Friday, February 27, 2009

Politics of Our Predatory Student Loan Shark System

What if every American high school student - no matter how intelligent, and/or talented and who couldn't afford to pay the astronomical cost of higher education - decides that the intractable, insurmountable and ever increasing debt that the student loan industry, by law, can impose upon them, is not worth the aggravation and risk? What would our society look like in ten years? Twenty years? One hundred years?

According to Alan Michael Collinge, author of The Student Loan Scam: The Most Oppressive Debt in U.S. History - and How We Can Fight Back.” and creator of the website Student Loan Justice, in the 1970’s, all the consumer protections were on the table for student loans. Then, gradually, stories about numerous individuals borrowing large amounts of money to finance their education, subsequently, declaring bankruptcy, started spreading.

Congress used these stories as an excuse, to first restrict, and then remove all bankruptcy protection, statute of limitations, and the right of students to refinance their debt at better terms for the life of the loan. Student lenders are exempt from Truth in Lending Laws and most Fair Debt Collection Practices. After all was said and done, it turned out that less than 1% of federally guaranteed loans were discharged through bankruptcy at the time these stories started to spread. The “student loan” crisis was "only in the imagination of the student loan industry."

Debt is extremely lucrative for this industry. It is reported that the default rate for student loans is approximately 5%, when in actuality, it is closer to 20-30%. What they don’t tell you is that the 5% rate of default is only calculated on the first two years after a student graduates. It’s far more profitable for some of the bigger lenders for students to default on their loans because (Sallie Mae, Nelnet) not only do these large entities own lending companies but they own collection companies in addition to serving as the guarantor function as well.

For example, in the case of Sallie Mae, they can default a loan and be paid near book value from the board of education and then come back for a much bigger chunk, considering the inflated amount after penalties, fees and outrageous default rates are applied. Some of these "sharks" are defaulting loans without even trying to collect on the debt. Even the federal government makes money from delinquent debt, recovering about $1.20 for every dollar it pays out in default claims.

Under President Reagan, grants were transformed into loans, which allowed banks to enter the mix in order to profit. This lending system enables universities and colleges to raise tuition at double the consumer index rather than plow through the laborious task of appealing to the state and federal government. This system not only shifts the burden of cost from the state to the students, but enables banks to profit enormously at the student’s expense. In addition our taxpayer dollars go toward paying subsidies to private lenders like Sallie Mae, public enemy #1, who started out as a government sponsored entity and then privatized in 1995, forming one of the most powerful lobbies on Capital Hill.

As federal grant aid has decreased over the last eight years, federal aid to providers of costlier and riskier private student loans increased. Fast forward to November 2008, and a "shark" bailout is on the table. The National Association of Student Financial Aid Administrators (NASFAA) expressed their "gratitude and support" for the proposed bailout to "aid banks and organizations that issue federal student loans," encouraging an extension of the financial backing to non-federal loans, as well.

Fortunately, President Obama, who experienced, first hand, the stranglehold of student loan debt, created the Access and Completion Incentive Fund, which will help low-income students graduate from college, and is part of a larger package of reforms including the elimination of the Federal Family Education Loan Program (FFEL)--that is, the program in which the federal government guarantees and subsidizes student loans made by banks and other for-profit companies.

Thomas Jefferson recognized the importance of an educated citizenry in a working democracy. He believed in a "natural aristocracy" of virtue, ability and talent over the "tinsel aristocracy" of inherited wealth and privilege. He believed the state should fund education in order to foster, encourage and stimulate the talent and intelligence across all socioeconomic lines. Jefferson would be appalled at the idea of our government allowing banks to exploit our young people - our nation's future - for profit.

Educate and inform the whole mass of the people... They are the only sure reliance for the preservation of our liberty." -- Thomas Jefferson
If our usurious student loan shark system, and the massive wealth it generates at the expense of American students is exposed, the "tinsel aristocracy" will prevail at our colleges and universities, while much greater minds and talents abandon ideas of furthering their education, which in turn, will guarantee the fall of the American "empire".

A few victims tell their story:
My student loan was originally with Sallie Mae. In 2007 I supposedly went into default. Sallie Mae presented me with paperwork to sign and said my loand was in default. They garnished my wages for $340 a month about a year ago. It was not until I got my 1098 this year showing how much interest I paid and I began to dig deeply into my student loan that I saw that Sallie Mae turned the loan over to General Revenue Corp which is a collection agency OWNED BY SALLIE MAE. This is wrong.
Secondly, I determined they are charging me 26% interest!

I have written to the US dept of education and they tell me the loan must stay at the original interest rate unless a court changes the rate. There was never any court involved. They are also charging me close to $5,000 in collection fees! I understand from the Dept of Education they can charge fees BUT how can they justify that amount of fees when there was not attorney involved - nothing.

Basically Sallie Mae dumped me to General Credit (again Sallie mae owns them) and now I am paying HUGE interest AND my loans will never be paid off. When they tossed me into default my credit was DESTROYED. I also read you can rehabilitate but you have to pay 9 consecutive payments and you CANNOT include the wage attachment - how can I afford that? I am sending documentation to Sallie Mae, General Credit, my former senator (VP Joseph Biden, my Congressman Mike Castle and Senator Carper) What they have done to me is illegal.

John t
Bear, Delaware
U.S.A.
As a co-signer on a loan for my nephew, I believe that Sallie Mae has violated the terms of the loan by repeatedly issuing forebearances on the loan (which causes significant increases on the balance due to the additional interest) without seeking my consent, and without providing me with any proper notification at all.

[...]

Sallie Mae has boldly stated that they do not need my consent to alter the terms of the loan, and they keep trying to insist that they sent me notification of the forebearances, even though they have the correct address for me, and I have not moved since the loan has been in repayment.

They have managed to send me threating letters when my nephew has failed to make payments on the loan, but somehow the forebearance notices never did come.

Larry
Sherman Oaks, California
U.S.A.
[...] Now i'm being sued by sallie mae for not making my payments. i faxed a forbearance paper to stop my loans going into colllections but the collections company told me it was a third party loan sent out by sallie mae and that i couldn;t put it in forbearance.

i need help with advice before i go to court. i wish everyone else who has problems with both sallie mae and itt get together and get a class action law suit against them. or if anyone can help me i would greatly appreciate it. thanks

kristen
brightin, Michigan
U.S.A.
[...] It has been two years since I left Brooks. My loans are now deffered and already up to $41,000 because of interest. I feel that I was very misled and deceived by Brooks College and their sales staff. Now I have learned that the school is shut down because of all the lawsuits against it. I have many friends that I met through brooks that are suffering from the same situation with their student loans. We need justice with this non-accredited college!

Noel
Encinitas, California
U.S.A.
It has been two years since I left Brooks. My loans are now deffered and already up to $41,000 because of interest. I feel that I was very misled and deceived by Brooks College and their sales staff. Now I have learned that the school is shut down because of all the lawsuits against it. I have many friends that I met through brooks that are suffering from the same situation with their student loans. We need justice with this non-accredited college!

Noel
Encinitas, California
U.S.A.

2 comments:

Anonymous,  10:54  

Great post! I was totally screwed by this system. I had no recourse despite legitimate reasons for not being able to pay on my student loans at the time.

At the time, I had no idea what I was getting myself into. I even went back and checked through all my paperwork and I could find nothing disclosing this information.

I hope these assholes burn in Hell!

Roth's stepchild 10:41  

I had no idea this was the case until recently. Hopefully President Obama will revamp the system to be much more student friendly.

I hope everything works out for you.

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