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.

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.

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.