Student Debt and the Laboratory
Maximize the payments to your advantage
Bruce Bryen, CPA, CVA
While the number of dental technology programs continues to decrease, the remaining programs still are graduating several hundred students each year. Those graduates are in demand. Many higher education students—regardless of how long they are in school—are left with significant debt upon graduation. Regardless, it is never too early to get some guidance on what to do with the liabilities that are owed to various lenders to get a degree. It may come from business courses the students take in school or from advisors to laboratory owners the students may have encountered during their apprenticeships. Laboratory owners who understand that the young graduate is an important resource for the growth of the business will look for the achieving student and help develop their career in laboratory technology management. This is also where the astute graduate can stand out from their classmates. They may be terrific technicians but lack the business sense to succeed financially, whereas the graduate who utilizes advisory services or other resources can develop business sense for success. This person will use everything at their disposal for profit. This is where the liabilities incurred to attain their degree can be an advantage to new, entrepreneurial graduates.
A long-term approach for the graduate may find them in the position to acquire the laboratory after improving their career with experience and resources. Specialty lenders are unique compared to other general commercial business lenders. They understand cash flow and loans that are not secured by real estate or other physical assets. These loans to the graduate and laboratory owner are secured by the good will and reputation of each. The graduate's future may lie with lenders who understand the business aspect of the dental laboratory as well as with CPAs and other financial advisors whose advice will greatly benefit the recent graduate. These resources should be approached with confidence, as they want the recent graduates to assist in their growth as well. The savvy graduate and lender will recognize that a continuing relationship serves each as both careers flourish.
Lenders who understand the future potential of graduates are more than happy to provide referrals for advisory services that offer a maximum return on investment. Many of the specialty lenders also provide consolidation loans that may become deductible for the graduate. These loan providers will definitely give the new technician access to future resources for lower monthly payments and longer terms.
Success with Lenders
Many times a recent graduate will go to a commercial bank for assistance with student debt as they begin a job in an established laboratory. It may be a parent or some other relative or friend who refers the graduate to that specific bank. The problem with a great deal of the financial institutions regarding lending is that they do not recognize the income potential of the graduate and the laboratory working together, and look merely at the credit history, existing debt, or income of the applicant for the loan or debt consolidation. Speaking with someone who specializes in financing laboratories will save an enormous amount of time and aggravation for the graduate. There are quite a few commercial banks that offer packages to laboratories as a special service. They are easy to find and on occasion will visit a school to speak to upcoming graduates about utilizing their services. The soon-to-be graduate should speak with these people, as the bank could be a foundation for the student financing their own laboratory in the future, beyond the assistance that is currently needed with their existing debt.
Success with Advisors
Those who feel they can take care of business on their own may be making a big mistake. Sometimes it is the lack of funds that causes the recent graduate to resist retaining an advisor. There are other reasons that may exist for the lack of the use of an advisor. This is a problem for the laboratory technician as they continue growing their career. It is an especially poor choice when no advisor is available as income increases. Errors made in this cycle of development can end up costing the technician thousands of dollars.
Finding a CPA is as much a benefit for the laboratory owner with an existing business as it is for the recent graduate, particularly if the CPA is experienced with dental laboratories rather than just general business knowledge. Assisting with tax return preparation may be the first step for the graduate. They are probably going to work in an existing laboratory and will need help with business expense lists and record-keeping requirements. The preparation and review of the employment agreement with the laboratory in which the employment will begin is also a must; the CPA surely has a great deal of experience with that. The introduction to lenders who are acquainted with the CPA will help in the understanding of loan options. Hiring the best advisors will also assist the potential merging of current debt with a line of credit for the graduate to ease the decision making processes. This step also forges a relationship with lenders who will be there for the long term, including for part-interests and laboratories acquisitions.
Student Debt Guidance
Good things are bound to happen to those with the vision to employ a CPA or financial advisor at an early career stage. One of the first things the advisor will do is to assess the debt that the recent graduate has and to offer suggestions about what to do with it. Should it be combined with another loan from the specialty lender and packaged as a business loan to reduce the monthly payments? Should it be renegotiated with the current lender in order to capture a lower interest rate and a shorter term once the technician can afford it? Will the current lender offer a discount if the graduate pays off the loan? The advisor can assist the recent graduate in finding a lending source that will advance new funds. That will allow a substantial reduction in the amount owed to the current lender in exchange for a lump sum payment. Would the early-payoff discount have any affect on taxation? Does the graduate know that a 25% reduction is a real possibility—if the advisor is knowledgeable and has the banking contacts?
Other Financial Guidance
The right financial advisor could help the newly minted graduate secure an advance payment, such as a signing bonus used to reduce the student debt. If the hirer is able, they may agree to such an advance in exchange for the new employee accepting a lower salary. Sometimes reducing this debt is worthwhile to the technician just to decrease the financial burden of larger loan payments. Tradeoffs in the employment agreement terms and negotiating non-compete and non-solicitation agreements may be to everyone's advantage by allowing the advance payment to the new hire.
A financial advisor can help both the owner and the new hire in finalizing a employment agreement. The tax ramifications and the potential to gain equity in the laboratory are also opportunities that can be facilitated by the advisor. Another way that debt could be used as an asset is with the use of a direct debt payment by the laboratory as part of the employment agreement; such payment can be used to build equity in the business. The concept would be based on a formulated concurrence between the graduate and the owner, with production and other job-related achievements being the focal points.
Both the new graduate/laboratory technician and their hiring laboratory could benefit from retaining a CPA or financial advisor who is experienced with laboratories—and knows how even things like student loan debt could be used to both the graduate's and their employer's advantage.
About the Author
Bruce Bryen, CPA, CVA, is the principal in the firm of RKG Tax and Business Services, LLC, in Fort Washington, Pennsylvania.