This piece isn't sexy, but it is useful. Currently, millions of student loan debtors are rushing into loan repayment programs that promise loan forgiveness after 25 years, or 10 years with public service.
Make no mistake, the standard consumer protections that were astonishingly stripped from student loans are not returned by these programs, and there are many pitfalls and downsides that the good people who designed these programs would agree need to be carefully considered before jumping in. Please
visit Studentloanjustice.org to see more.Studentloanjustice.org
Both IBR, and Public Service forgiveness programs have merit for relatively young borrowers (i.e. still in school, or recent graduates) who take on a large amount of debt, and earn low wages...particularly those who work in the public sector. However, it is not the "be-all, end-all", and certainly doesn't substitute for standard consumer protections. In fact, there are some very serious risks and adversities associated with these programs that need to be considered seriously:
- For borrowers with high debt/low income taking part in the programs, their balance will increase significantly during the life of the loan. This will impact their debt/income ratio, and in general will weigh increasingly heavily on the mind of the borrower.
- If for whatever reason the borrower drops out of the program- particularly towards the end of the term- , they will be hit with this extremely large debt. If they were to default, then this would be an astronomical amount.
- If the borrower should experience financial fortune during this period (particularly towards the end of the period), the borrower will be compelled to use it as a part of the IBR...so in a sense, it essentially guarantees financial medicority through the life of the repayment. This tends to dampen ones ambition, and desire to take risks.
- For borrowers already saddled with defaulted loans that are massively inflated with fees and interest above the original amount borrowed, these programs are not attractive. Both would force defaulted borrowers to "rehabilitate" their loans, which requires signing a new promissory note that legitimizes the vastly inflated debt. Many defaulted borrowers have already paid far more than originally borrowed, and these programs do nothing to address that. Also, many defaulted borrowers have- for years- already suffered massive losses- monetary and non monetary, and the thought of a 10, or 25 year repayment program is not only unpleasant; in the absence of standard consumer protections that would allow for a relatively swift and straightforward resolution (like for IRS debt, credit card debt, or any other type of debt), these programs are, frankly, insulting. Particularly for older borrowers who look forward a time in their life without the stress associated with intractable student loan debt.
- 10 years is a long time. 25 years is an eternity. Congress took away bankruptcy protections from student loans mid-stream...one can imagine the multitude of ways that this program could be tweaked over time to benefit the Feds as opposed to the borrowers. 501(c)(3) status could be revoked en masse at some point. the poverty level could be dramatically changed, etc, etc. These and many other factors could make the program fail, or greatly reduce its attractiveness over the life of the loan.
Couple of general thoughts:
- In general, all of this discussion only begs the question: Why is college so expensive that we need these programs in the first place?
- These programs smack of population control...sort of a "soft, involuntary servitude". The citizens have no control over the cost of education, and little control over how much they have to borrower to get through school, so many are locked into decades of lifestyle choices dictated greatly by this debt...This is a damper on happiness, freedom, self determination, and a new stress on a large segment of the population that could be easily avoided with rational pricing, and standard consumer protections.
We must not lose sight of the fact that given the public benefit of education, student loans should have more consumer protections than other loans. Not less.
- These programs will, as a practical matter, serve as an excuse for Congress not to return much needed consumer protections to the student loan industry. This will only guaranty the perpetuation of horrible lending practices, bad oversite, continued inflation, increased debt, and a host of other systemic flaws that need to be addressed immediately.