EDUCATION DEBT
Many students in the 1960s and 1970s used family savings to finance the costs of education. During the same period, many states subsidized the costs of professional education, with tuition grants. Students that needed additional help could apply and easily receive Health Professions Student Loans, at a 3% interest rate. Some students accumulated as much as $5000 to $10,000 in loan debt. This wasn’t a problem because payment terms were flexible, and twenty- year payment schedules were common.
So I wasn’t surprised when I learned how pervasive loans were to students in the health professions today. What I didn’t realize was the degree of debt many recent optometry graduates amass by the time their education is completed. Some OD graduates are finding themselves $100,000 to over $200,000 in debt. This is before they seek additional financing to purchase or open a practice. Much of this debt has accumulated from both undergraduate and optometry school. This is not special to optometry students. Today, many medical and dental students find themselves in similar situations.
If you are waiting for educational institutions to revamp their tuition schedules to be more reasonable in cost to future students, you may be in for a long wait! The costs of education are going up, not down. Whether the increased future costs of professional education will be a deterrent to attracting qualified students remains to be seen.
INCOME VS DEBT… THE PROPER BALANCE
The movement of many ODs toward commercial eye care upon graduation, is a symptom of a bigger problem that exists in optometry. That is, too little income, too late.
Many students graduate with debt. It takes money to reduce debt. New ODs beginning in private practice don’t earn enough of it, fast enough, relative to the debt many must carry from student and business loans. That’s the problem!
For example, take the student who has a debt in excess of $200,000 when he/she leaves school. It may be from a combination of undergraduate and graduate education, and other debts, too.
In addition to the existing debt, the new OD is being encouraged to incur more debt in the form of buying a practice, or investing in equipment and infrastructure necessary to opening a practice. That in itself is not a problem, IF, the income gained from the future investment is substantial enough to warrant taking on this additional debt.
Whatever the reason, the debt is there, and has to be dealt with, sooner or later. The cost of debt maintenance can rob future wealth. Those who advocate living with debt, and do so, are mortgaging their futures. A downturn in the economy, or a catastrophic event, such as 9/11, can spell trouble for any business depending on a steady cash flow to meet financial obligations.
Developing a mindset of ‘zero expense tolerance’, whether it be credit card debt, student loan debt, auto financing, home mortgages, negotiating offices leases, etc, etc., will go a long way over a lifetime, toward developing fiscal responsibility and financial security.
According to AOA statistics, the average OD in private practice earns $120,000 net income (after many years in practice). I contend, that this amount is not nearly a high enough income, nor reached in a rapid enough timeframe, to attract many debt-ridden ODs away from commercial practice, and into private practice, today.
When you’re making big payments on existing debts with after tax dollars, and those dollars are coming from a practice yielding a 25-30% net income, you don’t need a CPA to figure out that what is needed, is to bring in a lot more business. This is so that you can meet your debt payments, along with all of your other business expenses and taxes, and still have money left for personal financial obligations.
As an example, let us assume you have a $1000 monthly payment on a student loan. You will need to take in between $3000-$4000 per month in extra business, plus an additional amount to pay for the taxes you owe on that extra business, just to have enough net dollars to make that payment.
This amount of extra business will be needed every month, for as many years as you are carrying that loan. As you can imagine, carrying a debt that lingers effectively reduces your disposable income, as though you have a continual financial drain on your assets.
If you’re practicing in a commercial setting with a 95% net, you can easily see that the dollars you earn can go a lot further in reducing your debt. Practically every dollar coming in goes straight to the bottom line, as net income. Even after you pay taxes on your income, you will have a lot left over to use toward your personal financial obligations.
The prudent thing to do would be to reduce the principle on that debt, as fast as possible, dramatically reducing the interest expense on that loan, so that debt won’t be a financial burden for too many years to come.
COMPARISONS WITH OTHER HEALTH PROFESSIONS
A look at other professions can shed light on this important dilemma. Students in medical and dental schools face very similar financial burdens, as ODs. They also invest in private practices once they finish their education, and have office expenses similar to optometrists. The difference that exists, is the earning potential versus the debt.
