Let’s face it, student debt is a harsh reality for most veterinary students. In a bit of a catch-22, student loans are also necessary for many who dream of becoming a veterinarian. While it would be great to be able to invest in your education without incurring crippling debt, at this time that is more the exception than the rule.
So what options do you have? The best option is to be well informed and get as much information as possible to keep student debt from controlling your life after you complete your degree.
Student loan debt is common
Veterinary school debt is a common problem shared by many of your classmates and colleagues. According to the American Veterinary Medical Association the average vet school debt is around $150,000. With the median veterinarian salary being $99,250 (Bureau of Labor Statistics) veterinarians have one of the highest debt-to-income ratios of all professions. These statistics coupled with the fact that veterinarians enter the workforce four years after (or later if specializing) than other professions can put them at a significant delay toward building wealth.
Our goal is to provide education around the different types of student loans and help establish the framework toward eliminating this debt and taking ownership of your finances.
Paths Toward Eliminating Your Student Debt
There are three primary strategies to take when approaching student debt.
- Pay them off
- Have them forgiven
- Use a loan repayment program (such as Veterinary Medicine Loan Repayment Program)
Each strategy has its own advantages and disadvantages, and there is no one-size-fits-all approach. As a general rule of thumb, if your student loan debt is equal to or less than your salary, working to pay these loans off may be a better strategy. For example, if your income is $150,000/year and your student loan debt is $100,000 then working towards paying them off could be your best option. Conversely, if your student debt exceeds your income by 150% (salary of $100,000 and student debt of $150,000 or higher) then working towards forgiveness may be your best option. Again, this decision should be taken in the context of your overall financial plan and future goals and you should consult a qualified financial professional.
Types of student loans for Veterinarians
On a high level, there are two types: federal loans and private loans.
Federal loans are those issued by the Department of Education and can include:
- Direct loans
- Stafford pans
- Graduate loans
- Direct & Parent PLUS loans
- And others
There is a difference between federally owned loans and federally backed loans, and it’s important to know which you have. Federally owned loans and those owned by the Department of Education qualify for many of the forgiveness programs offered, while federally backed loans are offered by commercial lenders but since the loans are backed by the federal government they typically come with interest rates comparable to private loans. Federally backed loans usually do not have the option for forgiveness programs offered by federally owned loans.
Direct Subsidized Loans
Probably the best option for student loans, direct subsidized loans are only offered to undergraduate students and you must demonstrate financial need in order to be eligible. Subsidized loans also do not accrue interest while you are enrolled at least half-time, and traditionally come with a fixed interest rate.
Direct Unsubsidized Loans
Most likely your veterinary school loans will fall under the direct unsubsidized category as direct subsidized loans are not available to graduate and professional students. With these you do not need to demonstrate financial need and these also come with higher loan limits. Direct unsubsidized loans also come with a fixed interest rate over the life of the loan but unlike direct subsidized loans, interest will start accruing immediately.
Direct PLUS Loans (and Parent PLUS)
Direct PLUS loans are offered to both graduate and professional students, as well as eligible parents. Credit history will be a factor in whether you are approved for this loan, and the maximum PLUS loan amount you can receive is the cost of attendance (determined by the school) minus any other financial aid received. Interest rates for PLUS loans are higher than most other federal loans which should be a factor when considering PLUS loans.
Direct Consolidation Loan
A Direct Consolidation Loan allows you to consolidate multiple federal education loans into one loan at no cost to you. This will allow for one singular monthly payment as opposed to multiple monthly payments. This is also typically a requirement when considering using an income-based repayment plan.
Consolidation can be completed for free through the Federal Student Aid website. You should be cautious of third-party vendors offering to do this for you.
Private Loans
When applying for student loans outside of the Department of Education, such as through a bank or credit union, these are considered private loans. Like any other private loan you may apply for, credit history will be a factor and you may also need a co-signer who will be responsible for the payment if not made by the borrower.
Private loans, like unsubsidized loans, begin accruing interest immediately but offer higher borrower amounts. Some private lenders may offer options like forbearance and forbearance, but these are not guaranteed like they are with federal loans. Many students like the option of consolidating and/or refinancing federal loans into private loans for more favorable interest rates or payment options, but keep in mind this decision is irrevocable and may eliminate many of the advantageous benefits offered through federal loans.
