My Inevitable Rant About Student Loans

I feel like I’m beating a dead horse when I talk about this subject (am I allowed to use this analogy as a vet???), but I need to talk about student loans.

To be quite frank, this student loan issue was a huge catalyst for me starting this blog. I graduated 15 years ago with $120,000 in student loans (including loans from undergrad), and that was embarrassing and demoralizing. At the time, there was no open forum where I felt safe to talk about my student loan debt.

I thought I could treat these loans like a mortgage and that it was simply going to be an accepted part of my life for the next 3 decades. As I detailed in that particular post, I really began to resent having these loans in my life so many years after graduation. There were an infinite number of other ways I wanted to use my money, and having that monthly reminder that I still had student loans 10 years post graduation became less acceptable. Therefore, I made it a priority to pay the loans off early, despite the sub-3% interest rate.

These days, $120,000 is considered a bargain. According to this press release by the AVMA, the debt-to-income ratio is now 2.26:1. The average debt for US veterinary school graduates is $143,111. That’s including 17% of graduates that somehow managed to graduate with zero debt.

In addition, these numbers don’t even count the U.S. citizens who graduated from veterinary schools outside the country. Students that graduate from the two Caribbean programs, Ross University and St. George’s University, are now averaging north of $250,000 in student loans upon graduation. Taking all of this into account, the average student loan debt for veterinarians is undoubtedly higher than what is reported.

Salaries are barely keeping up with inflation; the average starting salary is $76,633. Looking at the numbers, it’s easy to see which part of the equation is contributing to the increase in debt-to-income ratio over time.

A HEAD-SCRATCHER

Ever since I was a college student over 20 years ago and became aware of tuition prices, I couldn’t wrap my head around how expensive it could be to get an education. There was no way a middle class family like mine could afford full tuition. The fact that there were families that could blew my mind.

According to this College Board publication, the price of tuition in higher education has gone up anywhere from 3-4% per year beyond inflation. How is this even mathematically sustainable on any level? This is a question that I’ve been asking myself for years, especially as we had our own children and started saving for their college funds as soon as they were born.

LOOKING FROM AFAR

I decided to stay home full time once I became a mother. That was in 2008. In the interim, I tried to keep up with the profession the best I could. One method was to continue receiving veterinary publications and e-mail newsletters.

As you know, this was right when the Great Recession was in full swing and doing some serious damage to the economy. I was working at a small animal hospital in a relatively affluent area right before I had my first child. Even in that environment, I felt like the subject of money was a constant when trying to decide which direction to go with diagnostics and treatment. When people start losing their jobs and homes, there just isn’t any disposable income to pay for veterinary care. I didn’t even get to experience the height of the recession, which was the fall of 2009 when the unemployment rate peaked at 10%.

At the same time, tuition prices continued skyrocketing. I couldn’t believe that it was becoming even MORE expensive to attain a DVM degree in the midst of a souring job market.

This New York Times article came out back in 2013, at a time when the country was still recovering from economic turmoil.  It highlights the story of a Ross graduate who came out of school with $312,000 in student loan debt.

Stories like these have become more common these past 10 years. It is terrifying to hear of new graduates that are coming out with hundreds of thousands of dollars in debt. Many of these loan amounts are more than you would expect to pay for a mortgage. Once you factor in the higher interest rates, it makes the situation even worse.

My first reaction when I read these kinds of stories is to feel my heart sink, because I remember how badly it felt to have debt that was “just” $120,000.

Then my second reaction is, quite frankly, anger and frustration.

EASY MONEY

Qualifying for a student loan is a very simple process. You basically have to prove that you’re a student, then they very willingly loan you the money. You think that you’re making a great investment into your career, so you enthusiastically take the money. You’re confident that you’ll be able to pay this back without too much of an issue. It’s a “good” debt, right? This kind of debt is infinitely better than “bad” debt, like credit card debt.

However, with the increase in tuition and the debt-to-income ratio, it’s becoming harder and harder to justify this “good” debt. Good debt assumes that you’re getting a certain return on your investment (ROI). Good debt means that you’re building equity into an asset that will be worth it in the end.

In the case of higher education, the individual is the asset. This is not an asset that you can just sell on the open market like a home or a business. You need to produce the income that justifies the cost. The higher the debt-to-income ratio, then the more likely you are getting a reduced ROI.

This is not acceptable. As far as I can see, the main reason that tuition is climbing so quickly is because it is much too easy for students to qualify and receive massive amounts of student loans. There is no incentive for universities and veterinary schools to decrease their tuition when the demand for veterinary seats remain high. As mentioned in that AVMA press release, the opening of two new accredited veterinary programs led to a sharp increase in the debt-to-income ratio. There are more programs in the pipeline. This shows that there is still high demand for those that want to pursue veterinary medicine.

Yes, I understand that your ROI is more than the numbers. There is also the unquantifiable amount of satisfaction and pride that you get from your profession in addition to your income. But we also live in the real world, where money allows us the ability to provide for our basic needs, and hopefully allow us to spend on wants as well. If we feel as though we can’t even keep up with our basic needs, then there is a big problem. It doesn’t matter how much passion you have for your job- passion doesn’t pay the bills.

