[Editor's Note: The following post was submitted by a veterinarian who blogs anonymously at Richer Life DVM. We have no financial relationship. Pediatricians think I pick on them a lot, but the truth is that when I am asked to pick out a profession with a terrible return on the investment of their education, veterinarians and attorneys top my list (vets due to the high debt to income ratio and lawyers due to the difficulty graduates face to get any job at all, much less a high paying one.) In this well-written piece, we explore the financial issues veterinarians and their trainees face. Lest you think this does not apply to you, realize that this may very well be analogous to the situation facing MD/DO/DDS/DMD students a decade from now.]
I would like to shine a light on a group of passionate, dedicated individuals: veterinarians. On the surface, this seems like the perfect career choice for someone who is interested in animals and animal health. Getting paid to wear the white coat AND the opportunity to work with all creatures great and small? I was a late bloomer and did not decide to pursue veterinary medicine until I was in college, but once I made that connection, the decision was a no-brainer.
Veterinarian Health and Wellbeing
However, according to the 2018 Merck Animal Health Veterinary Wellbeing Study, it is clear that veterinarians don’t have such a rosy view of their own profession. Only 41% of them would recommend this profession to their friends or family. This number drops to 24% for veterinarians aged 34 and younger. For comparison, 51% of physicians would recommend going into medicine. Those without student debt (unsurprisingly) seemed to have a more positive outlook on life than their debt-laden counterparts.
Why so glum, you ask? These are the same people that professed their love for animals and followed their passion. They have the great privilege of helping those who have no voice. Plus, they get to play with puppies and kittens all day, right?
Not so fast.
Rising Debt-to-Income Ratio
When it comes to wellbeing, it’s not unexpected to see that economic issues can play a significant role. When looking at the numbers, it is clear that the numbers are not in favor of the veterinary profession. According to a 2013 article in the New England Journal of Medicine, veterinarians have the highest debt-to-income (DIR) ratio amongst all health professionals at 1.6:1.
The most recent DIR based on the AVMA Senior Survey for the class of 2017 is now 1.86:1. The following data has been taken from the annual AVMA & AAVMC Report on the Market for Veterinary Education.
This latest DIR takes into account the increasing number of students that graduated with no debt, Taking a closer look at the numbers behind the ratio, the mean debt for graduating veterinary students was $138,000, including those that graduated with no debt. When you exclude these students, the mean debt is just under $170,000. Meanwhile, the mean income for new veterinarians across the board is $76,130.
As a college student, I had a vague idea that pursuing this degree would be expensive, but I just assumed that my future income would be enough to cover the debt. I was financially independent of my parents after graduating from college, and I happened to be the first in my family to attend professional school. Being essentially clueless about finances and the ins and outs of student loans, I proceeded to do what many students do: I borrowed as much I could because wages from part-time work and summer jobs certainly weren’t enough to cover the costs. I graduated in 2003 with a DIR of 2:1, saddled with debt that was scheduled to be paid off in 30 years.
To see that many new graduates are dealing with much higher debt burdens 15 years later is disconcerting, to say the least.
Why is the DIR So High for Vets?
The DIR seems like a simple concept as it only takes into account two numbers and how they relate to one another. But actually analyzing the WHY behind these numbers takes a bit more effort. The number behind the debt side of the ratio can be explained mostly by the cost of education, and as we all know, tuition and fees have been rising for all postsecondary education at a rate that far outpaces inflation. Then there is the income number, which is determined by the value that society places on the services provided by the veterinarian. It would be easy to look at the macroeconomic forces that impact these numbers and conclude that the situation is hopeless.
So what would be the consequences of a static or increasing DIR? You will have a profession that will have an applicant pool that skews towards those from a higher socioeconomic background, as they will be the only ones that can afford the cost of education. This will translate to a less diverse veterinary workforce, which would be a huge disservice to the profession as a whole. Although the majority of veterinarians in the workforce are private practitioners, there are also vets that work in the public and corporate sectors, which includes academia, government jobs, uniformed services, and industry. As it stands, veterinarians are already quite homogeneous when it comes to race and gender. Whites make up 97% of the veterinary workforce, and 80% of veterinary students are female. As a society, we benefit if those in this profession come from different backgrounds in order to accommodate the incredibly diverse work that veterinarians provide to our communities.
At the individual level, a high DIR simply means that you have less discretionary income. This may affect your ability to get approved for loans, such as a car loan or a mortgage. It can potentially negatively affect your credit score. Some people may delay major milestones such as marriage or children due to debt. It is not a stretch to say that this can all have a negative impact on wellbeing.
What's Being Done to Solve the Problem?
The upward trend of the DIR has not been lost upon the veterinary community. As a result, the AVMA (American Veterinary Medical Association) and the AAVMC (Association of American Veterinary Medical Colleges) co-sponsored the Fix the Debt Summit in 2016 to address these very issues. The goal is to reduce the current DIR to a more manageable 1.4:1. Here is a list of strategies that were discussed during the summit:
Reducing debt
- Increasing scholarship endowments
- Enhancing student financial literacy
- Streamlining the veterinary school curriculum
- Advocating to governments
- Minimizing the cost of borrowing
Increasing income
- Building professional skills and competencies
- Improving workplace on-boarding
- Focusing on preventive medicine
- Increasing practice ownership literacy
- Expanding career option awareness
As seen in this list, there will be an inordinate amount of collaboration and effort in order to reach the goal of lowering DIR. Most of these strategies, if implemented, will take months to years in order to take effect. They mostly aim to solve this issue at a macro level.
