Finance: The First Year of Paying Down $550,000 in Student Loans, An Update

Hi guys! So it has been about a year since our search for a future home turned into a commitment to pay down my massive student debt instead. I figured I would give you an update as to what paying down $550,000 at 6.7% interest looks like.

We arrived at our decision to tackle the loans aggressively in April of 2017 (our decision tree, here). The most important thing to note with a loan this large is that committing to it means REALLY committing to it. It wouldn’t be advantageous to choose to pay down the debt, and then fall back to IBR midway. From a numbers perspective, you would just lose unnecessary money that way. If you choose the loan forgiveness route, then the goal is to pay AS LITTLE MONTHLY PAYMENTS AS POSSIBLE, so that a huge chunk gets written off. If you choose the standard repayment option, then the goal is to pay AS MUCH MONEY AS SOON AS POSSIBLE. So, with a steely grip on the reality that we did not want the debt to dictate and shape our lives for twenty five years, we went head first.

Here are the numbers.

To be completely honest with you, $550,000 is a ballpark estimate. The real number is a principle amount of $538,933.50 and an accrued interest of $35,101. Meaning the total was actually $574,034.50. YIKES!

So what did we do? We decided that we will essentially live off of one income, and use the other income towards loans. We figure, out parents raised us on a single person’s income, so this can’t be that difficult especially since we don’t even have kids yet. The verdict: We were right! It was surprisingly easy. Which makes me wonder, where were we spending all that money before hand?! I don’t even want to know….

With that being said, we have been successful at making our minimum payments of $6500 per month! YAY! We were even able to add a little extra every so often due to diligent saving habits (See The Ever Growing List of Things I’ve Given Up In The Name of Frugality!). But that does not take us as far on the path of financial freedom as we would like. It took us a few months to completely pay off the interest that had accrued, but it must be remembered that the loan is at 6.7% interest. So that means that interest continues to accrue over all this time. So what does that look like? Well, once the accrued interest was paid off, approximately half of the $6,500 was going towards the interest accruing per month. Which means that the loan is only getting paid down at a rate of about $3,000 per month. And that, my friends, is how lovely interest works! Womp, womp.

So, $55,367.22 was paid towards interest. Only $28,632.78 went towards paying down the principle amount. When my husband first looked at the little pie chart graph that I hard on the corner of my computer screen summarizing our progress, he said, “Well, THAT’s depressing!” For someone who is only looking at that, it CAN seem pretty depressing. However, I know better. This. Is. Amazing.

The accrued interest is already out of the way, which tells me that next year is going to look a LOT better. I can already see a higher proportion of the monthly payments being applied to our principle. It started out as slightly less than half of our payment being applied to the principle. However, as of early this year, slightly more than half is being applied to principle. I know it’s hard to look at this as any way other than a linear projection, but it really, truly is an exponential one, albeit with a slow start.

The amazing part is that we have survived our first year and our lives have actually been much improved. Choosing this journey has nudged us to be proactive with our life, not only with our financial decisions, but also with our lifestyle choices. We are experiencing less stress than when we felt helpless and unable to address the student loans. We are experiencing more happiness than when we were trying to buy our way to a meaningful life. I work less than I did last year, and love myself more. We are healthier and have better relationships. And it all started with us learning how to get our finances in order and in our efforts to remove money from our life equation.

I am very happy with this decision and I am excited to see what the next year of payments will bring.

PS: I am excited that we will hit the $400,000’s during me and Mike’s birthday months in June/July!

Also, for the curious, I have never, not once, felt regret in funneling extra money towards my student loans. I have felt buyer’s remorse. I’ve regretted going out to eat. I have regretted going to events that required spending money. I have regretted buying gifts that I know will end up in a landfill some day. But I have never regretted letting go of money in exchange for a little slice of freedom. I’m just saying.

Freedom: Why I Choose to Stay Part Time

When I first graduated from dental school, I imagined myself working as many days as possible at multiple offices to lead a “successful” and rich lifestyle. The goals were like any other typical goals, pay down student debt, buy a huge house in Southern California, travel the world, buy nice things to fill the house, start a family and raise children, etc. I wasn’t quite as intentional back then with my lifestyle as I am now, as you can probably tell. But I was ready to enter the workforce and “getter done”. After so much schooling, I felt like I was behind everyone else and I needed some catching up to do.

So how did I end up here?

