Long story short, this dentist, Mike Meru, borrowed $600k for student loans, paid minimum without principal, and now owes over $1 million, making him in the top 100 of US people in student debt. Wait, so how much does the #1 person owe?
Also, aren’t all his patients going to read about this?
"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.”
See, I respect this guy. We should gather up a few rich people that have some really impressive tales of personal responsibility to not only pay off his loans, but also fund his immediate retirement.
The article states that assuming his loan is forgiven, his interest payments would be the equivalent of paying the loan in full at a 4% interest rate. So, overall, he seems to have gotten a good deal at the expense of the tax payer. Or rather, USC received the benefit, since they are the ones who collected his tuition payments.
a mil loan at say 6% avg. so he is charged about 60k per year in interest, paying principal is like paying yourself so i wouldnt really consider that a cost. he makes 225k pre tax. prolly makes 160k net tax minimum. so all in he is making 100k.
this is really more of a spending problem on his part. expenses were estimated at 400k. due to tuition and rising rates. it ramped to 600k. and because he wants the principal to baloon that will be forgiven, he let it run up to a mil on purpose. good planning on his part. taking advantage of the system!
He is not paying principal on the loan. The reason why his loan balance is increasing is that his minimum payments, set at 10% of his income, are less than the interest. The claim of poor financial management overall seems true though.
Is he on that 10 year loan forgiveness program? probably not - $225k/yr income sounds too high for that. at some point his interest expense will be higher than he can afford. 6% of 2 million in 2 decades is $120k.
the fantastic news is he only works 35 hrs to generate that 225k!!! if he works double time and focuses on paying it off. hed nip this in the bud! compounding is a biatch!
It’s amazing the 10 percent limit has no upper limit on income, since discretionary income increases way faster than gross income as you scale. Good example of how governments influencing the ease of credit markets is bad. While I dislike this guy, it’s the colleges that are really getting fat off of the taxpayers Also impacts affordability for those at the bottom income brackets. Way to go central planning
so his after tax net income is 14k per month. he is suppose to pay only 10% of that, so im guessing 1.4k per month. that’s 16.8k per year. he really just borrowed 600k. so all he did is borrow at a 2.8% rate for 25 years. after 25 years he paid only 70% in interest, then all principal and interest will be forgiven. So technically, he made 42% cumulative return or about 1.5% CAGR by taking this loan. Respect!
also its foolish to think that the government made a losing bet. you are not taking into account hat he is prolly paying roughly 60k in taxes per year. consider that the govt only pays 18k per citizen, us is winning with him. us loses on poor people!
in addition, we are not taking to account hte positive externalities that is priceless, such as less bad breath, and nicer smiles. someone give this guy a medal.
Faulty analysis, as usual. His family includes four citizens and his wife does not appear to still work consistent with Mormon approach. That’s 18x4=72k tax bill vs $60k intake.
Beyond that, even under your initial analysis, four non earning years in dental school (18x4=$72k govt spent upfront ignoring subsidized interest on student loans while in school). Then factor he pays ~$60k and costs ~$18k so roughly $40k net. The government will likely eat about $1M in loan principal now which erases 25 years (most of his career) worth of his net tax gain (again, $40k). At this point, you basically have a person now retired still incurring $18k a year and not paying significant taxes so you’re now losing money again. Since payments from him are conducted over 25 years, and essentially US 10Y funded, we’ll discount those 25 years of $40k net payments at about 3% and you get an PV of about $700k netted against the $955k PV of the projected $2M loan balance at forgiveness which leaves you about $259k in the hole.
The broader takeaway from this is that those non-Standford west coast schools are overpriced and fail to produce graduates with basic financial understanding.
bs if you really want to get nitty gritty. you cant use 1 mil today that is at 7% interest for the last 6 yrs. he only borrowed 600k at 2012 at age 30 so that is the pv. avg retirement for dentist is 68. so roughly 38 years of 40k net payments and thats assuming he dont make more $$. PV of this to 2012 at 3% is about 900k. subtract the pv of 600k loan and thats 300k npv.
his non earning years is dependent on lets assume the median salary of a undergrad cleaning guy is about 70k or 80k. whose tax would prolly be 10k so that is really the only opp cost of the govt.
and again the smiles. you didnt npv that. very short sighted. as always!
First, again, it’s $18k per citizen so $72k federal expense for the family vs $60k tax. So point is you’re wrong point blank.
Second, I was doing a back of the envelope to point out how bad your reasoning was. I used $1M today in the first sentence because that’s his estimated current debt:
“As of Thursday, he owed $1,060,945.42 in student loans.”
Beyond that, the projected value at forgiveness per the article in two decades (he’s in a 25 year forgiveness program) is $2M and the federal payment would be made at that time:
“In two decades, his loan balance will be $2 million.”
So you would PV $2M back as I did and find you still come up short even using your wrong from the onset analysis (again FOUR citizens in his family).
He didn’t work as a grad student and as an undergrad would have been working part time at best, which would have been less than half the median household income of the 90’s which was in the $40k’s, so $20k at a <30% tax rate =
We’ve now established that you also lack reading comprehension which might explain the inability to perform basic financial reasoning. So it’s negative NPV no matter how you cut it. Tanks!
ur assuming kids dont grow up and generate money in the future… not smart!
using 1m right now is faulty because it assumes a 7% interest growth rate of the 600k principal at 2012 where he starts to earn $$ after finishing grad school. so quoting it doesnt make it a smarter choice. it doesnt matter what it is now, and what it is 25 years from now. thats the whole point of present value. i dont know how else to explain to you.
i never mentioned anything about him working in grad school but that would weaken your argument so i have no idea why you would mention.
as always you use whatever numbers suit your reasoning. garbage in garbage out
" it doesnt matter what it is now , and what it is 25 years from now. thats the whole point of present value." Nerdyblop
LMAO. I think it’s officially time to stop calling this place analystforum.
Dude, present value is value today. Not value in 2012. Jesus, you are a moron. Ergo, it only matters what the value is TODAY (hint: $1M) and what value will be paid by the government (hint: $2M in 20 years, discounted back to today) when determining PV from the taxpayer perspective. Now, if you wanted to gauge value at initiation, sure, but you’re still just going to take the current estimate of the cash out flow ($2M in 20 years) and bring it back to 2012. This is basic valuation. You don’t even have to call back 401K based loans from your mom to fund your baller $30K SoCal ghetto wedding to know that.
As far as the kids growing up and having jobs, yes at 18 they would transition out of the equation, but until at least 18 they’re liabilities under his tax tab (household figures).