What appeals to me are the strategies that would make the most immediate impact at the individual level, which would include enhancing student financial literacy and practice ownership literacy. Had I understood the mechanics behind student loans and had basic financial literacy while I was in school, I have no doubt that my borrowing would have been reduced and the overall handling of my personal finances would have been greatly improved.
Debt Reduction Strategies
Advice for the Aspiring Veterinary Student
Most veterinary school applicants have been committed to their decision to become a veterinarian since childhood, no matter what. If that's the case, then the earlier you are aware of the true cost of becoming a veterinarian, the better.
- Research the cost of attending school.
- Understand how the student loan process works and estimate the amount of debt that will be incurred.
- Apply to your state school or any school that has a contract with your state. This alone will make a huge difference in DIR.
- If planning to attend as an out of state resident, run the numbers again and make sure that this is a choice you’re willing to make. You should also look into whether you can establish residency while in school.
Advice for the Current Veterinary Student
These students are in it for the long haul, so they have to be strategic about how they handle their finances.
- Look at your financial aid package and make sure you understand everything. You need to know the types of loans, the amounts, the interest, and when you’re expected to start paying it back. Be aware that you will likely accrue interest while in school if you have unsubsidized federal loans.
- Learn how to budget and keep track of your spending. Hopefully, you’re living frugally.
- Borrow the least amount possible rather than maxing out your loans and using the excess for other purposes. If you find that you borrowed more than you need, you have up to 120 days to return that excess.
- Always be on the lookout for scholarships and grants.
- Get a paid job while in school to help defray costs.
- If interested in owning your own practice one day, make sure you take practice management courses and join the VBMA (Veterinary Business Management Association). Owning a practice has consistently been a pathway to increased income.
The VIN Foundation (Veterinary Information Network) has a website that includes a Cost of Education map, as well as other resources that aim to inform and educate prospective veterinary students, current veterinary students, and veterinarians about student debt and loan repayment. Their Student Loan Repayment Simulator has actually been reviewed as a top resource for financial advisors that need help when it comes to assisting their clients with student loan repayment options.
All of the above strategies rely on one thing: EDUCATION! The veterinary curriculum is packed full with all topics related to veterinary medicine, but I think that financial education is crucial as well, especially for a profession that is facing enormous debt as a whole.
The AVMA and AAVMC websites have now included helpful content and resources that aim to increase financial literacy for pre-vets and veterinary students. However, the work is just beginning. It is up to each veterinary program to ensure that they do their part to prepare their students for financial success in the future.
CONCLUSION
There are so many committed veterinarians out there that are doing the best they can under these circumstances. Despite these difficulties, they still find joy in what they do. They build wonderful relationships with their patients, clients, and the rest of their team. They save lives and provide humane euthanasia to alleviate suffering. They ensure the safety of our food supply, act as ambassadors for animal welfare, engage in important research and scientific discovery that benefit both animal and human health, and work as educators for the public and the next generation of veterinarians.
However, there is further work to be done. The financial stresses of being a veterinarian do not have an easy fix, but one way to exert a level of control is to improve basic financial education. Exploring options to cover the cost of a veterinary education, learning about the loan process, researching different repayment options, and optimizing business practices for practitioners are examples of how increasing financial literacy can be beneficial for the profession. I firmly believe that this knowledge is essential to improving the wellbeing of all current and aspiring veterinarians.
What do you think? What else could be done to ease the debt burden for veterinarians? Do you think the Fix the Debt Summit has done enough to make a dent in the problem? Sound off below!
What an eye opening post.
I would have never guessed that Vets top the list in regards to debt to income ratio (this is one thing you do not want to be tops in).
Love the chart provided from the NEJM. More unexpected professions with a high DIR like optometry. I always thought medical docs would be near the top of this list but looks like it’s not as bad as it could be.
It is interesting to see the downwards DIR trend in those who major in business while every other profession has shown an uptick. Wonder what the cause is for that anomaly.
I have subscribed and a reader of DVM’s blog and she has written some excellent posts as well. Great job on this guest post
That chart is from 2013, and I’m sure it has changed quite a bit since then. I’m thinking that study needs an update to highlight how much worse it has gotten over a relatively short period of time.
And thanks for your kind words….you’ve always been such an encouraging voice during this blogging journey!
Great post! Unfortunately, even the mean debt figure of $170k (when the students that graduate without debt are excluded – I’ve never met one!) seems on the low end. Over the last 5 years, I have not talked to a vet student that doesn’t have at least $200k in student loans. More and more they seem to be graduating with closer to $300k and if looking at the Caribbean schools, approaching $400k.
As mentioned the VIN foundation has great resources, and the Cost of Education page is great for prospective vet students. I’d also add that looking into the Public Service Loan Forgiveness is worth it and if you are in the internship and residency wagons, don’t defer/forbearance you loans., and plan to make those small payments, you never know what comes next and you might end up in academia/other eligible job.