Repayment Plans for Student Loan Debt
As discussed above, there are essentially three ways to approach student loans repayment:
- Pay them off
- Have them forgiven
- Using a loan repayment program (such as Veterinary Medicine Loan Repayment Program)
When the goal is to pay off your student loans, you should utilize a traditional repayment plan. Traditional repayment plans include:
- Standard
- Graduated
- Extended
- Private Loans
Standard Repayment
Standard repayment plans come with a fixed monthly amount over a 10-year period (or up to 30 years if you have a direct consolidation loan). While your monthly payment will be higher than with other repayment options, you will be guaranteed to have your loans paid off in a decade and pay the least amount of interest than other plans.
Your federal loans will be automatically enrolled in this plan upon graduation unless you decide to switch. Standard repayment is the most straightforward of all repayment plans. This is not a qualifying plan towards PSLF (Public Student Loan Forgiveness).
Graduated Repayment
Similar to standard repayment, graduated repayment comes with a fixed 10-year repayment amount, but this amount starts lower and increases every two years as your income presumably increases as well. Increases will not exceed three times any previous payment and will ensure your loans are paid off within 10 years (or up to 30 years if you have a direct consolidation loan). This is not a qualifying plan towards PSLF (Public Student Loan Forgiveness).
Extended Repayment
The extended repayment plan uses either a standard or graduated payment option, but increase the length of time to pay off the loans to 25 years as opposed to 10. This option should only be considered for those who are struggling to pay loans off and whose payments on a 10-year plan are burdensome. Because of the repayment period length, this option will result in a higher total amount of interest being paid than either the standard or graduated 10-year plans. This is not a qualifying plan towards PSLF (Public Student Loan Forgiveness).
Private Loan Repayment
For those with private loans, because they are not administered by the Department of Education, there may be a myriad of options available to you depending on the lender. Be sure to ask what programs are available and consider consolidators like Credible or SoFi when consolidating or refinancing. Again, for those with federal loans who may look into consolidating/refinancing with private lenders for more favorable terms, this decision cannot be undone and options such as deferment and forbearance may no longer be available.
Income-Driven Repayment Plans for Veterinarians
When graduating vet school with significant student debt and lower incomes, a traditional repayment plan may not be ideal. When this is the case, an income-driven repayment plan may be the most optimal. These plans include:
- PAYE
- REPAYE
- IBR
- ICR
- ISR
Income-driven repayment plans are a great option for those with low incomes compared to their overall debt and those working towards forgiveness. Because the amount you pay is based on your income, these plans will require an annual update and the amount you pay can fluctuate.
Pay As You Earn (PAYE)
With PAYE, your monthly payments are calculated as 10% of your discretionary income, which is the difference between your adjusted gross income (commonly found on line 11 of your 1040 Tax Return) and 150% of your federal poverty level. PAYE guarantees your payments will never be as large as they would be under the 10-year standard plan. You must have experienced a partial financial hardship to qualify for PAYE.
After 20 years of payments, the remaining loan balance will be forgiven. It is advisable to plan accordingly as the law written as of June 2021 states any loan balance that is forgiven will be considered taxable income. You need to have a plan in place to pay for this ‘tax-bomb**.’
PAYE is generally a better option for married borrowers where both spouses have an income.
** The American Rescue Plan Act passed in 2021 provides relief to students with government and federal student loans by allowing students with forgiven loan debt to exclude the discharged debt from their taxable income for tax years 2021 through 2025.
Revised Pay As You Earn (REPAYE)
Introduced in 2015, REPAYE differs from PAYE in that anyone with qualifying loans is eligible and no hardship is required. Payments for REPAYE are calculated by taking your adjusted gross income (line 11 1040 Tax Return), subtracting 150% of the federal poverty level to get your discretionary income amount (this includes your spouse’s income regardless if you file jointly or separately). Payments are 10% of your discretionary income, but unlike PAYE payments have no cap, and could be higher than they’d be on the standard plan.
The repayment period is 20 years for undergraduate loans and 25 years for graduate loans. After completing all payments, the remaining loan balance will be forgiven. It is advisable to plan accordingly as the law written as of June 2021 states any loan balance that is forgiven will be considered taxable income. You need to have a plan in place to pay for this ‘tax-bomb**.’
REPAYE is typically better for single borrowers and those who don’t qualify for PAYE.
** The American Rescue Plan Act passed in 2021 provides relief to students with government and federal student loans by allowing students with forgiven loan debt to exclude the discharged debt from their taxable income for tax years 2021 through 2025.
