✚ The Real Problem with Medical Student Debt—Investors, Look Here!

[The following is an annotated Twitter chat between myself, Karan Chhabra, and Allan Joseph about the medical student debt problem. The quoted sections are our actual tweets and clicking the at the end of each will take you to the original tweet. I want to thank Karan and Allan for having the foresight to put this together. You can read more of their excellent writing at Project Millennial. Enjoy!]

America might never agree on how much doctors deserve to earn. But there ought to be much less debate on the immense debt today’s medical students incur on the way to becoming doctors. Few people are more aware of the stress of medical student debt than med students themselves and there is evidence that it affects our specialty and practice decisions later on down the line.

The costs of American medical care are obnoxiously high. On this, few disagree. Part of these costs stem from the high salaries of our physicians. But their salaries might (or might not) be justified by their astronomical debt levels upon graduation. Few people are more aware of the stress of medical student debt than med students themselves, and there’s evidence that it affects our specialty and practice decisions later on down the line.

Enter this tweetchat. What began as a typical med student complaint about their debt load evolved into a provocative discussion about the underlying factors and potential solutions to the debt problem. We’ve incorporated some notes explaining perhaps unfamiliar concepts, but otherwise this is the unvarnished product of a few med students procrastinating on a Sunday night.

@JoshHerigon: Median med school debt today = $170k vs in 1978 = $48K (adjusted for inflation). http://goo.gl/iTtMH9 #meded

@krchhabra: ARGH RT @JoshHerigon: Median med school debt today = $170k vs in 1978 = $48K (adjusted for inflation). http://goo.gl/iTtMH9 #meded

@allanmjoseph: @krchhabra @JoshHerigon Yes, but…more demand than ever for spots, & vastly higher teaching/resources since then. Complex issue.

AJ: The easiest way to tell if med-student debt is becoming an acute problem is if the demand for medical-school spots (easily measured by the number of applicants) is declining relative to the supply. That’s just not happening. In fact, the opposite is.

@krchhabra: @allanmjoseph @JoshHerigon I’m skeptical that teaching is any more resource-intensive than it once was (except perhaps for standardized pts)

KC: Standardized patients are actors paid by medical schools to act out clinical scenarios as we pretend to be doctors. They’ve been a useful component of clinical skills instruction for several decades—but their help isn’t free.

@allanmjoseph: @krchhabra @JoshHerigon At least here, our student:instructor ratio is insanely good, and so are our useful support structures.

@allanmjoseph: @krchhabra @JoshHerigon Not saying it’s all reflected, but I also don’t think it’s an apples-to-apples comparison.

@JoshHerigon: @allanmjoseph @krchhabra Our campus is probably nicer…

JH: Even more than a decade ago when I was an undergraduate, the arms race between universities to build bigger and better facilities was well underway. Examples are not hard to find. Medical schools and academic medical centers are active participants in this trend. In 2007, my own institution announced a 10 year, $800 million expansion. It’s not clear how capital improvement projects impact student tuition—administrators argue such projects are paid by dedicated capital funds, supported by the state, private donations, and/or bond initiatives. But, new facilities increase annual maintenance budgets and in the face of shrinking annual operating budgets, where do administrators make up the difference? Again, the impact of capital projects is not obvious; what is obvious is that tuition rates have not decreased with these projects.

@krchhabra: @JoshHerigon @allanmjoseph But we’re talking about secular time trends. Is your student/teacher ratio better than it was 20 years ago?

@krchhabra: @JoshHerigon @allanmjoseph of course there’s more small group learning than there used to be. But that doesn’t justify 3x price increase

@krchhabra: @JoshHerigon @allanmjoseph I use “price” intentionally - schools can charge whatever they want; the govt and students will always oblige.

KC: Once an English major, always an English major. I’m trying to highlight the difference between prices and costs here–costs the amount of resources expended in providing a service (a pretty objective quantity), whereas prices are chosen by the seller (often based on the highest amount the market will tolerate). What I’m trying to say is, the rapidly rising price of medical education doesn’t necessarily reflect increases in its underlying costs.

