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Posts Tagged ‘default’

The Opportunity Costs of Higher Education

November 9, 2011 Leave a comment

NPR did an excellent story a few weeks ago inviting callers to share stories about what they have had to give up because of their student loans.  People spoke about taking jobs they hated, not pursuing lower-paying public service careers, and even not having children.  I’d love to hear more stories from my readers so please share in the comment section.  In the meantime, I’ll start:

1. A bedroom.  Since graduating with my MA, the only times I have ever had a bedroom have been when I lived with someone else.  I currently live alone in a studio in a shady part of town where my dog must be walked by sundown or not at all.

2. A bed.  In fact, I’m so concerned with finances at the moment that I opted to buy a half-broken futon instead of a bed when I moved into my new place because it was cheaper.  Nothing like sleeping on a lumpy “couch,” even while holding a professional position, to make one think, as per Gob from Arrested Development, “I’ve made a huge mistake.” Read more…

The Default Trap

November 8, 2011 Leave a comment

If there’s one thing worse than shelling out mortgage-sized payments on student loans each month, it’s not shelling them out. 

Here is the story of Casey Zimmerman Thompson, a resident of rural Maryland who borrowed a total of $7100 in student loans in the 1980s.  Zimmerman Thompson claims that she has paid approximately $18000 towards the loans since then.  Despite that, she still owes over $9800.  That’s right, 25 years after she took out her original loans, she still owes more than she borrowed.

The reason?  Due to various economic setbacks throughout her life, including a medical condition that ended a former career and unpaid child support from her abusive ex-husband, Zimmerman Thompson defaulted on her loans several times.  And, as anyone who has ever defaulted on a student loan knows, coming back from such a setback can be nearly impossible.  From the article:

“Short of a lottery win, for student loan borrowers like Thompson, there is literally no way out. The government can garnish the income tax refunds and eventually the Social Security checks of defaulters. Changes to bankruptcy law in 1984 and 2005 mean borrowers can’t charge off their obligations the way they can escape mortgage, credit card and even gambling debt when they file — unless they can prove “undue hardship.” But just 29 of the 72,000 student loan debtors in bankruptcy in 2008 were able to do so, according to Mark Kantrowitz, founder of the student aid website Finaid.org.”
Read more…

If Corporations are People…

November 5, 2011 Leave a comment

If corporations are people, then we need to ask what kind of people they are and whether we, as a society, want to continue to incentivize their more nefarious aspects. 

So what kind of people are private student loan lenders?  Deeply disturbed people.  Psychopaths.  Mobsters who want to corner the market so that you have no choice but to borrow money from them and then come after you with a metaphorical baseball bat when you can’t pay your debt. 

These lenders lack empathy and have no conscience.  They delight in your failure because when you default on your student loans, they can add late fees and compound your interest and ensure that by the time you can pay, you will owe thousands – sometimes tens of thousands – of dollars more than you originally borrowed. (Note – this goes for government loans too).

And those in the government who continue to support them?  Those are the corrupt policemen who take kickbacks in exchange for their support. 

See, the problem with calling corporations people is that they can’t be punished like people.  No one is going to put Sallie Mae or Citibank in jail.  No one is going to give them a psychological evaluation and deem them unfit for human society.  No one is going to pump them full of psychiatric drugs so that they can function at a normal level and stop hurting others.

And when it’s not just a few corrupt people but a large swath of your government that is in collusion with them, how do you fight back?  I have some ideas that I will post about soon, but, in the meantime – what are your ideas?

A Pledge of Refusal to Pay Student Loans

November 3, 2011 5 comments

Now this is an interesting idea.  NYU Professor Andrew Ross is advocating that student loan debtors band together and sign “A Pledge of Refusal” in which they would agree to collectively stop paying on their student loans once the pledge reached the 1 million signatures mark.  According to Ross:

…while individuals are subject to heavy financial penalties if they stop paying on their student loans, a mass action by 1 million would make the banks take notice.

“There is a lot of talk about student debt, but no one takes any action, and that’s what Occupy Wall Street is about,” the professor of social and cultural analysis said.

