Veterinary medicine is no stranger to change, both on the medical side and the business side. As an example of the latter, much to the chagrin of many veterinarians, the storefronts of veterinary practices are shifting from “mom and pop” to corporate as corporations gobble up independently-owned veterinary practices in a feeding frenzy.
One of the reasons that corporate consolidation has been occurring at such as rapid rate in veterinary medicine is the demographics of practice owners. Many current owners are Baby Boomers who are on the back nine of their careers, looking to reap rewards for all the years of hard work and dedication they have put towards growing their practices by selling them. To maximize their returns on investment when they sell, many of these owners begin the sales process by hiring a broker to market their practices.
A broker is an individual or firm that works to bring seller and buyer together. In return for his/her efforts, a broker will charge a fee or collect a commission. Before acting on the behalf of a practice owner, the broker will request that the owner sign a listing agreement, which is a contract that grants a broker the authority to act as the owner’s agent in the sale of the practice.
Because a broker can be an instrumental agent in the process of selling a veterinary practice, the listing agreement that he/she presents to a practice owner may contain language that should be viewed with scrutiny. Most practice owners have little to no experience with listing agreements and so are unfamiliar with spotting potentially-detrimental language. This article highlights the key sections within a listing agreement and common issues encountered within them.
There are three basic types of listing agreements: an open listing, an exclusive agency listing, and an exclusive right to sell listing. An open listing is a non-exclusive agreement that allows the seller to hire more than one broker and only requires the seller to pay commission to the broker who finds a buyer willing to meet the seller’s asking price. An exclusive agency listing is similar to an open listing, except that only a single broker will represent the owner. In both of these types, the seller reserves the right to sell the practice himself/herself without paying any commission to a broker.
Of the three types, the exclusive right to sell listing agreement is the most commonly utilized. It is similar to the exclusive agency listing, except that the seller cannot sell the practice without paying his/her broker commission for the sale. Unless an exception is specifically noted within the contract, this type of listing agreement ensures that the broker will collect commission on any sale, whether or not he/she played any part in procuring a buyer or closing the sale.
Duration of the Listing
Listing agreements should outline a set period of time for which the broker has the exclusive right to sell the practice. Typically, the duration of a listing is anywhere between six months and one year. This timespan is long enough to provide the broker with sufficient time to advertise the practice and solicit offers from prospective buyers, yet short enough to incentivize the broker to work diligently at bringing a sale to fruition. However, what recourse does the seller have if he/she is not satisfied with the broker’s marketing efforts during this time period? Under this circumstance, the seller would not want to wait until the listing agreement expires before being able to employ a different broker. So, can the seller terminate the listing? The answer: it depends.
In a seller’s perfect world, he/she would be able to terminate the listing for any (or no) reason, at any time, and with no prior notification. Understandably, a broker will not agree to this proposition. This is where the negotiation begins. The seller should strive for specific language to be included within the listing that allows him/her to terminate the listing immediately for good cause or with a short period of prior notification if the termination is without cause. While a broker will usually accept these terms, the broker will also typically require that he/she is entitled to collect commission on a sale made to any prospective buyer identified during his/her time advertising on behalf of the seller. In addition, a broker will want any out-of-pocket expenses to be reimbursed if the listing is terminated without cause.
Duties of the Broker
A seller who hires a broker typically is interested in selling his/her practice within a reasonable timeline. In return for spending hard-earned profits on a broker, the seller should expect to know what he/she is getting in return; however, listing agreements are often vague and lax when detailing the services brokers will provide. Avoid listings that only include language such as “The Broker shall make diligent efforts to effect the sale of the Practice and shall advertise it in such manner.” This language is vague, subjective, and does not provide the seller with concrete action items of the broker.
A listing agreement should clearly outline the broker’s duties in return for collecting fees or commission from the seller. A seller should be informed whether the fees he/she is incurring is simply for listing the practice or if it also includes other services, such as time spent actively advertising the practice or negotiating with a potential buyer. In addition, language should be included stating that all advertising by the broker must be verified as accurate and approved in advance by the seller.
For the sale of veterinary practices, a broker’s commission typically ranges between 6% and 8%. The percent of the commission may be the same for both the total practice purchase price and real estate purchase price, or the two assets may each be assigned a different commission percentage. Sellers should not only look at the percentage requested by the broker when deciding if the request is acceptable, but also if the duties of the broker are well-defined and extensive enough to warrant the percentage requested.
When Commission is Paid
The trigger for payment of commission is a crucial part of all commercial listing agreements. The most common triggers include when the broker produces a buyer willing to meet the seller’s price or when the sale closes.
When a seller hires a broker to list his/her practice, he/she hopes that the broker will find buyers that are willing to meet the asking price. With this as the broker’s primary task, it is rational and reasonable that the broker would want to be paid commission once he/she procures a ready and able buyer willing to pay the seller’s asking price. However, the seller might add contingencies or conditions to the contract of sale that are not specified in the listing and over which the broker has no control, which may result in a sale not coming to fruition. The broker does not want to be penalized for a seller’s cold feet or recalcitrance.
Despite the above rationale, commission being awarded to a broker for simply procuring an adequate buyer can be an issue for a seller that does not want to sell to a particular buyer (e.g., a corporate consolidator) or if the sale does not end up materializing for some reason. With this trigger, the seller would be required to pay commission as if his/her practice was sold, even though the deal did not finalize; therefore, the seller may be pushed back to square one while also being thousands of dollars out-of-pocket. As a result, it is more advantageous for the seller if the broker earns commission when he/she procures a buyer that will meet the terms fixed by the seller, the seller enters into a binding contract with the buyer, and the seller completes the transaction.
