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?
The New York Times reports today that aggressive lobbying by top student lenders like Sallie Mae may derail Obama’s plans for reforming the student loan industry.
Obama’s plan is to cut out federal subsidies to private lenders and loan the money directly to students instead, a plan that a Congressional Budget Office analysis says could save approximately $80 billion dollars over the next ten years. That money would then go to “expanding direct Pell Grants to students, establishing $10,000 tax credits for families with loans, and forgiving debts eventually for students who go into public service, administration officials say.”
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 is the latest student loan lender/collection agency to expand operations; MarketWatch.com reports that Sallie Mae has announced plans for a new credit center that will create about 1100 jobs. Premiere Credit, which specializes in collecting on delinquent loans, also recently announced plans to open a new location, expected to create 300 jobs.
It’s hard not to notice that while everyone else is struggling, collection agencies are suddenly expanding. Very disturbing trend.
The Department of Education is rapidly becoming the only student loan consolidation option for new graduates, The Pittsburgh Tribune-Review reports today. The article noted that many lenders, including Sallie Mae, which I reported on previously, have suspended their consolidation programs because in the current credit climate, they say, it is no longer economical:
The Pennsylvania Higher Education Assistance Agency, PHEAA, suspended its consolidation program in February. Sallie Mae, Nelnet and Next Student – all among the top 10 consolidators in 2007 — followed suit. Of the top 100 consolidators, 68 have suspended consolidations, said Mark Kantrowitz of Cranberry, publisher of FinAid, an online resource about financial aid…
In July 2006, federal loans began to carry a fixed 6.8 percent interest rate, so there are now fewer benefits to consolidating, and it’s more expensive for lenders, said Martha Holler, a spokeswoman for student loan lender Sallie Mae.
“It’s just not economical to make these loans,” she said. “The current credit crisis; the turbulence in the capital markets would have to settle down (in order for Sallie Mae to resume consolidation loans.)”
This might not be such a big deal except that many private and state loans are ineligible for consolidation through the Department of Education, which means that consolidating doesn’t necessarily come with one of its biggest benefits anymore – one monthly payment instead of several.
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.
The Department of Education is going to buy up more student loans from private lenders in an effort to bolster the private student loan market, the New York Times reports. The move comes as investors shy away from the student loan market in the wake of the economic crisis, and large lenders like Sallie Mae stand to benefit the most:
Sallie Mae and big banks like Citigroup and JPMorgan Chase, which make thousands of government-subsidized student loans each year, stand to benefit the most from the government’s program. But so will dozens of nonprofit student lenders that are caught in the same bind. The government’s action will not resolve all worries about student lending. Student loan borrowers this year are finding it more difficult to obtain private loans, which are not guaranteed by the government and which typically carry higher interest rates and less favorable repayment terms.
Thus, in yet another industry, the government is bailing out the people at the top of the hierarchy and overlooking those at the bottom. Part of me understands this – the fact of the matter is, the way our current system is set up, most students need to borrow, and if the lenders can’t lend, that leaves a lot of people unable to get a college education at all. On the other hand, I feel that their must be some alternative to letting tuition costs creep ever higher and forcing everyone to rely so much on loans that such bailouts become necessary in times of economic distress.