Thursday, February 18, 2010

Another Dumb Doctor

From the WSJ:

When Michelle Bisutti, a 41-year-old family practitioner in Columbus, Ohio, finished medical school in 2003, her student-loan debt amounted to roughly $250,000. Since then, it has ballooned to $555,000.

It is the result of her deferring loan payments while she completed her residency, default charges and relentlessly compounding interest rates. Among the charges: a single $53,870 fee for when her loan was turned over to a collection agency.

"Maybe half of it was my fault because I didn't look at the fine print," Dr. Bisutti says. "But this is just outrageous now."

Unlike other kinds of debt, student loans can be particularly hard to wriggle out of. Homeowners who can't make their mortgage payments can hand over the keys to their house to their lender. Credit-card and even gambling debts can be discharged in bankruptcy. But ditching a student loan is virtually impossible, especially once a collection agency gets involved. Although lenders may trim payments, getting fees or principals waived seldom happens.

She says she knew when she started medical school in 1999 that she would have to borrow heavily. But she reasoned that her future income as a doctor would make paying off the loans easy. While in school, her loans racked up interest with variable rates ranging from 3% to 11%.

She maxed out on federal loans, borrowing $152,000 over four years, and sought private loans from Sallie Mae to help make up the difference. She also took out two loans from Wells Fargo & Co. for $20,000 each. Each had a $2,000 origination fee. The total amount she borrowed at the time: $250,000.

In 2005, the bill for the Wells Fargo loans came due. Representatives from the bank called her father, Michael Bisutti, every day for two months demanding payment. Mr. Bisutti, who had co-signed on the loans, finally decided to cover the $550 monthly payments for a year.

After completing her fellowship in 2007, Dr. Bisutti juggled other debts, including her credit-card balance, and was having trouble making her $1,000-a-month student-loan payments. That year, she defaulted on both her federal and private loans. That is when the "collection cost" fee of $53,870 was added on to her private loan.

Meanwhile, the variable interest rates continue to compound on her balance and fees. She recently applied for income-based repayment, but she still isn't sure if she will qualify. She makes $550-a-month payments to Wells Fargo for the two loans she hasn't defaulted on. By the time she is done, she will have paid the bank $128,000 -- over three times the $36,000 she received.

She recently entered a rehabilitation agreement on her defaulted federal loans, which now carry an additional $31,942 collection cost. She makes monthly payments on those loans -- now $209,399 -- for $990 a month, with only $100 of it going toward her original balance. The entire balance of her federal loans will be paid off in 351 months. Dr. Bisutti will be 70 years old.


Orion said...

Apparently not very fiscally smart or responsible. She should have gone to work for the gov't. 10 years of deferrals and then forgiveness. I suppose that is only Federal student loans. Stupid is as stupid does. What they don't tell us is her income. If she's earning a couple hundred thousand per year this is not unreasonable to pay back. She may have to hod off on the McMansion, BMW, and NPR pledge drives, but really it's not that out of wack considering her income.

Anonymous said...

family practitioner? maybe 150-200K ? based on her past behavior i doubt she can, though.

People in US put on debts like underwear or going out of fashion.

easy credit/debt is going to change soon. It would already be happening now, if banks/fannie/freddie/ginnie/etc weren't bailed out.

Prudence in financial matters is going to mean reverse sometime this decade.

CaptiousNut said...


I feel like it's just never going to reverse. Look how many idiots have been knife-catching the housing market, UNDAUNTED, for the past five years.

I think we suffer hyper-inflation before any mean reversion to financial prudence. Heck, why save if the currency is going to be worthless eventually?