I know- I didn’t even go into the numbers factoring in the Caribbean schools because I have yet to see firm data that includes them in the overall debt number. From that same market report, the ones that did report debt were averaging near $250,000. I’m sure once you factor them in, the mean debt across the board would be much higher. PSLF is definitely an option that makes more sense if you go on to do further training.
I didn’t even know Caribbean vet school was a thing. It’s an issue for physicians because their residency match rates tend to be much lower, so you are far more likely to rack up a big debt and then not even have a real doctor job. I guess vets avoid that problem though don’t they?
Oh yes, Caribbean vet school is definitely a thing. About 20% of US veterinary students actually study outside the US. a good portion of them ending up in the Caribbean veterinary school programs. I honestly don’t know what their attrition rate is, although I’m pretty sure it’s high compared to US schools. The job market for vets is pretty strong right now, and I don’t recall that they have a tougher time finding jobs compared to US grads.
This 2013 article from the NY Times opened my eyes about Caribbean vet school debt.
https://www.nytimes.com/2013/02/24/business/high-debt-and-falling-demand-trap-new-veterinarians.html
It was the first time I realized that physicians aren’t the only people who go into crazy debt for their career choices.
Funny you mention this article- I had been working on a post about my thoughts on student loans and had included this article. Just published my post today…these comments got me fired up about a topic that I’ve been thinking about since college!
While I recognize it is likely the toughest problem to deal with, the best solution is to stop schools from continually hiking tuition and costs of attendance. This seems to be a problem over the entire graduate school (and undergraduate) experience. Only when qualified applicants stop applying will this problem likely be fixed.
Until then, personal finance and practice management curricular activities are the best bet to help in the immediate future – just like in medicine.
Thanks for this really insightful post!
TPP
Yes, this is definitely an issue for all of higher education. As long as the money is easy to borrow, people are going to take it now and worry about the consequences later. Thanks for commenting!
As a DVM myself, I see the problem up close. The advice that I give students: “Marry a dentist.”
Also, some graduate DVMs go on to get a MD. Very few MDs go on to get a DVM. I do not regret my choice, but the profession does have its unique problems.
Funny you should mention that, Financial Wellness DVM is married to an MD (surgeon I believe)
I know a dentist who graduated with nearly $600k in student loans! I guess the answer would be to marry a dentist who has no student debt and owns their own practice.
And yes, my husband is a surgeon, and I am incredibly proud of the work that he does for his profession. His career has had a deep impact on my own life in ways that I never expected, and it has certainly given me a unique perspective about money and life that I would have never had otherwise. WCI has been an inspiration for my own blog; without having a physician spouse, I doubt my blog would even exist.
Well written post Financial Wellness DVM. I have noticed that many vets seem to be quite entrepreneurial. Owning a hospital with boarding, grooming, daycare etc. I wonder if the increasing loan burden leads more vets to want to be employees rather than owners. (This has happened in medicine.) I have personally noticed lots of inflation in vet prices over the years which I think is likely correlated to the increased loan burden. Keep up the good work. I know how important the work is. I also agree that academic institutions really need to lower the tuition costs. This is the real solution. I wonder what would happen if some limits were placed on the amounts of money being loaned out for graduate education. I think tuition would follow.
Those that own their own practices are doing what they can, but there is definitely a lot of corporatization going on in the field. I think that price inflation is more a result of better medical practice (having more up to date diagnostics and treatments) and vets actually charging appropriately for their services. Vets are notorious for undercharging, but it’s becoming more acceptable to actually charge enough to cover your overhead AND compensate your employees appropriately. Because there is no real standardization with pricing, I can see how the public can feel like some vets are overcharging. From my own experience, going over the bill is pretty much the last thing any vet wants to do with their client, but it’s just the reality of running a business, just like any other business out there.
I also agree regarding student loans and tuition….this is a huge problem that will need to be addressed across all of higher education.
This is a decent look at the cost of veterinary school and a few ways to reduce debt burden (slightly) by graduation. However, it hardly addresses why income is so low and what, if anything, can be done to increase veterinarians’ income substantially.
The first issue is the extent to which large corporate chains have taken over private practice veterinary medicine. Banfield, VCA, and a few others have what may be monopsony power in hiring new vets and setting (low) wages for private practice vets. They also have massive economies of scale and far more favorable pricing from drug manufacturers and other suppliers. You have to have a really different value proposition and corporate culture to try to go toe to toe with these big guys as a private practice owner.
Wages on the federal government side aren’t much better. Working for the USDA is PSLF eligible, but there are easier ways to get a GS-12 or GS-13 job more quickly and with far less debt. Plus the hours and working conditions with Food Safety Inspection Service are far from ideal. Perhaps a better alternative in federal service is to become a commissioned officer in the Army’s veterinary corps. Again you have PSLF eligibility, good but not great pay, and a pretty solid pension. You and your family will move frequently, so while you’ll get to see the world, you are less likely to build up home equity and it will harm your spouse’s career progression. Also, unlike medicine and dentistry there are no HPSP scholarships to pay for vet school and no large specialty pays or retention bonuses. The manpower guys might make a lot of mistakes, but they seem to realize how bad pay prospects are for veterinarians outside of uniformed service.
