Doctor Eclectic

Doctor Eclectic
Doctor Eclectic

Monday, August 27, 2012

Student Loans

I recently read an article in the Wall Street Journal that spoke to seniors having their Social Security reduced because of failed student loans.  I found this particularly interesting because I wondered why people over 65 would have student loans and also because previous tenants who defaulted on $10,000 they owed me escaped a court judgment to pay because Social Security is protected from bankruptcy.

So, why not make my research a Post on my Blog?

Turns out that most of the 2.2 million people over the age of sixty who have student loans have them because they financed the education of their children or grandchildren.  Most, but not all.  Some went to school at age 40 or 50 in attempts to retrain from a failed or obsolete occupation.  Others because of a need to reenter the job force from a death or divorce.

Student debt has grown to be the second highest source of debt in the United States: at about a Trillion dollars it is now higher than auto debt or credit cards.  Only mortgages are higher and those numbers are more difficult to get one’s arms around.  Thirty-seven million debtors hold the debt and while two-thirds of them are under forty, 4.6 million are between 50 and 60.

Several aspects of this are troubling.

In my field, dentistry, most graduates will have debt close to or more than $200,000 the day they graduate with a payment schedule that starts immediately.  Unless they qualify for some of the recent subsidized deferred plans, which set payments based on your income, they will have a schedule of about $2,000 a month of after-tax income.  No wonder most go into what the ADA disdainfully calls “corporate dentistry”.

The average four-year student will have more acceptable payments, of maybe $400/month, but at a time when many are hoping to enter the American Dream, with marriage, a home and family, there are few who can find a job to handle all those things.  So, in this recession we may have a generation who will defer, perhaps forever, the lifestyle of their parents.

But, to return to the Social Security question: There are three types of student loans, listed in order of interest rates from low to high, although 2010 legislation puts recent loans pretty much into a federal box: Federal and State loans, Private loans, and Family loans. The Family loans are granted to parents to allow them a payment plan to cover the cost of a child’s education over an extended period.  For the most part these have a low default rate because they are often only a component of the education costs.  Federal loans are not a great problem, partially because they are granted with consideration for subsidies and ability to pay.

Private loans are a bigger problem.  Sixty-six percent of graduates have debt, but almost 100% of graduates from prestigious or graduate schools have significant debt, held by some sort of private concern.  This was true when I incurred my younger son’s loans in 1988 but while only 10% of the loans at that time were $50,000 or more (mine was about $10,000) now three million loans are greater than $50,000, adjusted to inflation.

Loans assumed or negotiated on behalf of the student are not co-signed loans.  They are the sole responsibility of the parent or grandparent  .  Furthermore there is no bankruptcy relief, which may explain why 1 of every 8 loans held by those over the age of forty are delinquent.  It is that “no bankruptcy relief” factor that allows Social Security payments to be attached or reduced.  And some 115 thousand checks have been adjusted to date.

I don’t know where there is any good news in this, but I agree with some sage who recently said, “Why we are placing our best and brightest under a burden of debt when they are most in need of money to reach their new potential, escapes me.”

Me too!
We are going into the Paralympics with the inspiration they bring, a fact made crystal clear to me when I visited Walter Reed Hospital last weekend.  In my next post I will share with you what I saw and what I gained from the experience.  Please, come visit

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