I found this by chance but had just been thinking something similar myself.  As far as I know, this is a fairly new idea, and I’ve yet to see an actual petition online.  Not sure I’d sign it myself as I am currently in a position where I can make my payments every month, even if making them means living in a hovel in a bad neighborhood without a bed.  Additionally, I am licensed to practice law, and, even though I don’t actually do that for a living, I’d be a little afraid of being disbarred. But for people out there who are already in danger of defaulting – heck, what do they have to lose? 

I’ll keep you all posted if/when this thing develops more momentum.

Student Loan Defaults on the Rise – Let’s go to Vegas!

December 1, 2008 2 comments

After remaining relatively stable for several years, the student loan default rate is now on the rise.  The Wall Street Journal reports today that the downturn in the economy, especially the credit crunch, is forcing more student loan borrowers into default and the numbers could rise even further:

The fear is that default rates on student loans will increase, as seen in the mortgage and credit-card worlds. SLM Corp., or Sallie Mae, the largest private student lender, reported a delinquency rate of 9.4 percent in September, up from 8.5 percent a year earlier. “It’s clearly because of economic conditions,” said spokesman Tom Joyce. “The credit crunch has washed onto the student-loan beach.”

Until now, the default rate on federal loans has remained relatively stable. The most recent statistics, from 2007, show only 5 percent of students defaulting within two years after they leave school and begin repayment. Experts think that rate could begin rising as the effects of the credit crunch and slowing economy take hold.

In spite of yet another article on the problems of student borrowers, I’m beginning to think that the people in charge, or at least those reporting on them, don’t understand how troublesome the situation really is.  The article mentions some measures that students are taking to avoid default: getting second jobs, borrowing from parents, and, naturally, going to Vegas and hoping for the best.  Um, hello?  When people’s best option for making their loan payments is a lucky hand at blackjack, it may be time to start rethinking what we’re doing to America’s youth.

The article points out that even as the ability to pay plummets, student loan debt is higher than ever.  It also notes (very briefly) that student loans are one of the only debts with no bankruptcy protection.  But the solutions it offers are just more of the same – deferments, forebearances, and refinancing.  Even though some of the people interviewed for the article specifically note that their deferments or forebearances have run out, they are still being told to simply get a deferment or forebearance.  As for refinancing, it’s been widely reported, including on this blog, that the current credit crunch has drastically restricted that possibility.  And all of these options mean more debt since the interest will continue to pile up the longer payment is delayed. 

It’s clear that the current options for student loan relief are simply not good enough.  We need something revolutionary, a radical and total shift in the system.  How about a moratorium on interest?  How about a bail-out for those who have made good faith efforts to secure employment?  How about reinstituting bankruptcy protection after 10 years?  Something, ANYTHING, besides the old “Just put it off until later and pay double” mantra.  That’s what got us into this mess in the first place.

Sallie Mae Defends Itself

November 12, 2008 Leave a comment

The Nov. 14th issue of The Chronicle of Higher Education includes a Letter to the Editor from Tom Joyce, a senior vice president at Sallie Mae.  In the letter, Joyce accuses the Chronicle of biased reporting for its October 23rd article about the Zahara lawsuit:

To prevent defaults, Sallie Mae always prioritizes the best interest of our customers. It is never in the financial interest of our customers or our company to allow loans to slip into default. In fact, we invest millions of dollars every year in staff and technology to prevent defaults.

In the rush to print baseless accusations of a former short-term, entry-level employee who was fired for misconduct in 2005, The Chronicle failed to note what all lenders and guaranty agencies clearly understand about the federal student-loan program: Forbearance is far less costly to the borrower than the cost of default.

Zahara has accused Sallie Mae of pushing forebearances on borrowers in an attempt to increase debt levels.

“It’s either take care of my daughter…or pay student loans.” – Terri’s Student Loan Story

November 10, 2008 Leave a comment

As a child, Terri Crothers dreamed of becoming a photojournalist, but her parents – a parts buyer for a large department store and a distribution/receiving specialist for a vehicle manufacturer – were worried about her financial prospects. “My folks believed I couldn’t make any money doing that and encouraged me to try something else,” she says.  So when Terri entered a junior college directly out of high school, she took a course in chemistry, thinking she might go into the medical field and then switched to business.  Neither clicked, and after a year, Terri left school and worked for several years at jobs she describes as “good paying but intellectually disabling.”   Read more…