Home > Student Loans > On Student Debt Crisis, A Canary in the Mineshaft

Comments 0 Comments

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.”

[Credit Score Tool: Get your free credit score and report card from Credit.com]

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.

[Related Article: 4 Programs That Want to Pay for Your College]

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.”

[Free Resource: Check your credit score and report card for free with Credit.com]

Image: Michael Sonnabend, via Flickr

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team