Dock the Docs

Welshing on student loans

Like many a rich relative, Uncle Sam lends a great deal of money and has a hard time collecting. But among the borrowers taking advantage of his largesse, none are more galling than medical doctors who have reneged on the federal student loans that helped make their lucrative careers possible. At hearings last week in Washington, the Senate Governmental Affairs Committee put the spotlight on welshing physicians in hopes of making them pay up.

Established in 1963, the student loan program for the health professions allows would-be nurses, dentists, optometrists, pharmacists and podiatrists, as well as physicians, to borrow enough to cover their tuition plus up to $2,500 in other expenses. Repayment is over ten years at a maximum rate of 9%. About a third of the 167,000 loans now outstanding are in arrears totaling $23 million. Nurses have the highest delinquency rate, a whopping 43%, compared with a range of 6% to 29% for the other professions. The default rate for doctors is 16%.

Nurses at least can plead poverty: their average income is only $15,000. By contrast, the median income for doctors in private practice is $84,000. Notes Senator Charles Percy of Illinois, who chaired the hearings: "According to a General Accounting Office sample of delinquent doctors and dentists, most are well established in their practices and perfectly capable of paying these loans back on time. Seventy-three percent had excellent credit ratings in the private sector." One Harvard University Medical School graduate has a $19,000 car loan, $2,000 in department-store charges and $13,000 in other outstanding credit, and has never missed a payment on these debts. Yet he is two years delinquent on the remaining $1,552 of a student loan.

Part of the remedy is for the Department of Health and Human Services to provide a uniform definition of delinquency and for schools, which are responsible for administering the loans, to adopt tougher collection policies. According to the Senate committee's case-by-case review of loans to Harvard medical students, 24% are in arrears. The university, however, claims that only 5% of medical and dental students with loans are delinquent. One reason for the differing rates: a partial payment, even on a long-overdue loan, can take a debtor off the school's delinquency roll. Last month one graduate made amends by paying $25 on a $1,477 loan that was overdue five years.

Loyola University of Chicago has already tightened its procedures and has tripled its collections in the past three years. Percy has introduced legislation that would require the reporting of delinquent borrowers to commercial credit bureaus. Says he: "They should face the same consequences as they do if they don't pay their mortgage." But it is clear that those who will suffer the most are prospective health-care workers. Loans are no longer being made from congressionally appropriated funds, but from the money repaid. Because of delinquent debts, about 5,000 would-be doctors and nurses could be denied government aid.

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