Is more debt the way out of student debt? For many veterinarians, the answer may be ‘yes’

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Shortly after we released the executive summary of our VPI®-Veterinary Economics Financial Health Study at the North American Veterinary Community conference, I received a thoughtful e-mail from Dr. Richard Goebel, a colleague I have known and respected for years. He took issue with what he saw as a suggestion that young veterinarians were correct in being hesitant to add to their educational debt when it comes to buying a practice.

We at VPI agreed with his observation. We needed to address that perception and place that part of the study in  the proper context, and we did so in releasing a longer version in open sessions at the Western Veterinary Conference. We also made sure the point was stressed in assembling our panel for the discussion that followed my presentation of our study at WVC.

Different kinds of debt should be treated as such. That’s a point any financial planner can tell you, but one that many people who are not as financially savvy sometimes miss. Mortgage debt and educational debt are generally considered to be “good” debt, as most veterinarians and veterinary students know. Business debt could be “good” or “bad”, but for veterinarians it’s generally “good.” Moreover, buying a practice can often help a young veterinarian retire the burden of student loans more quickly.

Here’s what Dr. Goebel e-mailed to me after NAVC. It’s a powerful statement I think all associate veterinarians should read:

Thank you to VPI for stepping up and taking an additional look into the state of our companion animal practices and the veterinarians that work in them. While I have no quarrel with observations made in the collection of data, I think there has been some serious omission in the scope of data being considered.

For example, where is the data that shows that young veterinarians are unable to purchase a practice because of student debt? The lack of data to support this assumption is a serious matter and may result in discouraging many otherwise potential practice owners.

I worked as a practice valuator and broker in four Midwestern states since 1998. During that time I have participated in ownership transition of hundreds of practices. I know of two occasions where educational debt was so immense that the lender would not grant the borrower a loan to purchase a practice. Since more than 90 percent of our buyers are associates just 2-8 years out of school, this experience would suggest that to the vast majority, educational debt (as large as it is, and is still growing) is not a significant barrier to buying a practice.

I believe that my personal experience is likely to be mirrored by nine other Simmons offices around the country as well as practice brokers outside our Simmons group.

In the summary report provided at NAVC, it suggests correctly that practice ownership results in significantly higher incomes for practice owners. I posit that a recent graduate who desires to own and is qualified to own a veterinary practice should BUY the RIGHT practice in order to retire his/her educational debt at a rapid pace.

From the summary: “While many young veterinarians, especially males, would like to own a practice some day, burdensome student debt was the reason most often cited for making it unlikely that they will do so.”

My comments: 1) In a VetPartners survey conducted several years ago, it was determined women and men were buying practices in nearly equal numbers. I have no reason to believe that has changed based on subsequent observation. 2) Where are young veterinarians getting the impression they cannot “afford” to buy a practice? I believe it is because of the widely held but unsubstantiated assumption that educational debt is the barrier. 3) Young veterinarians buy a practice with clean credit, 2-5 years of work experience, in spite of lots of educational debt and with abundant funding by lenders and sellers.

From the summary: “Practice owners feel more comfortable from a personal financial standpoint, compared to associates, no doubt in part to a significantly higher income.”

My comment: This is precisely the reason young veterinarians, who have the desire and ability, should own a practice. The caveat of which they must be aware: They must buy the RIGHT practice. As noted in the study, many practices are struggling and should not be attractive to a young buyer.

From the summary: “Practice ownership is not realistic for many. While many associate veterinarians dream of owning their own practice some day, a majority consider the prospects unrealistic, due primarily to their high student debt load”

My comment: This kind of published conclusion is not helpful. It is also not accurate. There is enough discouraging news in our industry without creating discouragement that lacks data to support it.

I hope that my comments might be considered in a re-write of the summary document and also be considered in the anticipated discussion to be held at the Western Veterinary Conference.

Indeed, Dr. Goebel’s comments were considered; as a direct result, changes were made and the panel was adjusted for our open presentation to attendees at WVC. At VPI, we’re all very grateful for such constructive suggestions on this as on all matters, now and in the future.

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Proposed refinance options for student loans:  Sen. Elizabeth Warren this week introduced legislation that would allow those with existing student loan debt to refinance at lower rates. In speaking about the proposal she stressed that principal would have to be repaid in full as always, but that being able to refinance loans taken out for education would be similar to home-owners refinancing mortgages when rates drop. She argued that the ever-growing burden of student debt was slowing the economy, keeping many young adults from buying houses and moving into a middle-class lifestyle.

Does the proposal have any chance of passing? Slate’s business and economics blogger, Jason Weissmann, takes a well-informed look at the legislation, as well as at the politics  that will play out as the bill goes forward. His take seems to be, “Don’t hold your breath.”

On the plus side, the Veterinary Medical Mobility Act seems to be continuing its creep towards becoming law.