How Dentists Can Start Their Own Practice While Repaying Student Loans

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Dental school graduates have among the highest amounts of student loan debt compared to other graduate degree types, graduating with $241,000 in debt, on average. While that might seem like a lot, dental grads also have significant earning potential, which means that it's possible for them to repay their loans and still fulfill their dream of opening their own practice.

The key to successfully starting a dental practice is to plan for it. That means saving up, optimizing your credit score, and making yourself attractive to lenders so that when it comes time to take out a dental practice loan you will easily be approved.

Here are some smart steps dentists can take to get their finances in order and work their way toward starting or acquiring a dental practice.

Focus on Earning Steady Income and Improving Your Credit

Before diving in headfirst to start your own practice, it's important to take a step back and consider the benefits of building your experience as a dentist while earning money along the way.

"It's hard to start up a dental practice right out of school for a few reasons," said Adam Glassberg, financial counselor with Chicago-based D3 Financial Counselors, who works primarily with young medical professionals. "First, it might be hard to market your services with little or no experience. Second, working as an associate will also put you in a better financial position."

In addition to earning income and developing more experience, the extra time spent working as a dental associate prior to starting your own practice will allow you to focus on building your credit score. According to Glassberg, that means doing things you likely already know you should do, such as making your student loan and credit card payments on time.

But it also means doing some things that you might not realize improve your credit, such as being mindful of keeping your total debt amount low.

"For example, you want to keep your total debt to less than 30% of your credit outstanding," said Glassberg. "If you have a credit card with a $10,000 limit, you want to make sure your balance on the card doesn't exceed $3,000. Any more than that, and your credit score could suffer."

He also recommends that you keep your oldest credit accounts open.

"Credit companies look at how long you have had access to credit, and so closing old accounts might have a negative impact on your credit score," Glassberg said.

Meet With a Financial Planner

If you're feeling a bit overwhelmed at the prospect of starting a practice and paying your student loans, it would also be beneficial to reach out to someone who can help you create a plan. A financial planner who specializes in working with health professionals is probably your best bet.

Glassberg believes it's critical that you work with a financial planner, since they help you consider things you might not have thought about. For example, he recommends that his clients save money in an emergency fund to cover any unforeseen expenses for up to one year before starting a practice.

"It's important to have that emergency safeguard," Glassberg said, "because you can't depend on making money from your practice in that first year."

A financial planner will also help you optimize your assets and manage your student loans in order to prepare you for applying for a loan to start or buy a practice.

Find the Best Student Loan Repayment Option

Dentists have several options to manage and repay their student loans, and it's worthwhile to look into each one to determine which is right for your situation. Here are a few options that you can consider for tackling your student debt.

Consider Refinancing Your Student Loans

Because practice loan lenders like to see that the dentists they lend to have more cash on hand, it is often a good idea for dentists to refinance their student loans to lower interest rates with longer terms. This will enable you to lower your monthly payments so you can start saving for your practice.

When you refinance student loans, you're taking out one new loan to replace one or more existing loans often receiving a lower interest rate than what you were previously paying. Private lenders like CommonBond offer refinancing options that could save the average dentist thousands over the life of their student loans. CommonBond has also created a comprehensive guide to student loan refinancing for dentists, which you can check out here.

"If you can reduce the interest rate or extend your repayment term, you can lower your payments which would give you more cash flow in order to start your practice," said Glassberg.

Refinancing your student loans enables you to both lower your monthly payments and lower your debt-to-income ratio, which can be helpful when it comes time to apply for a practice loan.

Explore Federal Student Loan Programs for Dentists

Refinancing isn't always the best option for every dentist, however. The federal government offers several programs specifically for dentists that private lenders don't offer. In order to be eligible for most of the government programs, dentists are generally required to work within Health Profession Shortage Areas (HPSA) or a Medically Underserved Area or Population, as defined by the U.S. Department of Health and Human Services.

A few of the government programs available to dentists include:

National Health Service Corps (NHSC) Loan Repayment Program

Under this program, dentists can receive up to $50,000 to repay their dental school loans in exchange for a two-year commitment to work at an approved NHSC site in a high-need, underserved area.

Army Dental Corps Programs 

If you serve as a dentist in the U.S. Army, you may be able to get up to $120,000 in student loan repayment assistance, as the Active Duty Health Professions Loan Repayment Program offers $40,000 per year for a maximum of three years.

State-specific options 

In addition to federal government programs, most U.S. states offer student loan repayment assistance or forgiveness for dentists who work in medically underserved communities. These options vary from state to state, so it's worth exploring the options available in your state.

If any of the situations listed above apply to your desired career path, then it would be worthwhile to explore some of the federal and state student loan repayment options available to dentists.

Apply for a Practice Loan

Once you have great credit, strong work experience, a robust emergency fund and have found the best student loan repayment option for your circumstances, you're ready to apply for a loan to start your practice.

According to Glassberg, this is when your hard work to save money will pay off: The more assets you have and especially the more liquid assets you have – the more likely you are to obtain a loan.

Here are some of the top factors to keep in mind when it comes time to apply for a dental practice loan:

Create a business plan

Before giving you a loan, lenders need to understand how you will manage and grow your practice, including how you'll run day-to-day operations and get new patients. Generally, lenders are wary of lending to you until they believe you have a proven business, so having a solid business plan to share with them will help the process significantly. This article in Dental Economics offers useful steps for dentists to take in creating a business plan.

Be prepared to share necessary documents and information with lenders

In addition to a business plan, when applying for a practice loan, you'll need to be able to share further information with lenders. This includes information such as the purpose of your loan, the amount you intend to borrow, debt service coverage, primary collateral, debt-to-worth ratio, management experience, and your credit score.

Get life insurance and disability insurance

It's common practice in the dental lending industry to require these policies to be in place as collateral for the loan in case something happens to the dentist. Insurance is a big factor in mitigating a lender's risk that a dentist would be unable to repay the practice loan due to death or disability.

Determine what type of loan you need and choose the right lender

Once you have all of these other elements in place, you'll be in a good position to apply for your practice loan. At this stage, you should determine the desired term of your loan –generally you can choose between repaying your loan in 7 or 10 years and select the best lender, depending on which offers the best interest rate and terms for your situation. Lenders that offer practice loans include Bank of America, US Bank and Wells Fargo. It may also be worthwhile to explore a website like Fundera, which can connect you with a variety of small business lenders and allow you to choose the best option.

In addition to these considerations, Glassberg recommends that dentists looking to start up their own practice continue working as an associate at another practice as they get their own practices up and running in order to help with cash flow, which certain lenders require. And, in some cases, acquiring an existing practice might be a better bet, according to Glassberg. "Because the practice is already up and running the terms of the loan could be more favorable since it is a lower risk loan," he says.

While paying down your loans and starting your practice might seem daunting – it's entirely doable. With a plan and some hard work, you'll be able to open the doors of your own practice in no time.

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