Student Borrowers Often Victims of Serious Abuse
For four months this year, while Congress was overhauling student loan laws, I traveled the country in a beat-up RV meeting with citizens and legislators. My mission was simple: Persuade Congress to restore consumer protections to student loan borrowers. After 22,000 miles, 42 states and five flat tires, I can’t help but feel that my efforts were a waste of time. And gas.
Sure, the House and Senate passed HR 2669, the College Cost Reduction Act. After reconciliation, it will soon be on its way to the president’s desk. The bill includes some attractive provisions for those headed back to campus this fall, including interest rate reductions, loan forgiveness for public service, Pell Grant increases and income-contingent repayment plans for future graduates.
But it doesn’t fix a fundamental problem: Basic consumer protections were stripped from student loans in the mid 1990s. This act does nothing to bring them back.
Reacting to much-publicized stories of student-borrower bankruptcies and a default rate of 22 percent in the late 1970s, Congress mandated seven years of repayment before borrowers could declare bankruptcy on federal student loans. In 1998 — under an extremely business-friendly Congress — this qualifier was done away with, rendering all federal student loans non-dischargeable except in the most dire circumstances, such as total and permanent disability.
Big lenders, such as Sallie Mae, even persuaded Congress in 2005 to remove bankruptcy protections for private loans — these are the nongovernmental loans we’ve been hearing about lately, whose interest rates can exceed 18 percent. Credit card companies and payday lenders could only dream of this kind of congressional giveaway.
Congress also took away the freedom of borrowers to shop their student loans around in a competitive marketplace. Many college students graduate with two or three types of student loans and choose to consolidate them either to simplify repayment or to pay them back over more time. But once they’ve consolidated, borrowers become captive to that one loan company. They can never refinance again, no matter how interest rates fluctuate or how badly their lenders treat them.
But this is only the tip of the iceberg: Sallie Mae and other student loan interests also had lobbied heavily for legislation that took away other standard consumer protections, including adherence to the Fair Debt Collection Practices Act (student loan companies were specifically exempted in 1996), and statutes of limitations (removed for student loans in 1999). Student loans were also exempted from “truth in lending” regulations, the rules that require lenders to point out key information — annual percentage rate and fees — to borrowers on all loan documents.
Congress also let lenders levy massive fees — often as high as 25 percent of the balance of the loan — on those having trouble making payments. Student loan companies got draconian collection powers, including the right to garnish a borrower’s wages, tax refunds and Social Security or disability payments. Some states even got into the act, suspending professional licenses of student borrowers in default. No other lender has these kind of powers — not credit card companies, not payday lenders.
This has led to serious abuse. Between 2001 and 2005, Sallie Mae’s fee income (penalties and fees collected on delinquent debt) increased by a whopping 107 percent . In 2003, Albert Lord (then Sallie Mae’s chief executive) actually bragged to shareholders that the company’s record profits were attributable to this increase. Financial statements of other lenders show the same trend.
This is no small problem. Between 3 million and 5 million Americans — nearly 15 percent of all borrowers — end up in default on their student loans. And some have taken desperate measures to escape their ballooning debt.
During my road trip, I heard from many of them. For instance, David, a chiropractor in Texas, couldn’t renew his license after he defaulted on his loans, so he now drives a truck in Amarillo for a living. He says his debt has more than quintupled.
Or Jason, an attorney who — drowning in fees and penalties — emigrated to start a new life in Asia.
Finally, I heard from a mother in Oregon whose son, Michele Lorenzo Guidoni, got locked into high 1980s interest rates. By the time he was approaching his doctoraal degree, he owed more than $200,000. His mother says he saw no end to the compounding debt and took his own life in 2005.
This cannot be what Congress intended in 1965 when it created the grant and loan programs of the Higher Education Act. Then, Congress was trying to help Americans achieve the dream of higher education. Now, it is time to help those whose lives have been turned into nightmares by the student loan industry.
Perhaps when Congress returns in September, I’ll gas up the old RV and hit the road again. It’s obvious that Congress wasn’t listening the first time.
Alan M. Collinge is the founder of the political action committee StudentLoanJustice.Org. He wrote this for the Los Angeles Times.
© 2007 The Capital Times
The vulture capitalist USA is the only country in the industrialized world where a citizen is not entitled to a university education without mortgaging his future. In every other civilized nation, education is either free or very inexpensive, and graduates have little or no debt. That is the way it should be. In the USA, education is like health care….it’s a privilege of the rich, with all others ending up in devastating debt forever. Vulture capitalism must end now.
Oh this is exactly what congress intended.
Billionaire CEOs have thr blood of Michele’s Mom on their hands.
Having taught at a for profit educational organization, I have more on these horror stories.
Shortly today
The Republicans love to quote the Bible. Funny how they never quote the many paragraphs that criticize moneylenders.
The financial industry contributes far more money to politicians’ campaigns than students contribute. If students want laws to be written in favor of student borrowers they better start contributing more money to politicians’ campaigns…its the American way.
