors or so and so's dad worked in the finance company at so-and-so or, you know, there's a variety of different student loan repayment strategies. There's as we discussed, there's people that are going on to residency, public health, people that want to be practice owners. So it's not a one size shoe fits all. It's not. So I would say, you know, whether it's us or someone else, I would say, you know, get some advice from a qualified individual.

The other one is, as we've already talked about, I think people, you know, the private finance market is appropriate for most borrowers at some point after they graduate. But I think they get inundated with advertising and promotions and those kind of things that I think a lot of people graduate and they refinance their student loans. They refinance their federal student loans too early.

I also think there is what's called the six month grace period. So you graduate, you don't have to do anything for six months. Well, this year, the last three months of the six months, your interest is going to be accruing. And if you got four hundred thousand dollars in student loan debt. Right, that's two thousand dollars a month of interest. Yep. So if we can let's say you should get on this income driven repayment plan, revised pay as you earn. If you sign up for that and you're ready to go on October 1st instead of your loans accruing interest at two thousand a month, they're going to accrue at one thousand a month.

And the last thing I would say now, the last thing I would say, Art, is that people some people, some graduates look at their student loans in isolation from their other pieces of their financial plan. And I think that's a huge mistake. OK, if you have three, four or five hundred thousand in student loan debt, that should be the centerpiece of your financial plan and everything and the other decisions that you make should be consistent with whatever your repayment strategy is going to be. And you can't do that by looking at the student loans in isolation. You really need to have someone sit down and help you put together a comprehensive plan that looks at a budget, your student loan plan and your insurance plan and your investment planning all in one comprehensive plan.

Art Wiederman, CPA: And people don't pay attention because, you know, this is the psychology of being someone who makes a six figure income. The psychology is I'm making two or three hundred thousand dollars a year. I don't have to worry if I'm going to go and drop one hundred fifty bucks at a restaurant. I don't have to worry if I'm going to go drop a thousand dollars to buy some clothes. We don't think about this. And people who get raises, everybody says, well, when you get a raise, your income goes up, you're going to save that money. No, you're not. You're just going to buy more stuff. And that's why having a plan now, it doesn't mean that Mark is going to sit there. Mark, you're not going to sit there and you're not going to tell me, OK, your cable bill is two hundred thirty five a month. You need to cut it by twenty percent. That's not what this is about. This is just about, you know, I mean, talk a little bit about how you coach young dentists on budgeting.

Mark Johnson: OK, so again, we're always looking with an eye towards their career path. So if your goal is to be a practice owner, I'm probably not going to advise you when if you text me and say, hey, I'm thinking about signing this lease on a new Audi for seven hundred a month, I'm going to say, how about a Toyota Camry? OK, so I am going to be reasonable. I am going to give some of some of it might be considered fatherly advice, OK? Because, you know, in many cases I'm old enough to be a graduating dentist's father. Right. So you're going to get some of that advice.

I am going to talk to them about timing. So the other thing that we know is that some of their friends that maybe they went to high school with or grew up with didn't go on to graduate school. And they already are married and have a car or have a house and a two car garage and maybe a fishing boat and a couple kids, and so there is this pent up demand. And I hear it all the time in visiting with my clients that they need to kind of get out and become, you know, consumers, OK? They've been students for all this long. And I just say be a little bit more patient, just a little bit more patient. Give it another year or so before you go crazy on consumer spending and you'll be in a much, much better position down the road.

And when you go to your 15 year and 20 year high school reunion, you'll probably be pulling up in the nicest car and you might have the nicest house. Not that that means anything per se, but you'll be you'll be in a great financial position if you're just a little more patient and get your financial ducks in a row. So those are some of the conversations. You know, I also tell them to get off their parents cell phone bill. OK. I just throw that out there because I've got kids in their 20s that are still on our cell phone bill and it bugs me. So I tell them. So I just a little bit of resentment comes through every once in a while in my financial planning.

Art Wiederman, CPA: I hear your pain. No, but I say, hey, if you put the kid. But here's the problem. If you put the kids on a private cell phone bill, it's like three times.

Mark Johnson: Now. Well, here's what I say. I say, listen, you know, if you're going to be making one hundred fifty, two hundred thousand dollars a year, you know what? Maybe stay on the family plan, but send your parents, you know, 50, take them out to dinner, send them 50 bucks a month for the cell. Your parents don't need to be paying your cell phone bill if you're making one hundred and fifty two hundred thousand a year.

Art Wiederman, CPA: No, it's a different generation and that's a different podcast that we have. OK. Any thoughts about public service loans and forgiveness and how that works?

