Matt Taibbi with Rolling Stone, wrote a recent piece called “The Great College Loan Swindle” that outlines how we got here. It started with sales pitches that colleges make to kids – comparisons of salaries of those with high school diplomas to those with 4 yr degrees. The value of that degree over a lifetime of earnings. Investing in yourself was a common phrase used by for-profit colleges. It creates a vicious cycle, everyone feels obligated to go to college, most everyone who can go does, and then you have a glut of graduates which is where we are now. And this isn’t limited to just the student. Parents wanting to help their kids every way they can, co-sign on loans they cannot possibly repay, or sign their own loans called Parent Plus loans. Parent Plus loans do not take into consideration the income and employability of the parent or grandparent who applies for the loan. Not surprisingly, Parent Plus loans have been cited by the CFPB as having extremely high default rates.
So Step 1, convince everyone a college degree is necessary in life.
Step 2: make it easy to borrow the money.
Student loans initially were primarily federal, but when the bankruptcy laws changed over the years to make private loans potentially non-dischargeable, we have a lot of private student loans as well now. Unfortunately, these changes to our bankruptcy laws has encouraged bad lending and helped bad actors to take advantage of a generation of gullible and naïve students – essentially turning them into indentured servants – with crippling debt that will last the majority of their lifetime.
The last step is to collect the debt. Government lenders can garnish wages, intercept tax refunds and even offset social security. Private lenders have convinced people that they have to keep paying outrageous balances every month, declaring that bankruptcy won’t help. Now they are bringing state court lawsuits for judgments that will last 20 years and subject someone to 25% wage garnishment.
So how do we counter this?
The first thing we cover with our new clients is whether they have private versus federal loans and the differences between them. Many people do not even know what they have. Then we go over possible ways to reduce or even eliminate that debt.
For federal loans for instance:
Income based plans are not a one size fits all. There are a number of different income based programs with debt forgiveness which are very good – but we often see clients in the wrong ones without knowing why they are in the ones they are. Some are incorrectly told they do not qualify. For some strange reason, we’ve heard from a number of clients who were told they didn’t qualify b/c they didn’t make enough money. That is impossible. This is exactly why these programs exist: for people that don’t make enough money.
We have plenty of clients who are on zero repayment plans. This doesn’t even negatively affect their credit.
Many people are given the wrong advice by loan servicers regarding income driven plans, Parent Plus loans and Public Service. This doesn’t always happen, but when you call a servicer several times and get 3-4 different answers, how do you know which one is the correct one?
We help people file disability applications – we used to file Borrower Defense to Repayment Applications for students who were defrauded by a for-profit school. But that program appears to have been shut down for the most part under Secretary DeVos so we aren’t pursuing new applications at this time (but the program does still exist).
If our client is already in default we help get people out of default, stop garnishments, tax refund intercepts, social security offsets and get them back on track. Usually with a far smaller payment than the one they couldn’t make which led to the default in the first place.
For private loans, I’ll blog separately – stay tuned…