If you think this is only a problem for vets, I would argue that it’s analogous to what’s happening with pharmacy and optometry and a possible glimpse into the future ten or twenty years down the road for dentistry. Already pharmacists graduate with a high debt burden then choose between working for CVS or Wal-mart for relatively low wages. Optometrists get to apply to LensCrafters and Wal-mart. Given the growth in corporate dentistry, it isn’t hard to see a future where an ever increasing percentage of new grads work for Heartland or Western Dental instead of opening their own practice within five or at least ten years of graduation.
Learned a new word today – monopsony: a market situation in which there is only one buyer. Monopoly: the exclusive possession or control of the supply or trade in a commodity or service. So I guess when there is only one seller.
As an armchair student of politics and health care I learned this word monopsony a while ago (monopoly I probably learned playing the game). A large factor in doctors’ financial dilemma is that insurance companies have a monopsony (or that other word oligopsony meaning FEW or limited buyers) of our work- the insurance company(ies) rather than the patients. Yet we doctors are forbidden by law (RICO statutes against mafia type organizations) from the natural solution- a monopoly or at least a union so we can bargain for our payments on a level playing field with BC/BS and others. Oligopolies of doctors’ group or hospital practices are somehow not in violation and a good solution except that they are not always run by or profitable for the doctors.
As a progressive Dem in favor of GOVT single payer I recognize that is the ultimate monopsony, but the benefit I see to society outweighs my personal income concerns. Besides I worked/work in socialized medicine for years- 3 for the British NHS and 11 so far for the US Army plus 5 more for the VA or an FQHA and have always been satisfied with my income. (HPSP and under$50 K in student loans factoring into that of course.)
The majority of veterinarians work in private practice; as a result their income relies heavily on their client’s discretionary income. These practitioners will be paid according to how much people value their services. Without insurance and a behemoth healthcare industry acting as an intermediary to compensation, you see a much more direct line between what society thinks veterinarians are worth and their actual compensation. Corporatization is definitely playing a role as well. And I agree that this is happening with many of the other healthcare professions.
Really insightful article!
While its true that most veterinarians work in private practice (~85% JAVMA March 01, 2017) there is no doubt that consolidation of veterinary practices is accelerating. This may be partly fueled by an older generation of veterinarians looking to sell out to fund retirement. What affect this will have on future incomes is not clear; however, I would argue that it likely does not bode well.
More concerning is the increased number of veterinarians graduating. In 2003 there were 2,500 newly minted graduates. By 2014 that number almost doubled (~4,000). In 2017 year it was closer to 4,500. With new schools planned in Texas, Arizona, New York (yep 2 school each), South Dakota and other school increasing – even doubling – their size (Texas A&M) that number is going to dramatically increase. This will likely keep salaries low – and perhaps even drive them downward – as supply will far exceed demand.
I believe these two factors are the greatest threat to the future of veterinary medicine. If you have not had a chance, the AVMA publishes an annual economic report. Its not light reading but it does have interesting statistics. (https://www.avma.org/PracticeManagement/BusinessIssues/Pages/AVMA-Economic-Report-Subscription.aspx).
I agree….both of these factors are changing the field quite rapidly. And I am also amazed that they continue opening up new veterinary schools- even if there is higher demand for vets, I hardly believe that it would require such a massive influx of new vets into the market. From what I recall, the last recession was not so kind to the veterinary profession.
Just to correct something. There are HPSP scholarships for Veterinary Corps Officers. The vast majority of ascessions in the last decade have been HPSP. When I was first looking into the Army in school, there were only about 4 scholarships available. Now almost everyone is on HPSP. While the pay is not great as compared to our human medical counterparts, it was the highest paying job available as a new graduate in 2002.
They also rolled out loan repayment in 2007, and I am now completely debt free. Loan repayment is available to both active duty and reservists.
Thanks for the correction. I didn’t know that.
Fascinating stuff.
I always assumed veterinarians did as well or better than human doctors. It is specialty knowledge. The supply is restricted since there is only about one school per state. When one of our animals is having trouble, my wife would pay just about anything to get them healthy again.
You have to be experienced and super-smart to get in so I’m not sure I understand why compensation isn’t higher?
Also, I see FP and lawyers are in the same area of the graph in 2010. I bet the debt loads are worse now. But I’m betting the lawyer graph looks even worse because the legal job market may have gotten more competitive in the last 8 years. I’m not sure, just a guess.
I wonder how NP/PA training would look on a graph like that.
I think it’s simply an issue that the prices are known and there aren’t nearly as many third party payors. With price transparency and no insurance, medicine would likely be in a similar situation.
While you might be willing to pay “anything” to get your pet healthy, I assure you that a $50K per year family facing a potential $10K vet bill probably won’t feel the same way.
This is another case study on education pricing ridiculousness. Are the vet school profs making tons of money? I doubt it–so where is the education money going?
