Why Your Student Loans Don’t Matter (Episode 56)

You’d think I was crazy if I said that student loans didn’t matter. We talk a lot about the devastating effects of high student loan debt and how important the right repayment plan can be.

But the truth is that student loans don’t matter as much as you think.

No matter how high your loan balance or what your income is, you should always look at situations holistically and take action to put yourself in a better position mentally.

Here are five career paths that show income, stress, job opportunity and loan repayment are affected by a variety of factors. Each situation is impacted by factors that are outside your control and often matter more than the balance of your student loans.

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For example, let’s say:

1. You become a dentist.

Dentistry is a high-stress profession. If you become a dentist, you might worry about disruptors like Smile Direct or the continuing decline of coverage and reimbursement rates for insurance.

Popular personal finance radio shows tell you that “living on rice and beans” is what it takes to make it as a dentist. They also tell you to avoid debt and focus on making more money to pay down your student loans.

But a popular career path for dentists is to start their own practice. How do you juggle messages of avoiding dentist student loans with the need to take on debt to start your own practice?

It can freak you out.

I’m here to tell you that becoming a practice owner lets you tap into higher revenue. And this can make up for the practice loan you may need to take out to get started.

As an employee, your pay only comes from a piece of the overall revenue. For example, you might earn about $200,000 a year when the total revenue of dental services is $600,000.

If you become a practice owner, you broaden your revenue base. You participate in all revenue streams when you own the business. Your income can include profits from hygiene work, x-rays and other services. Instead of earning a portion of the business’ $600,000 revenue, you can earn a percentage of the entire practice revenue, which is more like $800,000.

A typical salary for a business owner is 40 to 50% of the revenue. If the business is making $800,000 a year, your annual income jumps to over $300,000.

In general, you’ll only use about 20% of your income for your dentist student loan payment. From this 20%, about 10% will go towards saving for your tax bomb and the other 10% goes towards student loan repayment, if you’re on a Pay As You Earn (PAYE) plan.

As a dental practice owner, that still puts your annual income at around $240,000.

That’s not too bad.

2. You became a chiropractor.

Judging by the College Scorecard from the U.S. Department of Education, the chiropractic field is a total disaster. Chiropractors’ student loans range from $200,000 to $250,000. Compare the median earnings of $30,000 your first year out of school and your debt-to-income (DTI) ratio is 7:1.

Chiropractic education can also be a scam. Chiropractic schools tell students it’s a great career and they’ll be able to pay back their loans quickly earning $100,000 a year.

The bottom line is, those claims are falsehoods. Misinformation may be unintentional — maybe college representatives don’t know this information isn’t correct. But whether intentional or not, they’re simply not true.

We’ve consulted with a few chiropractors who make over $80,000 a year, but it’s not common. The typical salary range is closer to $50,000.

Despite those bleak numbers, you’re not doomed. You can still make a decent living and pay down chiropractor student loans.

The key is to live in an area with low-cost-of-living. The area should not be saturated with chiropractic care either. This makes your chances of earning a decent wage pretty slim.

Several chiropractors I’ve talked to go on to different careers because the high stress and low income aren’t for them. But this requires difficult decisions as well. Imagine you have $250,000 of chiropractor student loans and pile on another $100,000 or $200,000 to go back to school and become a physician assistant or nurse practitioner.

If you really enjoy being a chiropractor, make an effort to go to conferences, build up your network, open your own practice and look for ways to live a more frugal lifestyle.

3. You became a lawyer.

As a big law attorney, you have multiple options for student debt. You could refinance your loans to a five-year term and focus on paying them off as fast as possible.

The National Association of Law Placement reported the most frequently occurring annual salary in first-year big law was $190,000. That is over $15,000 a month in income. With that much cash flow, you could afford to pay $6,000 a month towards your student loans, pay rent and max out your 401(k) while still having some money left over.

The average student loan debt for lawyers is about $200,000. If you work your tail off and put $6,000 a month towards your debt, you can pay it off in less than three years.

Once your lawyer loans are taken care of, you’re free to switch over to another career path if working for big law isn’t for you.

Another option — and this is something we’ve helped people with here at Student Loan Planner® — is to use the big law escape plan. It looks like this:

• You stash as much money as you can for a year or two
• Build up a large amount of savings
• Maximize your 401k
• Consider doing a strategic forbearance or loan refinance

Loan refinancing can help you pay down debt faster by lowering your interest rate. For example, you can secure a 3% fixed-rate or variable-rate loan below 2%.

If you refinance using our links, you can qualify for great cash back bonuses that put more money in your pocket.

Either way, if you want to move out of big law, you can use strategic plans to do so.

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4. You became a physician.

You already have a lot of stress as a physician. My wife is a physician and she’s always more concerned with her patients than her student loans. But physician student loan debt definitely adds to the stress of the job.

Most physicians have around $300,000 in student loan debt. Enrolling in Public Service Loan Forgiveness (PSLF) can save you around $100,000. It can be a great option if it’s used the right way.

PSLF also causes a significant amount of stress for physicians. There’s the worry about whether your employer qualifies for the program, if you’re on the right eligible repayment plan and how many payments FedLoan will miss-count towards the 120 payment requirement.

PSLF is important, but it’s not as important as you think. Just like any high-paying field, as a physician, you’ll probably earn more in private practice than the value of what you save from PSLF. And this is true even after accounting for taxes.

If you’re in primary care or pediatrics, you could benefit more from doing PSLF. But for most physicians dealing with a high amount of debt, opening your own practice is a viable solution.

5. You became a pharmacist.

Job prospects for pharmacists are rapidly deteriorating. I recently talked with a thought leader in the industry and he was expecting one-third to one-half of all pharmacy graduates to be unemployed within the next couple of years.

This is similar to the legal field in 2011 and 2012. There was a big retraction in the number of seats and schools began to close. Law schools were hiding employment statistics to make schools look better and eventually, the truth came out about the realities of the profession.

I think we’ll start to see this in the pharmacy field.

College Scorecard data, which comes from the U.S. Department of Education, shows a typical pharmacist makes about $110,000 a year and has about $125,000 in pharmacist student loan debt.

That puts your DTI ratio pretty close to 1:1, which makes pharmacy school sound like a great deal. Except those statistics are from 2015 and 2016, so the information is already several years old.

But there’s more. After digging into the data and I found a lot of schools don’t include all stats for the reporting processes. For instance, residency earnings were left out. Leaving out these stats can trick future students into signing up for the program with false hopes of success.

Job shortages also mean most pharmacists may work as part-time employees, with part-time wages, instead of earning a full-time salary.

On the other hand, a pharmacist can earn about $50,000 a year by working just three days a week (most people who make $50,000 a year have to work five or more days a week). It’s also the median household income in America.

Student loans don’t matter as much as your mindset

Hopefully, these five examples show how student loans don’t have to hold you back. You always have a choice. Sometimes it just takes a shift in your mindset.

My dad was a teacher with a graduate degree. He didn’t earn as much as other professions that require a graduate degree, but he had a great mindset and always said the best part of being a teacher is June, July and August.

In most of the consults I’ve done, problems were not solely related to student loans. It was in the client’s mindsets. I would suggest you let go of student loan stress and give yourself the gift of bettering your mindset.

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