From the broker’s prospective, he/she feels commission is earned by procuring a ready and able buyer willing to meet the seller’s terms. From the seller’s prospective, he/she only wants to pay the broker a commission when a sale is finalized. So how can both parties feel protected? A fair compromise between these two stances is reached when the listing agreement states that commission is earned only when a deal closes, except in cases in which the deal’s closing is prevented by the seller’s conduct.
While a broker will usually agree for a deal closing to be the trigger for payment of commission, the broker may also want an additional protection included within the listing agreement that states he/she is entitled to a commission if the seller, rather than selling the practice, enters into an “alternative transaction”. This provision is usually included to protect the broker from the seller choosing to lease the property or enter into a sale of ownership interest, rather than a wholesale of the practice and/or property. Alternative transaction provisions often are complicated and difficult to negotiate because they tend to be very broad to cover many potential eventualities, but do not address any particular eventuality in detail with regards to how the broker’s commission will be calculated or when it will be paid.
Brokers can worry that a seller may be dishonest and evade paying the broker’s commission by stalling until after the listing agreement period expires before entering into a contract with a prospective buyer who was introduced to the seller by the broker within the listing’s term. For this reason, most listing agreements will state that the broker is entitled to be paid a commission on any leases or sale agreements that are made with buyers specifically marketed to by the broker, even if these agreements finalize or commence after the termination of the listing agreement. This set period of time post-termination is sometimes referred to as the “tail period” or “after-look period.”
While the above provision protecting the broker is sensible, the seller needs to ensure that the provision is applied reasonably. In order for a seller to limit the applicability of this provision, he/she must know the names of the prospective buyers that the broker will claim commission on; this can be accomplished by requiring the broker to submit a prospect list. This list will include the names of the prospective buyers that the broker specifically marketed the seller’s practice to and should be submitted to the seller within a set short period of time (e.g., seven days) following termination of the listing agreement. If the broker fails to provide this list within the set period agreed upon, then the broker shall not have the right to collect commission post-termination of the listing.
In addition to requiring the prospect list to be submitted within the infancy of the “tail period,” the seller should also limit the number of names that can be included on the list. For example, if the broker sent out an email blast to his/her entire database of potential buyers or had a list of everyone that viewed a social media post he/she made advertising the practice, the seller would not want the prospect list to include these hundreds of names. The prospects should be well defined, such as to only include the names of those that viewed the practice with the broker or submitted an offer or letter of intent.
Finally, the length of the “tail period” should be considered. This period varies greatly between listing agreements and can be a major point of negotiation; typically, it ranges between three and eighteen months. A broker will push for a “tail period” to be in the upper end of this range, as it increases his/her chance of collecting commission after the listing agreement has terminated. It is not infrequent, though, that a prospective buyer is interested in the seller’s practice, but either does not have adequate funds to enter into a deal or may simply get cold feet about purchasing the practice. Therefore, a seller should negotiate for a shorter “tail period” to minimize the chance that the seller owes the broker commission on a deal that is rekindled with a previous prospective buyer without any additional help from the broker. A “tail period” of three to six months is reasonable and should typically be what the seller negotiates for.
Exceptions to the Listing
Similar to how a broker should provide a prospective buyer list to the seller upon termination of the listing agreement, the seller should provide a list of prospective buyers that he/she has been in contact with prior to entering into the listing agreement with the broker. By presenting and agreeing upon this exceptions list, the seller will not be required to pay commission to the broker if a deal is closed with one of the listed buyers, even if the deal is finalized within the term of the listing agreement. A broker may agree to this exceptions list, but will likely make the reasonable request that he/she receives partial commission if he/she is the one who negotiates and successfully closes the deal.
The indemnification provision is one of the most difficult portions of the listing agreement to agree upon at the negotiating table, as both the broker and the seller want the other party to cover him/her if there is a default between the parties or an issue arises that triggers liability from a third party. The broker does not want to incur liability for any accidental misrepresentation of the practice. Conversely, the seller only wants to be responsible for his/her own conduct that is contrary or negligent to his/her obligations outlined within the listing agreement.
Negotiations regarding this section typically conclude when both parties agree upon reciprocal-indemnification. Reciprocal-indemnification means that both the broker and seller agree that he/she will cover any economic loss sustained by the other party if the loss is a result of his/her actions or breach of contract. This agreement is reflected within listings that have language in which both the broker and seller agree to pay, reimburse, defend, and hold harmless the other party from and against any expenses that are incurred based upon the other party’s actions, omission, or breach of contract.
Seek Legal Counsel
While there should be a great deal of synergy between a seller and his/her broker, the seller must also recognize that the broker has an inherent conflict of interest. Since a broker usually only collects commission upon a sale finalizing, he/she is disincentivized from dealing with important issues that may slow down or compromise the sale. Because of this, a seller should seek advice from a seasoned lawyer regarding the terms of the sale. Doing so will impede an unscrupulous broker from oversimplifying the transaction to collect commission more quickly so he/she can direct his/her efforts toward the sale of another practice.
There can be considerable variation in both the form and content of listing agreements. While most touch on similar issues, how the issues are addressed can vary substantially. When entering into a listing agreement, practice owners should pay particular attention to the issues discussed above. While a practice owner may not have many qualms with the listing agreement drafted by the broker, he/she cannot predict the turns that his/her relationship with the broker will take if the selling process hits some unexpected bumps in the road. For this reason, practice owners should look at all of the issues implicated by the listing agreement carefully and with skepticism and seek legal counsel before signing one.