NPR Hidden brain did a podcast on bullsh!t jobs. One of the areas they looked at was university’s. What exactly does a vice provost do? and why do they need 5 staff members? I think there is a lot of waste in our educational systems
The vice provost helps the provost. The provost is the chief academic officer of the University and has responsibility for the University’s academic and budgetary affairs. The Provost collaborates with the President in setting overall academic priorities for the University and allocates funds to carry these priorities forward.
Whether that’s an important position or not I have no idea. But I agree that, like health care, there is a lot of waste in education.
Recently I read where a Uni (WI maybe?) was recruiting for a new President with a high 6 figure salary eg $600K. Four of their professors offered to share the job for only $150K each. Personally I think University administrators such as the President also have the job of fundraising which is a job I would hate.
Where is tuition going? Administrators and new buildings on campus. Deans and assistant deans of climate and diversity. Rock climbing walls and one person dorm rooms with gorgeous views that you’ll remember fondly while living with roommates for 20 years in a crappy part of town trying to pay off the student loan debt on your BA in “critical studies”.
Unfortunately professional programs aren’t immune to the same tuition and administrative bloat that plagues undergraduate education.
Great post! And thank you for including the VIN Foundation Cost of Education Map and Student Debt Center. Having worked with thousands of vet students and veterinarians to help them understand graduate school loans and their repayment options, I would only add (echo really) that we need to specifically include income-driven repayment in the financial literacy discussion. Unfortunately, too much of the current “financial literacy education” in veterinary school doesn’t address the complex loan repayment landscape we face today — and basic financial education just doesn’t cut it when it comes to assessing these options. Many of the struggles you mentioned around mental well-being, having less discretionary income, negative credit, and postponing major life milestones can largely be avoided using the income-driven repayment plans (IBR, PAYE, REPAYE).
Having a combined veterinary family education debt greater than $400,000, I can tell you that IBR and REPAYE have been financial lifelines for my family. Our combined student debt has not prevented us from pursuing any of our career or personal goals. On the contrary, paying student loans based on our incomes has helped us to greatly reduce the stress associated with student loans and build a robust financial plan that has us with a home, maxing out our retirement contributions, having an emergency fund, planning for a family, and saving for the anticipated tax due on student loan forgiveness.
Of course anyone considering veterinary school or current veterinary students should do as much as possible to minimize their borrowing costs doing all of the things mentioned in this post, but it is quite likely based on the data published for veterinarians that if you are a recent or future veteirnary graduate and use student loans to fund your education, income-driven repayment will benefit you financially.
If you need help wading through the details, the VIN Foundation Student Debt Center has many new tools that can project your borrowing costs if you’re a student, understand which plans you qualify for if you upload your NSLDS file, and help you simulate your repayment costs no matter your circumstances and aspirations. As mentioned by the original author, EDUCATION is key — and for veterinarians, that education can translate into hundreds of thousands of dollars of studnet loan repayment savings just from knowing your options. Thanks again for posting and for anyone who needs help evaluating their student loans and repayment options, VIN Foundation is here to help!
With those sorts of DIR, all of a sudden IBR and REPAYE forgiveness starts looking like a reasonable choice. The big issue, of course, is the tax bomb, which could be larger than the original debt. There is no IDR to give you lower payments on the tax bill for that forgiveness.
Working with Tony Bartels, developing the VIN Foundation Student Debt Center and helping counsel hundreds of students and new graduates, one thing I’ve learned is that Income Driven Repayment is a life saver for those with DIR>2 (or even much > 1.0)
I have seen the relief and release of fear on hundreds of faces when the Student Debt Repayment Simulator in the Student Debt Center illustrates that the monthly loan payments and saving for the tax on forgiveness are well within their budgets, while still allowing them to live a reasonable life style and doing all the things you so well delineate to ensure their future financial well-being.
We have seen extreme situations when the DIR is approaching 5 or 6 or more and things do tend to become difficult to manage, but for the vast majority of today’s veterinary school graduates, utilizing the tools in the VIN Foundation Student Debt Center will help them develop a sense of “this is doable” and relief of the stress that comes from either ignoring the situation or approaching it without an informed plan that includes the following and more: borrowing as little as possible, entering repayment as early and efficiently as possible, choosing the right repayment plan, re-certifying income on time, starting saving for the tax that will be due as soon as you start repayment, NEVER deferring, re-evaluating your plan at least annually and whenever a big change occurs in your life, etc.
Thanks for the great work you are doing.
My worry with long term IBR/PAYE/REPAYE with an astronomical DIR (5-6X) is that at the end they are left with a huge tax bill, for which they are no IDR or forgiveness programs.
No doubt the “tax bomb” is the primary concern for almost anyone who uses income-driven repayment and watches their loan balance increase over time. However, as you can see in the Student Loan Repayment Simulator, the tax on forgiven amounts is also what greatly reduces your total repayment costs. While you may often have more forgiven than you started with, you’re responsible for paying the taxable fraction of what remains. So what might your tax rate be 20-25 years from now?
No one can say for sure, but unless something radically changes from how we tax folks now (and over the last 30-40 years), it’s likely that the average tax rate on forgiven amounts will be somewhere between 20-40% (depending on the amount forgiven, your income, tax filing status, and where you live). Regardless, that means you’re paying 20-40 cents on the dollar for what remains on your student debt balance after making the required payments based on your income. With 20-25 years to save for that estimated tax, you can not only have enough on hand to cover the “tax bomb,” but investing wisely over that period will actually reduce your loan repayment costs further.
