More than ten years ago, Pedro Rodriguez, a talented keyboard musician, came from his colonial homeland of Puerto Rico to go to Temple University. From a low-income family, he depended heavily on student loans to finance his four-year undergraduate study. Graduating summa cum laude with a bachelor's of music, he went on to earn a master's degree in music from Temple and then was hired for three years to teach there as an adjunct. By the end of college, he was $62,000 in debt but was making payments regularly until Temple laid him off, allegedly because of budget cuts. That's when his problems began. (Pedro Rodriguez is a pseudonym to protect his identity.)
Unable to find a job as a music teacher in the current economic crisis, he eventually went into default on his loans, which included Stafford, Perkins and private bank loans. Then this year, he decided to go on to earn a PhD, which would make it possible for him to get hired in his field. He applied to a top-rated university in the Northeast, but when it was time to send his school transcripts, Temple froze him out. "They said as long as I was in default on my loans, they would not issue a transcript!" says Rodriguez.
A spokesman from Temple confirms that it is school policy to withhold official transcripts from graduates who are in default on their student loans. As it turns out, the school is not alone; this is the position taken by most colleges and universities, though there is no law requiring such an extortionate position. They do this despite the fact the colleges themselves are not out the money. They have received the students' tuition payments in full and are in effect simply acting as collection agencies for the federal government.
The US Department of Education says only that it "encourages" colleges to withhold transcripts, a tactic which the department, in a letter to colleges, claims coldly "has resulted in numerous loan repayments." But particularly in a time when the real unemployment rate is stuck at over 15 percent, or, if long term unemployed who have given up looking for work are included, at 22 percent, it seems not just heartless, but counter-productive for schools to block their own graduates from obtaining a document they need to move on to a higher degree or to get hired in their chosen field.
"It's worse than indentured servitude," says NYU Professor Andrew Ross, who helped organize the Occupy Student Debt movement last fall. "With indentured servitude, you had to pay in order to work, but then at least you got to work. When universities withhold these transcripts, students who have been indentured by loans are being denied even the ability to work or to finish their education so they can repay their indenture."
The growing tsunami of student loan defaults is more than a series of personal tragedies. It is killing the dream of many low-income students who saw college as the best chance to rise out of poverty, only to find that after borrowing heavily to pay for school, they cannot get the paper needed to document their accomplishments, cannot get a job and cannot even declare bankruptcy to escape their plight. Congress, after pocketing wads of bank lobbying cash, made it all but impossible to use bankruptcy to escape student loans, requiring a court finding of "undue hardship"--an almost impossibly high legal hurdle.
As Rodriguez says, "Temple likes to boast that they are the most diverse campus in the country, but the reason is that they have a lot of poor students from Philadelphia and from other parts of Pennsylvania. But with these policies, they aren't really helping these students. They are helping to crush them, because they will graduate and then end up with debt that they can never repay."
Student loans pose a crisis for the economy too. Outstanding student loan debt last October topped the $1 trillion mark, easily surpassing total credit card debt. Last year alone, as tuitions have soared and scholarship aid has plunged, college students borrowed a record $100 billion for tuition and expenses. The default rate on that all that student debt is just under 9 percent, meaning nearly one in eleven student borrowers has fallen more than nine months behind on monthly payments. Many more students are chronically months behind in their payments but haven't hit the default point yet. (Some schools, like Hunter College in New York City, which is part of the City University of New York, withhold transcripts even from students who are four months late in their payments on certain loans and not in default yet.)
Students who are struggling with their debt payments or who are in default are not spending money on houses, cars or consumer goods. "If the federal government wanted to stimulate this economy," suggests Rodriguez, "an easy way to do it would be to cancel some or all of the student debt."
He's right, and it's a demand being made by students in the Occupy Movement. Last October, activists with Occupy Wall Street proposed a mass refusal by former and current students to make their loan payments.
Student debt has long been a racket. With the government guaranteeing 80 percent of the outstanding loans (and 90 percent of the loans taken out in 2011), the interest rate on these risk-free loans should be 1 percent or even 0 percent, but instead the rates are set at 3.4-6.8 percent and in the case of bank loans, as high as 12.75 percent. Forgiving some or all of those loans would immediately inject hundreds of billions of dollars into the economy and would increase tax revenues as students unable to get good jobs suddenly get their transcripts released and are able to apply for the jobs they trained for.
Most students have no idea when they take out loans to attend college that they will be held hostage by their own schools if they fall behind later in their repayments. Loan documents typically say nothing about a policy of withholding transcripts, which after all is a policy set by the school, not by the federal government that issues and guarantees the loan.
Meanwhile colleges across the country continue to extort their own graduates. A spokesman from Temple explained that it receives a certain allocation of funds each year to lend to its students and that if it doesn't aggressively pursue repayment by graduates and students who withdraw from school, it could lose some of that money for lending to new students. But whether that is a real or imagined threat, it leaves unanswered the question of how denying transcripts to students during an unprecedented economic crisis is going to help encourage loan repayment.
"If I cannot get my transcript, how can I get a job and pay back my loans?" asks Rodrguez. "If I cannot obtain an official transcript, how can I apply for and earn a PhD so I can eventually get a job and earn enough to repay my student debt? The answer is I cannot. I will have to spend my life working for minimum wage and I'll never get out of debt."
"It's a vicious cycle," says Stephen Dunne, an attorney in Philadelphia who handles a lot of student loan default cases for former students being hounded by their alma maters. "They get wages garnished, get bank accounts attached, and have their credit records ruined so that they cannot get hired anywhere, cannot buy a car, and if they wanted to start a company, cannot even do that. And they can never escape because the banks have lobbied to have all these loans exempted from the bankruptcy laws!"
As Dunne points out, the consequence of this bank-funded corruption of the bankruptcy laws is perverse. "If you have a deadbeat who runs up $100,000 in credit card debt buying expensive cars, fancy clothes and vacation trips, he can just declare bankruptcy and discharge all that debt. But if a diligent student borrows $100,000 to get an education, and then can't get a job because there are no jobs, that debt cannot be forgiven or reduced."
Dunne says students and indebted graduates need to band together to let elected officials know that what is being done is unfair. "If we don't go back to the way it was, so students can escape these crushing loans, we're on the way to developing a caste system in America," he warns.
At least someone in Congress is listening. Informed about the Department of Education's ongoing encouragement of a policy of transcript extortion, Representative Hansen Clarke of Michigan, told the Nation, "The practice of withholding transcripts because of a graduate's default on student loans is yet another example of a system that is rigged against student borrowers. It is time for Congress to take action in their defense. I am investigating this practice of withholding transcripts and will take action."
On March 12 Clarke introduced a student loan forgiveness bill that, if passed, would declare that if a student makes loan payments of 10 percent of discretionary income each year for ten years, all remaining debt would be cancelled. The bill would also cap interest rates on student loans at 3.4 percent. The congressman also plans to introduce soon a companion student loan borrower bill of rights that would restore students' ability to escape student debt through bankruptcy and prohibits colleges from withholding transcripts to students who fall behind in their payments.
While the fate of those bills is uncertain, Rodriguez, at least, may have dodged Temple's draconian policy and escaped his own debtor's hell. The graduate school he applied to relied upon his unofficial transcript and recently admitted him to its music PhD program with full funding.
Hundreds of thousands of other students are not so lucky. Public universities, faced with cutbacks in support from state legislatures, are particularly aggressive in extorting graduates over defaulted loans and are also more bureaucratic about only accepting official transcripts from applicants to their programs.