When it’s time to create your paid time off (PTO) policy, it’s important to answer the five Ws and the H: who, what, when, where, why and how. Focusing first on the “why,” note that, in the actual policies, you don’t typically share why policies are created in the ways they are, but you should definitely consider why you are creating each policy as they are formulated. Annually, when you review the policies, consider why updates should (or should not) be made.
Who will each policy apply to? How will they differ for different people? Some practices, for example, might offer 80 hours of paid vacation hours per year to full-time employees, while part-time employees working 20 hours per week would receive 40 hours, and so forth
What types of PTO will you offer? Vacation time? Sick time? Personal time? Some practices lump all the hours together as PTO because it’s easier, administratively speaking, to track the total number of days (or hours) someone has available rather than breaking it up into multiple categories. The advantage of breaking it up: you can limit vacation time, for example, or the number of days someone can call off for personal time.
What can employees do with unused days at the end of the year? Carry them over to the next year? If not, will that PTO simply expire or can employees ask to be paid for those unused days?
When can employees use the PTO? Making it all available at the beginning of the year is easier but some employees might use all the time in Q1 and quit, so perhaps half can be available in Q1/2; the other half in Q3/4. When can employees start to use PTO? Is there a waiting period? If so, the waiting period for practices is typically 30 to 180 days. When will the amount of available PTO increase for employees? After they’ve worked at the practice for three years? Five? By how much will it increase?
Where should employees submit their requests for PTO? In a designated place on the company’s internal website? In the mailbox of the human resource director?
How much notice will you require when someone requests time off? This ranges from one to six weeks in most practices, depending upon the types of PTO offered. Do you allow any last-minute requests (outside of sick days which naturally are last minute)? If so, what?
It would be so simple if practice owners could open a fortune cookie for each one of their employees and find the method by which to fairly compensate them. While there are commonly accepted methods of compensation, their implementation in veterinary practices varies because different entrepreneurs have different business goals. Also, “fairness” is a relative term that introduces variability into an equation that might otherwise be consistent from practice to practice. This article describes the factors that practice owners should consider when determining compensation for veterinarians and paraprofessional staff. Part I of this article discusses the use of financial benchmarks while Part II explores how motivational theory can inform compensation decisions.
Below is a table that provides a snapshot of current key indicators available for small animal companion practices. It is not meant to be all-inclusive, but rather to provide some guidelines that enable managers to take the practice’s compensation pulse. They can then determine if the practice is on track for the next year or needs to perform some diagnostics to prevent a fiscal derailment.
|Name of Key Indicator
|Total revenue per doctor
||Less than $450K 10.1%
More than 900K 11.2%
|Medical hours only
||The Well-Managed Practice Benchmarks Study (2017)
|Percentage of gross income for paraprofessional staff compensation
||22.5% (wages only)
1.4% (payroll taxes)
24.5% (total cost)
||The Well-Managed Practice Benchmarks Study (2017)
|Percentage of gross income for veterinary compensation
||21% (blended rate)
||The Well-Managed Practice Benchmarks Study (2017)
|Name of Key Indicator
|Average starting salary for a veterinary associate
|With < 1 year of experience (excludes benefits)
||The Well-Managed Practice Benchmarks Study (2017)
|Average student debt
|The average of 2016 veterinary school graduates with debt
|Average amount of employee’s healthcare cost paid by a Well-Managed Practice
||The Well-Managed Practice Benchmarks Study (2017)
|Associate compensation ranges (%) for private practices
|Blended rate: 16-22%
Split rate: 22-26% for services, 4-8% for products
||The Well-Managed Practice Benchmarks Study (2017)
|Starting compensation ranges for (hourly rate):
Median 75th Percentile
|Median and 75th Percentile ranges as benchmark
||The Well-Managed Practice Benchmarks Study (2017)
|On average, full-time support staff to doctor ratio
||All staff members
||The Well-Managed Practice Benchmarks Study (2017)
|On average, veterinary technician/assistant to doctor ratio
||Includes credentialed technicians, non-credentialed technicians, and veterinary assistants only
||The Well-Managed Practice Benchmarks Study (2017)
|Name of Key Indicator
|Average profit margin
||NCVEI Update – New Insights in Practice Growth- Karen Felsted presented at NAVC 2011
|Debunking The Myths Of Base Salary And Production Percentages
||Why pro sal can work for your practice
||Each of the debunked myths gives practical tips to follow to include the links for dvm360.com (ProSal) and PayScale.com
||Veterinary Economics March 2010 – Squashing Pro Sal Myths
|Percentage of practices using compensation method for associates
||Fixed Salary – 21.4%
Base + Percent of Production – 56.4%
Percent of Production – 18%
Hourly – 3.8%
||The Well-Managed Practice Benchmarks Study (2017)
|Total compensation worksheet
||How you calculate your pay ranges affect your bottom line
||DVM360 March 2010 – ProSal Total Compensation Worksheet
|Crediting doctor’s production
||What should be credited to the doctor and what should be credited to the practice
||DVM360 March 2010 – ProSal-Crediting Doctor’s ProductionDVM360 July 2005 – Giving Away a Fortune
|2010 Veterinary Economics State of the Industry Study
||Quantifies compensation methods, how satisfied the owners are, how happy the associates are
||DVM360 August 2010 – Veterinary compensation conundrum
Many periodicals and books discuss the factors one should consider in establishing a compensation policy for veterinarians. Of particular importance is the question of whether compensation should consist of a fixed salary, a percentage of the revenue generated by the veterinarian and collected by the practice (i.e., commission-based), or a combination of the two. If a commission-based component is present, it is also important to consider how the revenue figure will be calculated. Will it be limited to revenues generated from professional services, or will it include revenues generated from items like over-the-counter medications and foods? Percentages can also vary in relation to the magnitude of the revenue number that is generated. Implementing compensation systems in practice requires attention to the details of production calculation and timing of payment. The key to remember is there is NO one size fits all when determining the appropriate compensation for veterinary and non-veterinary staff. There are numerous factors that go into assessing the actual method used for compensation, which often requires the assistance of an advisor.
