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September/October 2012 Getting Rid of the College Loan Repo Man

Our current system for collecting student loans makes no distinction between deadbeats who cheat and the much greater numbers of people who just don’t have the money to repay. As predatory debt collection agencies ruin the lives of more and more Americans, we are ignoring an easy and fair solution.

By Stephen Burd

Gregory McNeil, 49, is living out his days at a veterans home in Grand Rapids, Michigan. His room is so cramped he can barely fit his twin bed, dresser, and the computer desk he had to sneak in because it was against regulations. His only income comes from the Social Security disability payments he began receiving last year after undergoing quadruple-bypass heart surgery. These payments go directly to the veterans home, which then gives him $100a month for his expenses. McNeil fears that if he leaves the home, the government will seize a portion of his Social Security to pay off the federal student loan he defaulted on two decades ago. “This veterans home may become my financial prison,” he says. “And this is no way to live.”

McNeil’s fears are well grounded. For years, private collection companies acting under contract with the U.S. Department of Education have hounded him. The government garnisheed his wages for a time, and threatened to sue him. He says he always wanted to repay, but has never had the income he would need. Meanwhile, interest continues to accrue on his debt, and has already tripled the amount he owes.

McNeil’s troubles date back to the late 1980s, when, after leaving the Navy, he decided to go back to school to study electronics. He borrowed about $15,000 in federal student loans to attend a local branch of National Education Centers, a for-profit trade school chain that claimed an exceptional track record in helping students find employment. He soon realized, however, that the training was much less than advertised. And he discovered that the company—which later shut down, due in part to a high default rate among its former students that threatened its access to federal funding—would do little to help him find a job. “They considered you placed if you were flipping burgers part time at McDonald’s,” he says.

School officials arranged one interview for him, but after that didn’t pan out he didn’t hear from them again. Mc-Neil tried to carry on with a low-paying factory job, but couldn’t keep up with his loan payments and ended up defaulting. He tried rehabilitating his loan, but after he lost his job in the recession of the early 1990s he couldn’t manage even the reduced payments. In 1994, with only $23 to his name, he felt he had no choice but to file for bankruptcy.

At the time, he thought the judge had discharged all his debts, but in 2001 collection agencies started calling at all hours, demanding payments on his student loans. The government subpoenaed him to appear in court, and the IRS threatened to seize money from his paychecks. Collection agents told him that his loans had not been discharged through bankruptcy after all, because at the time there was a seven-year waiting period before student loans could be erased through that process. In 2002, he filed for bankruptcy again to force the government’s debt collectors to back off. That worked for a while, but in 2007, the calls resumed, and they haven’t stopped since.

For a brief moment in 2008, McNeil thought he had a shot at making steady payments. He had worked as a machinist for fifteen years and reached journeyman status, meaning that his pay would nearly double, to $25 an hour. “This opened the door to me finally being able to get my defaulted student loans under control,” he says. But soon afterward, with the economy in Michigan tanking, he was laid off again. With his health failing, he knew his career was over.

Not so long ago, the kind of troubles McNeil has known were generally limited to poor and working-class people who attended shady for-profit trade schools. But these days, more and more middle-class Americans who attended mainstream public and private colleges are having trouble with the loans they took out to finance their educations, and they too are getting caught in the often brutal gears of the system that manages those loans. In the absence of serious reform, the feelings of rage and helplessness that accompany such experiences are likely to become much more common.

One reason is the ever-rising cost of higher education. In the early 1990s, fewer than half of bachelor’s degree recipients graduated with student debt. Today, two-thirds do. The average amount of debt amassed has risen by 50 percent since 1993, to about $25,000. According to the Project on Student Debt, the proportion of students who graduated from four-year colleges owing at least $40,000 has grown, from 3 percent in 1996 to 10 percent in 2008. Four out of five of these recent borrowers took out high-cost private student loans on top of their federal loans.

Undergraduates leaving college today are also entering the worst labor market in decades. More than half are either unemployed or working in jobs that don’t require a college degree. For the 42 percent of college students who drop out before graduation, the burden of financing a degree they never received is often even more crushing. Just 26 percent of former students who took out loans and left school without a degree are keeping up with their payments.

Yet those numbers don’t come close to capturing the full extent of the crisis. According to a report released last year by the Institute for Higher Education Policy, more than half of all borrowers who started paying back their student loans in 2005 became delinquent, defaulted, or put their loans into forbearance to delay payments within five years. It is unacceptable, of course, that some students take out loans without having any intention of paying them back. But our current fearsomely complex student debt management and collection system, as it has evolved over the last generation, makes no distinction between deadbeats who don’t plan on paying back their loans and the much greater numbers of people who just don’t have the money to do it. Few policymakers understand what happens to such people once they fall into the clutches of collection agencies, or even who they are.

And for many borrowers, there is no way out. Unlike mortgages and credit card debt, student loans these days cannot be erased through bankruptcy except in rare cases of extreme hardship. And there is no longer any statute of limitation for prosecuting those who fall behind on their loans. As Deanne Loonin, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, has written, “Even rapists are not in this category since there is a statute of limitations for rape prosecutions, at least in federal law and in most state laws.”