Mark Johnson: Sure. So that's a great program. Obviously, we've got a lot of rural communities and in some urban communities that the public health centers. And so if you're coming out of school and that's your heart's in public service or you've got, you know, five hundred thousand plus coming out of dental school, there are some really neat programs out there. There's the public service loan forgiveness. You go work in a federally qualified health clinic for 10 years and you make an income driven repayment plan over that period of time. And whatever's left at the end is forgiven tax free.

So let's say you got four hundred thousand in student loan debt and you start out making one hundred and thirty thousand in public health. That's really like a two hundred thousand dollar job right out of school. Right. OK, and then you get your tax forgiveness. So then we invest heavily over those 10 years. And so you come out of get your student loans are knocked out in 10 years and you've got a big investment account hopefully at the end. So you can go buy a practice or do whatever you want to do. There's some scholarships. The student to service scholarship is one hundred and twenty thousand dollar scholarship paid over four payments to go work in public health for three years. Typically, you have to apply for that late summer, early fall. So their public service is a great program.

Now, you do have some things you have to get your paperwork in order. The first 10 year cycle on public service loans came, I believe it was October of 2018 and over 90 percent of the people that applied were denied because they didn't have their ducks in a row. So every year you have to recertify your income on an income driven repayment plan. And you also have to fill out what's called an employer certification form. Your employer has to verify that you work there and that there are qualified employer for public service loan forgiveness. And then you have to send that document into your to your loan servicer. And then at the end of those 10 years, they've got 10 of those certificates you apply to have your loans forgiven and then hopefully that application gets approved.

Art Wiederman, CPA: So I'm a young dentist. I leave. I'm twenty five years old. You know most dentists they graduate college around twenty one maybe they take a year off, maybe they don't. And maybe the most of your graduates are twenty five to twenty eight years old. Mark is that fair give or take.

Mark Johnson: Yeah. Twenty seven to twenty nine. I would say.

Art Wiederman, CPA: So one track would be they go to work at you know in public service and you know are they making I mean they're probably I don't know what the jobs pay out there, but they're not that much different than a first year associate working in a general dental office. I don't think.

Mark Johnson: No. I mean, I think a first year dentist nationally makes about one hundred and thirty thousand. And public health clinics have to compete with the market. And I've got clients that are working in public health that their first job, they were making one hundred and fifty thousand plus a nice benefit package and a 401 403 b, 401k with a nice match. So, yeah, I mean, the public health clinics are very competitive in terms of first and second year income.

Now, you know, again, not to talk people out of going to work other places, but, you know, there's I've got clients that are very happy in public health. And maybe they went home to they grew up in a rural community. They went home and they're working in the public health clinic. Or maybe that's where their heart was. They wanted to work in an underserved community and yeah, could be a great job.

Art Wiederman, CPA: Yeah. And they could. And then after ten years they go to the government and they say, I'm done, I want my loans forgiven. It's like a PPP loan. They get forgiven after 10 years, right.

Mark Johnson: They have to make one hundred and twenty qualifying payments.

Art Wiederman, CPA: Right. So they make and they do the income based repayment, they keep it on that the whole time. Yes, it doesn't matter then. It doesn't matter what their loan balance is, right?

Mark Johnson: Correct. So then under that scenario, we do invest the difference. OK. Right. Because there's no tax bomb.

Art Wiederman, CPA: No tax bomb. That's right. There's no tax bomb. So that's a great strategy. And again, you know, how many of you are going to plan your life out and say, OK, I'm leaving dental school, I'm going to work in public health for 10 years and I'm going to buy a practice. If that's you, this is a great way to go. I mean, I don't see any downside to it, Mark.

Mark Johnson: Well, you know, there's you know, I mean, someone could say, well, you know, in public health, I'm never going to make, you know, four or five, six hundred thousand dollars a year as a dentist. And, you know, if their desire is to be a practice owner, you know, sooner than 10 years, you know, someone could maybe make the argument that financially they might be better off doing up, you know, going the private route, but, you know, split the difference, apply for the students to serve a scholarship, get one hundred and twenty thousand dollar scholarship to go work in public health for three years. See how you like it. Yeah.

Art Wiederman, CPA: And this is my career. Who knows? Yeah. So any final words of advice for our young dentists out there or our even our older dentists who have student loan debt any final pearls. And we'll let you give out your information one more time.

Mark Johnson: Sure. Well, I would just say is that, you know, if they haven't had their plan reviewed in a while, that they should could reach out to us or they could reach out to someone else that works in this area and just kind of make sure that they're on the right path for this year's graduates. I would say that there's no interest accruing on your federal student loans through the end of September, but that doesn't mean you have nothing to do between now and then. You really ought to have a plan in place and ready to go, certainly by the end of August and you know, go out there and, you know, do what you do best. And if you need help in other areas like finance and tax, there's folks like us that can help.

