$1 Million in Dental Student Loans

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Stressed Out

The Wall Street Journal ran an article today about Mike Meru, an orthodontist in Salt Lake City, who now has $1,060,945.42 in student loan debt. If that number wasn’t staggering enough already, consider that it is currently growing by $130 per day!

Dr. Meru was one of the breakout session speakers at NLC last year. He is a great guy, and I left his presentation feeling inspired. But, I feel like I’ve seen another side of Dr. Meru today. Hell, I think I’ve seen another side of dentistry.

Sure, I’ve heard about other dentists (specialists) with that much debt burden before, but only in the deep dark recesses of the internet. This story today though was front and center in the freaking Wall Street Journal. Somehow it hits closer to home when the person talking is more to you than just a screen name on Reddit.

Larger than Life

If you ever see one of Mike’s talks, you’ll quickly learn that he is a thrill-seeking adventurer. He travels the world in search of pristine alpine powder and remote canyons. Mike incorporates every facet of his life into his talks, and he easily fills a room with his voice, enthusiasm, and presence (he is 6-foot-7).

But few would ever guess that he and his family are facing such a tremendous financial burden. After spending more than $600,000 on his education and training, Mike now makes $225,000 per year at the age of 37. That’s a great income by most people’s standards, but it doesn’t go that far when you own a $400,000 home and owe more than $1 million in student loan debt (more on that later).

Dr. Meru and his wife saw his 11 years of education and training as an investment in their future. Rather than taking a job out of high school or college and funding his retirement, Dr. Meru went further into debt to chase his dream of becoming an orthodontist. It was a decision that he and his wife hoped would pay off in a big way. Instead, they struggle to pay off his mountains of student loan debt.

Mounting costs

This issue raises serious questions about the future of dentistry. Actually, given the current climate of student loan debt in fields like optometry, medicine, and veterinary medicine, this calls into question most, if not all professional health degrees. How will society train doctors if no one can afford to become one?

In my article The Crippling Cost of Dental School Tuition, I said that I made the decision to attend dental school with my eyes wide open. I knew the cost of attendance before I signed off on the loans, and I committed to them. But there are a few important details that I didn’t talk about in my article.

  • When Dr. Meru began his dental education in 2004, student loan interest was 2.77%. The following year it was 4.75%. By his third year, his interest rates were 6%. In just three years, Dr. Meru’s student loan interest rates had increased by more than 100%. He couldn’t possibly have predicted that. It’s also unlikely that he could have known that in 2006 Congress would enact legislation that would make such interest rate hikes possible for graduate school loans. Today’s Grad PLUS Loans carry interest rates of 6.8%.
  • Tuition increases are unpredictable, but typically fall somewhere in the 4-7% range. Many students aren’t aware that the cost of tuition will increase during their time at school.
  • Specialty dental training can be exceptionally expensive and rarely pays a stipend. This is probably the biggest reason that Dr. Meru is now one of just 101 people currently living in the United States with more than $1 million in student loan debt. Just five years ago there were only 14 such people. Not only was he paying to become an orthodontist during his three years of training at USC, he was quickly accruing interest on student loan debt from his already expensive USC dental degree.

Contributing factors

According to Jason Delisle, a student-loan expert with the American Enterprise Institute, there are three main factors contributing to Dr. Meru’s tremendous debt burden.

  1. A high principal loan amount (~$600,000)
  2. High interest rates (7.25% after refinancing in 2015)
  3. Long periods with no repayments (Dr. Meru actually went into forbearance for a period of time after his residency)

All of these factors together create a perfect storm. Unfortunately, there is little anyone can do about high interest student loans for graduate professional degrees. Most of us have some control over how high our principal loan amount will be. And we all have control over our repayments.

Blaming the borrower

Articles like these stoke tensions on all sides as people grapple over who to blame and how to fix it. On one side, many will argue that Dr. Meru knew what he was getting himself into and he now has to accept responsibility for taking the risk. According to the WSJ article, Dr. Meru was encouraged by Great Lakes (his loan servicer) to make payments during school if possible. I guess they were hoping that he might pay down some of his student loan interest using his student loans?

Today, nearly every dental school is expensive. The average private school charged more than $70,000 per year in 2015-2016. According to the Urban Institute, dental medicine is the most expensive degree program in the nation, whether you go to a public or private school.

There are programs in the country that remain relatively inexpensive such as Mississippi, East Carolina, or some of the UT schools. But Mississippi and East Carolina don’t accept non-residents. UT schools do, but only a small number are admitted each year.