JH: Federal support of education through student loan programs has increased access to higher education, but at what cost? Students are now insulated from the true price of their education. Their tuition payments are abstract numbers on a page they see once a semester. Financial aid counselors (in my limited experience) fail to explain the true financial impact of student loan payments. Students are sold on the various deferrment options, repayment plans, and forgiveness programs (most of which students won’t qualify for or will increase the overall cost through deferred interest payment). Even with sufficient explanation, it’s hard to fully conceptualize until you make that first payment.

@allanmjoseph: @krchhabra @JoshHerigon Fair enough. Aside: I also think med students whining about debt can come off as tone-deaf, even if justified.

AJ: Quite frankly, when physician unemployment is nonexistent and even the lowest-paid specialties average six-figure salaries, we don’t have a lot to whine about. The reasons to care about this, from a policy perspective, are the positive externalities (that don’t accrue to doctors) from having the best and brightest students enter medicine.

@krchhabra: @allanmjoseph @JoshHerigon in light of future incomes? Perhaps. Though I think the average doc’s income will drop vs those trained in 78.

@allanmjoseph: @krchhabra @JoshHerigon From a systemic standpoint, they probably should, at least in many specialties. (Shh, don’t let the AMA hear!)

@krchhabra: @allanmjoseph @JoshHerigon it’s okay. There will always be surgicenter facility fees for when we need a quick buck (right?)

KC: Historically, doctors and hospitals have been paid separately for work that happens within a hospital’s walls. Doctors get a “professional fee” for their time and expertise, and hospitals get a “facility fee” for nursing care, materials, and all the other costs they incur in providing care. But in physician-owned surgical centers, doctors get both the professional fee and the facility fee. It’s as lucrative as it sounds, though Obamacare plans to curb these arrangements.

@JoshHerigon: @krchhabra @allanmjoseph Ha! Or you can always moonlight during residency…

JH: Moonlighting is when a doctor works outside their regularly scheduled hours (typically overnight, hence the name). Residents have historically done this during their training to supplement their paltry salaries. However, resident work hour restrictions are now decreasing this (moonlighting hours count against the total hours worked).

@JoshHerigon: @krchhabra @allanmjoseph Not saying med school should be free or even debt-free, but we need lower prices and better loan terms.

JH: I believe loan terms are the core issue and have been for a long time.

@krchhabra: @JoshHerigon @allanmjoseph You nailed it with loan terms. Super generic, don’t account for reliable, delayed income doctors get

AJ: Most medical students borrow for medical school through the federal government’s Stafford loan program, as well as the Graduate PLUS program if needed. It looks like there’s a lot of repayment options, but when you dig into it…they’re all variations on very few themes.

KC: And the problem with that is, the incomes of med school grads have little in common with those of other grad schools. Most grads (law, business, PhD, etc.) see a healthy income soon after graduation, increasing steadily thereafter. Medical school grads look forward to 3–10 years of paltry income while they’re training, followed by a huge jump once they’re board-certified. Loan payments can be suspended while in training, but the debt still accrues interest at a rate equal to other graduate loans. This makes little actuarial sense when you consider how low physicians’ default rate ought to be, compared with graduates of other programs. (Physicians’ unemployment rate is 0.8%, versus 2–3% for graduates of any graduate/professional school.) A tailor-made loan for medical students would adjust for physicians’ comparatively low incomes at graduation as well as their substantial, reliable incomes after residency. Though I’m not an actuary, I think loans on this terms would be much more fair and affordable.

@allanmjoseph: @krchhabra @JoshHerigon Absolutely. 100 percent agree with you there.

@JoshHerigon: @allanmjoseph @krchhabra One of you guys should create a start-up that buys up med school debt at better terms. ;)

@krchhabra: @JoshHerigon @allanmjoseph I’ve actually given this some thought. Just need a few wads of money I don’t currently have ;-)

@JoshHerigon: @krchhabra @allanmjoseph Me too.

@allanmjoseph: @JoshHerigon @krchhabra And now I’m giving it thought instead of reading about NK cells. Let’s find an angel investor.

@allanmjoseph: Hey, followers, @krchhabra, @JoshHerigon and I have a killer business idea. Who wants to give us a few million to make it happen?

AJ: We joke about this, but it’s moderately surprising some enterprising financial firm hasn’t found a way to make this happen. (There’s probably a regulation about federal student debt that hampers it, but still.) More obviously, though, there’s room for policy changes to improve this system.