Over the years, politicians, even liberal ones, have paid too little attention to what happens on the back end of the student loan system to those who can’t afford to make their payments. Instead, Democrats have focused on trying to broaden access to higher education by making student loans more available and less costly on the front end. In 2010, the Obama administration achieved a major victory in this access agenda when he signed legislation ending the wasteful practice of subsidizing banks to make student loans. Since the summer of 2010, all federal student loans are now made directly by the government, saving the Treasury $68 billion over eleven years (half of which is going to expanded Pell Grants for needy students). But this monumental reform of the front end of the student loan system leaves the back end untouched, meaning that more and more Americans— people like Gregory McNeil—are left at the mercy of predatory debt-collecting contractors. Having kicked the banks out of the student loan business, it’s high time to get rid of the repo men, too.

The federal government first started underwriting student loans in 1965. At the time, the Johnson administration and Congress made clear that federal loans would be available to all eligible students, regardless of their credit history. Students would also not have to post any collateral to obtain loans.

The risks proved to be quite manageable. A 1977 GAO report found that less than 1 percent of student loans were discharged in bankruptcy. Nonetheless, stories of deadbeat doctors and lawyers escaping their federal loans in bankruptcy took hold in the public imagination, much like those about welfare queens.

In response to these anecdotes, Congress barred federal student loan borrowers from being able to discharge their debt in bankruptcy during the first five years of repayment unless they could prove “undue hardship.” Lawmakers took this action over the objections of Michigan Democrat James O’Hara, then chairman of the House Subcommittee on Postsecondary Education, who argued that Congress was trying to remedy “a ‘scandal’ which exists primarily in the imagination.”

In 1981, Ronald Reagan’s Department of Education began contracting with private companies to collect on defaulted federal student loans. In 1982, a new law allowed the government to withhold federal benefits (not including Social Security) from those in arrears. But the real crackdown came in the early 1990s, after student loan default rates skyrocketed as a result of widespread abuses by unscrupulous trade schools. Worried that these scandals would jeopardize popular support for the federal student aid programs as a whole, Democrats joined with President H. W. Bush’s administration to rein in the trade schools and strengthen the tools the government uses to collect on defaulted loans. Congress extended the waiting period before which federal student loans could be dischargeable in bankruptcy to seven years. And, much more significantly, it changed federal law to put default on student loans into the same criminal category as murder and treason by eliminating the statute of limitations under which student loan borrowers could be prosecuted.

Liberals went along with many of these crackdowns, and even proposed some of their own. President Clinton, for example, signed a law that made it even harder to discharge federal student loans through bankruptcy and allowed the Education Department to tap into a federal database—originally designed to enforce child support payments—to track down and garnishee the wages of those who defaulted on student loans.

George W. Bush’s administration proved even more zealous. It aggressively collected on long-overdue debt, by, for the first time, seizing Social Security payments from elderly and disabled defaulters and signing legislation ending bankruptcy protection for borrowers who take out risky private student loans. Nor has the Obama administration been shy; last year, President Obama called on Congress, as part of a larger deficit reduction proposal, to allow collection agencies to use automated dialing to contact defaulted borrowers’ cell phones.

Why have even liberal politicians been willing to make the student loan repayment system ever more draconian? Partly it’s because, in an age of federal deficits, they’ve been desperate to find ways to boost government revenue without raising taxes. Partly it’s been a general political eagerness to signal that they are not about to coddle deadbeats.

But it’s also because, for years, a number of Democrats have had a vision about how to crack down on freeloaders while at the same time easing the burden on borrowers who through no fault of their own simply cannot repay their loans. The idea is the income-contingent loan, or ICL (see “Answering the Critics of ‘Pay as You Earn’ Plans”), whereby people who take out student loans can repay them based on a fraction of their annual income, rather than fixed payments. The free-market economist Milton Friedman came up with the basic concept in the 1950s as an alternative to state funding of higher education, and it was tested in pilot form by the Reagan administration. But by 1988 Democratic presidential candidate Michael Dukakis was advocating a version of the idea as a way to make student loans more affordable.

Bill Clinton made ICL a central plank in his 1992 presidential campaign. He argued that such loans would not only offer relief to borrowers who never managed to graduate or became unemployed, but would also make it easier for students to embark on socially vital but low-paying public service careers, such as teaching or social work. He also championed the idea that the federal government could save money by making loans directly to students rather than paying banks to do so. In 1993 he signed legislation creating both a direct lending program (the one Obama would expand in 2010) and an ICL option. The hope was that the two initiatives together would provide a cheaper, simpler, and safer alternative to the traditional student loan system. But lobbyists for the banks, whose subsidies were threatened, convinced Congress and Department of Education regulators to limit the reach of the two programs, and for years relatively few borrowers were made aware of them.

Even borrowers who do learn of the income-contingent option often face a bureaucratic nightmare when they try to exercise it. Consider the case of Kayleen Hartman. When she first entered Georgetown University Law Center in 2008, she knew she wanted to become a human rights lawyer, and that such a career would likely give her only a modest income. The only reason she thought she would nonetheless be able to carry the cost of her law degree was that she planned to repay her federal student loans through an updated and more generous version of the Clinton initiative called the income-based repayment, or IBR, program.