National starting salary information is generally published annually in the Journal of the AVMA. (See: Employment, starting salaries, and educational indebtedness of year-2013 graduates of US veterinary medical colleges, October 1, 2013, Vol. 243, No. 7, Pages 983-987; Employment of male and female graduates of US veterinary medical colleges, JAVMA October 1, 2011, Vol. 239, No. 7, Pages 953-957.) See also the latest biennial edition of the American Animal Hospital Association’s Compensation and Benefits-An In-Depth Look and the AVMA’s Economic Report on Veterinarians and Veterinary Practices (Wise, J., Center for Information Management, AVMA, Shaumberg, IL (Tel: 847-925-8070). Two periodicals, Veterinary Economics and Veterinary Hospital Management Association Newsletter, also regularly publish helpful articles. In addition, Wutchiett Tumblin and Veterinary Economics published Benchmarks 2013 Well Managed Practices.
There is a relative lack of literature addressing paraprofessional compensation. Paraprofessionals are often compensated on an hourly basis and the industry has yet to develop widely adopted performance-based compensation models. Because of their low pay, paraprofessionals generally report low job satisfaction and high turnover rates. In AAHA’s 2008 Compensation & Benefits survey, average veterinary employee turnover was 29.7%. In Veterinary Economics 2010 Benchmarks survey of Well Managed Practices, turnover was 26% for receptionists, 21% for assistants, and 44% for ward attendants. To compare with the national workforce, Compdata’s Annual Compensation Survey showed that national average turnover was 18.7% in 2008 and 15.9% in 2010. The chart above can be helpful to calculate a practice’s turnover expenses. Turnover is a pervasive and expensive problem that can be mitigated by learning how to properly motivate employees. Part II discusses the use of motivation to increase employee satisfaction and reduce turnover.
The student debt load has been a longstanding and progressive problem within the veterinary field. Total student loan debt from veterinary school for graduates from the class of 2015 was $427,502,116.00, while the average debt accrued per student was $142,394.6 Research conducted at the University of Minnesota found a 67% increase, adjusted for inflation using the Consumer Price Index, in veterinary student debt from 2003 to 2013.14 Although there has been an increase in new graduate salaries over this same time period, the increase in salaries has been far slower than increases in student loan debt. As a matter of fact, when adjusting for inflation, the mean starting salaries have actually decreased over this 10-year span.14
While the crude numbers of student debt can be somewhat alarming, they do not accurately depict the true state of debt unless they are interpreted in relation to other economic factors. The state of student debt is best assessed when comparing the debt to its pay-offs, i.e. income. This growing difference between mean educational debt at graduation and mean starting salary started to noticeably accelerate by 2005.18 The mean starting salary for veterinarians in 2015 was $72,229.7 The American Veterinary Medical Association, AVMA, measures this trend using the debt to income ratio (“DIR”). The DIR is a marker for economic performance of the market for veterinary education and for economics of the entire profession as a whole by tracking trends in student debt and average starting salaries. The average DIR for new veterinarians across all sectors of practice in 2015 was 1.99 to 1. This almost 2 to 1 ratio means that students, on average, have two times the amount of debt compared to what they are making, which is both unhealthy and unsustainable.6
There appears to be a trend in the amount of debt accrued throughout one’s veterinary education based on what career path is chosen following graduation. The previously stated average DIR of 2 to1 obscures the fact that many students have a much higher DIR. Over 9% of new veterinarians have a DIR of 4 to 1 or greater.6 Data published in the AVMA’s annual report found that new veterinarians pursuing public practice as full time employees had the lowest average DIR, 1.85 to 1. New veterinarians working in private practice as full time employees had an average DIR of 2.02 to 1 and for graduates pursuing internships and residencies, the DIR was an astonishing 4.89 to 1.6 While new veterinarians working in the public practice sector tended to have the lowest debt to income ratio, this number is still considered unsustainable for a financially low-stress life. The AVMA recommends lowering this ratio to at least 1.4 to 1. Lowering the DIR is not an easy task, however. It will require efforts from the general public, veterinary colleges, veterinary employers and the veterinary students themselves. If the DIR remains high or continues to rise, everyone will lose. The risk of keeping unsustainable DIR’s is losing qualified individuals entering the field leading to decreased veterinarians and veterinary care reaching those who need it. With the way things are going, this could result in an increase in untreated animals, posing a threat not only to animal health but also to human health as well.6,8
An Uphill Battle: Why?
