THE BUSINESS OF PRACTICE: MANAGING PRACTICE CHALLENGES AND OPPORTUNITIES


student debt load. This presentation will concen- trate on currently available student debt repayment methods, as well as some real-life examples and tips from graduates who have successfully managed their debt. There are a number of options available through various government agencies and programs that are designed to facilitate student repayment. Follow- ing is a summary of these available options.


2. Public Service Loan Forgiveness


The public service loan forgiveness is a government sponsored program designed to forgive any remaining student debt, and to do so tax free, after a total of 120 on-time payments have been made toward that debt (https://studentaid.ed.gov/sa/repay-loans/forgiveness- cancellation/public-service). These 120 payments must be made in conjunction with employment at an approved employer—defined as a government entity, a 501(c)(3) non-profit, or some other non-profit that provides a public service. In theory, it is an opportu- nity for graduates of a professional program to devote 10 years to public service work while making mini- mum, income-based payments toward their debt, and subsequently have any remaining debt forgiven. However, debt is not automatically forgiven; instead a Public Service Loan Forgiveness application must be submitted after completion of all requirements, and there have been reports of difficulty getting applica- tions approved. Additionally, there are relatively limited opportunities for qualifying employment in veterinary medicine, making this option nonviable for many graduates.


3. Veterinary Medicine Loan Repayment Program


This is a government-sponsored program that will repay debt up to $25,000 per year over a period of 3 years, in exchange for agreement to work in desig- nated public service jobs or in specific private prac- tice areas that have been designated as areas of need. States, regions, and other government or nongovernmental entities first need to apply for their area or need to be designated as such. Once they are made part of the program, positions are advertised through federal governmental channels. The majority of these private practice positions are in mixed practice, with an emphasis on livestock and food animal service, which limits opportunities for those interested in equine practice.


4. Income-Driven Repayment


Income-driven repayment (IDR) plans were intro- duced to provide options for graduates for whom the standard repayment plan, based on equal payments over a period of 10 years, resulted in monthly pay- ments that were not affordable. This is often the case in veterinary medicine, especially in the equine sector. There are several different IDR plans. Determining which is best for each individual situ- ation might require consultation with a qualified financial advisor. Plan options include:


122 2019  Vol. 65  AAEP PROCEEDINGS Income-based repayment (IBR)—payments are


capped at 10% of discretionary income for all loans taken out after July 1, 2014, and 15% of discretion- ary income for all loans taken out prior to that time. Any remaining balance is forgiven after 25 years. Pay as you earn—10% of discretionary income as


amonthly payment, with loan forgiveness at the end of 20 years. Revised pay as you earn—10% of discretionary


income toward debt, remainder forgiven after 20 years for undergraduate debt, 25 years for post- graduate debt.


Income-contingent repayment—for those loans


failing to qualify for other IDR options, repayment set at 20% of discretionary income, or based on an amount amortized over 12 years. Forgiveness oc- curs after 25 years. A common aspect of all of the above IDR plans is


that any forgiven amount at the end of either 20 or 25 years is considered taxable income. In addition, the combination of high debt loads (often over $200,000) with relatively low income levels, can re- sult in IBR plans that do not cover the cost of inter- est, resulting in loan balances that increase over time, rather than decrease. Nonetheless, common advice from financial planners is for practitioners early in their career to use an income-based repay- ment plan and then save as much money as possible in order to be able to pay for the tax liability asso- ciated with debt forgiveness at 20–25 years.


5. Standard Repayment


The standard student loan repayment plan is based on equal payments over a course of 10 years, resulting in complete payoff of the loan at that time. This plan is feasible for those with relatively small debt loads but becomes unwieldy for those with a high debt-to-income ratio and with current student loan interest rates over 6%. It is rare for a veterinary student to graduate without a 6-figure student loan, which puts almost every new graduate equine veterinarian in the high debt-to-income-ratio category. Based on the options described above, one can


see where many recent veterinary graduates wish- ing to practice equine medicine are caught be- tween the proverbial “rock and a hard place” in terms of student debt. High debt loads result in unaffordable payments based on a standard re- payment plan and payments, which only margin- ally touch the principal balance on income-based repayment plans. Recent graduates have been counseled to adopt the income-based repayment plans, save every penny they can, and target it toward the eventual tax liability that will occur when their loan balance is forgiven. While this may be sound advice on an individual basis, it points to a significantly flawed system in general. In addition, it leaves graduates vulnerable to changes in administration and associated changes in repayment plans.


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