So after she graduated in May 2011 and passed her bar exam later that summer, she put in the paperwork for consolidating all her federal loans and using the IBR option for repaying them. But she didn’t hear back from the Department of Education for months—and became alarmed when she started getting letters from her original lenders warning her that she was overdue on her payments. By February, completely panicked, she started trying to reach the loan “servicer.” Servicers are the organizations (some for-profit, some nonprofit) that the government or lenders hire to handle the paperwork on student loans. The servicing representative she talked to dismissed her concerns, saying that the consolidation would be completed any day now. It wasn’t until April that she learned that the department was having trouble consolidating one of her loans—a Perkins loan she had received through her alma mater, Davidson College. The department had been alerted to the problem months earlier, but for some reason the servicer was unaware of it. Meanwhile, her original loans had become delinquent and were in danger of defaulting.

The consolidation was finally completed in May, and she thought her problems were behind her. In her application for consolidation, she had checked a box indicating that she wanted to repay through IBR, and assumed that she would now hear from the department about how to enroll in the program. Instead, she received her first monthly bill from the department for $1,600, a figure that represented half of her take-home pay. She called the servicer again, and learned for the first time that she had to fill out a separate application and submit a copy of her income tax return.

A servicing representative mailed her the form, and she promptly returned it with all of the required documentation. She once again thought she was in the clear, until she received another bill for $1,600. Irate, she called the servicer again, only to be told that the servicing company had never received her application. The representative first questioned whether she had really sent the form, and then accused her of sending it to the wrong address.

Now she is waiting for the servicer to mail her a new application form to fill out. Nearly a year has passed since she began the process, and even with a law degree, she has still not figured out how to make the bureaucracy and its various contract agents deliver a benefit to which she is clearly entitled by law. Meanwhile, because her loans have become delinquent while she’s waited for the department to refinance her loan, her credit is shot. The experience, she says, has been “maddening.” She no longer trusts that the department’s servicing representatives have her best interest in mind. And get this: assuming she ever gets approved for IBR, she’ll have to repeat the application process every year, according to current law, or be automatically kicked out of the program.

Why do the servicers provide such lousy service? One
reason is basic institutional incompetence, says the National Consumer Law Center’s Loonin. But just as important, she says, is the complexity of the regulations that govern the terms and procedures of the various student loans. Even servicing representatives who are sincerely trying to help “really don’t understand the programs,” says Loonin. And, of course, if the loan professionals have trouble grasping the nuances of all the loan programs, what chance do average borrowers have? (For an as-simple-as-we-can-make-it explanation of federal student loan repayment options, see “Got Student Debt?”)

If loan servicers can be exasperating to deal with, the debt-collecting companies can be downright scary. The federal government contracts with twenty-three such firms to collect on loans in default, paying the industry hundreds of millions of dollars annually in fees and commissions. Well-documented horror stories abound about how these collection agencies routinely fail to inform borrowers about repayment options to which they are entitled, demand excessive payments, refuse to provide documentation to back up their claims, call at all hours, harass borrowers’ friends, family members, and neighbors, and generally lash out in abusive and threatening ways.

One of the most aggressive loan-collection firms is Pioneer Credit Recovery, a subsidiary of student loan giant Sallie Mae. Consumer Web sites are full of complaints about the company’s practices. Meanwhile, former Pioneer collectors recently told Bloomberg Businessweek that the company has a “boiler room” culture, where low-paid workers are richly rewarded for squeezing the most money they possibly can out of defaulted borrowers. Those who miss their targets are under constant threat of losing their jobs. “When you’re making eight bucks an hour, it’s all about the bonuses,” said a former Pioneer employee who worked at the collection agency from 2004 to 2007.

Despite such complaints and accusations, Pioneer regularly scores at or near the top of the rankings the Education Department uses each quarter to reward the best performing of its debt-collection contractors with new accounts and generous bonuses. Why? Because the rankings are based almost entirely on the amount of dollars collected, with little regard for how borrowers are treated.

In theory, the department could discipline collection agencies that are known to abuse borrowers by cutting the companies’ fees or ending their contracts. But in 2003, the Department of Education’s inspector general released a disturbing report that took the department to task for its complete and utter failure “to track and monitor complaints” that were made against the collection agencies. By neglecting to follow its own detailed policies for reviewing complaints, the Education Department, the report concluded, didn’t have any idea whether its contractors “were appropriately servicing borrower accounts and adhering to applicable laws and regulations.”

The National Consumer Law Center’s Student Loan Borrower Assistance Project recently found that little has changed in the intervening years. In a report it released in May, the group revealed that the Department of Education and most of the collection companies it hires make it unnecessarily difficult for defaulted borrowers to even lodge complaints. “As long as the Department and its contractors can deploy extraordinary collections tactics to recover federal loans, borrowers must have an accessible way to register their dissatisfaction,” said the report.

