Lady Justice - Mexico
Suze Orman on student loans, especially the dangers of private student loans.
Default: The Student Loan Documentary. By Serge Bakalian and Aurora Meneghello, aired on PBS in October, 2011 and " has since gone on to screen at over 142 public broadcasting stations, screened at over 200 college campuses and events, featured in over 200 media outlets including The Nation, Forbes, the Washington Post and the Wall Street Journal."
WATCH THIS VIDEO! It actually made me cry for the first time about my debt (after 21 years).
WATCH THIS VIDEO! It actually made me cry for the first time about my debt (after 21 years).
OUTLINE:
First I'd like to admit that my original loan of 43K for law school, which I didn't finish for personal reasons, is now 180K. It can snowball before you know it and that is one major part of the problem with the student loan industry.
I. discrimination against students through lack of consumer protection laws to which all other loans are subject (fair lending practices) is one of the biggest problems:
disclosure (truth-in-lending) = terms, conditions, feasibility of payback (job openings, salaries, odds of pass/fail education), clarity and simplicity
no right to refinance when the interest rates are better
no statute-of-limitations on collections for Fed. loans, no "fair debt collection practices" - just harsh treatment that would be considered illegal with any other type of loan
predatory lending
no ceiling on penalties, fees, interest, capitalization, and forbearance
the Fed. Govt. took away the right to prosecute for usurious lending practices, which belonged to the states
no appeals process for those found in default - borrowers report finding themselves in default months and even years after the fact, sometimes even when they were told the loan was safe
lobbying unfair
no market forces to keep tuition in check
no accountability
stripping of state professional licenses for default
firing of people in public services for default
denial of security clearances
almost impossible to discharge debt through bankruptcy for federal loans; prohibited for private loans
need to ban mandatory arbitration clauses so students can take predatory lenders to court
2 The uncontrolled oversight has caused serious inflation and higher default rates. Also, they (the non-bank loan service handlers, like Sallie Mae and Nelnet) lie about the default rates for 2 reasons: number one, they don't want to lose all the money they're making, so no one can know how bad it really is. Number 2, if the institution doesn't meet a certain rate of graduation and no default, they will lose their right to get Fed. financial aid. So they lie about the default rates to keep the aid, then lobby the govt for higher loan limits so the institutions can raise the rates higher and the whole thing starts all over again. Add to this the personal tragedies these borrowers and their families go through and you have one helluva vicious cycle.
3. more medieval unfair practices:
discharged debts are subject to CODI (cancellation of debt income) which is taxed in full, the year the loans are discharged, even for death or disability discharge (hard to get income exclusion for poverty)
garnishment of tax refunds
" of SS, SSI, SSDI
" of VA disability, retirement, and pensions
" of disaster relief payments
too many income-based repayment plans = confusion and disparity in formulas used to calculate disposable income (leaving debtor in unreal poverty situations)
the laws for spousal liability with student loans vary
student loans discharged thru death or disability are still subject to the IRS, so first against the estate, then possibly against the spouse and sometimes the parents depending on the situation (go into more in depth)
only chance in b/r against IRS is being declared insolvent in Ch. 11 b/r
insolvency exclusion to fight IRS CODI taxation is hard to get, must be timed right and considers family members also
the only truly merciful laws are those that relieve parents of their Parent Plus Loans, should the child die before they're pd off
in cases of partial disability, 3-yr monitoring to detect any "substantial work" on the debtor's part may result in reinstatement of the loan. Even if it doesn't, you still owe the IRS. This is also unfair, because if you get only partial disability, you must work part-time to make up the smaller disability payments to meet your income requirements
4 Because the penalties, fees, rates and capitalization methods are so out of hand, even someone making regular payments can end up with a bigger debt, no matter how much or long he's been paying. Happens all the time. He/she works to pay the debt, until death, thereby creating a "virtual enslavement" (violation with no possible way out)
Even criminals eventually pay their debt to society one way or another, yet there is no escape, relief, or end to the student debt nightmare.
One friend joked that either the IRS or the student loan people would be waiting for me in purgatory, keeping me there hanging, even after death, til they were paid.
5 Possible Constitutional issues:
Amendments 5,7,8,13,14 and 16 and
FDR's "Second Bill of Rights" = 11 points violated by the situation
6. Effects of the debt problem on economy, society, culture, general well-being
mental health issues
inescapable shame on debtor and family
resulting in either poverty or "flying under the radar", both of which "drain society" instead of contributing to it
unwillingness of debtors to take out new loans for business, mortgages, cars, etc. - huge effect on economy when you're talking about 38 million people
" " " to marry and have kids without security - they put it off or not at all
the incalculable waste of brainpower and contributions that our best and brightest should be making instead of "giving up"
the effects on impressionable kids when they see debtor's not fulfilling their potential and giving up
the effects of shame which prevent debtors from stepping up and banding together to insist upon change, both retroactive and proactive
a general malaise, indifference and APATHY towards society, resulting in deep mental, emotional and confidence problems, esp. distrust.
7 The govt, Sallie Mae, and the rest of the players should NOT be making students into whipping boys and earning a fortune off their misfortune.
8 Out and out fraud has been taking place in several aspects of the loans - some has been proven, much has not. It's like Sen. Eliz. Warren says about the big business being too big too fail. It's just plain wrong. Esp. the manipulation of default rates, deferment, forbearance, and income-based plans to make it look like the defaults are within the limits for the schools to still receive their fed. aid. "In the servicing of government-guaranteed mortgages and student loans, incentive misalignment may be acute. A default may sometimes be more beneficial and less costly for the servicer, compared to enrolling a borrower in a loan modification program," said CFPB's Ombudsman, Rohit Chopra, at the Federal Reserve Bank of St. Louis on 11/18/13.
It's also plain wrong for Sallie Mae to be able to lobby Congress. It's even more wrong that the fed govt is profiting off students, instead of encouraging the true contributions these kids could be making. (quote E. Warren and Suze Orman)
The fraud involved in predatory lending, in collection practices, and with the "get-out-of-debt advocates" is obscene. If you haven't figured it out yet, the students are set up to fail. The money may never be "fully" re-paid, but the profits from the shady practices, and their license to steal from us forever, results in a tidy profit in the end. The bitter end. No escape. Virtual enslavement to that debt. It would almost be better to have debtor's prison and at least get it over with at SOME point!
9. This is a short overview/outline and doesn't even touch on many, many of the aspects of college affordability. But it is a starting point and hopefully and eye-opener. If you really want to be shocked into disbelief, visit my friend Joe's site at StopSallieMae.weebly.com . Just please look past the editing to see there is a treasure trove on information on their involvement in the student loan industry.
10. Need a conclusion, but the whole thing makes me too angry to think. I believe I'll get back to doing something productive so I won't have to think about it. The whole thing just burns me up. Most of the public think we are a bunch of no-good, welching leeches, feeding off society and not paying our bills. It's just not true - unless you've been there, you wouldn't even believe it could happen in America. I was trapped before I knew it - it happened in the blink of an eye. Now here I sit, 21 years later, wondering what's next and hoping against hope for a way out.