I originally published this a couple days ago in the Tacoma News Tribune, but thought you all might appreciate it.
Most well-read Americans are aware at this point that corruption is rampant in the U.S. student loan system.
Some university officials receiving kickbacks from student loan companies have been steering their students toward these lenders. Some financial aid administrators were holding stock in these companies and going on expenses-paid luxury vacations to exotic locations offered by lenders.
Even U.S. Department of Education officials have held stock in the very same companies they were supposed to be overseeing.
This is alarming, to be sure. However, the real story is the astonishing lack of consumer protections and the Draconian collection tools given to the industry by Congress that make these loans so wildly profitable. They have led to the financial demise of millions of Americans.
Because it is illegal to refinance student loans, because there is no bankruptcy protections, because there are no statutes of limitations specifically for student loans, the industry has become a feeding frenzy. It is far more profitable for the lenders when borrowers face financial difficulty, as opposed to their loans remaining in good stead.
What is happening with credit cards lately – unconscionable penalties, fees and increased interest attached to debt for borrowers with financial problems – has been happening in the extreme in the student loan industry for more than a decade.
I recently completed a five-month, 42-state tour trying to determine how bad it has become for student borrowers, and some of the people I met had stories worthy of a documentary.
In California, I met an educator who originally borrowed $26,000 for college. After his dwelling was destroyed in an earthquake, his loans were put into default status. To date, he has repaid $35,000 on these loans. Yet he still owes well over $70,000, and the loan holder (who tacks on a 25 percent penalty every year) will not negotiate any of this away.
In Texas, a chiropractor who borrowed $70,000 for school in the 1990s is suffering. Some $400,000 is being demanded of him, and the state has suspended his license to practice. He is currently driving trucks in Amarillo. He wants to pay his debt, with interest, but can’t afford well over a quarter of a million dollars in penalties and interest.
In Boston; a medical student can’t get licensed because he can’t pay $52,000 on what began as a $3,000 debt.
A suicide in Oregon. A suicide in Maryland. People who have fled the country due to the explosion of their student loan debt. The list goes on and on.
Sallie Mae, the nation’s largest student loan company (and lobbying freight train in Washington, D.C.), bragged in its 2003 annual report that its record profits were attributable to fees collected on delinquent loans.
Sallie Mae has purchased many of the largest collection companies in the nation since 1999. It was recently called the second-most profitable company by Fortune magazine. Since 1997, Sallie Mae has set aside the equivalent of $650,000 per employee in stock bonuses. Former CEO Albert Lord put in a cash offer for a major league baseball team last year and is currently building his own private luxury golf course in Virginia.
Even the Department of Education is making money from this. For every dollar paid out in default claims, the Department of Education gets back $1.20.
After declining to be interviewed on "60 Minutes" about this issue, being pummeled by grass-roots uprisings and facing tough questions on Capitol Hill and a sagging stock price, Sallie Mae pulled a fast one: It agreed to be purchased by a private equity investment group headed by J.C. Flowers, the Bank of America and JP Morgan Chase & Co.
The new company no longer will be publicly traded, and thus will get around many of the reporting rules it previously was subject to. Bank of America and Morgan Chase already are among the top 10 student loan companies and are lobbying powerhouses on the Hill.
This most recent move by the Sallie Mae is nothing more than an attempt to escape the limited transparency that has been the citizens’ only tool to halt their march toward monopoly in this industry.
Predatory practices will only increase, competition will suffer and, ultimately, the students will pay the price.
One can only hope that influential members of the Senate Education Committee, such as U.S. Sen. Patty Murray, will not stand idly by while these injustices are inflicted upon the citizenry, particularly those who already have been caught in this trap.