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Prescription for debt.

Arkansas Health Professionals Tagged As Student Loan Deadbeats By Uncle Sam

IN THE FALL OF 1979, things were looking up for Rickey G. Perry, a first-year dental student attending Meharry Medical College in Nashville, Tenn.

Graduation held the promise of a respected professional career and financial security. All he had to do was hit the books and honor his $54,000 in federal Health Education Assistance Loans. The first part was no problem, but the second part was a killer.

Perry was settled in a Little Rock dental practice by April 1991, but he had not made a single payment on these decade-old loans, according to his own statement in court documents. With interest rates soaring to 19 percent, Perry's neglected balance grew like a horrific weed to $138,000, and he was ordered to begin making payments in 1991 by Circuit Judge Jack Lessenberry.

Now, he is among 38 health professionals and former students in Arkansas and about 5,000 across the country labeled as deadbeat doctors by the U.S. Department of Health and Human Services in a list recently published for the first time in the Federal Register. Perry is pegged as the worst offender in Arkansas with a current debt of more than $166,000.

"The HEAL loan was kind of easy to get," Perry says. "But a lot of things in the promissory note aren't clear. You almost can't pay it off. Then they ruin your credit."

Perry and other Arkansans on the list insist they are now making full payments on the loans, but HHS claims the defaulters listed have failed to establish repayment schedules despite protracted collection efforts and, in many cases, court judgments against them.

Since the HEAL program began in 1979, more than 128,000 students in the health professions have been given loans totaling $2.7 billion. Interest is compounded on a semiannual basis, and the interest rate is tied to the variable rate of U.S. Treasury Bills.

Of the 38 Arkansas defaulters listed, 11 pursued M.D. status under the heading of "allopathic medicine." Fourteen of the defaulters attended chiropractic school, eight went to dental school, three pursued "D.O." degrees by studying osteopathic medicine, one went to pharmacy school and one studied optometry.

The Plot Thickens

It may be tempting to think of all these wayward health professionals as rich, arrogant doctors running from their obligations to society, but there are many poignant tales within this story of scandal.

One example is Dr. Daniel K. Jones, a dentist in Fort Smith who is said to owe a little more than $10,000 in HEAL loans.

Jones attended the University of Missouri at Kansas City for 11 semesters, paying $3,000 per semester in tuition and fees, plus another $1,500 to $3,000 each semester for equipment that in most cases couldn't be used later in dental practice.

He emerged from dental school in 1985 with $70,000 in debt, about $15,000 of which was borrowed on high-interest HEAL loans.

"It was a way for me to complete my education," says Jones, dourly noting that the 17 percent interest on the HEAL loans greatly exceeded the rates of his other loans. "I had no financial management skills. I had no way to understand how to manage debt."

For a while after graduation, Jones was keeping up with all his college loan debts, paying about $1,000 a month to various creditors.

"A couple of years out of school, my wife became seriously ill, and it seriously affected our income and strained our budget," Jones says. "I got behind with |the Internal Revenue Service~, and they TABULAR DATA OMITTED come first."

Jones stopped paying the HEAL loans, and the collection agencies descended. The dispute ended up in court.

Now, Jones and his wife both have better-paying jobs, and they have been making a concerted effort to eradicate their debts. But even though Jones says he is meeting his responsibilities, he still feels like he has drawn the short straw.

"Most of my classmates in my situation filed bankruptcy, eliminated the situation and went on," he says. "Those people walked away from their debts and re-established their credit."

Those who faced the problem straight-on, Jones says, were rewarded with devastating debt and ruined credit. To make matters worse, Jones says, he was assured by HHS that as long as he stuck to his payment schedule, his name would not be published in the defaulters list.

"I am not walking away," he says. "It's taken me several years to dig my way out of that hole, but in 24 months I should be debt-free."

Front-Loaded Investment

Entering the medical field is no cake walk.

"Today, it's not unusual to find someone coming out of medical school owing $50,000," says Ken LeMastus, executive vice president of the Arkansas Medical Society. With dental school, the debt load is closer to $60,000 or $80,000.

Opportunities to join an established practice are becoming rare, so many doctors face the scary financial prospect of starting their own practice.

Several of the Arkansans on the list quit in the middle of medical school after racking up more than $20,000 in student loan debt. Court records show that many of them have filed for bankruptcy, and some are working in unrelated fields even though they finished the school.

Whatever their reason, everyone on the list is subject to the long arm of the federal government. No matter how long it takes, they are probably going to pay their debt.

For starters, defaulters can be referred to the HHS office of the Inspector General for exclusion from the Medicare and Medicaid programs. The IRS can also offset their tax refunds, and the Department of Justice can pursue their cases for litigation or enforce court judgments through wage garnishments or liens.

So if the federal government would go to this kind of trouble, one would think it would make every effort first to encourage direct payment from the defaulter, right? Maybe not.

"I've never had so much problems trying to give somebody money," says Dr. Edward E. Sherrill, a Little Rock dentist who owes more than $23,000. "I'm not trying to dodge my responsibilities. No one seems to want to tell me what to do to pay it off. I've sent everything in to get a payment schedule, and they haven't sent anything back."

Sherrill, a 1988 graduate of Missouri-Kansas City, says he didn't pass his dental board examination until June 1990, so he couldn't find a dental job until 1991. In the meantime, he couldn't make his loan payments.

Even though he paid $1,600 beginning in 1991, the Student Loan Marketing Association turned over his loan to HHS, which insures the HEAL loans. When that happened, he was caught between collection agencies that were harassing him to pay and a government agency he says wouldn't set up a payment plan.

Basic Business Skills Needed

Fort Smith dentist Dr. Kevin W. Layman, another 1985 Missouri-Kansas City graduate who owes about $96,000, says his odyssey began in 1987 when he went through financial problems.

"I took some investment risks that I wouldn't have otherwise and got hammered," he says. "That's when it went into default."

"Over the last six years I have paid $21,250.14," says Layman, adding that the original balance was about $60,000. "I suspect that the HEAL loans were just a gravy loan for large lending institutions. My interest rate on this thing was approaching 25 percent. We were simply unable to see the consequences.

"Maybe they assumed that because we were in graduate school that we were financially more mature than we were," he says. "Technical skills have no bearing on your business. There was no preparation for the business world, and that's what we needed most."
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Title Annotation:Arkansas Health Professionals Tagged as Student Loan Deadbeats by Uncle Sam; Arkansas medical students reneging on their loans
Author:Haman, John
Publication:Arkansas Business
Date:Sep 13, 1993
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