In the worst possible case scenario where you don’t have the assets on hand to cover the “tax bomb,” there are insolvency provisions in the tax code that would reduce the tax due to an amount equal to your assets. If you were to be insolvent (liabilities exceed your assets), you would not have any tax due on the forgiven amount. However, the goal is not to be insolvent 20-25 years post-graduation. The take-home here is there are various options available and if you are willing to educate yourself on the options and plan accordingly, you can really help yourself financially, even at very high student debt-to-income ratios.
The “tax bomb” is really quite manageable – if we plan appropriately. For example let’s say we have a new graduate: $200,000 in loans and average interest 6.2% and our graduate also accepted a job making $70,000.
If our new graduate is in REPAY, monthly payment would initially be $432 and increase to $1,614 as income increased over time (5% per year). So over the life of the loan our new graduate will pay ~ $272,800 and at the end of 25 years will be forgiven for ~$200,000 .Using today’s federal tax brackets our graduate will owe one lump payment of ~ $70,000 in federal taxes. How will she/he come up with the $70,000. Simple really. If you save just $102 month and earn a reasonable 6% return you can easily cover the “tax bomb.” Want to be extra certain that the money is in hand at year 25 – save $120 a month.
So what starts out looking like a monster – is really a manageable problem – so long as we start saving right away!
Change the debt to $350K and I bet it looks a lot worse! You’re at less than 3X with a 200/70 ratio.
True enough – but I was trying to show what the reality is the the average student. According to AVMA data the average educational debt for a 2016 veterinary school graduate is $143,757.82 ($167,534.89 if we exclude those with little or no debt). Fewer than 20% have $200,000 or more in debt; however there is no doubt that unless something is done soon, these numbers will increase.
Like in medicine, the average isn’t great, but the real problem is for those with above average debt and below average earnings. Those are the folks in trouble.
>>>Change the debt to $350K and I bet it looks a lot worse! <<<
Certainly, but still better than you'd expect. This is actually a quite common scenario that I see. And you can run this through the VIN Foundation Student Loan Repayment Simulator — Let's take a 2018 DVM from Ross with $350k of student loans at 6.32%. Maybe they take a job with one of the big consolidators making $85k per year in an urban/suburban area. We'll increase that salary by 2.5% per year to roughly track inflation and price increases. Using REPAYE, that person would still pay 10% of their discretionary income, the government will cover 50% of the unpaid interest accruing each month, and they can save enough to cover the tax if they save $256/mo in account(s) that yield an average of 6% over the next 25 years. That's a toal monthly student loan burden (payment plus forgiveness savings) of about $814/mo in the first year vs. nearly $4,000/mo under a standard 10-year plan. Interestingly, this graduate would pay less than what she borrowed in this simulation. So it is more than doable — even at that level of debt.
However, your point is well taken. These higher magnitude DIRs are not sustainable. The income-driven repayment plans provide significant relief — to a point. When you start to get into starting balances in vet med that exceed $350k per graduate (and they are increasing), it becomes much more difficult to save enough for the estimated forgiveness. If those folks don't have some spousal support, then they will need to consider a Public Service Loan Forgivness pathway, or investigate areas of veterinary medicine where they can earn more, like emergency med, specialty practice, or practice ownership. Otherwise we'll be looking to Congress to come up with some new plans that can better address these higher magnitude debt cases, but I'm certainly not holding my breath for that 🙂
Again, great discussion — thank you all for keeping it going!
Pocket DVM “The Tax Bomb is really quite manageable”
You will not be out of educational debt until 51
The 6% savings account for your payment of the tax will be taxed for 25 years
The “magic of compounding” will work for the government for 25 years leaving only 14 years to work for you until retirement at 65
Does a mortgage fit in here anyplace?
Vet Med was good to me, I don’t think I would recommend it today (I’m retired)
Just returned from Grand Cayman…..In Georgetown there is another Caribbean school, St Mathews, cranking out vets for the US …….Gordon
>>>The “magic of compounding” will work for the government for 25 years leaving only 14 years to work for you until retirement at 65<<>>Does a mortgage fit in here anyplace?<<>>You will not be out of educational debt until 51<<<
It took me nearly 20 years to accrue the student debt that allows my wife and I to practice medicine. I don't think it's unreasonable to pay it back over a similar timeframe. Especially when the repayment plan I use allows me to meet all of my other financial goals.
“The “magic of compounding” will work for the government for 25 years leaving only 14 years to work for you until retirement at 65”
I hear this a lot form the folks who have paid their loans prior to income-driven repayment. However, this is a fundamental misunderstanding of how student loans work and why it is so important for health professions to offer education that is specific to student loan repayment and not just basic financial education.
Student debt is not like other debt, thus it shouldn’t (and doesn’t have to) be treated like other debt. It does NOT compound during repayment under income-driven repayment. If your payments are less than the interest that accrues, that interest gets accounted for separately as “unpaid interest.” That unpaid interest does not get charged interest (as long as you satisfy the requirements on-time each year).
