Three Financial Mistakes to Avoid
By: Dan Macklin, SoFi
With the average dental school graduate accumulating more than $241,000 in student loans, smart financial management can mean the difference between a life well lived and one spent chasing down debt. At SoFi, we can show you ways to pay off your debt efficiently so that you can achieve your financial goals and make the most of the income you are bringing in.
Managing debt can feel like an impossible task – especially when you’re trying to balance a growing practice with personal goals like purchasing a home. But if you can avoid the following common slip-ups, you’ll be in a much better position to do so.
Mistake #1: Using income-driven repayment for too long
Because of its flexible structure, some student loan borrowers continue to use income-driven repayment plans like Income-Based Repayment (IBR) and Pay As You Earn (PAYE) beyond their cash-strapped early years – with potentially costly results. The reduced monthly payments typically aren’t large enough to cover interest, which continues to accrue, and all or part of it (depending on which plan you’re on) is added to the loan’s principal as soon as you switch to a standard repayment plan. Essentially, the longer you take advantage of the lower payments, the higher your total debt will be – and it doesn’t take long for that debt to spiral out of control.
Mistake #2: Neglecting to refinance dental school loans
As your income grows and your student loan payments become manageable, it’s usually a good idea to consider moving on from income-driven repayment plans. In fact, at this point you may be eligible to refinance your student loans at a lower interest rate. Refinancing can have big benefits, such as lower monthly payments or a reduced payment term, and can save you a significant amount of interest over the remaining life of the loan. Having one lender and one bill will also save you the time and hassle of multiple monthly payments.
Need the hard numbers? Let’s say you have $200,000 in dental school loans at a 6.8% weighted average interest rate and a 10-year term (6.8% was the going rate for federal unsubsidized loans from 2006 to 2013). Your monthly loan payment would be about $2,300 per month, and you’d pay about $76,000 in interest over the life of the loan. If you refinance and cut that rate by even 1 percentage point to 5.8%, your monthly payment goes down by $100per month, and you save about $12,000 in total interest. Cut it even more, and you save even more.
Not sure where to begin exploring your refinance options? Check out SoFi, a leading marketplace lender and the largest provider of student loan refinancing. The company’s low interest rates and easy application process are two reasons why the WSDA endorses SoFi to help its members with their student loans. WSDA members also receive a 0.125% rate discount when they refinance through sofi.com/WSDA. This discount is worth $680 for every $100,000 refinanced.
Mistake #3: Holding off on owning a home
When you have six figures in student loan debt, buying a home can feel like an unattainable fantasy. How can you save for a down payment when your income is being eaten up by loan payments? And what lender would give you a home loan given the amount of debt you already have on your plate?
Fortunately, there are a growing number of lenders who cater to this exact demographic. SoFi, for example, offers a mortgage that allows for as little as 10% down on loans up to $3 million (no expensive private mortgage insurance required). And with a unique underwriting approach that allows for more flexible debt-to-income limits, even people with student loans can potentially qualify for greater financing than they would with a traditional lender.
SoFi is a leader in marketplace lending, with more than $2 billion in loans issued to date. We help early-stage professionals accelerate their success with student loan refinancing, mortgages, mortgage refinancing, and personal loans. Our nontraditional underwriting approach takes into account merit and employment history, among other factors, so we offer products that can’t be found elsewhere.