Income-Based Repayment Plan (IBR)
Most federal student loans are eligible for IBR plans, with the exception of Parent PLUS loans or other federal loans made to parents. For new borrowers on or after July 1, 2014, payments are capped at 10% of discretionary income and the repayment period is 20 years. For borrowers before July 1, 2014, payments are capped at 15% of discretionary income and the repayment period is 25 years. Like PAYE, your payments will never be more than they would have been under the Standard 10-year plan.
If you are married and file jointly, your spouse’s income will be included in the calculation. Like PAYE & REPAYE when working toward forgiveness plan ahead for the tax-bomb** that will be due on the amount of loan that is forgiven.
** The American Rescue Plan Act passed in 2021 provides relief to students with government and federal student loans by allowing students with forgiven loan debt to exclude the discharged debt from their taxable income for tax years 2021 through 2025.
Income-Contingent Repayment Plan (ICR)
Eligible for most federal student loans, and is the only income-driven repayment plan for Parent PLUS loan borrowers. To qualify, parent borrowers must consolidate their PLUS loans into a Direct Consolidation Loan and then repay under the ICR plan.
Monthly payments are based on 20% of your discretionary income and because your payment is always based on your income and family size, if your income does increase over time in some cases your payment may be higher than the amount you have to pay under the 10-year standard repayment plan.
Student Loan Forgiveness
One of the options outside of traditional and income-driven repayments plans to eliminate student debt is through a loan forgiveness program. The biggest benefit of loan forgiveness programs over other income-driven repayment options is the ability to have the loan forgiveness amount exempt from taxation, meaning no ‘tax-bomb’ once forgiven. There are a few to consider, some of which are specifically designated toward veterinarians.
Public Student Loan Forgiveness
One of the more popular student loan forgiveness programs, Public Student Loan Forgiveness (PSLF), is offered to any individual with eligible student loans. PSLF, traditionally, is a great path for attorneys, teachers, and human doctors but not so great for veterinarians. Why? PSLF requires work for an eligible employer, like a non-profit shelter or government agency. After making 10 years of payments on an income-driven repayment plan, you can then apply for loan forgiveness. The main issue lies with most veterinarians having difficulty working in one of these roles for the 10 years required, either due to burnout, lack of satisfaction, or sometimes even direct conflict with why they pursued veterinary medicine (ex. Lack of care & funding for animals at shelters). There also are just not too many of these positions available to make PSLF a viable option for most.
Veterinary Medicine Loan Repayments Program (VMLRP)
The VMLRP pays up to $25,000 a year in exchange for serving in a designated shortage area for 3 years. While this program can be competitive, it is not widely known and can be a great option for those looking or willing to work in these designated shortage areas. I encourage you to get more information from this article by Student Loan Planner which will provide much more detail into the program, including how to apply.
Health Professionals Loan Repayment Program (HPLR)
This program, offered by the US Army Health Department provides up to $120,000 annually for the repayment of loans to veterinarians. It does require a 3-year commitment and is paid annually over 3 years at $40,000/year.
State Specific Loan Forgiveness Program
At the time this article is written, 11 states of assistance in paying student debt. They are Colorado, Georgia, Kansas, Maine, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Vermont, Wyoming. This article from Student Loan Hero does a great job highlighting each state’s benefit and it is encouraged to contact your state’s veterinary association for more information on these programs.
Consolidating vs. Refinancing your student loan debt
As mentioned previously in this article, refinancing your student loans to a lower interest rate may make sense, but caution is urged for those who refinance federal loans into private loans. This would eliminate most options for income-driven repayment plans, loan forgiveness options, and in many instances deferment & forbearance (discussed later).
These terms, consolidation & refinancing, are often used interchangeably but are actually quite different. Refinancing is the act of taking out a new loan to pay off existing student loans, ideally by locking in a lower interest rate thus paying less in interest over the life of the loan. This is similar to refinancing a mortgage on a home. For those with private loans who are able to refinance to a lower rate, this could be a great option.
Consolidation, put simply, allows for existing loans to be consolidated into one new loan. This can reduce the number of payments you make into one which can make it easier to plan for and organize.
When refinancing and/or consolidating, do your due diligence to understand the options available to you and get quotes from multiple lenders.
Hardship Options
Sometimes life happens and you may be in a situation where you are unable to make your student loan payment. If you have qualifying federal loans, deferment and forbearance could be available to you.
