student debt
Student
Debt
and Private Practice
Private
practice is still a student-O.D.'s dream, but growing debt makes for a challenging
prognosis.
BY
ANGIE A. GHANAYEM, O.D., M.B.A.; DARCY L. GROSTICK, O.D.; RAJLEEN K. SABHARWAL, O.D.
Owning
a private practice is a goal for many optometric students. However, they also ponder
a crucial issue: Will their level of debt preclude them from owning their own practice?
With student indebtedness an increasing concern among optometric graduates in recent
years, many worry this might be the case. Because debt has received minimal study,
we surveyed approximately 550 students (in first, second, third and fourth years)
at the Illinois College of Optometry. We sought to investigate the impact and correlation
of student indebtedness on low private practice start-up rates in our profession.
Economic realities
Karen Angel, O.D., stated as long ago as 1988 that private optometric
practice ownership upon graduation may not be an option because of the economic
realities associated with the amortization of student debt. From 1960 to 1990, government
support of professional schools declined. This resulted in increased tuition fees,
often requiring students to borrow money to complete their education, says Redman-Bentley,
Ph.D. That trend continues — the Association of American Medical Colleges reports
that data from the Association of Schools and Colleges of Optometry shows student
indebtedness increased 64% over the last 10 years, with students who graduated in
1993 owing on average $64,089, and students who graduated in 2003 owing on average
$105,074. Many students are therefore graduating with debt the size of a home mortgage.
And while the cost of education and cost of living are increasing, the Association
of American Medical Colleges says that salaries for new optometrists are not increasing
at the same rate.
A 2004 survey by Hardigan, et. al, concluded that while students
clearly preferred private practice to all other practice options, their current
financial situations result in fewer choosing to open a practice or join an existing
practice after graduation. Part of the reason, the authors say, may be that established
optometrists are not likely to provide salaries consistent with new graduates' expectations.
The debt trap
A study published in Optometry, the Journal of the American
Optometric Association in 2004 reported that 55% of established optometrists chose
$59,000 or less as a fair salary for new graduates joining a practice, while more
than 80% of students felt that $60,000 or greater was fair. An evaluation of starting
salaries in various practice modes showed that corporate optometry paid the highest
salary, around $71,500, while employment by another optometrist paid the lowest
salary, around $58,080.
When we asked senior optometry students what they would prefer
to do with their training after graduation, the majority responded that they would
like to become involved in a private practice setting. Yet when asked what they
will do after graduation, the majority say they will practice commercially
until they pay off their loans, and then open their own practice. However, this
plan may well go awry for many.
As other authors have noted, while these students pay off their
debt, they typically take on new debt, such as home mortgages and car loans.
Examining the barriers
According to an article in Optometry, several facts are clear:
private practice is the most desired practice mode for new graduates; the average
cost of private practice start-up ranged from $75,000 to $100,000 and, an increasing
number of graduates are seeking employment upon graduation, with proprietorship
after three to four years of practice.
Starting up a new practice seems prohibitive to the new graduate
because they lack the equity necessary to obtain a small business loan, according
to Penelope Kegel-Flom, Ph.D. And as the highest-paying starting option, corporate
optometry seems the most likely to equip new graduates to handle their financial
concerns (cost of living, student loan payments, saving for a future practice, etc.). Further,
student indebtedness at graduation increases each year.
A 2001 survey by John Rumpakis, O.D., M.B.A., however, concluded
that 85% of doctors are willing to provide some financing in the sale of their practices.
Dr. Rumpakis also found that the three major reasons recent graduates enter corporate
practice are higher levels of education debt, overpriced practices for sale and
the tendency of "generation X" optometrists to seek greater initial compensation
than that offered by private practice optometrists.
However, numerous surveys have tried to disprove the theory that
student indebtedness is negatively correlated with the low number of optometric
graduates opening a private practice. Dr. Kegel-Flom reported in 1989 that Ferris
State University's seven-year study showed that regardless of financial costs associated
with private practice, most of the school's graduates chose this route. Dr. Kegel-Flom
also implied that more graduates were moving into group practice rather than starting
up cold and that relatively few joined corporate practice.
Larry McClure, Ph.D, of the Pennsylvania College of Optometry,
studied more than a dozen variables that can affect a student's eventual choice
of practice and found that 10 years after graduation, none of the variables, which
included student debt, showed a significant relationship with graduates' chosen
practice mode.
A growing burden
Recent increases in medical school tuition and high levels of
graduating student indebtedness have raised serious concerns among the medical education
community. Since 1984, there has been a 165% tuition increase for private schools
and 312% tuition increase for public schools, presumably in response to state government
budgets, states an article in Optometry from 1992. In recent scholastic years,
2002 to 2003 and 2003 to 2004, the Association of American Medical Colleges reports
that there's been a 5.7% private school and 17.7% public school tuition increase.
It is reasonable to assume higher tuition costs will lead to higher educational
debt.
A 2003 report from the American Medical Association found that
medical student debt at graduation has shown a 20-year trend of increasing at a
rate approximately 1% greater than inflation. This resulted in mean student debt
increasing 173% to an average of $104,000 as of October 2003.
