Why the Blame for Extreme Student Debt is Shifting

By Dan Kadlec

June 5, 2018

'System' broke but those with student debt get blame

Individual U.S. borrowers with more than $1 million in federal student loans now number 101, up from just 14 five years ago. Such unthinkable levels of education debt are rare. But the problem is broader than you may realize: 2.5 million student borrowers—mostly from graduate studies—owe at least $100,000. This number continues to grow.

These astounding statistics, reported in The Wall Street Journal, are getting a lot of play. Much of the media coverage has been critical of higher education and government, which blithely lead young people to the student-debt trough. That criticism is well founded; it’s also been voiced many times.

What seems kind of new, and in many ways encouraging, is the palpable disdain expressed in reader comments sections. Reader remarks have been highly critical of those who lack personal financial discipline and wind up deep in debt for their degree.

The Journal profiled Mike Meru, an orthodontist earning $225,000 a year but with dental school debts totaling $1 million. No one in the comments sections shed a tear for Meru. Readers were incredulous, indifferent, or dismissive. Here are few sample comments from the Journal:

“How did he get there? Frankly because he’s a dummy.”

“This is what’s wrong with young people today. Take, take, take and when that doesn’t work out, cry about it.”

“If you decide to bury yourself in debt, all along knowing the outcome, do you have a right to cry at the end of the disaster?”

“He’s living large, driving a Tesla and taking trips to Havana.”

“Quick! Somebody tell me this is fake news…If not, then this is just one more example of the hapless U.S. taxpayer bailing out corrupt people and institutions.”

And from the website ZeroHedge:

“This just in. There are 101 certifiable and financially ignorant people in the United States.”

And from Inside Higher Ed:

“Really? Cry me a river. Perhaps he should live a less luxurious lifestyle for 10 years and pay it off. What a concept.”

That readers would take aim at Meru and, by extension, others with crushing student debt loads—not the government or universities that perpetuate a broken system—suggests the effort to raise awareness about student loans and financial literacy in general is hitting home. This is a ringing endorsement for personal financial responsibility.

What the readers are saying, in essence, is that…

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…this is an avoidable problem. Take the time to understand how credit works and how basic steps can minimize student debt. Don’t borrow more than you need. Stay current on interest payments. Don’t use student loans for spring break or personal items. Keep your tuition tab down by taking an extra course each semester or by getting free credits at a community college. Work, don’t borrow, to pay room and board.

In their exasperation with individuals that borrow too much, readers probably let universities and government off too easy. The system enables this $1.5 trillion debt debacle. Student loans have few restrictions. Universities raise tuition, knowing students can and will borrow. And because so many borrowers have income-based repayment plans many will never repay all their debt. Taxpayers will pick up the tab. Among individuals with at least $100,000 in loans, 40% are enrolled in income repayment plans.

This is an unsustainable model, especially in light of the free college options that are beginning to surface. At least 11 states now offer free community college, and technology promises to drive down the cost of four-year degrees for those willing to study online. So, a reckoning may not be too far off.

Borrowers like Meru may provide the final rallying cry for change. After graduating from Brigham Young University with no debt and in a new marriage, Meru, 37, borrowed $601,506 to attend the USC orthodontics program. He enrolled in an income-based repayment program that takes only 10% of discretionary income. That payback rate doesn’t even cover his interest expense, and his balance grows $130 a day. After 25 years any debt remaining on his books will be wiped clean. In Meru’s case that should come to $2 million.

What really galled readers was that Meru showed little concern for his mounting debts. He bought a home and a car, started a family, took vacations. He made little effort to minimize his tuition. He did not pay interest along the way and compounded it all by taking the forbearance option that postpones student loan repayment for a period after graduating and going to work.

Meru still faces big bills. The debts that get wiped away will be treated as income and eventually trigger a massive tax bill estimated at $700,000. Still, readers showed little sympathy. That’s harsh. But if we are getting to a place where society expects young people to be smarter about their financial decisions, that’s good.