In recent months, the Obama administration has taken some steps to address the mess on the back end of the student loan system. The Department of Education has proposed new rules that would require all collection agencies to determine how much income and expenses defaulted borrowers have—something the department hasn’t required them to do until now—and to then craft repayment plans based on the borrower’s ability to pay rather than demand minimum payments based on the original loan amounts. The president has also ordered the department to set up a system to allow borrowers to apply for income-based repayment online without having to go through servicers.

But while these reforms might provide easier paths for many struggling borrowers, they largely leave the current system and its many dysfunctions in place. Borrowers will still be reliant on the servicers to tell them about their repayment options, including IBR. Collection agencies will still be paid based on how much revenue they can extract from defaulted borrowers, which means they will have strong incentive to find ways not to comply with the new requirements. The Department of Education’s lax system of oversight of servicers and collection agencies shows no real signs of improving.

Even if these incremental measures could bring some improvement, it’s worth asking some bigger questions: Is this even the system we want? Do student loan repayment options need to be so impossibly complex? Is it really necessary to subject borrowers to the caprice, incompetence, and abuse of loan servicers and collectors? Should our system take no account of the reality that some students embark on careers that are vitally needed by society but that only pay modest or uneven income, from being a primary care doctor to starting a new business?

As it happens, there is a better way. We could follow the lead of countries like Australia, New Zealand, and the United Kingdom and create a single student loan repayment system that is entirely based on a borrower’s future income. Under such a program, employees with federal student loans would see a portion of their income withheld by their employers and used to pay down their debt, much as they see payroll taxes withheld today. Self-employed borrowers would use a simple schedule on their federal income tax forms that would tell them how much they owed on their federal student loans. When a borrower’s adjustable gross income went up or down, so would their monthly payments, with the only enforcement mechanism needed being the Internal Revenue Service. Defaults would be virtually eliminated, along with the need for the government to spend tax dollars on collection agencies. Borrowers with high incomes would simply pay off the loans more quickly than those with low incomes. (For answers to questions critics of ICL raise, see “Answering the Critics of ‘Pay as You Earn’ Plans”)

The proposal is a win-win. Efforts would still be needed to crack down on college dropout factories and shady trade schools, and to promote improved efficiency and accountability throughout higher education. But borrowers would no longer be left on their own to navigate among a dizzying array of repayment options as their debts spiraled. Nor would anyone need to forsake such callings as family medicine or social work, or even being an entrepreneur, just because of the crushing burden of fixed student debt payments. And above all, the millions of today’s younger Americans who are earnestly trying to repay their debts would not need to endure the hell faced by struggling former students like Gregory McNeil. If this proposal seems political impossible, consider that the Obama administration has already gotten the banks out of the student loan business. Having done that, surely it will be easier to throw over the repo men.

Stephen Burd is a senior policy analyst in the Education Policy Program at the New America Foundation.

Comments

  • dawn on August 22, 2012 8:29 PM:

    the first lesson in the first year post graduation is the difference between simple interest and compounding/capitalizing interest.

    one recoups cost of doing business...the other is the losing end of derivatives. the path to indentured slavery. the debt is now 400% larger and earning 8.25% because they can. they are NOT the bank...they are the government.

  • Nate Whilk on August 22, 2012 8:52 PM:

    It's interesting that the institutions that make the loans are always described as predatory, but the colleges that charge inflated tuition are not. It's even more interesting that most of the increased tuition goes not toward more faculty or better and better-paid faculty, but toward more administrators and more extras.

    The fact is that the responsibility lies with colleges who charge inflated tuition and with students who commit to pay it without considering the fundamental reality of the very first lesson of economics: make very sure you can repay what you borrow.

  • Gregory McNeil on August 22, 2012 10:04 PM:

    Thanks for the great article Stephen. And let me add, that what really makes this worse is that the congressional committees knew in 1991 that the trade schools victimized the students, and many were in debt holding student loans that they would not be able to pay. Yet congress did nothing to help those people, (the group I am in with) and instead, they took away the bankruptcy protections that we had when we took out the loans.

    Many of us feel victimized by our own government. And many of us have paid a price unheard of in history. 30 plus years struggling to pay off the loans, or get them under control while at the same time trying to exist on a basic needs level that is just barely above poverty, unable to save any money for a car, or home, or retirement because it would get seized by the IRS or Department of education for the student loans, even if not one penny went to paying off principal. It grinds on you and wears you down.

    Many of us have made lots of payments, only to see the money eaten by 3rd party collections agencies, and interest that never stops growing. We see this as throwing money way since it never gets applied to actually paying off the loan. So we give up trying.

    Many of us now live destroyed lives, existing day by day, praying for the time when we pass on to the next reality, so that this burden can be lifted from us.

    We are not deadbeats, just people caught up in a changing system that ended up making things terribly worse for us, instead of helping us.