The state of veterinary student debt has continued to worsen due to a combination of factors. Most notably, the increased cost of attending veterinary school and the average starting salary for new veterinarians has lead to the student debt situation so many veterinarians are dealing with today. A large contributor to increasing tuition is the steady decrease in public funding for veterinary schools nationwide. When the United States built its first 10 veterinary schools, 9 of them were 100% funded by the government under the 1862 Morrill Act.18 Over the subsequent decades, the demand for veterinarians has changed. Originally, veterinarians were needed for agriculture and army care whereas in recent decades, the higher demand lies in companion animal medicine. This shift has made it seemingly easier for public funding sources to continue to decrease their support of veterinary schools. Decreased public funding has forced schools to offset expenses in other ways, most notably with increases in available seats and tuition. Since 1999, the average cost for tuition at a United States veterinary college has more than doubled from $10,549 in 1999 to $27,096 in 2015. Although this is not uniform across all colleges, all colleges have experienced increases of some degree. Tuition for in-state residents has increased across the nation, ranging from a 35% increase at University of Minnesota to 287% at Tuskegee University in Alabama.6,7,8 The steady increase in tuition has led to an increased need for students to borrow funds to cover these costs.14 It is important to note, however, that veterinarians still provide a public service regardless of the funding provided from the public. This concept is termed “market failure”. Market failure is defined as a state in which consumers are obtaining benefits without paying for them.6 While the public has been defunding public education, the real costs of operating these schools has risen.
Early career veterinarians spend an average of $11,000 annually, or 18% of their discretionary income, on paying back student loans.12 An analysis study published in the magazine DVM360 compared the expenditure patterns of early career veterinarians to the Bureau of Labor Statistics’ Consumer Expenditure Survey for Americans between 2014-2015. The study found that early career veterinarians are making an income within the 70th-80th percentile of Americans.12 However, early career veterinarian’s transportation expenditures matches the patterns of those in the 35th percentile and their recreation and leisure expenditure matches those in the 10th percentile of the population.12 This would imply that, early career veterinarians are sacrificing leisure and transportation to afford student loan repayments.
Types of Loans for Veterinary Education
There are three primary loans currently offered to prospective and current veterinary students: the Federal Direct Loan, the Federal Direct Grad PLUS Loan and the Health Profession Loan. The Federal Direct Loan is a guaranteed loan. This means that any veterinary student applying for this loan will receive it regardless of financial need. Students may borrow up to $40,500.00 for each year of school.10 Assuming veterinary education will take the average student four years to complete, the Federal Direct Loan will provide up to $162,000.00 per student. This is an unsubsidized loan, therefore interest starts immediately upon borrowing and will accrue the entire time one is in school. The Federal Direct Grad PLUS Loan is a credit-based loan. This loan is used as needed to meet any remaining educational and living expenses needed after the Federal Direct Loan. This loan is also unsubsidized. Since both of these loans are federal, the rates are determined by congress. For loans borrowed between 7/1/2016 and 7/1/2017, the rate for federal direct unsubsidized loans is 6.31% and the rate for direct PLUS loans are 5.31%.16 The third loan offered to veterinary students is the Health Profession Loan. This is a subsidized loan with a fixed 5% interest rate. This loan is granted to students on a “need” basis. Eligibility for this loan is determined by personal and spousal assets as well as one’s parents’ assets, regardless of parental contribution or lack thereof.10 In addition to these loans, many veterinary students also have debt from other life expenses including previous education, personal credit cards and a home mortgage. This is important to keep in mind when collectively considering the state of student debt and the overall well being of veterinary graduates.
Paying Off Student Loans
The repayment process for student loans begins 6 months after one stops attending school at a part-time status or higher. This period is commonly referred to as the “grace period”. Traditionally, lending and loan service companies will reach out to the individuals entailing how much they owe and how payments should be made. Deferment and forbearance can be granted if further schooling and training is pursued, this includes internships and residencies. However, it should be taken into account that interest continues during this period. Depending on how long one defers for, the additional interest could more than double the total cost of the loan and will greatly increase the life of the loan. Therefore, deferment and forbearance is offered with a strong degree of caution and is only recommends if you are at risk of defaulting on your loans. Defaulting on loan payments is handled by the credit bureau. A default affects your credit rating, which in turn affects your ability to borrow money in the future. Lenders and loan services are permitted to take legal action on defaulters, which may require payment via garnishment of wages and withholding of tax refunds.
It is imperative that students undertaking student loads understand the concept of interest. Many students accepting loans may not grasp that they will be paying back more than what they are borrowing due to interest on the loans. Loans are either subsidized or unsubsidized with interest rates that are either fixed or variable. Both of these factors can greatly affect the amount of money an individual will ultimately owe. The majority of veterinary students have federal loans, which for graduate students, as previously mentioned, are unsubsidized. For the average student who begins taking out loans in order to enter their first year of veterinary school, interest will accrue immediately and continue to accrue throughout school and after graduation until the entire amount is paid off. The interest rates of the federal direct loan and the federal direct grad PLUS loan are determined by congress legislature and the fixed rate is based on what the rate was when you took the loan out. Current and past interest rates are readily available on the Federal Student Aid website.16
A number of federal loan payback programs exist that will pay back specified amounts of an individual’s debt depending on the work new veterinarians pursue after graduation. One of the programs with the most debt coverage is the F. Edward Hebert Armed Forces Health Professions Scholarship Program (HPSP). The HPSP will pay an entire year of tuition as well as a $2,000 per month stipend for every year of service that the participant receives the scholarship. For qualified applicants, this can cover all 4 years of veterinary education. The army also runs the Army Active Duty Health Professions Loan Repayment Program which pays $120,000 of loans over 3 years for active duty officers and $75,000 over 3 years for officers in the reserves.18 Other organizations such as The US Department of Health and Human Services, the NIH and the National Veterinary Medical Services also run repayment programs which are further described on their respective websites. While these programs all offer substantial loan repayment, due to their specific requirements and often times very competitive application process, these cannot be realistic options for all students.
