The High Cost of Profiting from Student Loans

By Ryan Abbott

I read an article recently which stated that the federal government is making a 51 billion dollar profit this year from student loan borrowers. That’s more annual profit than any private American business makes. Profit margins are up thanks to record interest rates and aggressive collection policies.

Having the government make money off of students like this strikes me as bad policy—particularly with regards to student health professionals. Medical school is an expensive proposition; the cost of attending medical school has been rising for the past 13 years, and the average medical school graduate leaves school with $166,750 in debt. That doesn’t take into account undergraduate or other debt, and a significant portion of graduates end up owing far in excess of that amount. Ben Bernake testified before Congress last year that his son was on track to leave med school with $400,000 in loans!

Systematically burdening medical school graduates with debt seems almost calculated to drive doctors away from primary care and into higher paying specialties. That’s unfortunate because research demonstrates that a greater availability of primary care physicians results in better public health outcomes. The U.S. already has a surplus of specialists but not primary care physicians.

The average medical school graduate starts residency at 28 and spends at least three years in post-graduate training. When I was a resident, my union calculated that resident salaries were on par with minimum wage (with overtime). By the time someone in their 30s finishes training to go into primary care, they may struggle to financially support a family or buy a home. Loan forgiveness programs may work for some graduates, but primary care providers are needed outside of disadvantaged areas as well.

The government should be willing to take a short-term loss on student loans for health professionals. Not just to improve public health, but because in the long term this is an investment in human capital that promises a strong return on investment. As a result of attending medical school, nearly all graduates will go on to pay higher levels of income, property, and sales taxes than they would have as non-physicians. The ultimate gains in government receipts will more than offset an upfront loss. It would be a step in the right direction for the federal government to run the student loan programs in a cost neutral fashion, but profiting off of students at a vulnerable point in their careers is a bad strategy. If this post wasn’t for a health law blog I’d even argue the government should be willing to make the same investment in all students.

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