The first person who ever suggested I work part-time was my financial advisor. We had just met and we were delving into what our goals were for the future and what our ideal lifestyle model would be like. When I rushed headlong into my ideas of working 6 days a week at multiple offices, for the rest of my life until I retire at past 65, he stopped me then and there and asked me to consider an alternative. Burnout is a prevalent result in dentistry. Due to the high stresses of the job, a majority of dentists experience burnout at an earlier age than they would like, which causes them to either cut down significantly on the days they work or quit dentistry all-together. My financial advisor, who deals with mostly newly graduated dentists, have seen time and time again, young new grads quitting dentistry a few years out of school. Despite my whole-hearted belief that this could never happen to me, he highly recommended that I limit myself to only four or five days a week. Long-term, he says that that would be most conducive to the lifestyle that me and Mike were trying to live. Off course, with anything anyone says to me, I took it with a grain of salt, but was still slightly stubborn in my ways. I had barely started work at that time, and was really feeling professionally driven. To me, I have watched my parents before me, and my friends around me, work the usual 9-5, Monday to Friday every week, and I (arrogantly, pompously, and ignorantly) assumed that I was more capable than that. I felt like I could take on the whole world at that point in life. We all feel like superheroes when we are young and naive.

And maybe we could, but does it mean that we should? The second person who insisted I work part-time was my boss. A little back story on where I work and my relationship with my boss. I started working at an office five minutes from my house at the age of 19 years old. I was a volunteer at first, but the office manager (who happened to be the wife of the dentist who owned the practice), saw my drive and interest and decided to train me from scratch to be a dental assistant. She paid for my x-ray licensing exams, bought me scrubs, set up one-on-one training sessions with the dental assistants, etc., etc. She basically became my second mother and took me by the hand and showed me the ropes. She held a lot of belief in me and I grew confidence and independence under her wing. She saw my love for writing, and actually had me write the entire website for the office from scratch. Every single written word on that site was mine, and I became so proud of it. She was very trusting, patient, and just all-together generous with her time. Eventually, I started working as a dental assistant on the IV sedation team, which was being run by the owner of the practice. He, too, had the same generosity as his wife, and shared so much knowledge, tips, and advice. I knew I wanted to be a dentist since I was eight years old, but I did not come to love dentistry until I worked with them at this office. These two people became my second parents, and did as fantastic a job as my first (real) parents in raising me to find my self-worth, as well as instilling in me the core need to put others first when it comes to doing dental work. When I graduated dental school, I reached out to them and they made room for me in their two practices to start my journey. Again, they’ve trusted in my abilities, although I do not know what they ever see in me, but I hold a lot of respect and feel a lot of gratitude towards these two people. They are the type to hold the best interests of those around them to heart, and I trust them fully and hold their opinions quite highly.

So when I started working with my boss and he asked me how many days I hoped to work, again I said 6 days a week. He looked at me kind of funny, as if seeing his former, younger self with the same fire in my eyes, shook his head, and then said to me, “You don’t want to work six days a week. It’ll burn you out. You’ll feel too tired to think and then you will make mistakes, and then you will feel less and less confident. Plus it wouldn’t be giving your best standard of care to your patients. In fact, I don’t want you working six days a week.” I was kind of surprised, but at the same time, I recalled my financial advisor saying the same thing and I said, “Okay.”

Initially he gave me three days a week, and then he bumped it up to four days a week, and then five days every other week. But I think he saw that I was looking for more. When one of the doctors at one of the offices left to fulfill her own dental dreams, he had me cover for her until he hired a new doctor, which then had me working six days every other week, and five days every other week. I was so excited for the chance, I jumped at it and went to town. I worked so much, and though I loved my job and went to work every day with a smile on my face (and, more importantly, left work every day with a smile on my face), I started to see what he meant. Burn out is a real thing, and although you may not feel it, it IS reflected in one way or another. Perhaps it is in your work, or the way you treat others. I started to lose that time that I used to take with my patients, and I was practicing more of an in-and-out type dentistry. The Hi- Let’s get to work – Bye! It wasn’t just dentistry either. I started to bring that home with me, relishing the space that I needed for myself, and taking away from the time I should have given to Mike and my family and friends. It only lasted a month or two before we hired a new doctor that fit well with our practice. But I saw what I needed to see, which was this.

You cannot take care of other people if you do not take care of yourself first. My job is built around helping others, whether that’s helping them out of pain, helping them feel confident with their smile, helping them learn about hygiene techniques that will prevent future disease, or just helping them understand more about teeth. I entered dentistry for this aspect of it, and to detract from my ability to help others to a high level of standard is selfish and wrong, especially when the driving force is money. Luckily, I also found a shift in my “needs and wants” in life, and I realized that I don’t need the money as bad as I thought. Sure, I still have bills to pay and loans to be free from. But I also used to spend on things that were simply wasteful. I cut that out and found that I do have the time, and space, to give to myself, before I give unto others.