The NYT article seems almost quaint in mentioning that the PAYE (Pay As You Earn) forgiveness program was a new offering, an option that allowed for “slightly more generous terms” than the IBR (Income Based Repayment) option. Since the writing of that article, they have had to introduce REPAYE (Revised Pay As You Earn), because clearly the original wasn’t good enough and they needed a program to cover even more borrowers.

Just take a look at this survey, which shows some of the most interesting visuals I’ve ever seen when it comes to student debt. There is a clear generational divide on the amount of debt and how debt has affected borrowers over time. There is just no way that summer jobs will cover the cost of higher education as it did a couple of generations ago.

FORGIVENESS PROGRAMS

The student loan repayment world looks a lot different now compared to 10 years ago. Now, these forgiveness programs are assuming that you will never be able to pay your loans back. Non-PSLF forgiveness requires a counterintuitive strategy- one that suggests you pay as little as possible each month, and if you owe large sums of money, your balance owed actually GROWS until it is forgiven. Then you will need to pay that big tax bomb on the forgiven amount. Large forgiveness amounts= large tax bomb.

I don’t know about you, but that sounds like crazy talk. You’re just kicking the can down the road, hoping that you make it to the finish line 20-25 years later with enough in the bank to finally be finished with this ordeal. Kicking a can for decades is a really long time. And in this case, that can morphs into some beastly object that no longer resembles its original form.

As much as I didn’t like repaying my loans, it was gratifying to see that the number was actually going DOWN over time. I think that mentally, it would have been very difficult to see that balance going up instead. Some people can completely divorce themselves from the visceral reaction of seeing your balance increasing over time, but I don’t believe I would have fallen into this category.

If the recommendation is to have nearly all graduates go on a forgiveness program, as it was in the case of this dentist and her dental school (and likely the recommendation from the more expensive veterinary school programs), then what’s stopping these borrowers from borrowing the maximum amount of money? Many of these borrowers have absolutely no clue what it’s like to pay down a massive loan yet. It’s treated as Monopoly money, until it’s time to pay it back. Then it transforms into real money, with real consequences.

Yes, I understand that there is individual responsibility here. I fully admit that I went into veterinary school uninformed about future income and future debt. There are arguments that these borrowers should have known better. In fact, borrowers these days have the luxury of hard data and numerous resources that can aid them in making better decisions. There are even random people like myself, who caution against jumping into this field without doing your homework.

But when have human beings ever been completely rational with money? Pretty much never. Even the most disciplined person will have weaknesses when it comes to handling their own money. Having complete discipline is striving for perfection, which I think is folly. We need to give ourselves room to be human when it comes to our money, and mixing our emotions with discipline is a balancing act that will always require vigilance.

Why would you allow a 20-something to easily borrow hundreds of thousands of dollars for their education, yet deny them that same amount to buy a home? The lending standards in housing have not had the best reputation, but educational loans are in a class of their own.

So as much as I agree that there is individual responsibility, there are some major external factors that are contributing to this mess. There is only so much control we have over the external factors, like tuition prices and student loans. Yes, we can choose to apply to schools that offer the lowest tuition. But for those that have dreamt of being a veterinarian since they were able to walk and talk, you’d better be sure that they are applying to vet schools regardless of price. And once they get those acceptance letters, you simply aren’t going to be able to convince them that they shouldn’t attend the expensive school, because that’s the only one they got into. Again, emotion over rationality, which is how most of us make our financial choices on a daily basis.

People want to live their lives after graduation. They want to have the freedom to hit those typical milestones, such as becoming a homeowner and starting a family. The entrepreneurs want the freedom to pursue their business ideas. All of this gets seriously hampered when you’re dealing with six-figure debt that is many times your income.

CONCLUSION

If you couldn’t tell, this topic really fires me up. I like to think of myself as someone that can see most sides of an issue, but this is one issue where I strongly believe that it is a broken system across the board. Veterinary medicine is certainly not the only field affected; this is affecting all of higher education.

How does one reverse the dangerous upward trajectory of tuition prices? Other than a massive restructuring of how universities set their prices and how the government handles student loans, I have no idea.

All I know is that making education unaffordable is not a good plan. Sticking graduates in a “forgiveness” program due to exorbitant tuition, while providing relief to those that simply cannot afford to pay their loans back, also leads to a lot of confusion on how to come up with the best repayment strategy.  People simply want to pay back their debt without having to deal with constant paperwork and using whatever precious time they have worrying about a tax bomb that they may or may not be able to pay decades after graduation. It makes the matter of paying back debt much more complicated than it has ever been.

So my advice for aspiring veterinarians and other health professionals: do not disregard the impact of high student loan debt. The deck is stacked against the individual, and it requires a massive amount of self discipline and motivation to stand your ground when it is so much easier to take the easy money now and worry about the consequences later. I’m relying on the veterinary schools to step it up and aim to do whatever they can to limit the amount of debt that their graduates have when they leave their program. I will do my part in promoting financial literacy and financial independence to anyone that feels lost when it comes to how to deal with their money (or lack of). Despite current trends, I can’t help but remain optimistic that the profession can continue to grow and thrive despite these obstacles.

What do you think of the increasing debt-to-income ratio trend? What are some viable solutions? Comment below!