  • bill on August 22, 2012 11:24 PM:

    why are anecdotes from the 1977 GAO report the exception, but the anecdotes the author uses not the exception. if payments on tax payer student loans would be tied to future income, shouldn't loan amounts be tied to future values as well? Students that take out student loans, on average are young and immature and very little credit history. we do not want become a society, that determines someone is eligible for tax payer funded student loan based on their co-signeer (parents) credit. However, the unfortunate part is the current federal student loan problem is worse the housing/mortgage crisis, and if the private system managed/underwrote the loans they would be vilified.

  • Deborah on August 23, 2012 12:49 PM:

    The collection agencies are bad, I definitely agree. Another part of the equation that is just about as bad affects any kind of education . If payments for the loan cannot be paid because of lack of money, etc., the borrower is considered as being in default for the load. A collection agency then tries to get the ex-student back to loan payments -- usually high payments. If the ex-student cannot make the ridiculously high payments, the collection agency will garnish the wages. The garnish amount is 15% -- including the ridiculously high "administrative fee". The collection agency won't define what that includes.

    If the loan payer loses his job and wants to go back to school, he can't get a loan -- because of the default -- even tho money has gone to the collection agency for 2 years.

    President Obama says that education is the key to success but there is no way for this person to get further education. It would be so much better for the student to be able to pursue a higher degree or education in another field. There are so many options that can help the payer, -- but not for a a person who has 'defaulted' on the loan and won't be out of that classification until the loan is completely paid -- which will be a longer time since the payer can't make payments when there is no money coming in.

  • Clay Jackson on August 24, 2012 8:43 PM:

    You aught to be ashamed to publish as a skewed piece of 'journalism' as this.

    First, let me state that I agree that the system is enormously complex, unnecessarily burdensome, subject to abuse, and that education is far, far too expensive.

    But the very same Department of Education that you seem to think aught to be some kind of benevolent savior of 'the system' is the organization which, in conjunction with The Congress, makes and interprets the laws that you rail against. The government created this mess. The people you--and every other American who bothers to vote--put into office have created this supremely dysfunctional system. And you honestly expect them to fix it?

    For more than 40 years, Democrats and Republicans alike have liberally applied political palliatives about 'making education more affordable'. One simple question: how's that working out? What has happened to the cost of education? Has it become more or less affordable, even after the band aids EACH party has put in place to stem the rising tide?

    And what makes you think that the solution to this mess is for the government to be one of the largest banks on the planet? How did that work out with Fannie and Freddie? How's it working out with the student loan programs?

    Another question, if it's about increasing revenues, and I applaud you for acknowledging that dirty little fact, then why not credit cards? Why not auto loans? Governmental agencies are already the only lenders available for mortgage loans and student loans, why not other kinds of loans?

    The government has been a bank for more than two decades for student loans. And yet the cost of education keeps spiraling out of control and the laws that govern the programs keep getting more and more complex. After two decades of left and right chest pounding, what makes you think that any politician, left or right, has any intention of tackling the real problem?

    Some facts:
    Lower is better, but whether you pay 3 or 4 or 5 or 6% in interest on the loans doesn't matter so much;
    Flexible is better, but how many different kinds of repayment options there are for student loans is not the driving factor;
    What matters is the principal balance.

    Who in their right mind thinks paying $30, $40, $50, $100k for a bachelor's degree or a proprietary/technical school degree makes sense? And the only reason that tuitions continue to rise at alarming rates is because schools (and the state governments who fund them) know that students can obtain 'low cost' student loans to pay for it.

    Until a politician gets up and speaks thoughtfully about the hard things that he or she proposes to do to stop the rise in tuition, then just plug your ears. All of these half measures and demonization of The Bad, Bad Banks has proven to be nothing but detrimental to the very people you point out are being the most victimized.

    This silly game of 'I'm right and you're wrong' that is played by both sides only makes matters worse. And you are only propagating this unconstructive line of thinking by publishing articles like this.

  • Richard on August 25, 2012 9:57 AM:

    Where is it carved in stone that a student must complete college in 4 years? Why cannot a student work part-time to help with college expenses? Furthermore students with loans should not receive any more loans if their grades are poor. These drop outs should not be financed by the taxpayers.

    Loans should be paid directly to the colleges for tuition only.

    Those servicing the loans - who do not do their jobs properly should be fired, regardless of civil service status.

  • Richard on August 25, 2012 10:03 AM:

    Where is it carved in stone that a student must complete college in 4 years? Why cannot a student work part-time to help with college expenses? Furthermore students with loans should not receive any more loans if their grades are poor. These drop outs should not be financed by the taxpayers.

    Loans should be paid directly to the colleges for tuition only.

    Those servicing the loans - who do not do their jobs properly should be fired, regardless of civil service status.

  • stjds on August 26, 2012 4:15 PM:

    "And for many borrowers, there is no way out."

    Comments like this only make things worse. The man in the article went to great lengths to present himself as a victim. What resources from others will it require to get this person off of top-dead-center? What is clear -- someone will have to take the financial haircut -- he cannot get off scott-free and still be called equal to his benefactors.

