Let’s cut to the point. The debt load pharmacy graduates are facing is rising at an alarming rate that is faster than that of other health professions.
For the class of 2016, the median debt load for a pharmacy graduate was $150,000. In 2009, that figure was $100,000. Below is a chart depicting the amount of debt owed upon graduation for the classes of 2009-2016.
Ref: AACP Graduating Student Survey, 2009-2016
Making Sense of the Rising Debt Load
What does all of this increase in student indebtedness mean?
First, unless the average pay for a pharmacist increases in a significant way, the upward trend in student debt is unsustainable. The income: debt ratio for a graduating pharmacist continues to decrease; meaning the debt load is growing at a faster rate than salaries are increasing. In 2009, the median annual income for a pharmacist (according to the Bureau of Labor Statistics) was $109,180. Considering the median debt load in 2009 was $100,000 for a pharmacy graduate, the income: debt ratio was 1.09. Fast-forward to 2014 where the median annual income for a pharmacist was $121,500 and the median debt load was $150,000; an income: debt ratio of 0.81. (Note: A new graduate is not likely to be making the median income of a pharmacist represented in this data. Therefore, it can be assumed the ratio is slightly lower than represented in these examples).
So what’s the big deal with a declining income: debt ratio for a graduating pharmacist? As the debt load continues to outpace salary increases, the amount a graduate has to pay towards student loans each month goes up and the net income he/she has available is less. Another way to think about this is that the purchasing power of a pharmacist’s income has eroded to some degree over the past decade. The return on the investment of the pharmacy degree is still very good but nonetheless decreasing from where it once was. Less student loans would mean more available income each month to the pharmacist to save for retirement, purchase a home, make sure a good emergency fund is in place, save for kids’ college, give to charity and so forth.
Second, while indebtedness for those attending private and public schools have increased at approximately the same rate over the past 7 years, students graduating from public schools in 2016 had $62,000 less that they owed compared to their peers graduating from private schools. Considering many graduate loans are unsubsidized with interest rates at or above 6% in recent years, this is a significant difference. Let’s look at two graduates from the class of 2016, Lindsey and Paul to highlight this difference.
Lindsey graduated from a public school with $130,000 in debt and Paul graduated from a private school with $192,000 in debt (Reference: Median amounts of debt for public and private school graduates, respectively, from the 2015 AACP Graduating Student Survey). Let’s assume both had interest rates on those loans of 6% and both opted into the 10-year standard repayment plan. Under these assumptions, Lindsey will have a monthly student loan payment of $1,443 and Paul will have a monthly payment of $2,131. When it is all said and done (120 payments later), Lindsey will have paid out $173,192 ($130,000 in principal + $43,192 in interest) and Paul will have paid out $255,791 ($192,000 in principal + $63,791). So while the debt load at graduation was ‘only’ $62,000 more for Paul compared to Lindsey, that figure becomes larger ($82,599) when you account for interest. (Note: If a repayment plan of longer than 10 years is chosen, this gap becomes even wider as interest accrues over a longer period of time).
Third, this trend of greater student debt in relation to income is a dangerous trend that we should all be concerned about. Rising student loan debt could lead to:
- Increased stress and anxiety. Enough said there. We all know the unsettling feeling when our finances aren’t in order and we are one emergency away from having to take on more debt.
- Impacting career choice coming out of pharmacy school. For example, a graduate may be interested in pursuing residency training but is financially unable to do so. It may not seem like a big deal but when you consider the larger impact of someone settling on a career choice because of financial constraints, that has a trickle down effect to one’s overall satisfaction with a job which we know can impact overall well being, relationships at home, etc.
- Fewer students interested in entering the profession of pharmacy. Nationally, we have seen a decline in applications to pharmacy schools over the last few years. There were 76,525 applications in 2014-15 across all pharmacy schools compared to 106,815 in 2010-11 (Ref: AACP Student Applications). While we are all hopeful this trend will reverse itself to bring the best and brightest into the profession we all love, we can’t afford to have debt loads that are rising faster than other health professions and therefore be a barrier for applicants. Often, students interested in pharmacy have also explored medicine, dentistry, nursing or other health professions programs and will evaluate the return on the investment of that education. While all other health professions graduates have experienced increases in student indebtedness, it has not been at the same rate we have seen in pharmacy education.
- Strained relationships. We all know that finances can be a point of contention in many relationships and debt certainly throws some kindling on that fire.