My brother once asked me why I did not work more if I was so concerned about paying off my student loans really quickly. Fair question, since that’s all I seemingly preach. My answer is this. The reason why I want to pay off student debt quickly is not so I can be rich quicker. It’s so I can be free. If working more days now is required to get rid of the debt quicker, then all I am doing is trading freedom now for freedom later. The result of that trade would be a worn down, energetically deprived me, who would get less out of life in my earlier years than if I were to continue at a more moderate pace. The truth is, I just don’t think the trade is worth it. If freedom is what you seek, then there is no need to get more freedom in exchange for freedom. I think it all comes down to the question, “What do you value?” To be able to answer that question requires a lot of deep soul searching that I am not completely sure is even complete yet. But so far, I’ve come to the conclusion that things I value include aspects of life that cannot be found in the workplace. I value space – for a reset, to be mindful, to be open and to think clearly. I value health, which is prolonged by the avoidance of stressors and physical ailments via static postures. Speaking of stasis, I value trying to avoid stasis in all aspects, by always learning something new. I find that if I was at work all the time, I would not have the space or time to learn new things, which would be a shame, since I also value creativity and self-expression. Lastly, I value taking care of people, and it’s easy to forget that we are people too.

In 2017, I worked an average of 3 days a week. It’s almost laughable, that a young, arguably driven dentist, would work less than half of the year. Even though I worked alternating 4 and 5 day weeks, and a few months of 5 and 6 day weeks, I took multiple long vacations, some as long as 2-3 weeks. I no longer seek to fill my time solely with work. I am more mindful about drawing boundaries and really saying no in order to have the space to increase my own self-worth. I aim to learn new things about the world, and where my place lies in it. The time off has given me a better understanding as to why I do things the way I do and how I could live life in a way that is better for the planet and for the people. More importantly, I am able to implement that change. It’s not just all talk, but I actually get to experiment with different lifestyles and really DO. I spend a majority of my weekends solely with family members and friends, because I have my own weekdays off where I can spend it on myself. I like that I don’t have to detract from other people’s time. Time is like any other resource we have. Like money, if you have an excess amount of time, you are more likely to be liberal in giving it away to others. If you have little time, then you will be more stingy with it, wanting to keep it for yourself. Now I know that time is a better thing to earn than money. Off course, I could go out there and find other offices to work at on my days off, but honestly, I have come to realize the value of working part time. What started as a recommendation by my financial planner and a command by my boss has become an autonomous choice to choose freedom above all else. I wouldn’t trade the peace and happiness that I’ve found for a house, or a new car. Would you?

Finance: Why We Chose Standard Repayment Over Loan Forgiveness

We started our loan repayment journey under the IBR program, as advised by so many professionals. But I always knew in my heart that this was not the best path for me. Apart from the fact that IBR resulted in more money paid towards my loans overall, there was the issue of it extending twenty five years into our distant future. I am one who values freedom above many other things. When I was young, I hated when people told me to do things that did not line up with my values. My most hated explanations were “Just because” or “Because I said so”. Talk about lack of motivation. I despised myself when I was forced to do something, because authoritative figures claimed to have the upper hand. I remember thinking to myself, when I get older, I will have control over my own life. Today, I have that same fire feeding a resolve in me to stay free, from things financial or otherwise. I want freedom to do certain types of work. I want freedom from a tight work schedule. I want autonomy in my decisions. I want the freedom to travel whenever I want to. I want to have free time. All of this also requires to be financially free. Having graduated dental school at 26 years old, the IBR program would mean that we would have this burden hanging over our heads until we were past 50 years old. Psychologically, the burden was too much to bear. It was the psychology of the thing that really pushed me towards frugality, financial independence, and hopefully in the near(er) future, freedom.

When I graduated dental school and I finally started working, Mike and I were facing numerous large payments related to moving in together, creating a home for ourselves, getting married, and going on a honeymoon. And while I would not take back any of the decisions we made, we weren’t exactly saving much at the time. The great part is, we weren’t going into debt either. Whereas some people may take out loans for things such as weddings and honeymoons and moving, we definitely stayed within our means and I am proud of that fact.

But once the dust settled and we found peace in our space and identified our roles in everyday life, we stopped having something to spend money on, and we started to see that we were not bad savers after all. In fact, we were saving at such a quick pace, that we would have saved up for a down payment for a house in two months’ time! We started to talk about buying a home for ourselves, when our financial planner asked us a simple question. Do you realize that at this rate, you can pay down your student debt the standard way in less than ten years?

