By Jake Christie
February 20, 2013 (San Diego’s East County)--I could’ve called it a “bomb” or a “fiasco”, but I prefer to call the mess that is the American private and public student loan system a “freight train” because the light at the end of the tunnel is an oncoming high-speed double diesel pulling 25 cars full of heavy loads. The numbers surrounding the student loan mess are horrifying; the total student loan debt out is one trillion dollars, which is the entire US government budget in a year. Of that amount, $76 billion is in default, though Allan College of StudentLoanJustice.org put out a press release* doubting that figure because even defaulted loans have interest piled on top of them.
Thanks to a 2005 bill (the Bankruptcy Protection Act and Consumer Protection Act) it is now impossible to declare bankruptcy on student loans; if you have one, it will follow you until it is repaid in full, even if it requires collections agencies, wage garnishments, and other tactics** to get it.
When did this catastrophe begin? We’ve only had federal student loans since 1958. When the ball began rolling was sometime in the Nixon years, when the government decided – despite a lack of evidence – that too many students were sticking Uncle Sam with their debts, so they made student loan debts un-dischargeable.
This opened a door to new worlds of usury, as the quasi-governmental company Sallie Mae was allowed to go private and rake in the real interest: 8 percent and higher. But that was only after the State began retreating in funding the colleges and the costs of college began outstripping inflation in the late 1980s. So the debt train was built and sent rolling down the tracks over 30 years, though it really began picking up speed in the last decade as it roughly doubled in size.
So what does all of this mean? It means that the young people of East County who should be buying new Toyotas in El Cajon aren’t. It means that people can’t buy houses, or start little businesses, or plan for families like they should, because they are paying most of their paychecks in rent and student loan fees. You can’t save up when Sallie Mae, now privatized, is asking for $150 a month on top of your federally-backed Stafford Loans ($50-60).
Oh, and if you are a lawyer or a dentist (and have that debt piled on top of your undergraduate debt), they can take away your certificates if you default, which means you now get to pay off the professional schools on a janitor’s salary.
This is why there seems to be an un-charted Diaspora of around a million to a million-and-a-half Americans living as expatriates in Canada, Vietnam, China, Japan, etc. They are fleeing Sallie Mae and all their credit card debt, because nobody sees a check from the lender companies anymore; the money moves from the loan company to the school without the student seeing it.
I haven’t hit all of this, but the bit that truly sickens me is “zombie student debt”; people somehow pay off their debt, then a decade rolls past and they get a note from the Department of Education demanding $20,000 or $30,000 because their loans “defaulted.” So people are on the hook for school again. (Moral of the story: hold onto your proof of loan payoffs ‘til you die, to protect yourself against this bureaucratic bungling.)
The whole thing has become a nightmare of bad decisions based on unintended consequences. Consider this: colleges have lending limits; they can’t approve more loans than are being paid in. So if nobody is paying back, the college is in hot water since money goes from the lender to the college, not the student (though students are on the hook for the loan repayments.)
At this point, either the government will have to write off that trillion, or watch as the borderline schools (the ITT Techs, the Coleman Colleges, possibly even San Diego State University) implode into an ocean of bad credit with the empty buildings as archipelagos of ruin.
The loan companies need to be dissolved and the collections firms shuttered, banks restructured so that can’t profit off this. The government should be on the hook for this because they allowed this fiasco to happen. Privatizing student loans and driving tuitions sky-high was an Enron type of solution, that wound up coming back to bite us all.
Allan College has been going after the student loan fiasco since 2005; there are others, mostly concerning the high costs and small returns of law school and the legal profession; one of the strongest is www.thirdtierreality.blogspot.com but the reader should be warned that “Nando” the site owner illustrates how bad the law schools are with photos of full toilets.
** The other tactics include garnishing Social Security, any lottery winnings, and siccing the hordes of fly-by-night collections agencies on the student debtor. Many of the collections agencies will resort to calling relatives, neighbors, former places of residence, even people with similar last or first names in desperate bids to get debtors to sign. They are also the people keeping regular “zombie debt” alive. It’s a parasitic shadow industry.
The opinions in this editorial reflect the views of the author and do not necessarily reflect the views of East County Magazine. To submit an editorial for consideration, contact firstname.lastname@example.org.