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In recent months, the issue of student debt has been at the forefront of many discussions within the veterinary community. Economists with the American Veterinary Medical Association (AVMA) have gone so far as to question the return on investment on a veterinary education, given that the average debt load that American veterinary students graduate with has reached $135 000 (1).
In Canada, we are fortunate to typically have substantially lower tuition fees compared to our colleagues south of the border. That being said, many students in this country still graduate with significant debt.
During the fall season of 2015, the Canadian Veterinary Medical Association’s Business Management Program partnered with the respective provincial veterinary medical associations to commission a Survey of Compensation and Benefits for Associate Veterinarians within each province. While the primary purpose of this survey was to gather information on compensation, hours worked, and benefits for associate veterinarians, a number of questions relating to student debt were also asked. In order to standardize the population examined, only data from those respondents who attended a Canadian veterinary college, and paid domestic student tuition, were included in this analysis.
According to the 2015 provincial associate surveys, 75% of Canadian veterinary college graduates between 2013 and 2015 graduated with student debt. Of those with debt, the median owed ranged from $40 000 to $65 000. The median debt of all graduates from 2013 to 2015 was $51 500 (Table 1).
The median annual compensation of all graduates from 2013 to 2015, employed as associate veterinarians, was $71 000. The Canada Revenue Agency (CRA) Payroll Deduction Calculator allows us to accurately estimate a monthly net income (after taxes and deductions) from this median figure for annual compensation (2). Using an annual compensation of $71 000, monthly net income ranges from $4022 to $4368, depending on the province of employment.
Assuming a repayment of $600 (14% to 15% of median net income) and an interest rate of 3.7% [as is currently being advertised by Canadian financial intuitions for veterinary student lines of credit (3)], a recent veterinary graduate paying down their debt of $51 500 can expect to have it paid off after 8.3 years. Holding debt for this amount of time will cost these graduates almost $8500 in interest (Table 2).
By increasing monthly student loan payments by 50%, recent veterinary graduates can save meaningfully on the interest they pay over the course of holding their debt. Paying $900 (21% to 22% of median net income) a month would reduce the time required to pay off a $51 500 student loan to just over 5 years, with approximately $5200 paid in interest. This results in saving more than $3100.
By being even more aggressive and increasing monthly repayment to 100% above the original figure of $600, recent veterinary graduates can earn themselves greater savings. Committing $1200 (27% to 29% of median net income) each month towards paying down a $51 500 student loan, the debt can be erased in less than 4 years, and cost under $4000 in interest; a savings of over $4500.
Dedicating $1200 towards paying down student debt can be a manageable target to strive for, especially with a median monthly net income of over $4000. It will necessitate frugality in other areas, but the payoff in saved interest makes it a worthwhile goal. The added bonus is the mental satisfaction that many people realize from being debt-free.
For many of Canada’s veterinary students, student debt is necessary in achieving their educational goals. By taking an aggressive approach to paying down this debt after graduation, it is possible to save over $4500 in interest payments. Better to keep this $4500 for oneself, rather than handing it over to financial institutions, simply for the privilege of staying indebted for longer.
This article is provided as part of the CVMA Business Management Program, which is co-sponsored by IDEXX Laboratories, Petsecure Pet Health Insurance, Merck Animal Health, and Scotiabank.
Use of this article is limited to a single copy for personal study. Anyone interested in obtaining reprints should contact the CVMA office (gro.vmca-amvc@nothguorbh) for additional copies or permission to use this material elsewhere.