Most veterinary students enter into one of the three income-based repayment programs. The income based repayment plan (IBR) is one of these three programs. The IBR determines the maximum monthly payment to be 15% of discretionary income for a total of 25 years (300 payments).18 The second plan, the Pay As You Earn Repayment Plan (PAYE) determines the maximum monthly payment to be 10% of discretionary incomes for 20 years (240 payments). For both of these programs, the remaining balance after the 20 or 25 years is forgiven. When student loans are forgiven, the amount that is forgiven is subject to income tax on the full amount of forgiven debt.18 It is important to educate student borrowers that depending on how much debt is forgiven, this can move an individual into a different and higher tax bracket. In some situations, individuals have had to take out a new loan just to pay this tax. The third program is the Public Service Loan Forgiveness Program (PSLF) encouraging individuals to enter into public service jobs. With this plan, borrowers make maximum monthly payments of 10% of their income with loan forgiveness after 120 payments. The forgiven sum at the end of 120 payments is considered a “gift” and therefore is free of income tax.
The steady rise in student debt and the not so steady rise in starting salaries for new graduates poses an important question regarding the well being of students and veterinarians. Are students misinformed? Do students understand the implications of taking out student loans, the current financial state of the veterinary field and how long it can take to completely pay these loans off with interest? During the interview process for veterinary school, financial presentations are given at most schools to varying degrees of depth. A point that is often driven home is “you can follow your dreams even if you can’t afford to” accompanied by the introduction of the generous and guaranteed student loan programs. But what do the students really hear?
A study conducted at the University of Minnesota in 2013 addressed the concern of student awareness regarding education debt. The goal of the University of Minnesota study was to determine if incoming veterinary students were truly aware of the financial implications that often come along with a career in veterinary medicine. Incoming veterinary students were surveyed on what they thought the mean expected debt was for veterinary students and what the mean expected annual income for the first job after graduation was. The survey regarding salary excluded internships, residencies and other education programs. The results from the incoming first year students for average student debt and average starting salary were very realistic and close to real time averages. In summary, 75% of students said that the college of veterinary medicine had informed them of the expected debt after graduation.14 On average, based on student responses, first year veterinary students expected to be financially better off as a result of going to veterinary school.14 With that said, it cannot be assumed that this one group of students represents the entire population of prospective and incoming veterinary students. For example, these results could be due to a thorough financial orientation program specifically given at the University of Minnesota. To get a more comprehensive understanding of prospective student awareness, similar survey studies should be performed at all of the respective veterinary schools for incoming students. Alternatively or additionally, a similar survey could be required as a supplement to the Veterinary Medical College Application Service (VMCAS) application.
Another question that often arises is whether or not students borrow more than they need to because they don’t understand the implications. What are students spending this money on? The six main categories of expense for an individual in veterinary school are tuition and fees, living expenses (room and board), transportation, books and educational materials, veterinary equipment and “other” expenses. The top two areas requiring the most expense are tuition and living expenses.6 In 2015, the mean debt attributable to tuition and fees was $97,255 and the mean debt attributable to living expenses was $27,767.2 According to the Economics Policy Institute, a single adult with no children has an annual cost of living of $28,474.2 Interpreting this information with the average debt a student takes on to cover living expenses, one can assume the average veterinary student was financially under the necessary cost of living. Therefore, we cannot blame exorbitant living of students as the culprit for the student debt situation. And we therefore, cannot assume that students are not accumulating debt irresponsibly.2
Student Debt in the News
The AVMA, AAVMC and Michigan State University (MSU) College of Veterinary Medicine organized a three-day student debt summit in April 2016 to address this critical issue facing the veterinary profession. The goal of the 180 individuals in attendance was to create solution concepts and to formulate clear steps we can all take to work towards reducing the student debt load on veterinary students and new veterinarians. The measurable goal in reaching these solutions will be by using the debt to income ratio. The average DIR to date (2:1) is both unsustainable and unhealthy for any individual.6 An important point made by Joe Kinnarney, the president of the AVMA, was that “it is important to recognize that educational debt is more than just a financial issue; it is also a wellness issue.”13 With the increased awareness of the important of quality of life and wellness across all professions, it is important that the AVMA recognizes this as well so we can support the professionals in our industry and continue to attract the best and brightest prospective veterinarians whom we can trust with the future of our industry.13
In addition to playing a part in orchestrating the 2016 Student Debt Summit, MSU has been on the forefront of instituting change for their students. An article released in October 2016 stated that MSU has plans to restructure the entire curriculum with the help of MSU’s newly formed Hub for Innovation in Learning Technology. MSU has created 7 working groups to develop the specific plans for implementation. These groups include competencies, economics of higher and veterinary medicine, clinical experiences, educator development, curriculum models, wellness working group and student assessment.15 CVM posts updates on their website with the detailed status and progress of the curriculum changes. Their goal of posting all notes and thoughts is to formulate an outline that other schools can use to alter their curriculums in the future. Notes from the Clinical Education Working Group detail the outline for what competencies and curriculum will be addressed each year in school. A notable change is the introduction of significant clinical skills during the first year of schooling with the intention of having competencies reinforced during the clinical year rather than being introduced.5,15 And furthermore, it states that certain competencies should be mastered by the time the clinical year commences. There are still a few different options for how the entire 4 years will pan out but the goal is to have all details completed by spring of 2017 with implementation planned for Fall 2018 for the class of 2022. 5,15
