Is it Still Worth it to Specialize?
“Academic qualifications are important and so is financial education. They’re both important and schools are forgetting one of them” – Robert Kiyosaki
Dr. Mike Meru, New Grad Orthodontist, has been a huge talk in the dental news all week. He is ‘famous’ for accruing over $1,000,000 in student loan debt – he was featured in the Wall Street Journal – you can read about it here. It is important to realize that Dr. Meru only had about $650,000 of student loan debt, but it ballooned to $1,000,000 after interest. Current surveys show that about 25% of orthodontists will graduate with GREATER than $600,000 of student loan debt.
It has caused us to revisit the question of, “How much student debt is too much?” I’ve said before, it is classic financial advise that you should not exceed student loan debt greater than your expected income. So if you expect to make $70,000 per year, then you should not take on greater than $70,000 of student loan debt. As dentists, most of us have already cast aside that guideline. It’s too late. But it’s not too late if we want to decide to take on additional years of schooling and additional debt, for the additional promise of greater income as a specialist.
I decided in dental school that I did not want to specialize in any clinical area of dentistry. I instead decided to ‘specialize’ in learning the business side of dentistry. I ran some basic numbers, with basic math, and the answers I got dissuaded me from the desire to specialize pretty quickly. So in this post, I am going to lay out some basic math which evaluates the worth, or lack thereof, in specializing in today’s financial landscape in dentistry.
Caveat: These numbers are based on averages, estimates, and hypothetical situations. Your individual situation may vary. Maybe you have scholarships or parents who paid for your school and the student debt phenomenon does not apply to you. Or maybe you are an outlier in some other way.
Let’s Compare George the General Dentist with Olga the Orthodontist
We will take some basic numbers from these resources:
Average Income of a general dentist: $153,900
Average Income of an orthodontist: $196,270
For our scenario, we will use those average numbers above as a baseline:
George the General Dentist owes $250,000 in student loan debt.
The average dentist salary is $154,000. Out of school let’s say you make $120,000.
So in 3 years of working, with a steady increase in income during those first 3 years let’s call it:
Year 1: $120,000
Year 2: $140,000
Year 3: 150,000
Total $410,000 for year years of working. Most Ortho programs are 3 years long.
After taxes, we are left with $273,333 income for the 3 years of working. So this money that you have lost via ‘opportunity cost‘ during the 3 years of specializing.
Olga the Orthodontist also owes $250,000 of student loan debt coming out of dental school. During her 3 year ortho specialty program, she will accumulate an additional 3 more years of interest before she starts paying it back.
According to the UPenn Website, which we will use for this example, their ortho program costs an additional $115,000 per year including living expenses. So now Olga the Orthodontist’s student loan debt is:
$115,000 x 3 = $345,000 (ortho debt) + $250,000 (dental debt) = $595,000 student loan total debt. This is just shy of the $600,000 student loan debt number we brought up earlier — so Olga is doing pretty good. Meanwhile, her loans have been accumulating interest the whole time so they probably end up being $700,000 or so in debt once Olga the Orthodontist is actually out.
Comparing George the General Dentist’s $250,000 student loan debt to Olga the Orthodontist’s $700,000 student loan debt already puts George $450,000 ahead of Olga.
To keep things simple, let’s just assume that Olga the Orthodontist is making the average $196,000 as an orthodontist from DAY 1. (Remember, we started George at a BELOW AVERAGE salary — maybe he wasn’t as good of a dentist as Olga?) Now let’s subtract the differences in the average salaries, to look at things on the long-term:
George’s career average salary: $156,000 – tax = $104,000
Olga’s career average salary: $196,000 – tax = $126,300
So, $126,300 – $104,000 = $22,300 EXTRA take home per year that Olga will make over George on average during their careers. Yay Olga!!
$20.3k higher salary as an ortho per year. Sounds good!
Let’s look at our opportunity cost during the last 3 years that Olga was in school and George was working. George the General Dentist made $277,333 during that time after taxes. He also has $450,000 less in student loan debt that Olga. This creates a difference of $727,333 advantage in which George the General Dentist has jumped ahead over Olga the Orthodontist.
Now if we divide this ‘Opportunity Cost’ number by the average amount greater Olga will make over George for their careers we get the following:
$727,333 / $22,300 = ~33 years.
Thirty Three Years.
Olga will take 33 years to catch up to George due to the opportunity cost and added debt of the ortho program. If Olga and George finished dental school at age 26, add 3 years for ortho program, then Olga will be 62 Years Old by the time she finally breaks even on her financial investment with George the General Dentist. This is not even including the much, much higher monthly student loan payment Olga will make each month compared to George. Lot’s of Olga’s take-home money she will never see — it will go to service the debt.
So if I could go back in time would I choose to apply to specialty programs?
Well, for George we assumed the general dentist is making in the low $100,000s from the beginning. George was probably an associate. In a case like mine, where I will be taking home probably around $300,000 per year from my start-up — the math swings even further. Instead of George’s salary number, I stand to take home ~$900,000 (pre-tax) in the next 3 years.
I will let you do the math on that one………
–DeAngelo S. Webster, DDS
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