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.
References
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.
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