Student Loans: An Economic Crisis

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
(HEAL), begun in 1979,

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
B. 1,131 owed between $50,000 to $100,000
C. 2,310 owed between $10,000 to $50,0001

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:

1. Chiropractic colleges will be cut out of the Federal Loan programs. This already happened once. It if happens again, attempts by chiropractic leaders may be futile. The government will slap an DNR (Do Not Resuscitate) label on the chiropractic education program. If students can't get funding, remember 90 percent use loans, they won't be able to afford to go.
2. The state and national organizations will be hurt also because graduates starting out will not be able to afford to join. With high repayment schedules, this will force many to put money towards other obligations such as eating. Since it can cost a practitioner $600/year to belong, that revenue will go to debt reduction. Sure, most associations give you a graduated rate, but you still in the long run end up paying the normal fee per year.
3. Chiropractic equipment suppliers and dealers will also feel the effects because students opening a practice will have to go with cheaper ways to equip offices. Also, financial resources for upgrading equipment will be earmarked for loan reduction instead.
4. A reputation created by the government and their "humiliate and locate" plan, and the media's love for sensationalism will lead the general public to label chiropractors as "deadbeats." The "Call For Action" show of Kansas City labeled defaulters as cheating taxpayers. This was not what the chiropractic profession needed as part of a positive public relations campaign.
5. Due to the shrinking chiropractic health care dollar, with insurance companies refusing to add DCs or dropping us out of their plans or -- worse yet -- putting limitations on care, this will lead to bitter competition between local chiropractors. Look at the percentage of DCs defaulting vs. the medical profession.
6. Chiropractic schools will greatly suffer also. Not only would they lose students' ability to get federal loans, lack of revenue will decrease quality of teachers and facilities. Schools depending on students' ability to pay for general operating costs could get hit with one massive blow they might not be able to rebound from. Schools also depend on cash donations for general budgets. With loan repayments as high as $1000/month, any concept of future giving by alumni is gone.
7. New start-up loans for new chiropractors would be limited because the banks will look at students' credit reports, and see an already huge personal debt accumulated. Banks could care less if you are philosophically sound in chiropractic.
8. ALL chiropractors, due to increasing default rate, could be lumped into the "High Credit Risk" category. In fact, some disability insurance companies are not issuing policies to chiropractors now.
9. Even the chiropractic seminar circuit would suffer. Again, the high student loan burden will cause new DCs to just take the normal state required hours and direct their cash to getting out of debt.
10. Chiropractic periodicals could suffer too. If students don't have extra money to spend, then this idea will be axed out of students and practitioner budgets.
11. New prospective students wanting to go into chiropractic may think twice on entering the profession if the high default rate and struggles establishing a practice continue. The profession could possibly lose valuable future resources and intellects.

Well, then what are the solutions for these possible economic catastrophies that could be on the horizon? I don't have the answers directly. These will definitively have to be discussed. I do have a few ideas of my own and some are probably very controversial.

1. Let all DCs who pass the NBCE part I, II, III be granted license in any state in the union. The only exam that should be required is the scope of practice laws. It is so ridiculous to have to keep new chiropractors out of your state on the basis of fear.
2. Get the chiropractic schools to receive government funding for operation. Also, get them closely associated with state universities instead of private school status, which raises tuition, in turn raising student loan indebtedness.
3. Make sure that the schools are totally honest with students about the expectations of private practice. Instead of having guest lecturers who fill students with "visions of sugar plumbs dancing in their heads," the schools need to prepare students adequately. In the areas of insurance, patient management, accounting procedures, and etc.
4. This next one is probably going to stir hate mail and debate. Our profession needs "optional limited pharmaceutical rights."

The profession is having to compete with the accepted standard of mainstream clinical protocol for the treatment of spinal and articular disorders. If we are seeing only 5-8 percent of the general population and 80 percent of the population suffers low back pain at one time or another, this obviously tells us that patients are not going to DCs first. Does this indicate that patients with chiropractic problems are getting results with medicine? Again, look at the percentage of DCs vs. MDs defaulting. The argument against such an idea is that the conservatives feel we will be assimilated under the auspices of medicine. Their argument is understandable. But if the optometrists, podiatrists, and dentists can succeed, why can't we?

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:

1. Do not consolidate your student loan. Use up your four six month forbearance periods. You are entitled to use them if you can say you have other financial obligations or reasons. Take advantage of those grace periods you have.
2. Once the forbearance period is over, then consolidate the loans. Now you may not be able to consolidate all the loans, but you will be able to put some in.
3. Ask if there is graduated payments on loans you cannot consolidate.
4. The loans you can consolidate, use their new four six month forbearance period. You have just created another period to build up cash reserves.
5. Make the minimum payment if times are tough -- you can always make extra principle payments.
6. Try not to be late -- the interest, phone calls, and letters accumulate.
7. Try to make the payment the day the bill comes in -- keeping a bill on your desk can stress you out.

Are there drawbacks to forbearing a loan for so long? Yes. The interest will accumulate and be capitalized (meaning the unpaid interest then is added to your principle amount). But in this case, it is best to keep the government off your back and you off the Credit Bureau's reports and Federal Register.

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.

References

1. Carpenter Tim. Humiliation may cure loan defaulters. January 2, 1994, Lawrence Journal-World. Lawrence, Kansas.
2. Cramer Stan. Medical professionals cheating taxpayers. August 31, 1993, "Call for Action" television program, KCTV Channel 5, Kansas City, Kansas.
   
3. Chiropractic students lead loan defaults in Minnesota, The American Chiropractor, November/December 1993, page 74.
4. Independent survey of 18 chiropractic colleges, February 22, 1994.