“Big lenders, such as Sallie Mae, even persuaded Congress in 2005 to remove bankruptcy protections for private loans — these are the nongovernmental loans we’ve been hearing about lately, whose interest rates can exceed 18 percent. Credit card companies and payday lenders could only dream of this kind of congressional giveaway.”
Now we’re seeing commercials by these lenders to prey on students — the depravity of the system is infinite.
“Finally, I heard from a mother in Oregon whose son, Michele Lorenzo Guidoni, got locked into high 1980s interest rates. By the time he was approaching his doctoraal degree, he owed more than $200,000. His mother says he saw no end to the compounding debt and took his own life in 2005.”
This is the inevitable termination of “the American Dream”.
The rulers learned the dangers of giving the underclass too much education — better just to turn them into cannon fodder straight off.
The hypocrisy of the radical right faction of our nation stinks to high heaven. I finished a Ph.D. with about $50,000 of debt. Now, as a community college instructor whose meager income is constantly threatened by the same right wing fanatics my student loan debt has increased to about $84,000 despite making payments totaling roughly $16,000 over the past two years. (I went through bankruptcy seven years ago.) At times I wonder why I decided to teach when the passport to helping people in this way seems to be a mountain of debt that I will probably not eliminate until I near retirement.
I was a finance major who chose not to follow the normal channels for my discipline when I saw clearly how corruption often accompanies the quest for gain. Would the so-called “family friendly” right wingers have preferred that I had become a corporate raider instead? Like so many in my situation, I am more than willing to pay back what I borrowed. Being able to do so within a framework of fairness would be a great benefit to our nation and a testament to our humanity.
Unless an equitable framework can be developed I may yet choose to leave teaching. The awards I have received, as much as they mean to my students and I, are not accepted as payment by the loan sharks.
“Like so many in my situation, I am more than willing to pay back what I borrowed. Being able to do so within a framework of fairness would be a great benefit to our nation and a testament to our humanity.”
Those two words, “fairness” and “humanity”, cause the synapses of the right-wing mind to short out.
“Or Jason, an attorney who — drowning in fees and penalties — emigrated to start a new life in Asia.
Finally, I heard from a mother in Oregon whose son, Michele Lorenzo Guidoni, got locked into high 1980s interest rates. By the time he was approaching his doctoral degree, he owed more than $200,000. His mother says he saw no end to the compounding debt and took his own life in 2005.”
Yes, that is what people are left to; death or emigration. Education through phd should be free, and the wealth of credit card companies should be ceased to setup social welfare programs to really help the poor.
I meant “seized,” not ceased; though the companies themselves should cease after their money is taken. Democratic government comes before business, ALWAYS.
lo Q exactly Dubai looks more and more pleasant by the day when I look at my grad school loans! I will probably end up emmigrating too expensive here in the states.
In most developed countries practices such as described here are called usury, which is forbidden by law. Although it happens massively in countries like Indonesia and Egypt, it is still forbidden by law. The US is the only country in which such practices are allowed by law.
Fuck Sallie Mae and Albert Lord. I’ve only been trying to default since July of 05, but guess what they just won’t let go. The middleman wants the collection fees and other junk added on. What a rip off. I paid back what I borrowed plus 10 grand and you’d think they could be fucking happy.
I’m in for 34K for a useless masters degree, and in march my payments will be 328/month. i have no idea how I will afford it. I did lock some of the loans in at 2 percent though.
So here i am at a corporate job i hate and not doing what I want to pay off the stupid loans.
So in my view, they seem to have replaced debtors’ prisons with cubicles in corporate prisons. But i would not be surprised if debtors prisons came back too.
Nanoo September 6th, 2007 8:14 am
“I paid back what I borrowed plus 10 grand and you’d think they could be fucking happy.”
No chance. Have you ever watched a vulture eat its prey?
I think people should just stop going to college. Higher education as it currently exists is a racket. Starve the beast.
But ya gotta get that degree…at all costs. Gotta be “successful”. “Marriageable”. I am very glad I got out when it did, despite all the browbeating I’ve gotten for it since.
If I were prez, I’d forgive all the debt. All lenders are predatory imo. And then make college free for everyone. To me that’s the issue here. No one, in this “superpower”, should have to dig themselves into a pit just to learn a trade, skill, or field.
But again, it’s set-up that way. The idea of upward mobility is something that makes the elites twitch at night. They don’t want a poor kid from The Hill District or the Appalachias becoming a mover and shaker.
I had Guaranteed Student Loans for college and my M.S. degree, but not for my Ph.D. I quickly learned just how hateful the collection agencies were.
So, when I studied for my Ph.D., I refused to borrow any money, forgoing health insurance, sports (i.e. no health insurance), and social life (i.e. no eating out). Since I was a full-time student, I was not supposed to make payments. Tell the GSL people that. While they processed my paper work (promptly submitted every spring, summer and fall semester) documenting I truly was a full-time student, they sent me dunning notices each week, told Equifax I was in danger of defaulting, and cut off my telephone several times a month.
After each graduation, they had the gall to send me credit card applications. I wrote back using their own pre-paid return envelopes to say ‘after the way you treated me, there is absolutely no way I’ll ever have a credit card or loan with you.’