So what are the rest of us supposed to do? Not become dentists? Does that seem reasonable for the long-term oral health of society at large? If no one becomes dentists, who will provide oral healthcare in the United States? Dental therapists? Are we now competing in a race to the bottom?

Blaming the lender

Many students feel taken advantage of by the federal government. After the Obama Administration ended the role of private banks from lending student loans, the federal government took over. It bears mentioning that private bank loans were already a small slice of the pie by the time the government took the student loan market over. Private companies like Great Lakes, the company that handles Dr. Meru’s dental student loans, only service those loans on behalf of the federal government.

With current student loan interest rates well above 6%, many students have asked why the federal government is charging student borrowers so much for loans when it charges banks just 1.75% to borrow. Undergraduate loans are currently tethered to Treasury rates, but Congress severed that link for graduate loans in 2006. Many feel strongly that the government is profiting heavily from graduate degree loans and creating a student loan bubble while doing so.

Limit borrowing

Some lawmakers feel that student loans should be capped. They believe that this would force schools to either cut costs, or to shut down entirely. I’m sure that this view is correct in the sense that the most inefficient and expensive programs would shut down first. However, there are many costs that are simply beyond a dental school’s ability to control. How many would be forced to close due to such a policy? What if it closes them all? Of course, there are other potential drawbacks too:

  • If student loans are capped, how will students pay to become health professionals?
  • Will only wealthy families be able to afford to send their children to graduate school?
  • If only wealthy children get graduate degrees, won’t that contribute to further income inequality and ensure that wealthy students earn the degrees that pay the most?
  • Isn’t there something to be said for a merit-based economy? What incentive is there to work hard and delay gratification for later success if you will become poor by doing so? And why should finances restrain someone from pursuing an education commensurate with their ability?
  • What happens if no one thinks of the health professions as a good investment? Where will our best minds go?

Proposing solutions

Dr. Meru tried unsuccessfully to spearhead a national dental-student lobby and petition Congress. I remember him talking about that experience briefly at NLC. It seems his efforts went nowhere. However, there is already a national dental student organization bringing that fight to the nation’s capital.

I’ve spoken at length about my experience with the American Student Dental Association in Washington D.C. For years, ASDA has tirelessly proposed changes to Congress that would make the student debt burden more manageable for graduate health professionals. Below is a list of their proposals to alleviate the student debt burden:

  • Increase the availability of Direct Unsubsidized Loans for dental students.
  • Prevent a phase out of Grad PLUS Loan programs.
  • Lower interest rates across the board.
  • Reinstate eligibility for professional students to access federal Direct Subsidized Stafford Loans.
  • Allow students to refinance graduate student loans more than one time. This would allow young professionals to take advantage of lower interest rates when economic conditions improve.
  • Extend student loan deferment. As I understand this proposal, it is for students seeking additional specialty training. It’s worth mentioning that this is exactly the kind of thing that got Dr. Meru into so much trouble though.
  • Increase transparency to the loan application process.
  • Preserve public service loan forgiveness programs. There are mounting fears that PSLF may be dismantled.
  • Finally, ASDA encourages further education from lenders and institutions to help students make informed decisions about financing their education.

How to pay for dental school

Dr. Meru opted to take advantage of REPAYE (Revised Pay As You Earn). Virtually every dental student will qualify for this government-sponsored repayment plan.

After refinancing his debt in 2015, Dr. Meru will finally have a clean slate in the year 2040. He will pay 10% of his discretionary income towards his student loans over 25 years and his debt will be forgiven. At that point, Dr. Meru is expected to owe more than $2 million given his current rate of repayment.

Although loan “forgiveness” sounds nice, many students aren’t aware that loan forgiveness counts as taxable income. If Dr. Meru has $2 million in loans forgiven in the year 2040, then he will be taxed as though he earned $2 million in addition to any other income he made that year.

Assuming he makes $225,000 for the rest of his life (not likely), then he would owe taxes on $2,225,000 in the year 2040. With a tax rate somewhere around 40%, he may owe more than $800,000 in taxes that year. Yikes.

