WSJ: USC Alum Is One Of 101 Grads With $1 Million+ In Student Loans

Wall Street Journal, Mike Meru Has $1 Million in Student Loans. How Did That Happen?:

Mike Meru, a 37-year-old orthodontist, made a big investment in his education. As of Thursday, he owed $1,060,945.42 in student loans.

Mr. Meru pays only $1,589.97 a month—not enough to cover the interest, so his debt from seven years at the University of Southern California grows by $130 a day. In two decades, his loan balance will be $2 million.

He and his wife, Melissa, have become numb to the burden, focused instead on raising their two daughters. “If you thought about it every single day,” Mrs. Meru said, “you’d have a mental breakdown.”

Due to escalating tuition and easy credit, the U.S. has 101 people who owe at least $1 million in federal student loans, according to the Education Department. Five years ago, 14 people owed that much.

More could join that group. While the typical student borrower owes $17,000, the number of those who owe at least $100,000 has risen to around 2.5 million, nearly 6% of the borrowing pool, Education Department data show.

For graduate-school students especially, there is little incentive for universities to help put the brakes on big borrowing. The government essentially allows grad students to borrow any amount to cover tuition and living costs, with few guardrails on how the final sum will be repaid.

More than a third of borrowers from one of the government’s main graduate school lending programs have enrolled in some form of federal loan-forgiveness plan.

“These are choices. We’re not coercing,” said Avishai Sadan, dean of USC’s Herman Ostrow School of Dentistry, where Mr. Meru went to school and one of the most expensive in the U.S. “You know exactly what you’re getting into.” ...

Dental school is the costliest higher-education program in the U.S. Private nonprofit schools during the 2015-2016 school year charged an average of $71,820 a year, the Urban Institute found. The USC program now costs $91,000 a year, and $137,000 when living expenses are included. ...

Mr. Meru’s financial records—provided to The Wall Street Journal—show he borrowed $601,506, a debt that swelled to more than $1 million by fees and interest.

The USC education helped Mr. Meru earn $225,000 last year working for a corporate practice in Draper, Utah, 20 minutes from Salt Lake City. That compares with a $158,000 median income for dentists, according to the Labor Department. ...

Mr. Meru met and married his wife while at Brigham Young, and he graduated debt-free in 2005. He picked the USC dental school for its prestige and because he wanted to live closer to his parents.

Mr. Meru said the dental school’s financial-aid director, Sergio Estavillo, estimated that the basic four-year program would require $400,000 to $450,000 in student debt, including interest. Mr. Estavillo said he didn’t recall the conversation but had no reason to doubt its accuracy.

Mr. Meru and his wife concluded dental school was a good investment, given the salary he expected to earn.

“We’re like, ‘Well, we can make this work,’” Mrs. Meru said. “There are certain things that are OK to go into debt for: a house, an education, a car.”

The newlyweds packed up for California. Mrs. Meru got a job at USC as an administrative assistant, which provided a tuition discount. ...

Mr. Meru then entered into a government-sponsored repayment plan based on income. He agreed to monthly payments at 10% of his discretionary income, defined as adjusted gross income minus 150% of the poverty level. Any balance remaining after 25 years is forgiven, effectively covered by taxpayers. The forgiven amount is then taxed as ordinary income.

Without the government help, Mr. Meru’s monthly payment would be $10,541.91, according to an email from his loan servicer. His current monthly income, after taxes, is roughly $13,333.

Since refinancing his debt with the federal government in 2015, lowering the rate to 7.25%, Mr. Meru’s balance has grown by $148,948. It will keep growing through the 25-year life of the repayment plan until it reaches $2 million. That sum will be forgiven and, at current tax rates, could cost Mr. Meru more than $700,000 in income tax payments. By then, Mr. Meru will have paid $1.6 million. That would be about the same as repaying his $600,000 in student loans at a rate of 4% over 25 years. ...

The government repayment plan affords the Meru family a comfortable life.