M&M Rounds: Expensive School

During M&M rounds, we will examine some fictitious cases and evaluate the facts and consider some solutions to these problems.

Jasper is a 26-year-old Caucasian female presenting for just getting accepted into an expensive veterinary school.  She has been struggling to get into vet school since she graduated from undergrad, and so finally decided to apply to private schools to increase her chances of acceptance.

Jasper’s history is that she has wanted to be a veterinarian since she was 5, when her family’s Golden Retriever got sick and Dr. Martin helped him feel better.  Although she shadowed vets and had plenty of hours of experience, her grades throughout undergrad were fairly poor.  She has been working at veterinary clinics since graduation, and has applied to her state school and other inexpensive schools every year since.  She has never even gotten an interview, so she applied to a private school this year and got in.

As tuition will be upwards of $60,000 per year, she will owe at least $240,000 at graduation.  This does not include living expenses, books, and anything else that might happen, like a car breakdown.  So let’s add $120,000 for those, for a total of $360,000.  Unfortunately, if her debt:income ratio is greater than 2:1 (that is, her debt is $360k and her salary is less than $180k), she will never be able to pay this amount off without Public Service Loan Forgiveness (PSLF) or income-driven repayments (IDR).  Let’s break down why.

Let’s assume Jasper gets the mean income for a new 2019 graduate in small animal practice of $90,000.  How much debt accumulates on that loan amount every year?  At a 7% interest rate, Jasper has $25k in interest she will need to pay off, in addition to the principle.  If Jasper pays just 15% in taxes, that’s another $13k.  If Jasper can live very frugally, maybe her expenses are $30k a year.  That leaves $22k a year to pay down debt and contribute to retirement.  Forget about contributing to her future kid’s college savings.  Let’s say she gets an employer match up to $10k for her retirement, so she contributes $10k to retirement, leaving $12k for her student loan.

How long does it take to pay off $360k at $12k a year?  $360/$12 = 30 years.  Jasper will be 60 years old, won’t have contributed to her kids’ college savings, and will have lived a very frugal life for 30 years.  No buying a house, no buying a new car, no vacations, no eating out.  Do you really want to have gone through vet school to live life on $30k a year?  The debt is too large for the potential income.

The treatment for Jasper is simple, but it isn’t easy.  The treatment is two fold.  One, borrow as little as possible by living extremely frugally during vet school.  Two, get a very high paying job on graduation in a low cost-of-living area.  Working ER in Phoenix and taking 26 shifts a month is an example.  If Jasper only spent $20k on living expenses during vet school, rather than $30k, her debt would be down to $320k, making her payoff time 21 years.  She’d be 51 by the time she pays it off.  Still not great.  If she also gets a high-paying job, let’s say $110k, her payoff time would be 9 years.  That still involves living a very frugal life for that time.  She will be making a six-figure salary but living like a student for 9 years.

Going with PSLF would mean her debt is paid off in 10 years AND she doesn’t have to pay taxes on that payoff.  Academia is looking pretty good now.  Internship and residency years can count for this (if they are in a state or 501c3 institution), so that’s only 6 years earning a faculty salary to be debt-free.  Income-driven repayment (IDR) is also an option, but it will still take 20-25 years for the debt to be gone and she will have to pay taxes on the forgiven amount.

Going to an expensive school will affect every decision you make for the subsequent 10-30 years of your life.  Is that really the route you want to take?  I think students go to expensive schools because they don’t run the numbers.  Or maybe they have an idealized dream of, “But I HAVE to be a vet, no matter the cost!”  Frankly, I think that’s a child’s sentiment.  Adults should make better decisions.

I think there’s only one lesson here: DO NOT TAKE ON MORE THAN A 2:1 DEBT:INCOME RATIO TO PAY FOR VET SCHOOL.

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