I just watched a video clip from last night’s edition of 60 Minutes, where a young student said that the $76,000 loan she had taken out for her first year year of medical school would wind up costing $100,000 if she paid it back over a ten year period. To this, her interviewer, Leslie Stahl, professed profound astonishment...That’s unfathomable, she gasped.
No, Leslie...that’s called interest. Let me explain the concept to you...
When a consumer borrows money, the lending institution charges you interest. The longer you take to pay the loan back, the more interest you pay. For example, if I were to borrow $250,000 to buy a house, and I was charged 5% interest for a 30 year mortgage, I would end up paying the bank $483,000. If I was appalled at the amount of interest I would pay the bank, I could refinance to a 15 year note and perhaps a better interest rate, say...4.5%. In that case, I would only pay the bank $344,000. However, my monthly payment would be nearly $600 more, so I would have to consider whether or not I could afford it. In either case, there is absolutely nothing unfathomable about it. Borrowing money isn’t free.
Of course, the purpose of the 60 Minutes piece was to bang the drum for some sort of free college tuition scheme to be born by some combination of tax-payer subsidy and/or institutional endowment gift-back. For professions that the government deems to have social benefit, tuition would be free. That’s all well and good, and is a discussion worth having...but, for the love of God, Leslie...don’t get the freaking vapors over as simple a concept as loan interest!!
Later in the piece, we are introduced to another medical school student, who lamented his debt load by observing how much of a better doctor he would become if he didn’t have to pay for his education...For one thing, I wouldn’t have to work while I’m in school, so I could spend more time learning. This is very true. When I look back over the years I have spent paying my mortgage, it boggles the mind to imagine how much better a financial advisor I would have been if I didn’t have to pay for my house. And he’s also right about what a drag it is to have to work 30 hours a week while attending college full time.
There are a whole slew of things that would be far better if we didn’t have to pay for them, or better yet, if someone else was forced to pay for them. Maybe medical school is one of them. Maybe housing too, or basic transportation. And what about food? Nothing quite so life sustaining as food. Don’t even get me started on health care. Why, if I didn’t have to worry about paying for health insurance, hell I might be able to go back to school myself and finally get that Master’s Degree in Intersectional French Poetry I’ve always dreamed about.
Things are expensive. Really good and important things like medical school are ridiculously expensive. But, pardon me for not brimming with confidence when people like Leslie Stahl advocate for making stuff free, when they can’t even wrap their minds around the fact that interest is charged on loans!
Leslie Stahl knows how interest works. Over the course of the full interview, she even talks about it directly.
ReplyDeletePretty sure she was commenting on how it was "unfathomable" that someone should have to pay $76,000 for a single year of education, meaning that they'd graduate with just over $300,000 of debt after completing four years of medical school. That's more than a lot of people's mortgages.
And I'm sure when these young medical school students are driving their third Mercedes by the time they are 45, they will probably think the $300,000 they paid for their education was quite a bargain!
ReplyDeleteHuh, that's a fair point. Maybe everything should cost more in society for people with lucrative careers. Maybe we should even raise their taxes and help redistribute their wealth!
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