This is why it never makes sense to pay more than is required based on your income and family size. You’re better off paying the minimum and saving for the forgiveness. Your forgiveness plan (and other long-term financial savings) work on compound growth. Your student loans are simple interest. Compound growth always beats out simple growth. This is also how you can end up paying less than what you borrowed depending on your starting balance and earnings. Again, lean on the VIN Foundation Student Loan Repayment Simulator to see how all of this works for your situation.
“Does a mortgage fit in here anyplace?”
Absolutely. And income-driven repayment makes that easier to take advantage of another asset that can earn you compound growth rather than forgoing that in favor of paying down your student debt.
“You will not be out of educational debt until 51”
It took me nearly 20 years to accrue the student debt that allows my wife and I to practice medicine. I don’t think it’s unreasonable to pay it back over a similar timeframe at a resonable cost. Especially when the repayment plan I use allows me to meet all of my other financial goals, like saving for retirement while I’m paying back my student loans.
I wouldn’t use those words “never” and “always” as readily as like you to use them.
I think you also downplay the benefits of a debt-free life. I’ve met lots of highly paid but poor docs and lots of wealthy docs and it’s pretty rare that I meet a wealthy doc who is still dragging around student loans and/or low interest rate mortgages. The same people who desire to build wealth also seem to desire paying off their debts. It’s not that the math is wrong, it’s just that the behavior probably matters more.
“I wouldn’t use those words “never” and “always” as readily as like you to use them.”
I’m not sure that once meets the threshold of readily. Each is used in specific contexts where mathematically, that is actually the case.
I believe that it is more appropriate to use math over emotions to make many of these financial decisions.
I will be debt-free. It will be as my income allows that to happen or when I reach student loan forgiveness so I don’t have to compromise other areas of my financial plan to reach that goal at the expense of the rest of my financial health. I don’t begrudge anyone who takes a different repayment pathway. But I do want folks who have doctor-sized student debt to income ratios greater than 2 to know that there are other, often more financially beneficial ways to repay that particular debt.
Thanks again for hosting a great discussion!
I’m very skeptical that the right move for a doc making $300K with $600K of loans is to go for REPAYE forgiveness. I could be wrong, but being in debt for 25 years AND having to pay a big tax bomb at the end instead of 5 years seems very unattractive to me.
Although I wouldn’t be surprised if the same ratios at lower income/debt levels provided a different answer. I wonder if we’re looking at this problem from two different points of view.
Vet and law, as well as my profession (optometry), have always been on top of the chart in terms of DIR. I consider myself lucky, I chose a cheap state optometry school, family helped a bit, I learned to be frugal, and got scholarship which basically covers half of my tuition for the first 3 yrs of optometry school. Had about 30k in loan which I paid off after my first year as a full time employee.
Given the fact that even state school tuition is doubled compared to when i was in school (6 yrs ago), and there’s a cap on income if practiced as employee, I probably would not recommend optometry to most people now. There is still opportunity to be (very) successful in optometry if you are wiling to live in non-coastal cities, and non-urban area, and open your own practice. Several multi-location practices in Florida net millions of dollars each year, but of course, that is the exception, not the rule, and less and less common. Other self employed optometrists might disagree with me here, but this has been my observation over the years. Hence my reasoning for staying as an employee optometrist.
With that being said, employee optometrists aren’t necessarily doing so bad financially either. Just need to practice the good old borrow as little as you can, living below your means, pay off debt fast while investing early, negotiate salary/benefits well, pick up extra shifts/moonlight etc. Hope to see increase financial literacy in my field and other high DIR professions in the future, I always try to recommend useful websites (this and others) and books to colleagues who are open to personal finance discussions (it’s tricky and I try to avoid coming off as being preachy, I don’t usually initiate the conversation unless it’s brought up)
This press release from the AVMA was published yesterday, coincidentally. According to this release, the calculated DIR is 2.26:1, which is higher than what I had written in my post. They cite that the two newly accredited US veterinary schools have contributed to this sharp increase compared to last year.
https://www.avma.org/News/JAVMANews/Pages/181215f.aspx
That is a brutal average considering medicine is less than 1 right now.
I feel like the tables must be very misleading. As a dentist I am most familiar with my field, and the debt to income ratio is nowhere near what those tables show. A new graduate will be lucky to have less than $400K in student loan debt from the majority of dental schools in the US, and many are at $500K. The ADA shows dental income for young dentists to be in the $100-120K zone typically.
So the tables showing the DIR of less than 1:1 are ……….ummm………wrong
Data is not the plural of anecdote. While many dentists do end up with $400K, the averages are not that high. While many dentists do work for $120K, the averages are not that low. Figure out what the folks with less than $400K and those making more than $120K are doing and, as much as is possible, copy them.
I think it’s always a good idea to use data to provide context for these complex situations. I’m not a dentist, but a quick search for debt and income date on recent dental graduates shows the following:
– Approximately one out of five dental school graduates in the Class of 2018 reported either no student loan debt or debt less than $100,000.
– Average educational debt for all indebted dental school graduates in the Class of 2018 was $285,184.
