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August 22, 2012 12:20 PM Reining In the Student Loan Repo Man

By Ed Kilgore

This item by Mark Landler from the New York Times’ coverage of the presidential campaign shows that the president is determined to reopen earlier criticisms of Mitt Romney and the GOP for its indifference to the plight of Americans needing help with financing higher education:

President Obama, adding another verse to his litany of differences with Mitt Romney, promoted his record on education here Tuesday and assailed his Republican challenger for advising financially strapped young people who want to go to college to “shop around and borrow more money from your parents.”
Mr. Obama, who portrayed himself as the fortunate product of affordable education, said Mr. Romney’s educational policies were conspicuously lacking in the student loans, grants, work-study programs and emphasis on lower tuition rates that put higher education within reach of millions of middle-class Americans.

If Obama really wants to make this a major campaign theme, bashing Republican indifference isn’t enough. Although his record on the subject is quite progressive (particularly his shutdown of bank involvement in federally-backed student loans), he should embrace reforms in the student loan system needed to deal with longstanding abuses that are a major threat to past, present and future cohorts of Americans seeking a better education. In a sneak preview feature (“Getting Rid of the College Loan Repo Man”) from the Washington Monthly’s upcoming September/October issue, Stephen Burd of the New America Foundation exposes the causes and effects of a nightmarish system of student loan payment collections that fails to distinguish between people who won’t and people who simply can’t pay, and also enmeshes millions in a complex and poorly administered set of regulations.

It all goes back, Burd explains, to a recurring dynamic in the politics of student aid, in which progressives favoring expanded access to student loans have cooperated with conservatives hostile to the whole enterprise, along with revenue-hungry green-eyeshade types, to create an ever-more-draconian system of private debt servicing and collection agents who harass debtors relentlessly regardless of their ability to pay or actual culpability for missed payments:

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….
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.

In theory President Clinton introduced the concept of income-contingent repayment of student loans, the best way to provide relief for those who simply can’t make payments, while encouraging people to use their educations to enter public-spirited professions—but it’s been implemented only partially and hasn’t been explained to borrowers very regularly. Burd’s anecdotes of responsible borrowers who struggle with incompetent loan servicers and self-consciously vicious debt collectors (usually private contractors) are chilling.

The Obama administration has recently pursued reforms that compel its agents to work with delinquent borrowers to set up payment plans and to streamline the now-complex paperwork involved in taking advantage of available repayment options. But Burd believes “there is a better way” that involves more systemic reform rather than perpetual tinkering:

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….
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.

It’s not enough for those interested in maintaining and expanding access to higher education to fight off hammer-headed efforts to tell students “they’re on their own.” This is an area in which simple, available reforms can serve both fairness and responsibility. Let’s hope advocates for the survival of the student loan program, including the president, get on board.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • bdop4 on August 22, 2012 12:52 PM:

    There needs to be a civil service plan akin to the GI Bill that allows grads to work off their school loans through public service, a minimum of 1 year for every year of financed tuition.

    Our society needs to recognize that there are other valuable ways to "serve our country" other than joining the military.

  • Danton on August 22, 2012 3:08 PM:

    My ongoing issue with student loans: private lenders are disorganized for they keep selling off the notes but not informing us of new and correct repayment information. By contrast, our loans with the Department of Education are very well organized.

  • Sgt. Gym Bunny on August 22, 2012 4:32 PM:

    @ Danton,

    Very true. I haven't the foggiest idea who actually now owns my private loan debt. I think my private loans were sold at least 2-3 times, and by the time I figured out who had them, it would turn out to be some ratchety fly-by-night company with no real contact info. Weird...