Other options

REPAYE is only one of many ways to pay for dental school. Below are a few ways students can finance their dental education:

  • REPAYE – Pay 10% of your discretionary income over 25 years until your loans are forgiven. The forgiven loan amount is taxed as income.
  • NHSC – The National Health Scholarship program allows students to receive full tuition reimbursement and a stipend if they commit to serving in a qualifying clinic after school.
  • NHSC LRP – This program is NHSC lite. Recipients receive $50,000 for every year of service to put towards their loans.
  • HPSP – If you are willing to serve your country and join the military then your education will be paid for in full and you will receive a stipend. Like NHSC, recipients are committed to one year of service for every year they were in school.
  • PSLF – This program could be hugely beneficial to someone in Dr. Meru’s position. If he worked for 10 years in a qualifying clinic, then Dr. Meru’s REPAYE loan balance is forgiven after 10 years with no tax liability! Unfortunately for Dr. Meru, orthodontists aren’t usually in high demand at these clinics.
  • IHS – The Indian Health Service will pay your entire way through dental school and provide a stipend. In fact, this is probably the best scholarship of all. Unfortunately for most of us, you have to be Native American to receive one.
  • IBR – Income Based Repayment is similar to REPAYE except that you pay 15% of your discretionary income. Also, in the event that 15% doesn’t cover the interest on your loans, then the government makes up the difference for the first three years.
  • GI Bill – The new GI Bill allows family members to transfer their unused benefits to each other.

Check out my article How to Pay for Dental School for more information.

Lessons learned

What happened to Dr. Meru should be a lesson to all of us. He deserves a lot of credit for having the guts to go national with his story.

We can only hope that Congress will listen. As I mentioned earlier, ASDA has been trying to persuade Congress to improve lending practices to graduate students for years. So far our requests have mostly fallen on deaf ears. Most lawmakers empathize and admit that the situation is bad, but they generally offer no solutions and don’t care to implement the ones we propose.

Given Dr. Meru’s situation, I think any dental student should think very carefully before pursuing specialty dental training. If you have to pay for such training, then it may just not be financially worth it. Those years spent not collecting income, paying tuition, and watching the interest on your student loans grow, will only diminish any additional financial benefit that specialty training might have provided.

If you really want to be an orthodontist, then try to get into the cheapest dental school possible. Alternatively, you could look for one of the few orthodontic residencies that pays you. Both St. Barnabas Hospital and Montefiore Medical Center in the Bronx, New York, pay their residents. Although I have no plans to specialize, I would have to do some serious soul searching before signing up for an orthodontic residency at USC given what Dr. Meru has experienced.

Examples of what not to do

  • Don’t choose a school because you think it’s prestigious. USC is a very expensive dental program, probably the most expensive in the nation when living expenses are considered.
  • Avoid expensive residencies, especially if you attended an expensive private dental school.
  • Do not under any circumstances use forbearance as a tool to gain financial stability. Financial instability is usually a product of poor financial planning. Fail to plan, plan to fail. Every payment you could have made during forbearance is just contributing to more interest accrual on your student loans.
  • Avoid highly saturated markets. Dr. Meru practices in my hometown of Salt Lake City, Utah. Unfortunately, that area is one of the most saturated dental markets in the nation.
  • Don’t purchase a used Mercedes with payments of $390 per month during dental school. If you really need a car, a used Toyota Camry will suffice.
  • If you are unable to make payments that cover the interest on your loans, do not under any circumstances purchase a mountainside home with a $400,000 mortgage.
  • There is no reason anyone needs to drive a used Tesla, especially not when they have more than $1 million in student loan debt.
  • Dr. Meru is a globetrotting adventure seeker. That lifestyle is expensive. Even if he is sponsored for some or all of his adventures, the time out of the office can lead to a significant loss of income.

Don’t get burned

Good luck. It’s hard enough to get into dental school, let alone worry about all of the uncertainties the future brings. With uncertainty comes risk, and some of the most rewarding things in life are inherently risky. But all risk should be carefully evaluated and managed. Don’t just jump off a cliff unless you’ve got a parachute and reserve… In other words, plan carefully, and have contingencies in the event things don’t go according to plan.

Educate yourself as much as possible. Don’t let the allure of this program or that sway you from pursuing the cheapest education possible. I attend Midwestern in Arizona, the 9th most expensive dental program in the nation. But I didn’t have a state option as I didn’t have state residency anywhere at the time of my application. If I could have gone to a cheaper state school, I would have. I don’t know that I would have had the clinical experience that I will here, but it would have been adequate and cost far less. I’m told that most of the real learning takes place in the clinic and after dental school anyway.

I’m currently over $200,000 deep, and that’s with a wife who works a good job. I have two years to go, and I’m already worried about my student loan debt. I can’t imagine how Dr. Meru must feel when he looks at his loan statements. I love my program and have learned a lot, but $500 per day is a lot to pay for anything.

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No sympathy for this Meru guy at all. This article makes no mention of the fact that a lot of his trouble comes from his own life choices. Leasing a BMW while in school? Buying a 400k house when he is already so deep in the hole? These are choices he made, and poor financial ones at that. He is a poor poster child to try and bring student loan problems for the profession. No one sensical will buy into his story and show an support for the likes of him. Is it really a shocker that his efforts went… Read more »