The Employer’s Incentive
In corporate America, there is a growing trend of companies offering student loan repayment as a part of their benefits package. 92% of U.S. employers believe that such voluntary benefits and services (VBS) will be important to their employees’ value proposition over the upcoming years, compared to 73% in 2015.17 In 2016, 4% of employers were offering some form of loan repayment plans, up from 3% in 2015.17 Survey results and trends indicate that this could increase to 26% by 2018.17 Companies currently participating in such VBS plans include Aetna, PricewaterhouseCoopers and Chegg. The incentive for employers to provide loan payback plans or matching plans currently seems to be for recruiting purposes. A survey conducted by Iontuition in 2015 found that 80% of respondents would prefer to work for a company that offers student loan repayment assistance.19 However, there is current legislation that is working to make loan payments more favorable from a tax standpoint, in which employers may start to develop additional and stronger incentive to provide student loan benefits.19
We may be seeing the beginning of a trend in corporate America. However, there is no published evidence that this is happening with the veterinary profession or that there is an incentive to do so. The AVMA continues to lead the fight in imposing change for veterinary students and new veterinarians. The AVMA has stated their commitment to exploring all options that could help contribute to a solution for a better tomorrow for the profession. If the AVMA gets on board with this idea, who knows, maybe the veterinary employers of today will be the loan forgivers of tomorrow.
Comparison to Other Professions
Comparing the veterinary profession to itself over the years is useful to spot trends. It could be equally as useful to compare the veterinary medicine to other fields of study to see if similar trends occur in other advanced degree professions. A study published in the New England Journal of Medicine looked at different advanced degree professions to determine if they are in a “bubble market.” A bubble market is defined as a state where an asset trades for increasingly higher prices, as people who are hopeful about its future buy them. These assets are then sold to others who possess an even higher optimistic view of the value of such assets.1 This theoretical bubble “bursts” when a sense of lower intrinsic value appears. After a bubble bursts, the last buyers are stuck with something they paid too much for and can no longer unload. In relation to this topic, students are stuck with an education they paid too much for. The question the article sought to answer was whether or not US medical education was in a bubble market. Similar to the AVMA studies, this article also used the DIR to measure what students must borrow compared to what they can expect to earn. Published in 2013, the study found that there was a wide range in DIR’s across the human medical fields. Orthopedics and cardiology had the lowest DIR and therefore best return on investment (ROI) while family medicine and psychiatry had the highest DIR’s and therefore the lowest ROI’s.1 However, while the DIR’s for family medicine and psychiatry were high they do not quite qualify for the bubble market because the current medical doctor incomes can still sustain the debt of the average doctor, regardless of specialty pursued. The study goes on to compare human medical fields to other professional fields. Incomes for other fields have risen slowly while the cost for education has increased at a quicker rate. The study found that law, dentistry, pharmacy, optometry and veterinary medicine all had higher DIR’s than other fields in human medicine. However, by far the highest was veterinary medicine, which under the studies’ definition, qualified the veterinary medical field to be in a bubble market. The concern is that if we can’t continue to pay doctors and other professionals enough money to cover for the high costs of education, we will soon lose access to well-qualified individuals.1
In 2013, it appeared veterinary medicine was leading the way in the race to become a bubble market. However, in recent years there has been a similar trend in the law profession as well. The number of law school graduates per year exceeds the number of open job positions by a ratio greater than 2-to-1.3 How does this compare to veterinary medicine? To measure this, the net present value (NPV) was used. NPV provides a means of measuring the value of benefits and costs over time. That is, it measures whether the discounted future income in a particular field exceeds the costs incurred in obtaining the relevant degree. A positive value shows that the financial benefits of obtaining a particular degree are worth the expense, while a negative NPV indicates the expenses of the degree are higher than the financial benefits earned. The weighted average NPV using new lawyer median salaries was -$144,815. This indicates that the current costs of earning a law degree currently exceed the benefits.3 Veterinary medicine’s NPV is still a positive value, indicating that starting salaries would have to decrease to around $62,000 in order for NPV to reach zero. While veterinary medicine is currently maintaining a positive NPV, if cost trends continue and new veterinary schools and seats continue to become available, we will soon be dangerously close to a negative NPV and a bleak financial future for prospective veterinarians.
Tips for Students
Make a payback plan:
An article published by the Canadian Veterinary Journal calculated how much money could be saved in interest based on the rate borrowers pay back student loans. The standard recommended payback percentage in Canada is 14-15%.9 The article compared paying these percentage verses 21-22% and 27-29%. Given the average veterinary salary, this would result in paying $1200.00 per month when earning $4000.00 per month. While one would need to live frugally and cut back on personal spending, paying loans back at 27-29% can result in huge savings from deceased interest accrued as well as mental wellness from becoming debt-free sooner.9
Cost Comparison Tool:
The AAVMC has put together a tool for prospective veterinary students to better understand costs prior to committing to a school. This can be found at the AAVMC website: http://aavmc.org/Students-Applicants-and-Advisors/Funding-Education.aspx
Apply for scholarships:
All of the veterinary schools offer a variety of scholarship opportunities. Finding scholarships and applying for them takes additional research and effort but students can often be awarded thousands of additional dollars making the reward far outweigh the work involved. Research your local VMA’s, schools financial aid website and professional veterinary organizations to learn more about opportunities.