It
is interesting that private-school indebtedness has increased more rapidly than
tuition. This indicates that other cost components have risen as well. Tuition made
up less than half the total cost of attendance at public medical schools and about
two-thirds of the cost at private schools in 2002. Living expenses are the second
largest cost after tuition, though as Kaufman pointed out, the lifestyle of students
today is quite different from what it once was.
What we found
In our own multiple-choice survey, we compared different optometric
years of study, age ranges and ethnicities. Most (multiple first-, second- and third-year)
students who responded averaged between 20 to 25 years of age, while fourth-year
students averaged between 26 to 30 years of age.
Regardless of professional year, students' first choice was to
buy into a private practice. Most respondents felt they would be able to practice
in their desired mode upon graduation regardless of their year; however, first-year
students were less confident. Fewer students in their third year responded that
they would eventually practice in their ideal mode.
If debt is not a factor, desire for solo practice upon graduation
appears to decrease with professional year; however, solo practice was still the
most preferred practice mode. The average respondent with greater than $200,000
of debt was between ages 20 and 25. Although one may assume older students have
increased debt secondary to greater responsibilities, the survey showed older students
had decreased their overall debt. The majority of respondents said they will graduate
with $150,000 to $200,000 of debt (see table on page 91). The lowest debt category
had the fewest respondents.
In our survey, more students (36%) want to start as an employee
at a private practice and buy-in; this decreases with professional year. It compares
with 17% who prefer to work in a group practice and 9% who preferred to work as
an employee in a private practice. In contrast, 6% of students preferred corporate
employment and 13% preferred residencies. The desire to practice in a corporate
setting is equal among various debt ranges. No trend was seen for practice mode
choice related to debt. Most respondents (approximately 85%) feel they will eventually
practice in their ideal mode, regardless of debt amount. Men were more confident
they would practice in their ideal mode, but the number of men responding was not
statistically significant. Increased debt seemed to make students more unsure of
their ability to practice in their ideal mode of choice upon graduation.
In general, when debt was not a factor, fewer respondents chose
corporate practice compared with the number of respondents who chose corporate practice
originally in our survey. Fewer respondents chose to be an employee at a private
practice if debt was not a factor. In addition, fewer respondents chose to work
as an employee with the option to buy-in to the practice, when debt was not a factor.
In
this case, the majority of respondents chose owning a solo private practice upon
graduation as their preferred practice mode. The same number of students who chose
residency originally also chose residency independent of debt.
Financing
The majority of students financed their optometric education with
federal loans (see table on page 88). The number of respondents who financed their
education themselves had the same results in each debt category. However, with increasing
professional year, fewer respondents financed their education them- selves. Those
who received funding from relatives had the least amount of debt. If debt was not
a factor, no students chose corporate as their preferred practice mode choice.
Those with more debt tended to believe that it would take a greater
number of years after graduation to reach ideal practice mode, estimating five years.
The higher their professional year, the longer they believed it would take. The
majority of respondents said they believed indebtedness makes obtaining loans more
difficult, regardless of their professional year. However, those in their fourth
professional year were more uncertain that indebtedness makes loans more difficult
to obtain.
Most of the respondents had taken debt management courses and
in higher scholastic years, these students were less likely to feel prepared to
open a private practice upon graduation.
Most students anticipated practicing optometric specialties. Students
who took a debt management course were more likely to specialize, as were respondents
with the least amount of debt. Those with the most debt were least likely to practice
a specialty. Regardless of debt, most students thought specialties were the most
profitable.
In general, the belief that specialties are more profitable does
not impact students' opinions about starting a private practice upon graduation.
Debt matters
Based on our data, we feel that student indebtedness does affect
the probability and feasibility of owning a private practice upon graduation. Of
those who want to be an employee in private practice, approximately half are unsure
that they will initially be able to practice in that mode, but they are 100% sure
they will be able to practice in a corporate setting, showing that students have
more confidence practicing corporate upon graduation. This may be another factor
aside from debt that impacts students' decision of practice mode choice upon graduation.
Further studies are necessary to understand debt and practice
issues. More students need to be surveyed. A comparison between married and unmarried
students would be helpful. It would also be interesting to explore the question
of why students feel it will take longer to reach their ideal practice mode of choice.
References available upon request.
The authors would like to thank the following people for their
contribution to the survey:
The Illinois College of Optometry Institutional Review Board committee,
Dr. Daniel Roberts, Dr. Rebecca Zoltoski, Dr. Dominick Maino, Dr. Jan Jurkus, Dr.
Walter West, Dr. Jian-wen Liao, and Dr. Richard Kattouf.
Dr.
Ghanayem is the Cornea and Contact
Lens resident at the UAB School of Optometry. Contact her at
aghanayem1@aol.com.
Dr. Grostick is working for a private practice
in the Chicago area. Contact her at grostickd@sbcglobal.net.
Dr. Sabharwal is working with an ophthalmologist
in a private practice setting. Contact her at
rajleen2020@yahoo.com.
Optometric Management, Issue: November 2006