Student Loans: An Economic Crisis
By Timothy Mirtz
This is a report on what I see happening to the future of chiropractic. I feel as I write this commentary that our profession is in the midst of a crisis, a financial crisis that in a few short years the majority of the practicing chiropractors in this country will be carrying.The term "student loan" spoken to a chiropractor, conjures up deep feelings of anger, disgust and frustration.
There has not been any reference given to the subject from an association standpoint, but the media lately have been giving serious attention to the student loan deficit situation, and usually target the chiropractic profession. The default rate for chiropractors is high, and the government has now started a program to crack down on medical/health professionals who fail to pay back student loan obligations.
Health and Human Services Czar Donna Shalala's new plan is to list defaulters in the Federal Register. Their plan is to publicly print the name of the defaulter to "humiliate and encourage the defaulter into entering into agreements with the government to repay the loans." The government is publishing the names, home town, profession, school, graduation date, and loan amount for the world to see.
The Health Education Assistance Loan program
The number of defaults within the United States is now 4,973 health professionals.1 AL) which was started in 1979. Since its inception in 1979, 128,000 health profession students receive $2.7 billion in loans.1 This doesn't include other student loans such as, Stafford, SLS, GSL, and NDSL loan programs. What brought on the "humiliate and locate" program was the fact that defaults increased from $16 million in 1987 to $42 million in 1992.1
The highest defaulter was a dentist who owed $272,500. The breakdown of defaulters and amounts they owed are:
A. 25 people owed $200,000
These 4,973 people listed defaulted on $228 million dollars in the HEAL program.1
On August 31, 1992, I happened to be watching the late news. The news station investigative reporters "Call For Action" wanted to interview people who defaulted on student loans. Who do you think they wanted to interview? You guessed it -- chiropractors.
In the Kansas City area, the show stated, 62 medical professionals defaulted on loans with 41 of those being chiropractors. The loan amounts were $3.2 million. Of the rest of the 62 medical professionals, 8 were MDs, and 13 dentists. The highest amount defaulted was $160,000.2
In the November/December issue of The American Chiropractor, (page 74) 60 health professionals in Minnesota (38 being DCs) were in default.3 The 63 percent of these in default, being DCs, accounted for $1.1 million of the $3.2 million Minnesota total. Other Midwest totals by state include 111 in Missouri, 79 in Colorado, 71 in Oklahoma, 39 in Kansas, and 16 in Nebraska.1
How Does This Occur?
The average indebtedness that a student of chiropractic rings up after three years of study is between $55,000 to $85,000.4 Approximately 22 percent exceed $85,000 in loans to attend school.4 Another interesting fact is that 90 percent of students seek financial aid in some form.4
In a survey the 18 chiropractic schools in which 33 percent of the schools responded stated different opinions on the high default rate. Student loans such as HEAL have a high interest rate and that they are not very flexible in working with students. The school also felt that untimeliness of state board exams was a reason. Also, an opinion was given that the HEAL system was set up poorly. Lack of communication and understanding of the HEAL process was also considered.
One of the problems is that during the students' tenure at school, loans are being bought and sold so often by banks that it is naturally easy to lose track.4 One misconception is that they give you the $80,000, and you use it to pay for school. You usually can get between 8-10 small loans that easily accumulate.
Also, within the survey the highest default rate was 17.5 percent for HEAL, whereas the average of the schools responding was 7 percent for HEAL.4 The average for non-HEAL was around 3 percent.4
The journal The American Chiropractor cited that the student suggested it was the difficulty in establishing a practice and graduating. This I feel is the main cause. Not only does this affect the borrowers, it will inevitably affect the entire profession. The reports fail to mention another segment of loan borrowers: those that are on the verge of defaulting, or are having difficulty keeping out of default. This has got to be just as high a percentage as those that did default. The ways things are for recent chiropractors instead of giving us the designation of "DC," we should have the title "DC, IOU" behind our names.
Problems that can arise and may lead to the professions economic downfall if the default rate continues at its present rate:
The economic, as well as the clinical advantages would be great. At this point, the call for research papers has fallen on deaf ears. If we could offer patients more treatment options, we will be able to study the results for ourselves. Another advantage would be increased access by patients to our offices in which we could have the opportunity to educate patients of chiropractic benefits vs. drug therapy, because we would have the power to do so. We would then be knowledgeable in all areas of health science.
The osteopaths probably did us a favor. We can learn from the mistakes they made, and not repeat their process. They did have the best of both worlds: manipulation and medicine.
Also, the research dollars from pharmaceutical companies would be enough to let the individual schools conduct research on the effects of chiropractic vs. drug therapy.
The title of doctor of chiropractic medicine, (DCM) could make us more credible to the general public, government licensing agents, and mostly likely their party representatives, where we derive our revenue from. I personally would have no problems with this title because it means I can practice chiropractic adjustments, see more patients, which means making a living and paying back that student loan.
