The trends in mean earnings are also reflected in starting salaries, which began to rise in the late 1990s. Figure 10-3 shows the starting salaries of all DVMs in 1980-1982 and of large- and small-animal DVMs thereafter. The salaries shown are of those who enter each type of practice with a DVM and no further training. The starting salaries of small-animal veterinarians set the pace. The starting salaries of large-animal veterinarians, which numbered fewer than 3 dozen reporting in most years, show substantial year-to-year variability. Figures 10-2 and 10-3, when considered in light of the number of new graduates entering the workforce, discussed later in this chapter, suggests that a surge in the number of new DVMs as in the 1980s led to lower earnings and that constrained growth in the number of new DVMs as in the 1990s led to higher earnings. The current trend is toward increasing numbers of graduates. The starting salaries can be better understood in the context of the flow of new graduates, as shown in Figure 10-4. Some 30-40% of new DVMs who reported their first positions begin their careers in exclusively small-animal practices. Less than 4% begin in exclusively large-animal practices. The biggest change over the last decade, however, was in the share of those who had post-DVM training, going from 16% in 1999 to 49.2% in 2011, the majority of whom pursued post-DVM internships. Advanced training in specialty fields is playing a much larger role in the career paths of DVMs, as is discussed a little later in this chapter.
The Effect of Student Debt on the Rate of Return
Education that generates a high financial return to students might justify student borrowing to pay for some of the education. Borrowing, however, involves two limits. First is the need for an income stream large enough to repay the loans, on average. When the rate of return on the added education is low, the extra income needed to repay loans may not be forthcoming. The second limit on borrowing is on wealth. Some fraction of students will suffer personal reversals, accidents, or illness or discover a mismatch in their career. If they cannot call on other wealth to repay the loans, they will be forced into personal bankruptcy or into earning permanently low incomes, with severe consequences. Students have access to loans that they may not be able to repay. The average debt of new DVMs who had loans (about 90% of all new DVMs) was $142,613 in 2011. The average starting salary was $69,789 for exclusively small-animal veterinarians, the dominant group (Shepherd and Pikel, 2011). The ratio of debt to starting salary was 2.04. At the current (2011) rate of interest on student loans (6.8%), the annual debt service for $142,613 will be in excess of $18,000 per year for a 10-year payoff. This would put the debt at about 25% of the first year of income of an associate. Financial-aid professionals use a rule of thumb that the annual debt service on student loans should not exceed 10% of earnings (University of Minnesota, 2010). By that rule, an annual income of more than $180,000 would be necessary for DVMs to sustain the average annual debt repayment of $18,000 without imposing a difficult burden on themselves. For