Permanent Debt Bondage From America's Student Loan Racket

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An earlier
article compared the 1950s to today, saying:

It was a
different time, good and bad. Elected in 1952, Eisenhower was
still president. Unemployment was low. Anyone wanting work found
it. Most years the economy grew during a post-WW II expansion.
Inflation was low. The average new car cost $1,500, a typical
home under $10,000. College was affordable. Harvard’s 1952 full
year tuition was $600. Four years later it was $1,000 – for
a full, two-semester year. During the period, anyone could attend
evenings at $5 a course and get a Harvard degree for about $175,
astonishing but true.

America was
unchallenged economically, its manufacturing base offering high-paying/good-benefits
jobs. Union representation was high. Southern and northern US cities
were segregated. They still are, all 1960s civil rights gains lost
plus most good jobs and benefits. Alaska and Hawaii additions grew
America to 50 states.

The Korean
War left an unsettled armistice. Cold War politics settled in. Developing
"mutually assured destruction (MAD)" and accommodation
prevented WW III. Censure ruined Joe McCarthy, and by May 1957 he
was dead at age 48. The CIA’s first coup deposed Iran’s Mohammad
Mosaddegh. A generation of terror followed. A year later, another
toppled Guatemala’s Jacobo Arbenz Guzman, fueling decades of genocide
against its indigenous peoples.

Throughout
the decade, few followed Vietnam events, its defeat of France, and
America’s growing involvement in what became three decades of war.
Palestinian Territories weren’t occupied, and during the period
Israel was young, growing, but mostly out of the news and public
mind. Times indeed changed, for the worse, not better, including
college tuition costs.

Harvard tuition
for the 2010/2011 academic year is $35,568. Add room, board, health
insurance fees, books and supplies, local transportation (if needed),
plus miscellaneous and personal expenses raises the total to nearly
$60,000. Moreover, with annual tuition/fees hikes, incoming freshmen
may need $70,000 for senior year expenses.

According to
an October 28 Los Angeles Times article titled, "College
costs increase faster than inflation":

"State
budget cuts and declines in philanthropy and endowments help push
(college tuition costs) up much higher than general inflation
across the country this year, amounting to an increase of 7.9%
at public campuses and 4.5% at private ones, according to a new
study by the nonprofit College Board."

In fact, some
schools, like the University of California, raised fees by 32%,
then announced a further 8% hike. The University of Illinois announced
a 9.5% increase. Other public and private schools followed suit,
some by over 10% when fewer students can pay it. The College Board
said for the decade ending in 2008, tuitions rose 54% after 49%
in the previous decade.

Student Loans/Debt
Information

The Project
Student Debt
web site has a wealth of information on student
loans and debt. Using US Department of Education data for the 2007/08
academic year (the most recent available), it said two-thirds (or
1.4 million) of 2008 college graduates had student loan debt, a
27% increase from 2004, breaking down as follows:

  • at public
    universities, it was 62%;
  • for private
    nonprofit ones, 72%; and
  • at private
    for-profit institutions, 96% were debt entrapped.

In 2008, graduating
seniors had an average debt burden of $23,200, a 24% increase from
$18,650 in 2004. At public universities, it was $20,200. For private
nonprofit ones, $27,650, and at private for-profit universities,
$33,050.

However, given
how government data is manipulated, true totals are far higher and
rising exponentially. Many graduates have debt burdens approaching
or exceeding $100,000. If repaid over 30 years, it amounts to a
$500,000 obligation, and if default, much more because debt obligations
aren’t erased.

Moreover, regardless
of inflation changes, tuition and fees rise annually. As a result,
future costs are less affordable. Greater debt burdens are created,
and for many students, higher education is out of reach.

For most others,
completing college includes debt bondage because of what Valley
Advocate.com writer Stephanie Kraft called "Killer Loans"
in her October 14 article, saying:

"….a
large segment of the population is squeezed for interest payments
and fees on loans taken out to pay for college, or for graduate
or professional school."

The numbers
are staggering – $96 billion loaned annually to attend college,
graduate, trade or professional schools, excluding "shadow"
borrowing. It includes tapping home equity, retirement accounts,
other sources, and credit cards. A 2005 Smith College survey found
23% of students use plastic for college tuition and fees.

In the past
decade, student loan debt ballooned over four-fold. In 1977, about
$1.8 billion was borrowed. By 1989, it was $12 billion, and in 1996
$30 billion. According to the Student Loan Debt Clock, its cumulative
principle and interest exceeds $877 billion, surpassing credit card
debt for the first time last June, and will exceed $1 trillion in
early 2012.

At its present
rate, it increases $2,854 per second, entrapping most borrowers
and forcing others to default. According to the Chronicle of Higher
Education (CHE) last September:

"The
percentage of borrowers defaulting on their student loans (rose)
for a third year in a row, reaching an 11-year high of 7 percent,"
based on US Education Department data – again grossly understated
to hide a serious problem for millions.

The data is
based on the number of graduates defaulting within two years of
graduation so only capture "a sliver of the defaults that occur
over the life of a loan," according to a CHE analysis. It estimates
that one in five government loans entering repayment in 1995 defaulted.
For community college graduates, it’s 31% and at for-profit schools,
40%.

Yet little
is reported on the scope of the student loan racket. The web site
Student Loan
Justice
explains it, saying:

"The
federal student loan system has become predatory due to the Congressional
removal of standard consumer protections and….sanctioned collection
powers that are stronger than those for all other loan instruments
in our nation’s history."

As a result,
student borrowers are greatly harmed by unmanageable loan demands.
Along with inflation and annual tuition/fee hikes, most graduates
face an enormous burden, with no consumer protections, even in default.
Once entrapped, escape is impossible. Debt bondage is permanent,
and future lives and careers are impaired.