At first, I was aghast. I had spent months trying to convince USC financial advisers, and Mike, and even my financial planner, that there had to be a way to do this. Mike deemed my conclusions as too optimistic, and slightly delusional. He always said, the numbers just don’t work. But in my head, they did work. The numbers don’t lie.

I then went on to bombard our CFP with a million questions. Excited, I could not wait to tell Mike when he got home that night. I remember being so stoked. Initially, he did not believe me. It wasn’t until our financial planner created a spreadsheet that demonstrated our capability to conquer the loan in 9 years, that Mike started to change his view. We were going to be free from these chains fifteen years earlier than we thought!

But with it comes a cost. We will have to give up buying a house, for now. We have to continue a fairly frugal lifestyle, and have concrete intentionality with our money. We have to be able to psychologically see a majority of our paycheck going towards paying down the loans every month. We have to give up the social status symbols that our friends will be collecting under their belts. In exchange, we will have fifteen additional years of freedom. What say you?

I say Hell Yeah! Mike and I are simple people anyway, as can be seen in the rate at which we were saving. We could rationalize not buying a house, not buying a new car, and not getting the latest gadgets. I could not rationalize being tied down by my career choice until I’m past fifty. We decided that yes, we will choose standard repayment over loan forgiveness!

One caveat. We are still enlisted under the IBR program. Why? Under the standard repayment plan, we have to make minimum payments of $6500/month to be able to pay the debt in 9 years. Under IBR, the payments are closer to $400/month. If one of us loses a job, $6500/month is impossible on only one of our incomes. Especially so if I was the one to lose a job. Switching a hundred percent to standard repayment will make us vulnerable to the whims of whatever life may throw at us. The failure of Mike’s start-up company, the selling of the practice I work at, if we decide to have children, disability for either one of us, these are all things that can greatly impact our finances and if we commit to a standard repayment, it can heavily mess with our ability to pay the loans. And trust me, you do not want to default on student loans. However, under IBR, we are able to pay more than the $400/month without penalty, so we stick with IBR in case of a future emergency, but continue to make the larger payments.

Unfortunately, this does not allow us to refinance our loans. Once the loans are refinanced, we become ineligible for IBR. So although the IBR interest rate is a whopping 6.7%, our financial planner convinced us that the IBR buffer for not-so-awesome life moments is well worth the extra interest rate. Once the loans get paid down to a more manageable sum, then we can refinance, since a smaller loan will be much more manageable.

So therein lies our decision tree, our little story.

Freedom: Re-thinking Early Retirement

For my generation and the coming generations, I would like to pose an alternative to the “wonderful” idea of early retirement. This alternative is not new, and it was not discovered by me, but it is embraced by many communities, including minimalists, money mustachians, and financial independents. Whenever I ask people my age where they see themselves in twenty, thirty or forty years, many of them respond with a goal of retiring early. That means that between ages 40 through 60, depending on their current financial situation, or their belief in their ability to get out of financial dependence on their job, or their optimism (you pick), they plan to quit their jobs and have a house already purchased, and plan to spend the rest of their days vacationing on a yacht they may have bought or raising their grandkids. This is what our parents did and our grandparents did, and it sounds like a lovely life, albeit too late to make the most of your prime years. But it isn’t for me, and maybe some of you are scratching your heads and wondering if there is another way.

There’s a theory, which I’d call my life mission or goal. Theoretically, this life mission may work out for me, and possibly for you. When I was first asked the question of where I want to see myself in 30-40 years, it was my financial planner asking. Being a financial meeting, my first answer was that I saw myself out of financial debt, and with financial stability. I also said I saw myself working (still) a few days a week, and pursuing all my hobbies and interests on the days I have off. I saw myself physically fit enough to enjoy life, and continuing to travel the world. I would like to have the time to see my family and friends frequently, and never feel dependent on someone else financially or physically. That sounds a lot like retirement, minus the working part, right?

