Of Mice and Men (Update)

My family has revered education for generations. My education has provided me with a pretty good living. I value education and I continue to study many subjects in both formal and informal settings, even though I am approaching retirement. I have always considered a good education a prerequisite to a good life, even though I know this is not necessarily the truth. Because of this lifetime prejudice, I have always considered student debt, acceptable debt, if and only if such debt is part of a rational career development program. As the best laid plans of mice and men unravel in our current economic downturn, I am beginning to believe that student loans are just too dangerous for many naïve, irresponsible, or foolish young Americans, who lack the sophistication to make serious, perhaps irreversible, financial decisions so early in their young lives.

Recently the Wall Street Journal published a news article about a family practitioner who managed to accrue $250,000 in student debt before graduating from medical school in 2003. Since then this number has increased to $555,000. Doctor Michelle Bisutti deferred payment of her initial debt as she completed her residency. During this time the power of compound interest and additional fees drove her debt higher and higher. The largest single fee was a $53,870 charge incurred when her case was turned over to a collection agency. There is no more gold plated guarantee of wealth in this society than a medical degree, but educational debt still has the potential to destroy even the great earning power of a medical doctor.

Doctor Bisutti, obviously an intelligent woman, admits she did not read the “fine print” in her loan agreements. Remember, bankruptcy can discharge mortgage debt, credit card debt, consumer loans, and even gambling debt, but not student debt or the charges associated with such debt. Many former students lacking the inherent earning power associated with a medical degree find they are counted among the 27 million Americans who are without a full time job. It doesn’t matter. Their student debt, even if deferred due to such hardships, continues to increase as fees are added and interest continues to compound. Currently only 40% of student loans are being actively repaid. The rest are classified as defaults or deferments.

Another example provided in the article recounts the story of a laid off factory worker from Massachusetts. $120 of her $300 unemployment checks is garnished to repay her son’s student debts. He managed to accumulate $50,000 in student debt in order to obtain a job paying $29,000 a year. When he lost his job in this recession, he defaulted. Sallie Mae, the quasi-governmental corporation that is the largest private provider of student loans, went after his mother who signed for these loans. Like Doctor Bisutti, this young man admits that he did not read the “fine print” in his loan applications.

Doctor Bisutti has entered into a legal agreement that will allow her to repay her student debt--- in 351 months--- but by then she will be 70 years old! The article states, “The debt load keeps her up at night. Her damaged credit has prevented her from buying a home or a new car. She says she and her boyfriend of three years have put off marriage and having children because of the debt.”

Look for grants, work study, or scholarship money, find a job with a company that provides educational assistance, or go to night school for years. Given the current legal structure and economic climate, avoid student loans except in the most unusual situations.

http://finance.yahoo.com/college-education/article/108846/the-555000-student-loan-burden?mod=edu-continuing_education