Earlier this week, I read a letter posted on Steve Rhode's web site: Get Out of Debt Guy and distributed on the Personal Finance Syndication Network. An anonymous writer asked Mr. Rhode how to handle $500,000 in student loans that he or she borrowed to become a pharmacist. Rhode's advice was spot on, and I won't comment further about how this individual should manage all that debt.
My purpose here is to ask the simple and obvious question: How could anyone be permitted to accumulate a half million dollars in student loans to obtain a pharmacy degree?
As I said, the writer posted anonymously, so I have no way of knowing whether the person is male or female. I'll just refer to this debtor as Pete.
As Pete mentioned in his query to Steve Rhode, he obtained a GED when he was 35 years old, about ten years ago. He obtained a BS in Neuroscience, another BS in biochemistry, and a doctor of pharmacy degree, which he recently completed. So I'm guessing Pete is about 45 years old, and he's embarking on a new career as a pharmacist.
Will Pete earn enough money as a pharmacist to pay off $500,000 in student loans? No, he won't. We don't know the interest rate on his loans, which are both federal and private; but let's assume all his loans are accruing interest at 6 percent a year. That's $30,000 a year just to pay accruing interest on the debt.
What are Pete's options? Perhaps he can enroll in a 20-year income-base repayment plant, whereby his loan payments are based on his income. If he obtains a job paying $60,000 a year, which seems reasonable, his payments will be less than $400 a month. But of course, a payment that low won't begin to cover accruing interest on Pete's loans.
Pete might get a public service job that will allow him to make income-based payments for 10 years with the balance forgiven if he makes 120 consecutive payments. Again, his monthly payments probably won't even cover accruing interest.
Bottom line is this: Pete, who is in his mid-40s, doesn't have a snowball's chance in hell of ever paying back $500,000 in student loans.
We can blame Pete for borrowing so much money or for obtaining two bachelor's degrees instead of one. Perhaps we can criticize him for making poor choices when choosing where to study. Maybe he could have borrowed less money had he attended less expensive colleges.
But that would be pointless. The parties who bear the blame for Pete's unmanageable debt load are the U.S. government and the banks, which loaned Pete way too much money.
Pete's situation is atypical, I'll grant you, but it is far more common than many people believe. Not long ago I blogged on a Hofstra law graduate who owes $900,000 in student loans--pretty damn near a million bucks!
The student loan crisis is not small beer. Less than half of the nation's student borrowers in repayment are paying down the principal of their loans. The problem is as obvious as a tsunami barreling down on a beach full of sunning vacationers.
Why can't we put some limit on the amount of money students can borrow? The amount of interest that can accrue? The amount of penalties and fees that can get added to borrowers' debt when they default?
In fact there are lots of things we could do to limit the harm caused by the student loan crisis. But nobody is talking about fixes. The college presidents, whether they are Ivy League college leaders or the CEO of Bobby Joe's College of Auto Mechanics, are saying nothing about the student loan mess. Every school, college, and university participating in the federal student loan program--more than 4,000 institutions--is dependent on regular infusions of student-loan dollars to keep the doors open.
Someday, it will become apparent that a high percentage of the nation's accumulated student-loan debt--30 percent, 40 percent, perhaps 50 percent--is not going to be paid back; and this house of cards will collapse.
But until that day comes, our politicians, academics and the national media will continue focusing on what they think is the most important topic of the day--President Trump's alleged communications with the Russians. And like summer vacationers lolling on the beach, a lot of pundits, intellectuals and journalists are going to be caught unawares as the student-loan tsunami flows over America's colleges and universities and destroys a good many of them--beginning with the small liberal arts colleges.
Steve Rhode, How Do I Handle My $500K of Student Loans to Become a Pharmacist? Personal Finance Syndication Network.
Richard Fossey.Hofstra Law School Graduate incurs nearly one million dollars in debt: Dufrane v. Navient Solutions, condemnedtodebt.org, June 3, 2017.