Become an In-State Resident:
2015 graduates who attended veterinary school who qualified as “in-state” had an average of $30,000 less in debt compared to non-residents.7 Many schools have the option of obtaining residency status during school, which can reduce tuition expenses. There is also the option to move in state prior to applying to the school of choice to solidify residency for all 4 years of school.
Many schools offer part-time jobs that can help offset simple living expenses throughout school. While a few hours per week may seem nominal compared to a multiple thousand-dollar loan, every little bit helps.
Glossary of Loan Terms:
Reading about student loans can get confusing if you aren’t familiar with the terminology. Visit the Federal Student Aid Glossary page to clarify your student debt vocabulary. https://studentaid.ed.gov/sa/glossary
Think long and hard before undertaking debt.
“The best way to manage debt is to have no debt. If this is not practical, let this be your goal. Avoid debt as much as possible. If not actively managed, debt can quickly accumulate. Therefore, make an intentional decision regarding debt. What does it mean for you to take on debt? What is your comfort level regarding it?” 4
- Asch, David A., MD, MBA, Sean Nicholson, PhD, and Marko Vujicic, PhD. “Are We in a Medical Education Bubble Market? — NEJM.” The New England Journal of Medicine21 (2013): 1973-975. New England Journal of Medicine. Web. 18 Jan. 2017.
- Bain, Bridgette, PhD, and Michael R. Dicks, PhD. “Are Veterinary Students Accumulating Unreasonable Amounts of Debt?” Journal of the American Veterinary Medical Association3 (2016): 285-88. Web.
- Barker, Sean, and Ross Knippenberg, PhD. “Law or Vet School Grads: Who’s Got It Worse?” DVM360 2016: 23-24. Print.
- Bullock, Joan R. M. “Managing Debt for the New Lawyer.” Law Practice 2016: 49-53. Print.
- “Curriculum Reinvention.” The College of Veterinary Medicine at Michigan State University. N.p., n.d. Web. 19 Jan. 2017.
- Dicks, Michael R., Bridgette Bain, Ross Knippenberg, and Lisa Greenhill. 2016 AVMA & AAVMC Report on the Market for Veterinary Education. Rep. N.p.: AVMA Veterinary Economics Division, 2016. Print.
- Dicks, Michael R., Bridgette Bain, Ross Knippenberg, and Frederic Ouedraogo. 2016 AVMA Report on the Market for Veterinarians. Rep. N.p.: AVMA Veterinary Economics Division, 2016. Print.
- Dicks, Michael R., Bridgette Bain, Ross Knippenberg, and Lisa Greenhill. 2016 AVAM Report on Veterinary Markets. Rep. N.p.: AVMA Veterinary Economics Division, 2016. Print.
- Doherty, Chris. “Minimizing the Cost of Your Veterinary Education: Saving through Expedited Student Debt Repayment.” Canadian Veterinary Journal 57 (2016): 91-93. Web.
- “Financial Assistance.” Penn Vet | Financial Assistance. University of Pennsylvania, n.d. Web. 12 Jan. 2017. <http://www.vet.upenn.edu/education/financial-matters/financial-assistance>.
- “Funding Education.” Get Help Paying for a Veterinary Medical Education. Association of Veterinary Medical Colleges, n.d. Web. 19 Jan. 2017.
- Johnson, Elizabeth, Ross Knippenberg, PhD, and Michael Dicks, PhD. “Can We Quantify the True Cost of Veterinary Student Debt?” DVM360 Magazine 17 Feb. 2016: n. pag. Veterinarynews,dvm360.com. DVM360 Magazine, 17 Feb. 2016. Web. 23 Jan. 2017.
- Kinnarney, Joe, DVM, MBA. “Alleviating Veterinary Student Debt: Putting Ideas into Action.” President’s Column 249 (1 July 2016): 8. Print.
- Lim, Christine C., DVM, DACVIM, DACVECC, Sam Schulhofer-Wohl, PhD, Margaret V. Root Kustritz, DVM, Phd, Laura K. Molgaard, DVM, and David Lee, DVM, MBA. “Financial Expectations of First-year Veterinary Students.” Journal of the American Veterinary Medical Association2 (2015): 196-203. Web.
- Campus + Health + Science & Technology. Restructuring Veterinary Medicine to Reduce Student Debt/Stress. MSU TODAY. Kim Ward, Julie Funk, Teal Amthor-Shaffer, 13 Oct. 2016. Web. 19 Jan. 2017.
- National Student Loan Data System. Federal Student Aid, n.d. Web. 12 Jan. 2017. <https://www.nslds.ed.gov/>.
- Willis Towers Watson. Employers Expand Use of Voluntary Benefits. Willis Towers Watson, 2 Mar. 2016. Web. 19 Jan. 2017. <https://www.willistowerswatson.com/en/press/2016/03/employers-expand-use-of-voluntary-benefits>.
- Zimmel, Dana N., and James W. Lloyd. “The Changing Fiscal Environment for Academic Veterinary Medicine.” Journal of Veterinary Medical Education5 (2015): 414-24. Web. 19 Jan. 2017.
- Zimmerman, Kaytie. “Which Employers Are Helping Millennials Repay Their Student Loans?” Forbes Under 30. Forbes, 23 Aug. 2016. Web. 20 Jan. 2017.