  • Gregory McNeil on August 26, 2012 10:26 PM:

    To STJDS: if "the man in the article" you are referring to is me, then yes, I am a victim. The school tried to get my parents to cosign the loans. I lived away from them and refused to get them involved. I had bankruptcy protections, CONSUMER protections, that congress took away from me and those of my peer group. What else would you call it when congress KNEW these schools screwed us, and yet did nothing?
    I nearly killed myself trying to get to the point where I could gain control of my loans and pay them off. At one point in time, I had a state run agency willing to pay off the federal loans, after which I would have to pay back the state. But the Feds would not work with them while my loans were in default. The state payment was low enough that I could have rehabilitated them and started paying them off. So the Feds screwed me on that.
    Then they removed ALL bankruptcy protections, and did not leave a grand father clause for those of us who got the loans with those protections. I would NOT have, without them. Period.
    I even contacted the Dept of Ed and tried to offer a settlement of paying off the principal all at once, to stop the interest from growing, but they refused that too.
    So yes, I was victimized. If this were any other kind of financial loan, bank, car, home, what ever, I would have options.
    Now I have none. What else would you call that? Cripes man, a Murder has more options than I do.

    Congress MUST rethink the way it deals with people in default, and Stop abusing us with 3rd party parasites (collections agencies).

  • Mossup on August 28, 2012 7:41 AM:

    Can the man in the article apply for a disability discharge? Why all the focus on bankruptcy? Federal student loans have far more consumer protections than other types of credit products. However, just like with other credit products, those rights are sharply reduced once default occurs. On the other hand, Federal direct loan borrowers can restore those rights by rehabilitating the defaulted loan(s). Easy for a state agency to write off other people's money. That's their thing -- playing with other people's money and going to lavish conferences; that's why their getting phased out of the program.

  • Gary McCammon on August 30, 2012 1:12 PM:

    Do you know what a disability discharge for a student loan entails? It requires "total and absolute inability to work" - even Stephen Hawking wouldn't qualify.

    And as far as rehabilitating a loan, that requires voluntary (NOT garnishment) payments, which collection agencies are allowed to dictate regardless of a borrower's present economic status.

    I have no way to go back 25 years and not sign my loan papers. I had no way to predict the future. What are those of us who are willing to pay back our student loans but haven't been able to supposed to do?

  • CaptiveAudience on September 01, 2012 2:03 PM:

    A degree isn't worth that much if everyone has one. Colleges have actually dumbed down their curriculum. It is just another debt scam the way mortgage backed securities was. The problem with this scam is that everybody's in on it. There is only one way to to succeed. There is only one way to prevent a life of drudgery in dead end jobs and that way is college. Students are being held hostage because many employers, college educated themselves, would never dream of hiring someone that doesn't have a college degree. You would be amazed at how many supposedly smart people cannot believe you can learn everything they teach you in college on your own. I have to remind them that even in college you are learning everything on your own. They should be prepared to learn on their own the rest of their lives because you may get your foot in the door with a college degree but you're going to have to prove your value or be kicked to the curb.

  • Jimo on September 01, 2012 6:01 PM:

    Here, we have another situation where the "Greatest Generation" handed to their children, the "Baby Boomers," a world of ease and privilege, but who in turn transformed the world of their own children into one where benefits that are undeniably social in nature are treated instead like personal luxuries to be reimbursed down to the last dime. (I personally am waiting for some future lawsuit where parents try to recover the expense of diapers and formula from 20-somethings.)

    This situation pairs with the "didn't built that" faux scandal. We've become so hyper individualistic that ALL success is personal and ALL failure as well. The consequence of this is that government possesses no moral right to collect taxes ("steal") from the wealthy nor any moral duty to stop debt punishment from those who fail to make a mini-fortune.

    To paraphrase Hermann Cain: If you can't pay off your student loans, that's your fault.

  • BK on September 06, 2012 9:35 PM:

    I went to Law School. I've been telling these complete cowards to sue me in federal court for years.

    First off, anybody with any knowledge of history or the constitution and the times that surrounded it's drafting knows that years ago, Alexander Hamilton attempted to create and fund a "SuperBank" using the federal government as it's propped up facade.

    Student Loans are no different. They are contracts executed without valid consideration. One would say , you were given an opportunity to read the language, etc etc.

    If the purpose of an education is to give a student a means to earn a productive income, and they do not provide such, then whoever was involved in that process, whether it be bank, educator or government administrator, or the President himself, HAS COMMITTED FRAUD.

    The problem is that borrowers who have been defrauded by this system do not unite nor will they spend the time necessary to sue personally all those folks responsible for this mess.

    One such man is Albert Lord, head of Sallie Mae. Another is the "OMBUDSMAN" of the United States Department of Education and every federal employee who collects a check each week and pension benefits.

    Stand up. Sue Me. I'll give you everything you're looking for and more. And in the process I'll have thrown out BILLIONS Of false notes for students across the nation.

  • BK on September 06, 2012 9:54 PM:

    Oh and by the way, there's quite a few of us out here who one of the previous commenters seems to think they are going to "kick to the curb" who have taken all the kicks, the nonsense, the lies, and you know what pal?

    We're the ones who are going to be doing the kicking from here on out.

    So just slide right in fella and enjoy the show.


    All the bullshit is going to end and end abruptly in the next few years.

