Student Debt vs. No Student Debt

As we discuss personal finance for veterinary students, the elephant in the room is student debt. It by far is the biggest issue facing veterinary students and recent graduates. However, not everyone is the same. 

In 2018, 17.3% of graduating senior veterinary students from US based schools reported that they have no educational debt. This percentage of graduates with no debt has grown from 14.2% in 2016 and 17.2% in 2017 respectively. 

On the other side of the spectrum, 18.7% reported that they have over $250,000 in educational debt. 

The average debt, excluding those graduates reporting no debt, was $184,299. There are a couple of caveats here, these averages are for US based veterinary schools. Caribbean schools, such as St. George’s University and Ross School of Veterinary Medicine are not included in these numbers. Next, the averages vary widely amongst the US based schools. You can find your school here: 

The point of this is that debt is “normal” and the average is over $180,000. We have to teach personal finance to the averages and medians.

However, you aren’t just a number and there is no such thing as an average veterinarian or veterinary student. Personal finances is, well, personal, and it should be individualized.

NO DEBT?! CONGRATS!

If you are in the 15% with no debt, Congratulations! Your financial plan should be custom tailored to your financial picture. You shouldn’t be paid any less, or accept less salary because you don’t have debt. Your worth to the practice has nothing to do with your personal finances. You have the unique opportunity to put money into savings and invest, instead of servicing debt. 

DEBT?! Let’s discuss and plan. 

If you do have student debt, this is no time to be jealous of those who don’t, or to be self-blaming. It’s time to realize that you are not alone and accept the resources to take control! 

Here’s the key to debt: Debt Management is a function of Debt Service. 

The total amount of your debt can be very scary and produce anxiety. This debt related anxiety has crippled many veterinarians. 

Managing debt is all about your ability to service debt. What is debt service? It’s your ability to make your payments on-time, when they are due. In the case of student loans, it’s a monthly payment. For  In the case of student loans in the  federal student loans system, the payment can be based on your taxable income and cash flow. Debt management becomes much easier if you break it down into small chunks. 

This isn’t just an idea I came up with out of the blue. This is how banks and financial institutions decide on whether someone should take out a business loan, the loan approval process. Yes, they will look at your credit score and history of your ability to make payments, but they mainly analyze the borrower’s debt service coverage ratio. This asks “Is the income coming in each month able to make the proposed payment and have some cushion?” If the borrower’s income is increasing because of the loan (most of the time in business borrowing) then that is taken into account as well. 

Think of yourself as a business for a minute. The DVM and veterinary license that you are working toward is going to increase your income. (The average veterinarian earns more than the average undergraduate degree holder.) That income is going to be used in part to help service your debt! You are adding income at the same time you are adding the debt and we should account for that. If we can use an income driven repayment (IDR) plan, then that will further improve your individual debt service coverage ratio. 

You may have heard the Debt-to-Income ratio discussed in veterinary circles. This is a similar concept, that takes the total debt and divides it by one year’s salary. This is an indicator of how healthy an amount of debt is, how difficult the debt is going to be to pay back, and how a group of individuals is doing (for example, a profession or a class). But you aren’t going to service the total debt at once, you are going to divide it up monthly. The monthly amounts are what affects your bank account. It’s really hard to calculate with a group, because it depends on the length of the loans, the interest rate and the monthly income, all which vary. 

Still we should look at Debt-to-Income ratios to give you a feel of where you sit, individually, compared to your peers. The national average for 2018 graduates entering full time employment is around 1.9. Average debt was around $152,358 (students with $0 debt are averaged here) and salaries for full time employment was $81,571. 

The financial gurus say that an education debt-to-income ratio of greater than 1 (1:1 total debt:total income is unhealthy.  We are long over that point as a profession! Long gone are the days that the average student can graduate with less debt than one year’s starting salary! 

Pay attention to your college on the graphs. Is your school’s DIR higher or lower than the national averages? This is a good indicator of where you will end up.

Remember, these are averages! You personally may have debt from prior undergraduate or graduate studies. You may decide to take a job with a below average salary. That’s why it’s crucial for you to understand your personal DIR. 

It’s a good idea to project your costs, and the amount of debt you plan to take on, then pay attention to the average salaries for the types of practice you are considering. Then simply divide your total debt by your expected salary. 

This allows you to understand where you will be personally in comparison to your colleagues both at your school and nationally. Secondly, now is the time to do something about it! Can you tighten your budget to reduce debt? What happens if you aim for a job with a higher salary? This is planning 101 and it’s key to your financial wellness and success! 

If you have a DIR of over 1, we need to look at two things to help you manage your debt service into healthy levels!

1. We need to look for ways to lower your monthly payments. (IDR programs do just this) 
2. We need to look for ways to increase your income! 

Here are the take home points: 

1. Debt can be manageable if you have a plan and take advantage of the resources made available to you! 
2. If you have student debt and it’s over $180,000 you are not alone. You just have to plan.  

In-School Student Loan Estimator 

How do you plan to pay for veterinary school? How far will the money you are making now go? Should you look for a job during the semester? What should you do with the money you earn during school?

These are very valid questions - that require valid answers in kind! This planning is essential to lowering your overall debt and lower debt makes life so much easier on the “other side”! 

Here’s a great tool for helping answer these questions - 

The VIN Foundation’s In School Student Loan Estimator is a one of a kind resource. It allows you to enter your school, your start date and where your student loans currently sit. From there it uses the published cost of attendance to estimate your total student debt upon graduation. It’s even been updated to reflect the current 0% interest rate. 

It’s perfect for generating scenarios, like, What happens if I make $13 per hour for 10 hours per week? What happens if I have $6,000 in savings going into the semester? What happens if I am awarded that $5,000 scholarship I applied for? 

When you start to look at these questions, this is THE resource to have bookmarked. 

Further, this calculator will generate your monthly interest payment (ouch) and has an option to send the projected number straight to the Student Loan Repayment Simulator.

Keep in mind that every dollar that you don’t borrow or return goes to lower your student loan balance and has an impact on your student loan payments down the road. 

There’s two common themes to Personal Financial Success- 

1. Financial wellness requires planning ahead 
2. Make decisions with data, not with gut feelings

The In-school estimator allows you to do both!