LAW SCHOOLS

An Orthodontist’s One Million Dollar Student Loan Debt Exposes The Good, The Bad, And The Ugly About Income Based Repayment Programs

At what point does paying your student loans in full no longer make financial sense?

By SHANNON ACHIMALBE
at 10:45 AM

If you thought owing $100,000, $200,000, or even $300,000 in student loans was bad, try owing over a million. At what point does paying your student loans in full no longer make financial sense?

Recently, the Wall Street Journal featured the story of Michael Meru, an orthodontist who owes $1,060,945.42 in student loans. The interest accrues at a rate of $130 per day. This translates to around $3,900 per month, or $46,800 per year.

But don’t feel too bad for him. Last year, he earned $225,000. He owns a home with a mortgage in Utah. He drives a Tesla. He and his family have vacationed in Havana.

So how is this orthodontist able to afford all of the above with his crushing debt? Brace yourself. Thanks to the federal government’s income based repayment (IBR) program, he pays less than $1,600 per month towards his student loans despite earning $13,333 per month after taxes. Since his payments are not even making a dent on the interest accrued, the $601,506 he originally borrowed ballooned to his current seven-figure balance. Given these numbers, it is very likely that he will stay on the IBR program for the 25 year period, after which the balance of his student loans will be forgiven with possible income tax consequences.
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Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at sachimalbe@excite.com and via Twitter: @ShanonAchimalbe.