    Every single word of it. Stick your money behind your mouths.

    Uh WHO EXACTLY was my benefactor? Please provide name and address for service of process. People love to say vague nonsense about what they believe to be real.

    You claim that there was some entity that was the supreme "benefactor" of all these poor higher education borrowers, well please , for our purposes, identify them by name and rank... and don't even try to get away with saying... uh uh uh ... the gubbermint did it.

    BS- We voted down a national bank years ago. There's no provision in the Constitution for a Department of Education. It's a wacked out creation of the Carter administration.

    Doesn't even really exist except for the purpose of providing political cronies jobs and bumping the bank account of thieves who call themselves educators.

  • BK on September 06, 2012 10:18 PM:

    Oh and let's just back up a second.

    We have been told that in the past few years the federal government engaged in a "bailout" of sorts for private corporations and bankers, that they've taken an active role in propping up an underperforming auto industry, but yet this "government" which believes it can not only govern but dictate winners and losers, as well as those with a right to work and those without thinks for a moment that they are going to be permitted under some flag waving nonsense to attempt to sue private citizens to collect on debts that any consumer lending institution couldnt' even collect under any semblance of law?

    Hilarious. Everyone knows how credit bureaus operate etc. The federal government is not the law. It does not dictate the law. It's a hard concept to get your head around.

    Go ahead. File your lawsuits. We'll challenge the very constitutionality upon which you base your presumptions ... and oh by the way, we not only want they "administrators" who you've propped up and paid these government salaries to, to return the money they stole, we also want them to defend themselves for the tortious acts they have committed.

    Names people. There are people behind this nonsense. People collecting paychecks. Each week. On the back of the US taxpayer. People who believe they are above the law.

    And it's not the borrowers.

  • Charles Lundquist on September 15, 2012 6:14 PM:

    I am almost 58 years old, unemployed, and currently under extreme economic financial hardship and unable to pay the total of over $50,000 on a secured government Stafford guaranteed student loan from the fall of 1984 to the spring of 1986 while attending the SUNY Binghamton Watson School of Engineering graduate school attempting to get a master's degree in computer science. I don't see my situation getting any better in the near future. This guaranteed student loan has ruined my Life. I originally received this guaranteed student loan from Marine Midland Bank in Johnson City, New York in September, 1984. After I defaulted on this guaranteed student loan on April 1, 1989, the New York Sate Higher Educational Services Corporation (NYSHESC) took over the loan. I was making small payments to NYSHESC; but they sold me this sold this guaranteed student loan to the Educational Credit Management Corporation (ECMC) in October, 2009.
    I attended SUNY Binghamton as a part-time non-matriculated student from the fall, 1982 semester to the spring, 1984 semester. In the spring, 1984 semester, I asked the Chairman of the SUNY Binghamton Mathematics Department, Shelemyahu Zacks, to admit me into their undergraduate Bachelors Degree Program in Computer Science because I had a 3.60 GPA. I was unfairly denied by both Binghamton University Mathematics Department and NYSHESC to get a Bachelor�s Degree in Computer Science because I already had a Bachelor�s degree in General Studies from Oneonta State College in 1977. One undergraduate computer science college professor named James Ryder wrote on my last program in my very first undergraduate level introduction to computer programming class (CS 130) in the summer of 1982 semester, �This is probably the best program I graded all semester and I am saying so after looking at about 150 programs. If you keep this pace up you'll be out with a 4.0!� I still have this final computer science program written in Pascal computer language on green and white perforated print paper from an IBM 370 mainframe computer from the spring, 1982 semester. The Binghamton University Mathematics Department Chairman, Shelemyahu Zacks, told me that I didn't qualify to pursue a 2nd Bachelor�s Degree in Computer Science at the SUNY Binghamton Mathematics Department because I already had a Bachelors Degree in General Studies - Liberal Arts from Oneonta State College of New York in 1977. I just wanted to get a 2nd Bachelor's Degree in Computer Science; but the Binghamton University Mathematics Department said I had to get a Master's Degree in Computer Science instead even though I had never taken 1 class in Computer Science while I attended Oneonta State College from the fall of 1973 to the spring of 1977. I received a Bachelor's Degree in General Studies from Oneonta State College in December, 1977.
    I didn't think I was qualified to pursue a Master's Degree in Computer Science at Binghamton University in the first place; but was told that this was my only degree option by both Binghamton University Mathematics Department and NYSHESC. I was accepted into the Watson School of Engineering Graduate School Master�s Degree in Computer Science program on July 23, 1984. I told some of my Watson School of Engineering professors from 1984-86 that I didn't think I was qualified to pursue a Master's Degree in Computer Science; but they all told me not to give up. After 2 years of studying Computer Science at Binghamton University at the graduate school level I was told that I didn't meet their minimum standards and was discharged from their program on August 12, 1986. I requested an incomplete grade in my final 2 classes at the Watson school of Engineering in the spring, 1986 semester and the teachers agreed to let me do that in order to have more time to catch up; but the Chairman of the Watson School of Engineering, Thomas Piatkowski, refused it. In retrospect, I think that Binghamton University and the NYSHESC just wanted

  • TD on September 17, 2012 9:21 PM:

    Jimo, you're a moron, hopefully you get hit by a train on the way home from work tomorrow, become permanently disabled, and are not able to pay some creditor - preferably a mafia related one. Oh, and Herman Cain was an idiot - that's why he's not in the race anymore - duh - so why the hell would anybody paraphrase him. He's an idiot, and apparently you are too - so please, STFU! Thank you.