Deferment
Deferment relates to the temporary suspension of your monthly repayment obligation. Typically a 6-month break, this could help avoid going into default. While in deferment, even though payments are not due your loans will still continue to accrue interest. Reasons to request a deferment may include, but are not limited to the following:
- Cancer Treatment Deferment
- Economic Hardship Deferment
- Graduate Fellowship Deferment
- In-School Deferment
- Military Service and post-Active Duty Student Deferment
- Unemployment Deferment
Read more about the types of deferment options and eligibility requirements by visiting the Federal Student Aid website.
Forbearance
Similar to deferment, forbearance can pause payments as well, with interest continuing to accrue in most cases. There are two types of forbearance; General & Mandatory.
- General forbearance: Available for Direct, FFEL Program loans, and Perkins Loans, general forbearance relates to financial hardships, medical expenses, or change in employment that causes a drop in income
- Mandatory forbearance: Certain eligibility requirements apply, but with a mandatory forbearance a loan servicer is required to grant you the forbearance. Examples include; serving in a medical or dental residency program, payments are greater than 20% of your income, active member of the National Guard, among others.
Deferment or forbearance should be a last resort, and an alternative to both options would be to look at income-driven options.
Cancellation of Student Loan Debt for Veterinarians
Student loans may be cancelled under a few circumstances listed below:
- Death- Guaranteed for federal student loans, but not always for private loans. Inquire with your lender or loan servicer to see if death is a circumstance which qualifies for cancellation if you have private loans
- Permanent Disability
- School Closed- This has been witnessed recently by the Department of Education forgiving student loans to students of ITT.
- Bankruptcy- Student loans, whether federal or private, typically are not discharged in bankruptcy. To be discharged, some courts may use a few tests, one of which is referred to as the Brunner test which says you can discharge your student loans if you meet ALL three factors:
- Poverty. Based upon your current income and expenses, you cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loan.
- Persistence. Your current financial situation is likely to continue for a significant part of the repayment period.
- Good faith. You have made a good faith effort to repay your student loan.
What should veterinarians do now?
If you’re an undergraduate student, you have time to limit the amount of loans you take out. Attending community college for two years to complete your core classes, staying in-state, taking advantage of any state scholarships for either merit or need-based aid, visiting your schools financial aid office to inquire about scholarships or grants available can all help reduce your student loan burden.
If you’re looking at vet school, again is there an in-state school that offers reduced in-state tuition? State specific or school specific scholarship or grants?
And if you’ve already graduated and you’re excited to begin putting your years of training to good use, but the idea of reckoning with your student debt gives you anxiety, know you have options. From consolidation, refinancing, income-driven plans, and loan forgiveness programs you can put a plan together to get a handle on your student loan debt and work towards increasing your income potential and net worth.
Student Loans and Veterinary Practice Ownership
One of the best ways to build wealth and pay back student loans as a veterinarian is to become a practice owner. On average, practice owners earn almost $200,000 more than the average associate! However, many veterinarians believe that with such a high student loan debt, practice ownership is not a viable option. In fact, many lenders specifically exclude student loan debt when calculating net worth, and certainly understand that student loans are simply a part of being a veterinarian. Veterinary medicine is one of the most low risk investments for banks and lenders are willing to work with vets even with the presence of student loans. For more information, read how How to become a veterinary practice owner with high student loan debt.
Student loan repayment from employers
Through the Consolidated Appropriations Act of 2021 (CAA), employees may be able to receives employer-provided student loan repayment of $5,250 maximum per employee per year as a tax-free benefit through December 31, 2025. The benefit is tax-exempt for the employer and is tax-free for the employee. The benefit can also be made directly to the employee or to the loan servicer, and which is better depends on your repayment plan.
If you are working toward traditional repayment, having the benefit go directly toward the loan servicer can help reduce the balance of your student loans, resulting in less owed.
If working toward forgiveness, whether through a forgiveness program or income-based repayment plan, a lump sum reduction to your student loans wouldn’t affect you much since you intend to have a balance forgiven anyway. Receiving payments directly would benefit you more in this situation.
Currently only about 8% of employers offer this benefit.
Professional Help
Lastly, knowing the ins and outs of student loan debt is not why you went to vet school. Seeking professional help from a qualified financial professional who specializes in working with veterinarians may provide tremendous value on your financial journey. I have provide a few veterinary specific resources at the end which can aid in acquiring additional information and in how to select the right professional for you.
Andrew Langdon is a CERTIFIED FINANCIAL PLANNER™ and the founder of VetWorth, a fiduciary fee-only financial planning firm dedicated to serving the unique needs of veterinarians and their families.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Andrew Langdon, and all rights are reserved. Read the full Disclaimer.
Resources
VIN FOUNDATION- Student Debt Center