Congress ended
bankruptcy protections, refinancing rights, statutes of limitations,
truth in lending requirements, fair debt collection ones, and state
usury laws when applied to federally guaranteed student loans. As
a result, lenders may freely garnish wages, income tax refunds,
earned income tax credits, and Social Security and disability income
to assure defaulted loan payments. In addition, defaulting may cause
loss of professional licenses, making repayment even harder or impossible.

Under a congressionally
established default loan fee system, holders may keep 20% of all
payments before any portion is applied to principle and interest
due. A borrower’s only recourse is to request an onerous and expensive
"loan rehabilitation" procedure whereby they must make
extended payments (not applied to principle or interest), then arrange
a new loan for which additional fees are incurred. For many, permanent
debt bondage is assured. No appeals process allows determinations
of default challenges under a process letting lenders rip off borrowers,
many in perpetuity.

"This
fee system and associated rehabilitation schemes have provided a
massive revenue stream for a shadowy nationwide network of politically
connected (lenders), guarantors, servicers, and collection companies
who have greatly enriched themselves at the expense of misfortunate
borrowers."

As a result,
millions of students and families have been gravely harmed, relegated
to lifetime debt bondage. Yet industry predators thrive. The fee
system is their "lifeblood," providing on average 60%
of their income through "legalized wealth extraction"
– a congressional sanctioned extortion racket like Wall Street
and unscrupulous investment companies scam customers.

Lenders thrive
from defaults, deriving income from debt service and inflated collection
fees. A conspiratorial alliance of lenders, guarantors, servicers,
collection companies, and government prey on unsuspecting borrowers.
Lifetime default rates approach up to one-third of undergraduate
loans, higher than for subprime mortgages. "This is, in fact,
is higher than the default rate of any known (US) lending instrument…."

A Brief
History Federally Guaranteed Student Loans

In 1965, the
Higher Education Act (HEA) let millions of students afford college
with federally guaranteed loans and scholarships. It was later amended
six times to benefit lenders at the expense of borrowers.

In 1978, the
Bankruptcy Reform Act was the first comprehensive change since 1898.
It established federal bankruptcy courts, substantially revamping
former practices. It also made it easier to file, and prohibited
discrimination when declared.

Bankruptcy
discharges release debtors from personal liability for certain types
of debt. In other words, debtors no longer must pay those discharged
permanently. Collection actions are also prohibited, although the
debt remains. Bankruptcy doesn’t eliminate it. Non-dischargeable
debts, however, stay legally enforceable despite bankruptcy discharge.
In 1990, the non-discharge period was extended to seven years.

In 1998, Congress
eliminated federal Title IV, HEA student loan debt dischargeability
in bankruptcy. Education loans are the only ones affected by a federal
"no-escape" provision. In 2005, the Bankruptcy Abuse Prevention
and Consumer Protection Act made all student loans (federal and
private) non-dischargeable.

As a result,
avoiding debt bondage in bankruptcy is impossible, unleashing the
current predatory system for lenders like Sallie Mae. In 2009, the
Department of Education reported over five million student loans
in default. So are at least another one million private ones, and
these numbers are likely underestimated.

In addition,
as explained above, prior protections were removed, including statute
of limitations on collections, truth in lending, fair debt collection
practices, the right to refinance, and state usury law prohibitions.
Washington corrupted the system for lenders at the expense of student
borrowers.

An Example
of Systemic Predation

Sallie Mae
(SM) is the largest student loan originator, servicer and collector,
managing over $180 billion in federally guaranteed and private loans
from over 10 million borrowers. If they can’t repay after 270 days,
loans are in default. Washington pays SM the balance plus interest.
For repayment, collection agencies like General Revenue Corporation
(GRC), the nation’s largest, impose 25% loan collection fees plus
28% commission charges on borrowers, and can garnish wages and other
income for payment.

No statute
of limitations applies. For GRC and other predators, a steady profit
stream is assured at the expense of borrowers. Even schools benefit
by raising tuition and fees far above inflation rates and income
growth, making college more expensive, less affordable, and assuring
higher future defaults on greater amounts.

Obama’s student
loan overhaul was a scam. Effective July 1, 2010, it does little
to mitigate lenders’ ability to rip off borrowers in perpetuity,
yet he called it "one of the most significant investments in
higher education since the GI bill." He lied.

The 1944 Servicemen’s
Readjustment Act (the GI Bill) covered most college or vocational
training costs for 7.8 million returning vets plus a year of unemployment
compensation. In addition, 2.4 million got VA-backed low-interest,
no down payment home loans at a time their average cost was under
$5,000, enabling millions of families to afford them, many with
government help. In contrast, Obama’s Student Aid and Fiscal Responsibility
Act enriches providers, not borrowers, given chump change as usual.

A Final
Comment

More than ever,
higher education is out of reach for millions. Most others require
substantial scholarship and/or student loan help. During times of
economic crisis, families are greatly burdened to assist financially.
A 2008 National Center for Public Policy and Higher Education study
said they contribute, on average, 55% of their income for public,
four-year institutions, up from 39% in 2000, and higher still today
to meet rising school costs.

As a result,
today’s higher education means crushing debt burdens at a time systemic
high unemployment and fewer good jobs make repaying them onerous
to impossible. America’s ownership society is heartless, favoring
capital, not popular interests, a policy with strong bipartisan
support.

Reprinted
with permission from The
People’s Voice
.

January
7, 2011

Stephen
Lendman [send him
mail
] lives in Chicago. Listen to cutting-edge discussions with
distinguished guests on the Progressive
Radio News Hour
on the Progressive Radio Network Thursdays at
10AM US Central time and Saturdays and Sundays at noon. All programs
are archived for easy listening. Visit
his blog
.

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