  • Just Saying on September 18, 2012 6:46 PM:

    "One reason is the ever-rising cost of higher education."

    Let me correct that for you,
    "The reason is the transfer of the cost of education from the nation to the individual."

    In 1980 education was a public good, and we all were enriched by investment in higher education. Then education became a private good, for which each student should pay. The percentage of educational costs covered by states and Federal government fell from over 80% to the teens. You might have bothered to notice this core fact, because without it there is no way for the reader to know why tuition exploded. You leave tuition costs floating out there like a kind of a starry mystery. There is no mystery. Do your job.

  • thomas sabo uk on October 17, 2012 1:49 AM:

    Thomas Sabo Silver Bracelet

  • Randall on November 12, 2012 7:13 PM:

    Sallie Mae and Department of Ed employees share a revolving door. The Depart of Ed is stacked with ex-Sallie Mae employees.

  • briancharlesgra on December 08, 2012 1:51 AM:


    Gaza: Clinton works for truce 'in the days ahead'
    Israeli air strikes shook the Gaza Strip and Palestinian rockets struck across the border as U.S. Secretary of State Hillary Clinton held talks in Jerusalem in the early hours of Wednesday, seeking a truce that can hold back Israel's ground troops.
    Hamas, the Islamist movement controlling Gaza, and Egypt, whose new, Islamist government is trying to broker a truce, had floated hopes for a ceasefire by late Tuesday; but by the time Clinton met Israeli Prime Minister Benjamin Netanyahu it was clear there would be more argument, and more violence, first.

    Hamas leaders in Cairo accused the Jewish state of failing to respond to proposals and said an announcement on holding fire would not come before daylight on Wednesday. Israel Radio quoted an Israeli official saying a truce was held up due to "a last-minute delay in the understandings between Hamas and Israel".

    Who is Hamas? 5 questions about the Palestinian militant group.

    An initial halt to attacks may, however, not see the sides stand their forces down from battle stations immediately; Clinton, who flies to Cairo to see Egyptian President Mohamed Mursi later on Wednesday, spoke of a deal "in the days ahead".

    As she arrived in Israel after nightfall, Israel was stepping up its bombardment. Artillery shells and missiles fired from naval gunboats offshore slammed into the territory and air strikes came at a frequency of about one every 10 minutes.

  • et. al. on December 08, 2012 4:54 PM:

    I agree with BK! @briancharlesgra...what in the??????? Put the pipe down! lol

  • mark on December 12, 2012 4:33 PM:

    We have a disgusting system based on ever-rising costs. Reasonable alternatives, like working part-time and studying part-time, are, at most universities, completely impossible. For example, my university was 15k/year. Scholarship of 5k, only valid if I was full time. That's me still paying 40k for an undergraduate degree and only being able to work, maximum, 20 hours in a world where 20 hours of work and 18 credit hours a week with 3 hours study time a day is a herculean task.

    Graduate degrees are even dumber. Income Based Repayment is probably the best way to manage the horrible situation, but in what world does a repayment of $1,600 a month seem feasible to anyone?

    Inability to discharge through bankruptcy, even after several years of inability to repay, is just inhumane. What a horrible, cruel world. So if I max out my credit cards on booze and hookers I can discharge it through bankruptcy but if I screwed up and tried to earn an advanced degree and later learned I wasn't cut out for it or that it wasn't marketable I'm stuck for life? Really? That makes sense to people? That's 100% immoral. Go back to the system of garnishing a percentage of their wages for a period of years until letting them file for bankruptcy. If you've had wages garnished for five years, that's your debt. Let people move on with their lives.

  • Mark on December 12, 2012 5:30 PM:

    I'm glad my parents paid for the whole thing. It really was good of me to have been born into a wealth family. After I dropped out of my first school because I developed a mild drug problem, I had about a year to get clean before enrolling at another university, where I left again due to poor class attendance. This wasted at least $30,000 of my daddy's money. But then I was able to get a watered down business degree at State, and even finish with the help of a few tutors. A few years later my dad decided I should do an MBA at local university. One year, $40,000 dollars. I attended most of the modals and even did some of the work, though to be honest, the Korean girls in my small groups did most of the heavy lifting.

    Now I have the BS AND an MBA degree and supervise 8 employees, make about $70,000 a year, and have no university debt.

    I love myself and my awesome God, who provides for His chosen children, like me.

    I just don't understand why everyone doesn't do what I did and get off their butts and succeed. Some people are just lazy and trashy I guess. I deserved my success. I built it. By myself. I owe society nothing. I don't want the government stealing my hard-earned dollars to help people who are too lazy to help themselves.