Dentists, by the nature of their practices, have cases that can range from $10,000 to $30,000, for full mouth restoration and/or cosmetic dental procedures. Endodontists, dentists specializing in root canals, earn upwards of $500 or more for a 15 minute procedure, and many are busy all day long.
Surgeons are paid thousands of dollars per procedure, and may partake in several surgeries per day on their surgical days, and then have office or hospital visits for the balance of their non-surgical time, which brings in additional income.
Most optometrists in general private practice earn their income, a few hundred dollars at a time. This amount can be less if managed care is involved and/or eyeglasses are not sold.
The dilemma facing ODs becomes apparent. The amount of income generated, versus the costs of doing business, is where the problem lies. ODs in private practice are just not bringing in enough profits, to make expenses trivial, especially if burdened by additional debt from education.
For those who have the expertise in a certain area of optometry, the opportunity to have a practice limited specialty, insulates the OD specialist from some of the financial burdens affecting private practice optometry today. Because higher fees are implicit with being a specialist, they can receive significantly more for their services, and thus elevate their level of income.
If private practice optometry is going to significantly increase its average income, it is going to have to evolve into specialty areas, similar to what occurs in the medical and dental specialties.
It becomes easier to understand that the costs of professional school are minuscule compared to the potential income generated over a practice lifetime in these other professional specialty health fields. When you have the potential to NET several hundred thousand dollars, to over a million dollars per year as a specialist, the debt from education and start up costs to begin a practice, though monumental to a new practitioner, becomes incidental over a practice lifetime.
Believe it or not, most people go into a professional career, taking for granted that they are going to earn a substantial income that will provide a comfortable living for their family. The potential for a high income is a motivating factor, and it is assumed to be a perk for investing years in dedicated study.
If any prospective student considering optometry school, was told before they applied, that they will be burdened with debt (education and practice acquisition), that in some cases could take a decade or two from which to recover… then be limited in their income because of the high costs associated with private practice, what do you think their decision would be ? I have a hunch that many students would have second thoughts about entering the profession.
ROOTS OF COMMERCIAL OPTOMETRY
The roots of commercial/corporate optometry began as a result of governmental legislation involving price advertising in the late 1970s and early 1980s. The results of enacting legislation, known to many ODs as Eyeglass I and II, fueled the emergence of commercial/corporate eye care. Optometrists in private practice have been dealing with the ramifications and consequences of this legislation for over twenty years, and are still finding it difficult to deal with.
Some say the seeds of commercial health care were sowed a generation earlier with advent of the fast food industry… satisfying a need for the public’s busy lifestyle. Today, urgent care facilities thrive, and in many cases have replaced the family doctor’s office.
The public’s desire for immediate health care, that is conveniently located, is a main reason that both urgent medical care clinics, and commercial/ corporate eye care centers, remain attractive health care options for the public. Having been accepted into the fabric of an impatient society, and with a track record of over two decades of existence, both continue to grow in demand.
Those optometrists, who wish to practice in a ‘general mode’, will find their best opportunities for financial success in a mode of commercial/corporate practice. An OD taking the commercial route can expect to earn from $75,000 to more than $200,000 net income, depending upon whether he/she practices full or part-time, in a single office, or in a multiple office situation, such as an Independent Optometric Contractor (IOC).
In either case, no investment is required, office expenses are low, net incomes are high, while the headaches associated with running a small business are minimized. Peak income can be achieved in just a few years, much faster than in solo private practice.
At the present time, those who contemplate opening a traditional solo general optometric private practice, have the best opportunity in smaller cities and towns, where they can minimize the burdens (expenses and competition) that most ODs face today. They still will have to deal with incurring debt to open or purchase a practice, but they will stand a better chance for a faster practice development, in a smaller municipality.
Commercial practice may be the impetus to catapult optometry into specialty practice. There is no doubt, that present day optometry is at the threshold of major change. Whether or not those in positions of authority realize the imminent necessity for specialization, is a topic for much more discussion.
ODs graduating today are rarely advised by educators, about the virtues of the dichotomy existing within differing modes of optometric practice. Instead, while in school, they are indoctrinated against commercial practice, which ironically, is a very likely source of income for many of the graduates.