Art Wiederman, CPA: That's great. One more time Mark. So if someone wanted to you said a complimentary conversation and you have a form on your website, how do they get a hold of you? What's the best way to get started if they're interested?

Mark Johnson: Sure. You just go to our website at www.StudentLoansRX.com. Click free consult in the top right hand corner. www.StudentLoansRX.com. You could also text me on my secure text, which is 314.347.3499. Or you could send us an email at studentloansRX@RBFadvisers.net.

Art Wiederman, CPA: There you go. Well, Mark, the most important question I'll ask you right now is how do you think the Cardinals are going to do this year?

Mark Johnson: Wow, that's a loaded question. Now, St. Louis fans are pretty, pretty into the Cardinals. You know, I think they're going to do well. The Cardinals always have a pretty good team. And so I you know, they practice down in Florida and I think they're ready to go.

Art Wiederman, CPA: Yeah, well, I was one of my one of my long term clients. And I was I was sad to learn that he passed away about three months ago was Doctor John McGuire. John practiced in Pomona, California for 40 years. I was at the opening of his dental office. He had five boys. And one of them you might have heard of, his name was Mark McGuire. So Mark played for the Oakland A's and he spent a good chunk of his career in working playing for the St. Louis Cardinals. That's where he broke the single season home run record. And it was great because when he got driven around in a car at Busch Stadium to celebrate his record, his CPA, who I know I won't mention his name, but his CPA was driving and I was going to have a CPA is getting involved. That's great to know.

And you know, Mark is the McGuire family, just most wonderful, wonderful people. And one of the one of the greatest days of my life was when Dr. John McGuire got Mark to come to my house to give my son Forrest, who was trying to become a college baseball player, a hitting lesson. And we had a batting cage in the backyard, Mark, and he I figured he'll come for 15, 20 minutes. He spent three hours. And I'm talking, Mark, because at the time he was the hitting coach for the St. Louis Cardinals. I said, so how do you coach Albert Pujols? And he said, you don't coach him, you just give him a little bit of advice, but I mean, what was amazing to talk to somebody like that for three hours, so I've always had St. Louis in my heart and the Maguires and what a great family.

Mark Johnson: And, well, I didn't I didn't know that his dad was a dentist.

Art Wiederman, CPA: He was in his mid 80s. He just passed away. His wife Ginger, called me and a couple of months ago, let me know. I was very sad. But it's just wonderful, wonderful people. That's what I thought of St. Louis. So it has nothing to do with student loans. But I always love to talk baseball as my audience knows that. Well, listen. Hey, Mark Johnson, thank you so much for taking your valuable time and talking to our audience.

And folks, if you want to have a plan to get your student loans paid off and to help in your financial success, again, there's good players and there's bad players in every industry, including the financial services industry. And I only work with the good players. And Mark Johnson is one of the best that I know. I don't know anybody else who has an expertise as a financial advisor specifically geared to working with dentists on their student loan debt. So, Mark, thank you so much. Hang on as I sign off for a minute. And we really appreciate you coming on today.

Mark Johnson: It's a pleasure. I look forward to our next visit.

Art Wiederman, CPA: Yeah. And don't forget, folks, on June 9th, put this on your calendar. Mark is going to be doing our Business of Dentistry webinar. We've set this up for six dental societies here in Southern California, but it's open to everybody. That's the beauty of remote web webinars is, you know, you don't have to get on an airplane and fly to California and get a hotel and come and attend, you can look at it on your computer screen. So June 9th, Mark is going to be from six to eight California time.

Also, if you are looking at our other webinars, the ones we talked about on the ERTC and the PPP, and we had a great one on marketing with Kristi Boltz and Kiera Dent, go to our Web page, our YouTube page, which is Eide Bailly. YouTube page is Google Eide Bailly YouTube. And you'll find it there.

And if you as I mentioned earlier, if you have a 50 percent or greater reduction in your revenues for the second quarter in your practice anywhere in the country, you could score yourself tens, maybe hundreds of thousands of dollars of free government money in the employee retention tax credit. And we at Eide Bailly are set up to help you with that. And we've got a whole system. So email me at awiederman@EideBailly.com or call me at 657.279.3243.

Check out the website of the Academy of Dental CPAs www.ADCPA.org and check out our partner Decisions in Dentistry magazine www.DecisionsinDentistry.com.

Well, that is about it for this episode of the Art of Dental Finance and Management with Art Wiederman. I hope you found it informative. Please tell your friends about a podcast, write a review, you know, shoot me an email if there's a topic you want to hear about or somebody you think would be interested, I'm more than happy to listen to you.

And with that, folks, I want to wish you adieu. And this is Art Wiederman for the Art of Dental Finance and Management with Art Wiederman, CPA. We'll see you next time.