- Decreased giving by graduates to their communities, non-profit organizations, churches and alma maters. The longer someone is in debt and the more debt they have, the less likely they are to be giving. Specifically related to giving to an alma mater, I’m worried about the negativity there is surrounding student loan debt and the impact this may have on graduates feelings towards their alma mater. We may or may not see this trickle down into less financial giving and/or less giving of their time to support university initiatives.
- Delays in home buying, retirement savings and achieving other financial goals. The trickle down effect of having six-figures of debt is real. Let’s use retirement as one example. The power of retirement savings comes in the magic of compounding interest over a period of time. If one pharmacist is able to start retirement savings at 15% of his/her income at 30 years old and another not until 40 (because of significant student loan debt), the difference in the total amount saved at retirement is astonishing. Assuming a median pharmacist salary of $121,500, no changes in income, and a 6% rate of return on investments, the pharmacist starting savings at 30 years old would have approximately $2.1 million at the age of 65 compared to $1 million for the pharmacist that wasn’t able to start until 40 years old.
Ideas for Reversing this Trend
While I recognize this is a complicated issue with many contributing factors, here are some ideas and conversation starters for how we can reverse this trend of student indebtedness.
#1 – Changing the Mindset
We have a generation (myself included) that doesn’t think twice about borrowing six figures of debt. I’ve talked with many students and recent graduates who don’t feel an emotional connection to their debt. In their eyes, it is just part of the deal. Going to get a pharmacy education = walking out the door with $150,000 or more in debt. That mindset has to change or the borrower will continue to be in a vulnerable position that easily accepts tuition increases and has a willingness to readily borrow more for cost of living expenses.
How do you change this mindset? In my opinion, education has to be at the forefront; which brings us to point #2.
#2 – Educating Student Pharmacists
While advocating for increased personal finance education in the K-12 curriculum is a must, we should start with educational efforts that are most within our reach. This would include (1) embedding personal finance education into the required curriculum of Doctor of Pharmacy programs, (2) working with professional organizations on campus to increase personal finance education and programming, and (3) having the financial aid office and college of pharmacy collaborate on efforts to ensure students are well aware of their loan situation and what they are signing up for. Required entrance and exit loan counseling is not enough. Students should be meeting with 1:1 with a financial aid officer at least once per year to make sure they understand their loans including current balance, interest rates, repayment options, etc.
#3 – Getting Tuition Under Control
The average in-state tuition for colleges of pharmacy almost doubled between the 2005-2006 academic year and the 2015-2016 academic year ($14,796 and $28,956, respectively). I intentionally put tuition as #3 below “Changing the Mindset” and “Educating Student Pharmacists” because without doing these two, we are going to have a problem even if tuition costs stay down. Pursuing a pathway that includes in-state public school for both undergraduate and PharmD training while minimizing cost of living expenses should result in a debt load upon graduation well below the median of $150,000.
#4 – Minimizing Cost of Living Expenses
Depending on the institution, allowable disbursement for living expenses can be just as high as the tuition costs. While some of this is necessary, further work is needed to educate students on the implications of borrowing money beyond tuition costs and how that debt (with accruing interest) will impact his/her ability to achieve long-term financial goals. Wherever possible (and without sacrificing academic performance), working during pharmacy school should be encouraged. Any money earned can be used to minimize cost of living expenses while gaining real life work experience. In addition to working, students should be encouraged to seek scholarships through pharmacy organizations, churches, and community organizations to minimize borrowing additional money for cost of living expenses.
#5 – Advocating for Lower Student Loan Interest Rates
Why can someone borrow money to buy a home at less than 3% or a new car at 0-1% but pay 6-8% interest for a student loan? Some unsubsidized graduate loans for health professions students were approaching 8% as recent as two years ago. While those have come down, these loans (even at 4-6%) are accruing significant interest over time that further delays the graduates’ ability to achieve other financial goals.
#6 – Convening of the Minds
There are a lot of smart people within the profession of pharmacy that I’m sure have thought about how the rising student loan debt is negatively impacting our profession and have ideas for how we may address this problem. A group should be convened of leaders in academia and various professional organizations to brainstorm further ways to minimize student indebtedness. This group should most certainly include input from the borrowers (whether that is current students and/or recent graduates).
What other ideas do you have to tackle this complex problem? Comment below!