Sadly, you have a group of graduates thinking they are able to go into general private practice in any location, and easily earn an excellent income, without realizing the impending financial storm clouds looming on the horizon. They include prior debt, new debt, potentially high operating expenses, limited net income, and competition coming from every direction.
Unfortunately, it may take a generation of practitioners struggling before this is sorted out.
PRACTICE OPTIONS FOR THE NEW OD WITH DEBT
For those who are about to graduate with significant debt, here are a few options to consider:
1. GO FURTHER INTO DEBT, BY OPENING A SOLO PRIVATE PRACTICE, OR BUYING AN EXISTING PRACTICE.
In either case, expect to spend part of your practice life recovering from debt, as you live with a lower net income in the interim. If you decide to pursue this route, choose a smaller city or town, where your opportunity for growth is faster, and business expenses should be somewhat lower.
2. GO THE COMMERCIAL/CORPORATE/OR IOC ROUTE, AND GREATLY LIMIT YOUR EXPENSES, WHILE YOU MAXIMIZE YOUR NET INCOME, AND WATCH YOUR DEBT MELT AWAY.
Financially, you will be much better off in short order. Apply as much excess income toward retiring your debts as possible. Once you’re debt free, and begin accumulating cash, your options increase greatly.
If you wish to continue in a different commercial direction, you could invest in, own, and operate retail vision centers, providing the examination services yourself, if you desire, while benefiting from the eyeglass sales in a retail setting. You will have full control of your own destiny, as an entrepreneur. If you are going to take this route, learn how to do it right. The battlefield of commercial/corporate practice shows little mercy for the naïve.
3.BEGIN A HYBRID PRACTICE, PART SOLO PRIVATE PRACTICE, PART COMMERCIAL OR AS AN IOC.
The problem with this mode of practice is that, though you will benefit financially in the interim, you may end up not devoting enough time to developing your private practice. Many ODs with a hybrid mode of practice, eventually will remove the financial drain of private practice, realizing it is a heavy anchor to carry. Unfortunately, many ODs don’t reach this conclusion until many years down the road.
4.GET ADDITIONAL TRAINING IF NECESSARY, LIMIT YOUR PRACTICE TO AN AREA OF CONCENTRATION, AND TAKE THE TIME TO BUILD A PRACTICE LIMITED SPECIALTY.
You will still have to deal with the debt. This is a long-term commitment that may yield a lucrative future down the road. This is an excellent choice for those talented and dedicated ODs, having an optometric expertise, and desiring to remain in private practice.
5.BECOME AN ASSOCIATE OF ANOTHER OD, OR OMD.
Usually, this is not a good idea if you have much debt, unless you are seriously considering purchasing the practice. Most likely your wages will be lower working for an OD. If you work for a single OMD or group, you are apt to have an earning ceiling, without an equal equity position when it comes to sharing in the business profits. With either of these employment options, you will probably benefit more by the experience than the income. Don’t wait too long to decide to do something on your own. Time is not on your side.
A GLANCE INTO THE FUTURE
The role that insurance will play in the future will have a tremendous effect on the viability of solo practices. Because of the rising costs of insurance, routine eye care may be an early casualty of insurance reform, as cost-cutting measures are instituted throughout the healthcare insurance industry.
If this kind of insurance reform occurs in the eye care field, expect it to have a tremendous deleterious effect on solo practice, as many private practice optometrists are heavily involved in and depend on, government sponsored insurance (Medicare and Medicaid), and other insurance/managed care programs.
The obvious winners if this reform occurs, will be the discount optical chains, and commercial/corporate ODs. They are in a position to survive without depending on insurance, as patients seek out the greatest value for their eye care dollar.
In conclusion, I see the future of general practice optometry growing in the commercial/corporate/IOC arena, with an ever shrinking percentage of solo practice ODs in traditional private office settings. Presently, almost 40% of all ODs are involved in commercial/corporate optometry, full or part time.
I expect to see the emergence of practice limited specialties within optometry, hopefully in the next several years. Few will disagree that the legislative accomplishments allowing ODs the use of medications for the diagnosis and treatment of eye diseases, is one of the greatest achievements of our profession.
The development of optometric specialties will be the next biggest challenge facing the profession. This may be the salvation of private practice optometry.
Is optometry ready to make this happen ?
