Student debt is on the minds of all young dentists. According to the American Education Association (ADEA), the average debt of a student exiting dental school in 2015 was just north of $255k. In 1996, the average debt on graduation was $84,247. When adjusted for inflation, the average dental student graduated in 1996 with $127k of student debt in 2015 dollars. This means that over the last twenty years, the cost of dental school has doubled after adjustment for inflation. [You can read more about the numbers from dental economics: http://www.dentaleconomics.com/articles/print/volume-106/issue-9/macroeconomics/on-student-debt-culpability-and-the-generation-gap.html].

A couple months ago a few threads opened on Dental Town regarding student debt and I would like to address two of them.

The first poster asked if dental school was worth $400,000. The second poster has found herself in $567,000 of student loan debt and was asking for advice regarding the management of that debt.

The cost of tuition to attend dental school has skyrocketed over the last decade. Unfortunately, many new graduates are realizing that the average general dentist’s compensation does not support the cost of the education required to enter the profession.

For what it’s worth, I believe that $300,000 is the tipping point where pursuing a career as a general dentist no longer makes financial sense for the majority of students.

The American Dental Association (ADA) reports that the average annual income for a general dentist in 2013 has fallen to $180,000. [For a good read about dentist incomes visit: http://www.drbicuspid.com/index.aspx?sec=ser&sub=def&pag=dis&ItemID=316974]. The ADA reports that the average owner GP earned $192,000 in 2013 and the average non-owner took home about $130,000.

New graduates typically earn much less than the average income reported by the ADA, but I have yet to find a reliable survey that examined the earnings of a large number of recent graduates (those within their first five years of practice). Based on conversations I have had with other dentists and the information I’ve read on online forums like Dental Town and Student Doctor Network, combined with my own experience, I think it is safe to assume that a dentist will likely earn between $80,000 and $150,000 during their first full year of practice.

Of course there are outliers in both directions as there are many factors that influence a new dentist’s initial compensation.

For simplicity, let’s assume that over the first five years of practice, a general dentist earns an average of $120,000 per year. That’s a salary of $10,000 per month before taxes and other necessary expenses.

A $400,000 student loan with an average interest rate of 6% on a ten year term requires a monthly payment of $4,440.82 after taxes – this adds up to $53,289.84 per year of after tax income.

How much you take home after taxes when making $10,000 a month depends on your own personal situation – what state do you live in? How many dependents do you support? Are you married? Do you own a home? Does your spouse earn an income? You’ll have to talk to your CPA to dig into the numbers. For simplicity, let’s assume you’re tax savvy and only loose 20% of your gross income to federal and state governments.

20% of $120,000 is $24,000…what does that mean? It means that if you have 400k in student loans, after you pay taxes and service your debt, you have $42,710 left to live on and save for retirement.

Here’s the math: $120,000 – $24,000 (Taxes) – $53,289.84 (Student Loan Payments) = $42,710.16

For reference, according to Pay Scale, the average salary of an elementary school teacher is $43,000 plus great benefits.

Can you live on less than $45k per year? Yes, if you receive benefits from an employer, however dentists are usually sole proprietors who have to fund their own retirement accounts and pay for their own health, life, and disability insurance policies. Add it all up and then pay for rent and all the typical utilities and it’s easy to see how a high income professional actually lives month to month for the first decade of her career with little to nothing in the way of savings to show for her efforts. Love teeth or hate them, I doubt anyone of us went to dental school with the aspirations of living paycheck to paycheck.

A $567,000 student loan at an average interest rate of 6% on a ten year term requires a monthly payment of $6,294.86 after taxes – that’s about $75,000 a year for ten years.

Let’s do the math again:

$120,000 – $24,000 (Taxes) – $75,000 (Student Loan Payments) = $21,000

Good luck managing that debt to income ratio without some serious financial assistance from your parents or the government.

For a lot of us, it’s too late – we’ve already paid for dental school and are now trying to manage our personal financial situations as best as we can.

In my opinion if you have more than $300,000 in student loan debt and do not have a parent practicing dentistry that guarantees a smooth transition into ownership (maybe even at a significant discount), you need to find employment that qualifies for public service loan forgiveness (PSLF).

More on managing your debt next time.