When it comes to debt, we’ll talk quite a bit about the Debt to Income Ratio. The logical question is - what does this mean? 

The debt to income ratio is exactly what it sounds like. We take the Student Debt of an individual and divide it by their annual income and this either gives us a whole number or a fraction.

For example - if a recent graduate has a student debt balance on all their loans of $250,000 and an annual income of $100,000, then their debt to income ratio is 2.5:1.

Another example, if a veterinarian has a student debt balance of $50,000 and an income of $100,000, then their debt to income ratio is 0.5:1. Higher ratios means more debt and less income. 

Note - we are using Annual Debt to income ratios. Some reports use Monthly Debt to income ratios. If you read them, pay attention to the difference! 

That’s great, but what does it mean? 

The debt to income ratio gives a very cursory look at the veterinarian’s ability to pay back their loans - or “service the debt.” (Remember that loans are only a real problem, if the borrower is unable to pay back their debt.) The veterinarian has more income to pay back their debt. Higher debt can be “serviced” by more annual income.

So what is a “good” and what is a “bad” debt to income ratio? 

Well, that’s the wrong question! A better question is, What does the debt to income ratio help us decide? 

https://www.vin.com/studentdebtcenter/default.aspx?pid=14352&id=7516825

The experts over at VIN Foundation tell us that a “healthy” debt to income ratio is about 1:1. 

As debt to income ratios begin to approach 2:1 then traditional repayment plans begin to become a problem. Meaning that the veterinarian is going to have a difficult time “servicing the debt” on their current salary. Generally speaking, when a debt to income ratio is around 1:1, then it’s a good idea to consider, and then run the numbers on Income Driven Repayment plans. In fact, even lower debt-to-income ratios can really benefir from Income Driven Repayment. More details on the actual plans later…

So, what is “normal” and “average"? I don’t like these terms, but it does help us know if we are going to be ok! 

According to the AVMA’s Economics Division Annual Report for 2023, the average debt to income ratio for the graduating class of 2022 was 1.4:1, (for those in full-time employment). Internships and residencies were excluded.

That’s the mean or average…but what about the others? What does the bell curve look like? 

Well, about 13% of 2021 graduates reported a debt to income ratio of greater than 3:1. 

Over 36% reported a debt to income ratio of greater than 2:1. 

And, to skew the average down…14% reported $0 debt, so their debt to income ratio was 0:1. 

For comparison, other health professionals such as pharmacists, dentists and doctors graduate, on average, with debt to income ratios of greater than 2:1. Lawyers have a mean debt to income ratio of greater than 1.5:1. 

That means we are not that different! However, many of the other professions experience rapid rises in income early in their careers, resulting in an ability to pay back their loans, fairly easily. Veterinarians, especially associates (not practice owners) on the other hand tend to have a slow growth in income. As a result, many veterinarians tend to struggle late in their careers.  

Also, what is happening over time? 

Are debt to income ratios increasing? Yes, if you look back to the early 2000’s, the mean debt to income ratio was 1.3:1, then around 2011 it really spiked to a high of 2.3:1 

But, in 2022 it was reported as much lower, at 1.4:1. This is a function of two things, one income is drastically increasing, and this is great! On the other hand, more graduates are reporting graduating with $0 debt, skewing the average down. So before we celebrate, we have to consider that debt is not increasing and for many veterinarians a debt to income ratio of 2:1 or 3:1 is a very real thing.  

Your homework - go calculate your debt to income ratio! Total your student debt and get an estimate of your starting salary! 

VIN's My Student Loans is the perfect place to start and the In-School Loan Estimator can be used to estimate future borrowing.