Why Does Having Student Debt Feel So ‘Bad’ and Paying It Off Feel So ‘Good’?

Many of us have heard Dave Ramsey’s popular radio program. He reserves time toward the end of his show to have listeners call in and exclaim, “WE’RE DEBT FREE!” The relief and joy in their voices is contagious, and perhaps the rest of the audience stops to reflect on what is wrong with them for not being debt-free as well!

The concept of “debt-free” feels like the starting point on the road to financial freedom, but there are several shortcomings with adopting this mantra to the exclusion of all other considerations. Dave Ramsey’s advice is great for a radio show. I agree with much of what he has to say. However, his message is geared for a mass audience; you, as dental professionals, are not that mass audience. Not all debt is created equally. Student loan debt, for example, is associated with an increase in earning power and is collateralized by your career. If we look at student loan debt from an investment perspective, we find that someone who graduates from dental school has approximately twice the earning power as someone who obtains only their bachelor’s degree. Even if we assume, hypothetically, that the dental school graduate incurred $250,000 in education debt in the process, a doubling in earnings equates to an internal rate of return of 31% and a net present value of $942,000. Dental school is a good investment.

However, don’t just ignore the research on debt and emotional well-being. Paying off debt feels like new autonomy from lending institutions and the burden they impose on your paycheck and financial independence. There is clearly an emotional component, which has been captured in academic research:

1. High debt levels were associated with lower self-esteem and a decreased sense of ability to manage personal finances. (Lange and Byrd, 1998)

2. Debt has been associated with a decreased sense of financial well-being and higher reported levels of overall stress. (Norvilitis et al., 2006)

3. Students from mid- and low-resource schools had deep concerns about borrowing to pay for school, seeing school loans as debt rather than an investment in future earnings. (Perna, 2008)

So, we feel bad about debt, about ourselves for having debt, and we find it difficult to view debt as an investment. What do we do about it? It is unlikely that your student loan balance can be paid immediately and in full, and, if it could, it is likely not the right financial decision. Wealth creation is a long road that involves:

– Utilizing the time value of money to grow investments.

– Leveraging earning potential with good debt.

– Maximizing cash flow to support lifestyle and facilitate savings.

– Having a planned approach to retiring and monitoring liabilities (debt).

Under this framework, proper debt management is incorporated into your larger plan, thus helping you achieve short-term and long-term financial success. The question missing from all the research I have seen on the topic of student loans and their connection with emotional stress is: Do you have a plan to address your debt? Understanding how your debt-paydown strategy fits into your financial and career plan will provide the comfort and confidence you need to move forward with a focus on your clinical aspirations.

The practice integration advisors at Buckingham help dentists achieve financial success by incorporating a thought-out and customized approach to managing student debt. We are happy to help you understand how this transaction both fits into your desired clinical career and can help support your financial plan.

This commentary originally appeared February 5 on DentalTown.com

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Thomas Bodin, CFA, CFP®

As a practice integration advisor, Thomas provides comprehensive financial advisory services to dental and medical offices, including tax, pension and retirement planning. He is motivated by a passion to help medical professionals connect the hard work they put into their practices with their most deeply held values and goals, all through Buckingham’s evidence-based approach to true wealth management.

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