America's Student Loan Racket: Soaring Default Rates
by Stephen Lendman
by Stephen Lendman: America's
Total Surveillance Society
article discussed 'Permanent
Debt Bondage from America's Student Loan Racket."
government/corporate complicity to rip off students for profit,
a racket continuing under Obama. His July 2010 Student Aid and Fiscal
Responsibility Act perpetuated the scam. It enriches providers,
entrapping millions of students permanently in debt, because rising
tuition and fee amounts plus interest, service charges, and late
payment or collection agency penalties are too onerous to repay.
It's part of
the grand scheme, of course, to transfer maximum public wealth to
America's super-rich already with too much. Ongoing for over three
decades, it accelerated under Obama, a corrupted Wall Street/war
profiteer tool, destroying America for power and profit.
of Students Permanently Entrapped in Debt
whether or not they graduate, have debt burdens approaching or exceeding
$100,000. If repaid over 30 years, it's a $500,000 obligation, and
if default, much more because debts aren't forgiven. As a result,
once entrapped, escape is impossible. Bondage is permanent, and
future lives and careers are impaired or ruined.
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, as well as Social Security and disability
income to assure defaulted loan payments. In addition, defaulting
may cause loss of professional licenses, making repayment even harder
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, requiring
extended payments (not applied to principle or interest), then arrange
a new loan for which additional fees are incurred.
As a result,
for many, permanent debt bondage is assured. In addition, no appeals
process allows determinations of default challenges under a process
letting lenders rip off borrowers, many in perpetuity.
At issue is
a conspiratorial alliance of lenders, guarantors, servicers, and
collection companies enriching themselves hugely at borrowers' expense,
thriving from extortionist fees and related schemes. It's a congressionally
sanctioned racket, scamming millions of indebted victims.
thrive on bad debts, deriving income from inflated service charges
and collection fees. They're more than ever today as default rates
soar, lifetime rates now nearly one-third of undergraduate loans,
higher than for subprime mortgages. In fact, they're higher than
for any other lending instrument and rising.
Defaults During Hard Times
economic crisis began in late 2007, an April 21, 2009 Wall Street
Journal (WSJ) Anne Marie Chaker article highlighted the burden on
students headlined, "Student Loans: Default Rates are Soaring,"
of economic weakness, rising tuitions and poor job prospects caused
defaults on student loans to skyrocket. According to Department
of Education numbers for those federally guaranteed, estimated FY
2007 default rates reached 6.9%, up from 4.6% two years earlier.
are now far worse according to a February 4, 2011 Mary Pilon and
Melissa Korn WSJ article headlined, "Student-Loan Default Rates
to 13.8% from 11.8% for students beginning repayment in (FY) 2008
compared with those starting a year earlier," according to
new Department of Education data.
defaults within the first three years of repayment. Over their lifetime,
however, they approach two and a half times that level, perhaps
heading for 50% if economic conditions keep deteriorating while
tuition and fee rates rise.
for-profit schools fare worst at 25%, but sharp tuition increases
at public and private nonprofit universities place greater burdens
on their graduates, assuring rising defaults, especially over their
levels may cause many colleges to become ineligible for government-backed
Pell Grants and other student loans. To qualify, they formerly had
to show less than 25% of students defaulting within a two year window.
If they breached that threshold for three consecutive years, or
hit 40% in a single year, they could lose out altogether.
the 2008 Higher Education Opportunity Act increasing the default
window to three years, the ineligibility threshold rose to 30%,
penalties not beginning until 2014.
On March 15,
York Times writer Tamar Lewin headlined, "Loan Study on
Students Goes Beyond Default Rates," saying:
For every student
defaulting, "at least two more fall behind in payments,"
according to a
new study. Conducted for the Institute for Higher Education
Policy by Alisa Cunningham and Gregory Kienzl.
that around 40% of borrowers were delinquent within a five year
repayment window. Almost one-fourth of them postponed payments to
avoid delinquency. However, doing so made their interest and overall
debt burden more onerous because escape is impossible.
Data from five
of the country's largest student loan agencies showed only 37% of
borrowers who began repayments in 2005 did so on time, a number
now decreasing during hard times.
On April 11,
Lewin headlined, "Burden of College Loans on Graduates Grows,"
of bachelor's degree recipients graduated with debt in 2008, compared
with less than half in 1993." However, rising debt burdens
contribute to soaring default rates, especially for private for-profit
universities. Moreover, given Pell Grant cuts and rising tuitions,
students will be more than ever indebted and strapped to repay during
hard times because Congress rigged the system against them.
As a result,
education policy experts expect serious implications for future
graduates. According to Lauren Asher, Institute for College Access
and Success president:
have a lot of people finishing or leaving school (entrapped in)
debt, their choices may be very different than the generation before
them. Things like buying a home, starting a family, starting a business,
saving for their own kids' education may not be an option if they're
trying to repay student debt."
much more awareness about student borrowing than there was 10 years
ago. People either are in debt or know someone in debt."
Many of them
have their own horror stories about how predatory lenders, servicers,
guarantors, and collection companies rip them off under an escape-proof
scheme amounts to legalized grand theft, the equivalent of what
Wall Street banks do to investors with impunity.
Deanne Loonin, a National Consumer Law Center attorney:
two-thirds of the people I see attended for-profit (universities).
Most did not complete their program, and no one I have worked with
has ever gotten a job in the field they were supposedly trained
for. For them, the negative (debt default) mark on their credit
report is the No. 1 barrier to moving ahead in their lives. It doesn't
just delay their ability to buy a house, it gets in the way of their
employment prospects, finding an apartment, almost anything they
try to do."
is characterized by a combination of rising poverty, unemployment,
home foreclosures, homelessness, hunger, student debt entrapment,
and despair, mocking the notion of a fair and equitable society.
Not at all
under a corrupted political duopoly, sucking public wealth to America's
super-rich, spurning popular needs, waging permanent war, and heading
the nation for tyranny and ruin.
If that's not
just cause to resist, what is? If not now, when? If not us, who?
If that future doesn't arouse public anger, what will?
with permission from The
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