(UPDATE 10-20-11.  When I first wrote this barely over a year ago, it was to complain about the horrific debt burden being placed on our students…our future.  The fact that this debt had surpassed credit card debt of $826.50 was of concern to me then – and just this month that amount surpassed one TRILLION dollars.)

What I have to say about this being a boon for collection agencies is even more true.  Please read on…

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Well, it finally happened.  Student loans, both federal and private total, have now surpassed the $826.50 billion in revolving credit cards!

Not only do credit card institutions securely hook our children the moment they enter school with low-interest (to start) credit cards, our own government is driving a stake even further into the heart of their financial future.

According to a recent story in the NY Times, there is $605 billion in federal student loans outstanding (half of it incurred in the last four years), and $167.8 billion in private student loans.

Here’s the sweet (to the banker) kicker – federal student loan borrowers enjoy almost none of the protections extended to users of other lines of credit.  No bankruptcy protection, no statutes of limitation, no truth in lending laws, no state usury laws, and on and on.

A boon for the collection industry – legalized extortion!

According to information released August 6 by StudentLoanJustice.Org, even with an appeals process for defaults, about 20 cents of every dollar repaid by these guarantors (or the federal government) are siphoned off – before anything is applied to principal and interest and the usual, usurious penalty fees.  20%!!!

The borrower’s wages (assuming he/she gets a job in this recessionary environment), their income tax returns – even Social Security and disability income, may be garnished without a court order.  Adding injury to the insult, borrowers needing state professional licensing to work will have their licenses suspended!  We’ll teach YOU not to pay your debt!

“In a sense,” the report continues, “defaulted borrowers are given the choice of either finding a way to repay a vastly inflated debt, or face the rest of their lives as indentured, marginalized, second class citizens.”

As you can imagine, it is the lenders – with the latest spin being the taxpayers – who claim to be victim of these “deadbeat” students.

Truth alert:  More industry spin at work.  The present and profitable reality is that one-in-four will default on their student loans. The delicious difference is that where the recovery rate for defaulted credit cards is about 25 cents on the dollar – the recovery rate for defaulted student loans is 123%.

The very real but incalculable cost to America and Americans is the damage done to those who intended to use their education to better themselves and their communities.  These people were to be our future nurses, mechanics, salespeople – taxpayers!  As employers are now allowed to pull credit reports on job applicants, our defaulting student loan applicant almost automatically is assured a “No, thank you.”

Those who want to expensive private schools to earn a more prestigious degree are denied the gainful employment sufficient to even pay back the loans!  These are the people who are now marginally employed, living either on the welfare of their family…or the state…and are poster children examples of the products of Predatory Lending.

Examples

• New Yorker: “Without going into great detail, I borrowed money for school in the late eighties and early nineties.  I believe the actual amount I was loaned totaled somewhere in the area of $30,000.  Unfortunately, my loan went into default, and then into judgment.  I am now paying interest only on the outrageous sum of $77,000.  Interest and penalties have practically tripled the principal of the loans and are still accruing daily.  I will probably be paying this off for the rest of my natural born life.  This is the price of education in our fair country.”
• Petra: “I am a single mother, currently unemployed.  I have been chased around and abused by the Department of Employment (DOE) and its agents for the past 20 years.  A $40,000 loan has now “grown” to an astronomical sum of $152,000 and I receive letters and phone calls almost weekly threatening legal action and seizure of assets.  This agency is worse than any collection firm I have ever had the misfortune of dealing with.
• Valerie: “I took out a student loan for my daughter 15 years ago when I had a job with Grumman. I was hit by a drunk driver and became disabled at this time (and) was supposed to be absolved because of the disability…as time went on we sent Dr. reports and they said they didn’t receive them, we kept sending reports but they just kept ignoring them. Now they are garnishing my $550.00 disability check.”
• Maine: “I took out approximately $70,000 in loans for college and grad school.  I work as a social worker with the elderly and make $30,000 a year.  My loans are now $129,000.  I have deferred, consolidated and defaulted for eight years.  I have made payments when I could and then would stop because I couldn’t pay what they were asking.  (Some) $19,000 are private loans held by OSI.  They won’t accept reasonable payment arrangements.  The worker at OSI was rude and threatening and when I talked with her “supervisor” he said I could not talk to anyone else about this and that she was specially trained to do this.”

Unabated Power

“Student-loan debt collectors have power that would make a mobster envious.”

this was told a reporter was told in a WS Journal interview with Elizabeth Warren, a Harvard Law School professor and bankruptcy specialist.

Let me ask you this.  If you and I knew that powerful predators were out to maim and eat our young, wouldn’t we get out the bait and traps and destroy these vermin with no compunction?

I personally don’t see any difference between loan predators and varmints, do you?

Apparently, our own federal government not only cannot make that distinction, but will not.  As reported by Mother Jones, the new Consumer Protection Bureau – created to crack down on shady real estate loans and predatory lenders – was not given that same authority to deal with student loans described as by New York Attorney General Andrew Cuomo as the ‘Wild West’ of lending.

The same article revealed that it is the for-profit colleges and institutions run by private companies (think Trade Schools) trying to make money that are the biggest venue for lending – some 42% of their students have private loans.

“Private student loans are exactly the kind of dangerously under-regulated financial product that the Consumer Financial Protection Bureau needs to oversee,” Pauline Abernathy, vice president of the Institute for College Access and Success, said. “Failing to give the new bureau full authority over all private student loans would leave young people and other vulnerable consumers, and our economy, at the mercy of unscrupulous lenders.”

Care for an example?

Stephen Burd, the editor of the New America Foundation’s Higher Ed Watch blog, has written (that) Sallie Mae has often allied itself with for-profit colleges—not all of them reputable—thereby helping fund private student loans “with interest rates and fees totaling more than 20 percent per year, to financially needy students who normally wouldn’t qualify for them because of their subprime credit scores.”

I don’t know about my readers, but I am oiling up my traps!

More details can be found at: http://studentloanjustice.org/