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On Student Debt Crisis, A Canary in the Mineshaft

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Rashid M. Rashid saw the student loan debt crisis coming long before the mainstream press began reporting on it. In 2004, in the middle of the housing boom, Rashid happened to be shopping for a townhouse in Chicago. As a medical student at Loyola University, Rashid had no trouble getting a loan. And he found plenty of homes that he liked.

The trouble was that everybody else was approved for a loan, too. With money flowing so easily from banks, each house attracted multiple bidders, driving up prices.

“It was insane,” Rashid says.

Many people have noted how the availability of easy credit in the mid-2000s was a major contributor to rising home prices in the heat of the real estate bubble.

What few noticed were the possible similarities between the real estate market and higher education.

Like most medical schools at the time, Loyola was increasing its tuition by 5 to 10 percent every year, Rashid says. If easy money helped cause inflation in the housing market, Rashid wondered, wouldn’t it have a similar effect on universities?

“The same thing that was happening in real estate was happening with medical school,” Rashid says. “It was so easy for anyone to get a loan. And once you got the loan, you just paid whatever the school asked.”

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Free Credit Check ToolIs it a Bubble?

In recent years, the rapid increase in tuition rates and student loan debt has caused many observers to wonder whether we’re in the midst of a student loan bubble. Much like the real estate bubble of the 2000s burst, the damaging effects of which are still plaguing the housing market and the broader economy, might a bursting student loan bubble cause similar damage?

“We’ve created this artificial bubble of education by throwing all this seemingly free money at education,” says Robert Applebaum, a political blogger who started a petition that all student loan debt be forgiven. “How do we ever expect the housing market to improve when the very people we rely upon to buy houses are already strapped with student debt?”

Others counter that it’s not a bubble unless a large number of graduates take on more debt than they can repay. So far, anyway, that hasn’t happened.

“I don’t think it’s a bubble,” Mark Kantrowitz, publisher of the financial aid website Finaid.org, recently told CNN. “Most students who graduate college are able to repay their loans.”

Most students, especially medical students, will be able to pay their loans. But what about the tradeoffs they’ll have to make, Rashid wonders. How many will be forced to live with their parents? How many will be prevented from doing the work they love, work like serving the poor or practicing general medicine in rural communities, work that may be lower paid but which, one could argue, provides more service to society?

“People say that loans shouldn’t affect your medical career,” Rashid says. “Well the reality is, it already does.”

[Related Article: How I’m Repaying $120,000 in Student Loans]

Documenting the Trend

Rashid’s insight into the connection between low-interest, federally-backed loans causing runaway inflation in both real estate and higher education became the kernel of an academic article. Lacking the time and the experience to do true social sciences research into exactly how money and loan pressures affect medical students’ career choices, the article functioned more like an editorial, postulating that high student loan debt does change young doctors’ career choices and encouraging other researchers to study the topic. He wrote the article quickly, and then spent a year and a half sending the article to prestigious medical journals.

“(T)his is not yet a highly discussed and seriously considered matter,” Rashid wrote in 2006. If the trend of rising tuition and debt continues, he predicted, then maybe “only the rich will be able to become physicians, or a continued and severe decrease in students choosing low-paying primary care medicine will create a destructive healthcare gap.”

After more than a year of rejection letters, Rashid finally published his article, “Easy money, lifelong debt” in the Journal of the Kentucky Medical Association in August 2006. It became one of the first pieces in the academic literature to document the possible connection between the ready availability of loans and the increase in medical school costs.

Meanwhile, Rashid watched as the heavy burden of repaying all those student loans weighed upon his fellow med school classmates. Many came to Loyola from small towns, and they hoped to return to their hometowns after graduation to become self-employed general practitioners.

Even before Rashid’s classmates graduated, many abandoned dreams of becoming modestly-paid small-town doctors to work in large hospitals or established medical practices, he says.

It wasn’t what they really wanted to do, Rashid says. But it was the best way they knew to repay debts that topped $100,000 for medical school alone.

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A Way Out…

Rashid found his own way out of this conundrum. By continuing at Loyola to get a PhD in medicine, focusing on pharmacology, he managed to have most of his medical school loans paid by the school in return for three years of clinical research.

Graduating from medical school with almost zero debt allowed Rashid to follow his career goals. Where many of his classmates went on to become high-paid and highly respected surgeons, Rashid was drawn to dermatology, especially hair replacement.

Now Rashid is 34 years old. Five years after graduating from medical school, he owns a successful medical practice in Houston. He teaches at the University of Texas, has contributed to writing a textbook, and has almost 75 academic papers to his name. “None of this would be happening if I had a hundred thousand dollars in debt on me,” he says. “It’s made me a better person in terms of freedom and flexibility.”

Of course, the real test for whether or not we are facing a student loan bubble will not concern doctors. Young physicians may have to make uncomfortable choices about their careers in order to pay off their student debts, but there have been no reports of doctors unable to find jobs or repay their loans.

The question is what fate will befall graduates who receive degrees in poetry or art history in exchange for tens of thousands of dollars in student loan debt.

“The student loans are the problem,” Applebaum says. “They’re given out to anyone who wants them, with no cost-benefit to determine how much you might actually earn with an English degree.”

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Image: Michael Sonnabend, via Flickr

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