The conservatives will argue that chiropractic has had rougher times and survived. True, but the possibility of a new generation of chiropractors, loaded to the gills with debt, could make up the majority and may not survive this crisis without increased clinical acceptance and expanded treatment scope. The expanded scope and protocol could help to bring in more patients in which we could eventually become the spinal and orthopedic specialists we so rightly deserve to be.
5. The Clinton Health Security Act is going to be debated soon in Congress. This could have such a devastating effect on new and recent graduates that the profession could not possibly recover from if chiropractic is excluded. We have all heard the arguments of this plan. What is going to be worse for us is that we are probably going to be excluded from this plan. Since we receive government funding to go to school, shouldn't we be included in the plan? The argument that I have not seen yet is: Why do insurance companies limit our services to $500/year or 20 visits maximum?" What is happening is that the insurance companies are actually stepping into our branch of the healing arts. Another argument is that if a MD can get paid for unlimited care for a lumbar sprain diagnosis, chiropractors should be allowed the same privilege. Another trick the insurance companies are using is that patients do have chiropractic benefits, but you have to get a referral from the MD. That patient is entitled to those benefits. The MD doesn't know about chiropractic manipulative therapy. Then when he denies the referral or limits your recommendation he is violating your branch of healing arts. When and if the Health Security Act is passed, I hope I get paid the same amount for the same diagnosis as an MD. This is also why I feel #4 of my paper should be strongly considered.
What this paragraph is alluding to is that under the Clinton plan the MDs will be the gatekeepers and will fail to refer patients to DCs,or they could limit the care recommendations of DCs if we are somehow included. This is where the MDs may violate our branch of the healing arts. What is even worse is that they may be in violation of the patients rights to receive the care the patient requests.
Strategies On How Not To Default
Before we get into strategies of how not to default on your loan, we need to discuss the realities of having a loan. A majority of the older chiropractors probably don't know the "ins or outs" of having a student loan.
Reality #1: You cannot bankrupt a student loan. Yes, it will be included in the bankruptcy proceedings, but you end up having to pay off the entire amount and interest will more than likely accrue once you emerge from bankruptcy.
Reality #2: Believe it or not, you pay taxes on your student loan payments. How can this be? Since student loans interest is non-deductible (they took that little perk away) you cannot claim it as a business expense, this is credited to you as earned income. It is considered earned income and not a practice expense because you did not acquire the debt while in practice, you acquired it prior and so it is a personal expense. "But how is it taxable," you ask. Take the example a student loan payment per month of $1,000 (and there are some DCs with this amount) and you give yourself a paycheck of $3,000, that $1,000 comes out of your personal check which you pay taxes on. Now figure a modest tax rate of 28 percent. Now add $280 to your $1,000 payment. Your student loan payment now costs $1280/month to maintain. Congratulations, you just helped buy a True Value Hardware hammer for the government's B-1 Bomber project.
Will student loan interest ever be tax-deductible again? Considering the present four trillion dollar debt and present administration I seriously doubt they will ever be tax-deductible again. Unless, our self appointed leaders would take charge.
Reality #3: Student loans have variable interest rates. Most of us know this, but sometimes the older generation within chiropractic is not aware of this. The rate can fluctuate from 6 percent to 14 percent depending upon the loan arrangement or promissory note. This fluctuation varies according to what the Federal Reserve is doing. The best thing for us new chiropractors is that the Federal Reserve keep interest rates low for us.
Reality #4: There are DCs who are getting out of chiropractic due to the financial stress. Two cases I know personally have committed suicide due to the student loan situation, and difficulty in establishing a living by being a chiropractor. I do not know the turnover rate, or if even such a statistic is kept, but am starting to hear stories of chiropractor leaving the field.
Now we can talk about how to deal with your loan. There is a manual by the Health and Human Services you should get. This plan is to keep the "wolves at bay" or keep your loan from defaulting. This method is perfectly legal, and I have used it.
Once you've graduated:
One interesting point I wish to make is that while you are in forbearance your credit report will show the outstanding principle, but will not show your monthly payment. One of your goals should be to buy a home. A home is a very good investment. If during your forbearance period you are able to buy a home, you'll find out that your personal debt is calculated into how much house you can afford. If you have a student loan payment of $1000/month that is going to be calculated into how much you can afford by the bank. But while in forbearance, you show your making payment of $250 and the rest in forbearance you will be able to purchase a more expensive home which could determine a lot of other factors such as resale value, neighborhood, school district, etc.
In conclusion, I challenge chiropractic's upper echelon and self anointed leaders to find a solution to this problem before it consumes the entire profession. We want to be separate and distinct, but at this rate of default we could easily become separate and extinct. If anyone is interested in writing me and pointing out anything I have or have not covered, I would appreciate your thoughts.