So he clarified and said, “Do you see yourself retiring early?” I had an answer that flew off my tongue before I could even think. “I do not want to retire until I can no longer physically work.” I think that is a very good answer (and not because I was the one who came up with it). Time itself is not the decision-maker, and neither is age. It is our ability to continue pursuing a passion. Now, we all know that dentistry has a short life span for many, because of physical ailments that result from the profession, usually involving back aches and side aches and neck pain and carpel tunnel, and the list goes on. But notice that I did not say I saw myself practicing dentistry, but rather, I said I saw myself working. I believe that working into our 60’s and 70’s will keep us mentally active, physically fit, and spiritually alive, at a time in our lives when we need it most. But if we are financially stable, or hopefully more than stable by that age, then money will never dictate what we do. And once money does not dictate what you do, work can become whatever passion you want to pursue. I mean, ideally work should be your passion now. Who knows if I will still be passionate about dentistry in 30 years?! Quite possibly, I will be doing part-time dentistry for a very long time. I mean, working one day a week as a dentist is not a bad gig. But hey, I could dream big and think, maybe I will be working as a barista at that time. Or making clay pots to sell at a store. Who knows where life will lead me, or you.

But how is working into the wee years of your elderly life sustainable? Burn- out is something a lot of dentists experience. A few years out of dental school, and many of them already hate their jobs. And they’re going to do this for the rest of their career??! It’s sustainable if you never experience burn out (duh!). This can be accomplished in many ways. For example, you could work less hours than the grueling 5-day work week now. Or if you still very much love your job, invest in delving deeper into the practice. The more you pursue a passion, the less it feels like a weight that you are dragging around. Avoid doing something just to go through the motions. Really love your job in its entirety and it won’t bring you down. Most people experience burn out because their job is physically exhausting, without the mental, emotional, or spiritual reward. In other words, they no longer feel passionate towards what they do. When you do experience burn out, switch to doing the next thing you love. Motivation and inspiration are key to fueling your drive to continue working late into your life time.

You may be asking, “Okay, so when do we get to enjoy our lives?” My answer is simple. How about now? What if, instead of early retirement, you do partial retirement, starting now? You get to enjoy life for the entirety of your life, not just for the last little bit when you’re tired and want to sit on a rocking chair on the porch and stare out all day. Think of all the pros of starting to live now. You’re young enough to invest in your future physical fitness by working out now rather than sitting in a desk all day, which will prolong your healthy for more years down the road. You get to balance work and play. It can’t be all play like in the other model of retirement, but even playing all the time gets boring for me. I have to feel like there is some direction in my life, like I am getting somewhere. It’s the only way I feel alive. I think retirement could possibly turn me into a sack of flour (metaphorically) and bore me to death. So, you gain balance in your life. You get to travel the world, while you can still hike, or at least walk five miles in the city center. You get to spend real quality time with your family, instead of squeezing in time in the morning, before work, and at night, when you’ve exhausted all your energy into your passion. So many parents miss out on their child’s life, because they have to work in order to provide for that child. Maybe we need to start re-thinking of the word provide. Provide food and shelter, sure, but after that what? Time and love. Seriously. Now some of you may give me the money argument. The “you’re-so-lucky-you’re-a-dentist-and-you-make-bank” argument. I started my dental career later than my peers because of the additional schooling with a debt of over half a million dollars, equivalent to a mortgage loan that many of my friends have already spent four years paying off. If anything, right now, I am at the same place as you, or worse, in terms of net worth. But it’s the way you think about money that will really save you. At the end of the day, money is just money, and things are just things, right? Another blog post to come on re-thinking how we view money. Maybe we should start re-thinking everything.

Now I know we are all different, and yes, some may continue to dream about the glorious days of relaxing for years on end. But I tried that already, when I had the gap after dental school waiting for my license. And it drove me nearly insane. Even travelling for three weeks in a gorgeous country with a lot of planned activities every day made me long for something more. I don’t think I can do the early retirement thing. More importantly, I don’t want to miss out on my life. The present moment is the most valuable to me. And hey, I do all the things my working friends do. I am close with my co-workers, and hang out with them outside of work. I practice my skills and learn something new every day at work. I still have set hours that I clock in and clock out for. I work out before or after work. But I also do everything my retired aunts, uncles, and grandparents do. I travel frequently. I dedicate time to pursue additional hobbies. I can schedule coffee mornings and mid-day lunch dates with my family and friends. This weekend, I plan to sit on lake front property and enjoy fall weather on a boat surrounded by family, which is what you dream of too, except I’m not sacrificing my body to get to that point and I am going to do it now, thirty years before you. Then again, perhaps you’ll decide to do it too. Wouldn’t that be nice?

I must admit. There has to be a sense of simplicity to this lifestyle. You can’t go on imagining that you will become a multi-millionaire this way and swim in pools of cash. That kind of lifestyle probably will require you to work tirelessly during your prime years. But give me the simpler one, and I’ll be a happier person. It’s just an alternative, it’s not the way. There is no ideal way to live life. Just an ideal life for you.