The AVMA Veterinary Economics Division and the AVMA Student Initiatives Team have joined efforts to help educate the profession, especially future veterinarians, on the potential financial impact of their careers and how to ensure veterinarians can still pursue their passion while establishing and maintaining a financially viable future. Dr. Michael R. Dicks, director of veterinary economics, and Dr. Caroline Cantner, assistant director for student initiatives, shared with us some insights on these hot-button topics.
Why has debt become such a problem for this generation, compared with previous generations of veterinarians?
Most veterinarians who graduated 15, 20, 30 or more years ago paid only a small part of the total cost of their education. Higher education was more heavily subsidized through public funding – taxpayer dollars – primarily through state legislatures. Across veterinary colleges, in-state tuition has increased 300% over the past 16 years.
To assist students in paying these increasing bills, federal loan programs were created to help subsidize the cost of borrowing for education. But declining federal budgets have pinched these subsidies, and today’s students pay interest on federal student loans while in veterinary school, increasing their debt before they ever enter the workforce. Additionally, interest rates charged on student loans are higher than those in practice might expect, with federal loans for 2016-2017 between 5.31% and 6.31%, depending on the loan. For recent graduates, interest rates on loans may have been even higher, at 7%, 8% or more depending on the type of loan and when the student borrowed.
We also know that the average veterinary student has less debt than the total cost of his or her veterinary education. A recent AVMA study indicates 68% of student debt is attributed to tuition and fees. At $18 per hour, a student working 15 hours per week during 40 weeks of school and 60 hours per week during a 12-week summer break for 52 total weeks of work would earn approximately $23,760 before taxes. Average in-state tuition in 2015, excluding living expenses, was $27,884. And if the student already has loans, there is interest accrued during the school year.
In short, the cost of education and cost of borrowing are fundamentally different than the costs and borrowing options that existed for previous generations of veterinarians.
Could too many veterinarians in the workforce be the cause of some of the financial strain?
Some argue there are too many veterinarians because the debt-to-income ratio, currently at 2:1 for the profession, is excessive. The argument is too many veterinarians have driven down incomes, hurting the ability of new graduates to pay their debt effectively. A healthy debt-to-income ratio for professionals is below 1.4:1. This means that for a new graduate with $140,000 in debt, a healthy starting salary might be $100,000. A practice’s ability to pay a veterinary associate salary, however, is primarily determined by the profitability of the practice. While a practice may be able to pay an associate somewhat less if there are multiple applicants, at the top end of the salary potential, the practice can only pay an associate as much as the practice can afford.
According to data from AVMA’s Veterinary Career Center (VCC), there are currently fewer veterinarian job applicants than available jobs, but this hasn’t always been the case. In recent years the ratio of applicants to jobs exceeded 2:1. Regardless of the ratio of applicant to jobs, there have always been certain practice types in certain locations that have trouble finding applicants or have a scarcity of available jobs for the number of applicants. We have identified the state of the general economy as having the largest impact on the applicant-to-jobs ratio, followed by increasing prices of veterinary services and the number of veterinary graduates.
Addressing veterinary income is a key strategy to addressing the debt-to-income ratio within the profession. Rather than considering the current level of demand for veterinary services as static, increasing compliance and visits through strategies such as wellness plans or forward booking, for example, improves both practice profitability, the demand for the veterinarians and veterinary incomes within those practices.
Do internship-trained veterinarians have the potential to earn more over their lifetimes?
There is a wide range of internships, both private and academic as well as across species of interest, and new graduates offer a variety of reasons they may choose to pursue one, including the goal of advancement into a residency. There is no evidence, however, that a one-year internship alone improves a veterinarian’s lifetime earnings. In fact, our data indicate that internships are associated with higher unemployment and lower starting salaries among those who have pursued an internship versus those who have not.
The opportunity cost for a new graduate veterinarian to pursue a one-year internship is approximately $40,000, which includes both lost potential wages as well as interest accrued on debt during that year. This indicates that veterinary students pursuing one-year internships and facilities offering these programs should consider the value of the mentorship and training provided to be worth approximately $40,000.
The percentage of graduates electing to pursue internships varies among veterinary schools, with some reporting up to 50% of graduates pursue internships and other reporting as few as 12%-15% of graduates pursue internships. In addition, new veterinarians who plan to pursue internships and residencies carry higher debt loads relative to those who pursue other paths, such as private or public practice. These differences between colleges and debt loads are significant, and there is an ongoing need to study the economic factors surrounding veterinary internships in more detail.
What strategies can students and recent graduates use to tackle their student debt?
Decisions about finances are made based on sound information, quality guidance and, importantly, personal financial and lifestyle goals. The total amount, including interest and taxes, that a veterinarian may elect to pay on an education loan will vary depending on his or her chosen standard of living, household income and the loan repayment plan.
Broadly, there are two types of repayment options. Standard repayment plans have larger monthly payments but no tax bill at the end of the loan. Income-driven repayment plans have lower monthly payments but could result in a substantial tax bill (up to $50,000 to $100,000 or more) at the end of the loan that must also be accounted for in the financial planning.
There are additional strategies for students and recent graduates to consider, such as the Public Service Loan Forgiveness program or the Veterinary Medicine Loan Repayment Program as well as state-level programs.
While practice ownership may not be of interest to everyone, it is important not to discount practice ownership due to high student debt. In fact, the opposite is often true, and recent graduate veterinarians can utilize practice ownership as part of their strategy for servicing their debt.
In choosing the repayment plan, graduate veterinarians should consider lifestyle choices: do you want to live frugally for a shorter amount of time in order to be “free” earlier or do you want to live slightly more comfortably but carry the debt for longer and experience the “pain” later on in the form of a tax bill in 20-25 years? Students and recent graduate veterinarians can and are tackling their educational debt and are using a variety of tactics to do so.
What is AVMA doing about the high student debt?
AVMA’s Government Relations Division (GRD) is focusing lobbying efforts on the Higher Education Act where education costs and the parameters for student loans are considered. Across many professions and throughout the country, student debt is a critical issue. The GRD, based in Washington D.C., continues its advocacy efforts on behalf of veterinary students and veterinarians during the reauthorization of the Higher Education Act, a comprehensive piece of legislation that includes federal student loan programs. In addition, AVMA is proud to have co-sponsored with the Association of American Veterinary Medical Colleges (AAVMC) the recent summit on the cost of veterinary education, the Fix the Debt: Our Profession, Our Responsibility summit, hosted by Michigan State University in April 2016. Outcomes from that summit are ongoing and will be reported through AVMA and AAVMC.
The high debt-to-income ratio, the result of the growth in salaries that has not been able to keep pace with climbing debt, is a critical and complex issue facing all professions. It is imperative that we come together at this time. As we continue to gain a better understanding of the economic factors affecting the profession and work on advocacy and programs for veterinarians and veterinary students, we also need all of our colleagues to get involved. Whatever your personal sphere of influence, whether it’s looking at your own college, workplace or practice, signing up for AVMA advocacy alerts or simply lending an understanding ear to an overburdened veterinarian or veterinary student, we ask you to join us in coming together to work on this issue.