Many students in the 1960s and 1970s used family savings to finance the costs of education. During the same period, many states subsidized the costs of professional education, with tuition grants. Students that needed additional help could apply and easily receive Health Professions Student Loans, at a 3% interest rate. Some students accumulated as much as $5000 to $10,000 in loan debt. This wasn’t a problem because payment terms were flexible, and twenty- year payment schedules were common.
So I wasn’t surprised when I learned how pervasive loans were to students in the health professions today. What I didn’t realize was the degree of debt many recent optometry graduates amass by the time their education is completed. Some OD graduates are finding themselves $100,000 to over $200,000 in debt. This is before they seek additional financing to purchase or open a practice. Much of this debt has accumulated from both undergraduate and optometry school. This is not special to optometry students. Today, many medical and dental students find themselves in similar situations.
If you are waiting for educational institutions to revamp their tuition schedules to be more reasonable in cost to future students, you may be in for a long wait! The costs of education are going up, not down. Whether the increased future costs of professional education will be a deterrent to attracting qualified students remains to be seen.
INCOME VS DEBT… THE PROPER BALANCE
The movement of many ODs toward commercial eye care upon graduation, is a symptom of a bigger problem that exists in optometry. That is, too little income, too late.
Many students graduate with debt. It takes money to reduce debt. New ODs beginning in private practice don’t earn enough of it, fast enough, relative to the debt many must carry from student and business loans. That’s the problem!
For example, take the student who has a debt in excess of $200,000 when he/she leaves school. It may be from a combination of undergraduate and graduate education, and other debts, too.
In addition to the existing debt, the new OD is being encouraged to incur more debt in the form of buying a practice, or investing in equipment and infrastructure necessary to opening a practice. That in itself is not a problem, IF, the income gained from the future investment is substantial enough to warrant taking on this additional debt.
Whatever the reason, the debt is there, and has to be dealt with, sooner or later. The cost of debt maintenance can rob future wealth. Those who advocate living with debt, and do so, are mortgaging their futures. A downturn in the economy, or a catastrophic event, such as 9/11, can spell trouble for any business depending on a steady cash flow to meet financial obligations.
Developing a mindset of ‘zero expense tolerance’, whether it be credit card debt, student loan debt, auto financing, home mortgages, negotiating offices leases, etc, etc., will go a long way over a lifetime, toward developing fiscal responsibility and financial security.
According to AOA statistics, the average OD in private practice earns $120,000 net income (after many years in practice). I contend, that this amount is not nearly a high enough income, nor reached in a rapid enough timeframe, to attract many debt-ridden ODs away from commercial practice, and into private practice, today.
When you’re making big payments on existing debts with after tax dollars, and those dollars are coming from a practice yielding a 25-30% net income, you don’t need a CPA to figure out that what is needed, is to bring in a lot more business. This is so that you can meet your debt payments, along with all of your other business expenses and taxes, and still have money left for personal financial obligations.
As an example, let us assume you have a $1000 monthly payment on a student loan. You will need to take in between $3000-$4000 per month in extra business, plus an additional amount to pay for the taxes you owe on that extra business, just to have enough net dollars to make that payment.
This amount of extra business will be needed every month, for as many years as you are carrying that loan. As you can imagine, carrying a debt that lingers effectively reduces your disposable income, as though you have a continual financial drain on your assets.
If you’re practicing in a commercial setting with a 95% net, you can easily see that the dollars you earn can go a lot further in reducing your debt. Practically every dollar coming in goes straight to the bottom line, as net income. Even after you pay taxes on your income, you will have a lot left over to use toward your personal financial obligations.
The prudent thing to do would be to reduce the principle on that debt, as fast as possible, dramatically reducing the interest expense on that loan, so that debt won’t be a financial burden for too many years to come.
COMPARISONS WITH OTHER HEALTH PROFESSIONS
A look at other professions can shed light on this important dilemma. Students in medical and dental schools face very similar financial burdens, as ODs. They also invest in private practices once they finish their education, and have office expenses similar to optometrists. The difference that exists, is the earning potential versus the debt.