– Average educational debt for all indebted dental school graduates in the Class of 2018 for public and private dental schools was $251,869 and $326,133, respectively.
– 40% of indebted dental school graduates in the Class of 2018 reported student loan debt of $300,000 or more.
Source: https://www.adea.org/GoDental/Money_Matters/Educational_Debt.aspx
That’s pretty striking. While the starting salaries are higher for dentists than they are for veterinarians, it appears the student debt balances are quite high on average as well. For all you dentists, the VIN Foundation Student Debt Center can also be helpful in assessing your repayment options. While we designed it specifically for veterinarians, the rules and algorithms in place are applicable to anyone with graduate/professional school federal student debt. Whenever your student graduate/professional school debt exceeds your income, you’re likely to benefit from income-driven repayment strategies. Don’t pay more towards your student loans than is required…
Sorry — I will step back to my veterinary world now 🙂
“Data is not the plural of anecdote.”
Great quote.
(Haven’t read other comments.) I have always used veterinary medicine to explain how human medical payments are inflated by insurance including government coverage. Just imagine this: how much do you think it costs to take your dog to the vet and get endoscopy to retrieve the turkey bones it got into over Thanksgiving? Whatever the answer is now (under $400 when my family’s dog had it in the ’80s) it is definitely less than when I got upper endoscopy. Why? Because I can ignore the cost since I have insurance, I would pay a lot to fix such a problem in myself or human kin anyway, but if my dog might cost me $20,000 in medical care I will request euthanasia for ?<$100 or if the vet refuses/ costs too much somehow I'll shoot my dog at home. (Just not an option with Grandma or our kids.) Also the vet can train a high school grad to provide his anesthesia and doesn't have JCAHO dictating OR cleanliness or record keeping.
SO first off- how awful that vets might pay as much as docs do for training but make so much less for similar work and in overall income, and secondly we doctors who ignorantly demand free market medicine must not understand that the service payments we get now are incredibly inflated by Medicare, Medicaid, and employer insurance plans started in the past to boost workers' compensation without raising wages during freezes. We once had a medical free market- and rich people had pretty good care but not so much medical research to advance that care, while poor people got less comprehensive or complete care and much of it was provided as charity by doctors and hospitals.
Here are a couple of YouTube videos I developed analyzing the IDR plans for those borrowers with a DIR > 2:1.
The target audience for this video is dentists, but does apply to veterinarians, pharmacists, optometrist, etc.
https://www.youtube.com/watch?v=r2FDF0faJ98&t=16s
These videos are targeted to MDs/ODs:
https://www.youtube.com/watch?v=hB1V6ifG43c
https://www.youtube.com/watch?v=7VdotvhkSvY&t=1s
Please remove if you feel this is inappropriate.
“The “magic of compounding” will work for the government for 25 years leaving only 14 years to work for you until retirement at 65”
I hear this a lot form the folks who have paid their loans prior to income-driven repayment. However, this is a fundamental misunderstanding of how student loans work and why it is so important for health professions to offer education that is specific to student loan repayment and not just basic financial education.
Student debt is not like other debt, thus it shouldn’t (and doesn’t have to) be treated like other debt. It does NOT compound during repayment under income-driven repayment. If your payments are less than the interest that accrues, that interest gets accounted for separately as “unpaid interest.” That unpaid interest does not get charged interest (as long as you satisfy the requirements on-time each year).
This is why it never makes sense to pay more than is required based on your income and family size. You’re better off paying the minimum and saving for the forgiveness. Your forgiveness plan (and other long-term financial savings) work on compound growth. Your student loans are simple interest. Compound growth always beats out simple growth. This is also how you can end up paying less than what you borrowed depending on your starting balance and earnings. Again, lean on the VIN Foundation Student Loan Repayment Simulator to see how all of this works for your situation.
“Does a mortgage fit in here anyplace?”
Absolutely. And income-driven repayment makes that easier to take advantage of another asset that can earn you compound growth rather than forgoing that in favor of paying down your student debt.
“You will not be out of educational debt until 51”
It took me nearly 20 years to accrue the student debt that allows my wife and I to practice medicine. I don’t think it’s unreasonable to pay it back over a similar timeframe. Especially when the repayment plan I use allows me to meet all of my other financial goals, like saving for retirement while I’m paying back my student loans.
I married my spouse between Y1 and Y2 of veterinary school and helped support her through school and her years of practice. We considered over and over again opening her own practice, but couldn’t justify going into debt for another $500,000 to $1.5mil and signing up for the pain for an incremental amount of income, so we took the safe route and followed my corporate job.
I’ve also financed practices in my day job, there are still way too many 1-3 person independent veterinary practices dragging income down. These practices don’t have enough revenue to afford the infrastructure available to larger practices, but the doctor/owner can produce enough revenue on their own to keep the practice alive and hold prices in the market down. There are some urban consolidators, but the veterinarians still aren’t *really* winning in those situations. The only veterinarians I see that do well relative to the time in school and the investment requires for their own business are four to six doctor practices with beloved business owners that understand sales and marketing. The select few can earn what physician specialists do, but most struggle along and can’t get to that size/scale.
You’re welcome.