Dentists, by the nature of their practices, have cases that can range from $10,000 to $30,000, for full mouth restoration and/or cosmetic dental procedures. Endodontists, dentists specializing in root canals, earn upwards of $500 or more for a 15 minute procedure, and many are busy all day long.
Surgeons are paid thousands of dollars per procedure, and may partake in several surgeries per day on their surgical days, and then have office or hospital visits for the balance of their non-surgical time, which brings in additional income.
Most optometrists in general private practice earn their income, a few hundred dollars at a time. This amount can be less if managed care is involved and/or eyeglasses are not sold.
The dilemma facing ODs becomes apparent. The amount of income generated, versus the costs of doing business, is where the problem lies. ODs in private practice are just not bringing in enough profits, to make expenses trivial, especially if burdened by additional debt from education.
For those who have the expertise in a certain area of optometry, the opportunity to have a practice limited specialty, insulates the OD specialist from some of the financial burdens affecting private practice optometry today. Because higher fees are implicit with being a specialist, they can receive significantly more for their services, and thus elevate their level of income.
If private practice optometry is going to significantly increase its average income, it is going to have to evolve into specialty areas, similar to what occurs in the medical and dental specialties.
It becomes easier to understand that the costs of professional school are minuscule compared to the potential income generated over a practice lifetime in these other professional specialty health fields. When you have the potential to NET several hundred thousand dollars, to over a million dollars per year as a specialist, the debt from education and start up costs to begin a practice, though monumental to a new practitioner, becomes incidental over a practice lifetime.
Believe it or not, most people go into a professional career, taking for granted that they are going to earn a substantial income that will provide a comfortable living for their family. The potential for a high income is a motivating factor, and it is assumed to be a perk for investing years in dedicated study.
If any prospective student considering optometry school, was told before they applied, that they will be burdened with debt (education and practice acquisition), that in some cases could take a decade or two from which to recover… then be limited in their income because of the high costs associated with private practice, what do you think their decision would be ? I have a hunch that many students would have second thoughts about entering the profession.
ROOTS OF COMMERCIAL OPTOMETRY
The roots of commercial/corporate optometry began as a result of governmental legislation involving price advertising in the late 1970s and early 1980s. The results of enacting legislation, known to many ODs as Eyeglass I and II, fueled the emergence of commercial/corporate eye care. Optometrists in private practice have been dealing with the ramifications and consequences of this legislation for over twenty years, and are still finding it difficult to deal with.
Some say the seeds of commercial health care were sowed a generation earlier with advent of the fast food industry… satisfying a need for the public’s busy lifestyle. Today, urgent care facilities thrive, and in many cases have replaced the family doctor’s office.
The public’s desire for immediate health care, that is conveniently located, is a main reason that both urgent medical care clinics, and commercial/ corporate eye care centers, remain attractive health care options for the public. Having been accepted into the fabric of an impatient society, and with a track record of over two decades of existence, both continue to grow in demand.
Those optometrists, who wish to practice in a ‘general mode’, will find their best opportunities for financial success in a mode of commercial/corporate practice. An OD taking the commercial route can expect to earn from $75,000 to more than $200,000 net income, depending upon whether he/she practices full or part-time, in a single office, or in a multiple office situation, such as an Independent Optometric Contractor (IOC).
In either case, no investment is required, office expenses are low, net incomes are high, while the headaches associated with running a small business are minimized. Peak income can be achieved in just a few years, much faster than in solo private practice.
At the present time, those who contemplate opening a traditional solo general optometric private practice, have the best opportunity in smaller cities and towns, where they can minimize the burdens (expenses and competition) that most ODs face today. They still will have to deal with incurring debt to open or purchase a practice, but they will stand a better chance for a faster practice development, in a smaller municipality.
Commercial practice may be the impetus to catapult optometry into specialty practice. There is no doubt, that present day optometry is at the threshold of major change. Whether or not those in positions of authority realize the imminent necessity for specialization, is a topic for much more discussion.
ODs graduating today are rarely advised by educators, about the virtues of the dichotomy existing within differing modes of optometric practice. Instead, while in school, they are indoctrinated against commercial practice, which ironically, is a very likely source of income for many of the graduates.
Sadly, you have a group of graduates thinking they are able to go into general private practice in any location, and easily earn an excellent income, without realizing the impending financial storm clouds looming on the horizon. They include prior debt, new debt, potentially high operating expenses, limited net income, and competition coming from every direction.
Unfortunately, it may take a generation of practitioners struggling before this is sorted out.
PRACTICE OPTIONS FOR THE NEW OD WITH DEBT
For those who are about to graduate with significant debt, here are a few options to consider:
1. GO FURTHER INTO DEBT, BY OPENING A SOLO PRIVATE PRACTICE, OR BUYING AN EXISTING PRACTICE.
In either case, expect to spend part of your practice life recovering from debt, as you live with a lower net income in the interim. If you decide to pursue this route, choose a smaller city or town, where your opportunity for growth is faster, and business expenses should be somewhat lower.
2. GO THE COMMERCIAL/CORPORATE/OR IOC ROUTE, AND GREATLY LIMIT YOUR EXPENSES, WHILE YOU MAXIMIZE YOUR NET INCOME, AND WATCH YOUR DEBT MELT AWAY.
Financially, you will be much better off in short order. Apply as much excess income toward retiring your debts as possible. Once you’re debt free, and begin accumulating cash, your options increase greatly.
If you wish to continue in a different commercial direction, you could invest in, own, and operate retail vision centers, providing the examination services yourself, if you desire, while benefiting from the eyeglass sales in a retail setting. You will have full control of your own destiny, as an entrepreneur. If you are going to take this route, learn how to do it right. The battlefield of commercial/corporate practice shows little mercy for the naïve.
3.BEGIN A HYBRID PRACTICE, PART SOLO PRIVATE PRACTICE, PART COMMERCIAL OR AS AN IOC.
The problem with this mode of practice is that, though you will benefit financially in the interim, you may end up not devoting enough time to developing your private practice. Many ODs with a hybrid mode of practice, eventually will remove the financial drain of private practice, realizing it is a heavy anchor to carry. Unfortunately, many ODs don’t reach this conclusion until many years down the road.
4.GET ADDITIONAL TRAINING IF NECESSARY, LIMIT YOUR PRACTICE TO AN AREA OF CONCENTRATION, AND TAKE THE TIME TO BUILD A PRACTICE LIMITED SPECIALTY.
You will still have to deal with the debt. This is a long-term commitment that may yield a lucrative future down the road. This is an excellent choice for those talented and dedicated ODs, having an optometric expertise, and desiring to remain in private practice.
5.BECOME AN ASSOCIATE OF ANOTHER OD, OR OMD.
Usually, this is not a good idea if you have much debt, unless you are seriously considering purchasing the practice. Most likely your wages will be lower working for an OD. If you work for a single OMD or group, you are apt to have an earning ceiling, without an equal equity position when it comes to sharing in the business profits. With either of these employment options, you will probably benefit more by the experience than the income. Don’t wait too long to decide to do something on your own. Time is not on your side.
A GLANCE INTO THE FUTURE
The role that insurance will play in the future will have a tremendous effect on the viability of solo practices. Because of the rising costs of insurance, routine eye care may be an early casualty of insurance reform, as cost-cutting measures are instituted throughout the healthcare insurance industry.
If this kind of insurance reform occurs in the eye care field, expect it to have a tremendous deleterious effect on solo practice, as many private practice optometrists are heavily involved in and depend on, government sponsored insurance (Medicare and Medicaid), and other insurance/managed care programs.
The obvious winners if this reform occurs, will be the discount optical chains, and commercial/corporate ODs. They are in a position to survive without depending on insurance, as patients seek out the greatest value for their eye care dollar.
In conclusion, I see the future of general practice optometry growing in the commercial/corporate/IOC arena, with an ever shrinking percentage of solo practice ODs in traditional private office settings. Presently, almost 40% of all ODs are involved in commercial/corporate optometry, full or part time.
I expect to see the emergence of practice limited specialties within optometry, hopefully in the next several years. Few will disagree that the legislative accomplishments allowing ODs the use of medications for the diagnosis and treatment of eye diseases, is one of the greatest achievements of our profession.
The development of optometric specialties will be the next biggest challenge facing the profession. This may be the salvation of private practice optometry.
Is optometry ready to make this happen ?
Last edited by a moderator:
