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I could probably get this published somewhere, but screw it--I'm happy to give this one to the KOS!

I hope that those out there interested in student loans will read it, because the problem in this industry goes well beyond what we have read thus far in the national press.

Go to StudentLoanJustice.Org to find out more.StudentLoanJustice.Org

The student loan system in the U.S. is a perfect example of what can go horribly wrong when free-market interests are allowed to take over functions previously performed by the federal government.

In the past 20 years, the cost of attending college has exploded.  Gone are the days where the typical high school graduate could put him or herself through university for a few thousand dollars in student loan debt at most, and be able to pay this debt by working over the summers.  Today, the average undergraduate student borrower leaves school with more than $20,000 in student loans, and far more for graduate students.  Tuition has increased during this time period at more than double the rate of inflation.

Concurrently, student loans have become the most profitable, uncompetitive, oppressive, and predatory type of debt of any in the nation’s history. This has occurred due to federal legislation since the mid 90’s that was championed by student lender interests such as Sallie Mae (the largest student loan company in America), The Consumer Bankers Association, and a bevy of other individuals and groups inside the beltway who convinced Congress that private industry could finance college educations more efficiently than the federal government.  Vast personal fortunes are being made by the interests who championed this legislation- legislation that took away all standard consumer protections from student loans, and allowed for massive penalties and draconian wealth extraction mechanisms to collect this inflated debt.

Regarding consumer protections:  there are no standard bankruptcy protections for student loans.  The big lenders lobbied intensely for their removal since 1994, and even convinced Congress to remove bankruptcy protections for private, non-federally guaranteed loans in 2005- loans whose interest rates often exceed 18%.  This is clear evidence of the sheer muscle (and chutzpah) of the student loan lobbyists.

Also, it is illegal to refinance student loans.  Borrowers become captive to the lender they consolidate with for the life of their loan, no matter how high the interest rate, or how badly their lenders treat them.

Most student loan enterprises were exempted from adherence to Fair Debt Collection Practices in 1996, and statutes of limitations were removed in 1999.  Even state usury laws were taken off the table for student loans during the same time period.  

Congress also allowed lenders to levy massive fees- often as high as 25%- on students having trouble repaying their loans, and provided draconian collection powers including wage, tax, Social Security/Disability garnishment, and even suspension of state professional licenses to collect on this debt.  These are powers that no other lending industries, including credit card companies, payday lenders, and lenders for other government loans enjoy.

The payoff of this legislation for Sallie Mae executives is staggering.  The company’s stock has exploded by about 1500% over the last decade.  Fortune Magazine called Sallie Mae the 2nd most profitable company in 2006- Microsoft was 18th on the list that year.  Chairman Albert Lord has made over $225 million, and the CEO’s regularly top the Washington Post’s list of highest paid CEO’s in Washington D.C.  Lord recently made a purchase offer for a major league baseball team, the D.C. Nationals, and has built his own personal, luxury golf course in the exclusive suburbs of Maryland. Check out the bonuses:

The company has set aside $3.6 billion in stock for its employees since 1997-roughly $650,000 per employee (this does not take into account the appreciation of the stock).

The company regularly brags to shareholders that its escalating profits are attributable to penalties and fees collected on delinquent debt.

The massive wealth created by this legislation extends well beyond Sallie Mae, however.  Non-profit guarantors and collection companies have seen unparalleled growth in the last decade, and executive salaries (and expense accounts) of these organizations have followed suit, as are detailed at StudentLoanJustice.Org.  

In addition, even the federal government makes money from delinquent debt- recovering about $1.20 for every dollar it pays out in default claims.


Universities, of course, sit in the catbird seat.  The current system has enabled the colleges to increase their tuition, and improve their campuses without regard for the students’ ability to pay these increased costs.  

Moreover, it has been found that university officials across the country have engaged in corrupt and illegal relationships with lenders for both institutional and personal benefit.

While the current student loan system in this country works extremely well for universities, banks, and the federal government, the system has effectively crippled millions of decent citizens.   These citizens’ attempts to attain the American dream through higher education have, ironically, turned their lives into a nightmare with no recourse.

At this point, readers have no reason to believe that the student loan system in the U.S. is causing citizens to go "off the grid", flee the country, and even take their own lives.  But in fact, it is true.  The student loan system in the United States has indeed created a broad swath of economic depression across the country, and examination of individual case studies at StudentLoanJustice.Org will confirm this.  

The purpose of the website is threefold.  First, it is meant to shine a bright light on this problem; the organizations and individuals who caused it to happen, and the people whose lives have been destroyed as a result.

Second, StudentLoanJustice.Org aims to give some hope to those citizens who have had their lives adversely affected by this national crisis, let them know that they aren’t alone, and embolden them to take grassroots action at the local level.

Finally, StudentLoanJustice.Org is intended to show legislators at both federal and state levels that this problem is escalating rapidly, and that there is a critical need for bold, decisive political action that addresses the needs of the population, rather than the fiscal concerns of the banks who have orchestrated this crisis.

Originally posted to studentloanjustice on Thu Aug 09, 2007 at 01:38 PM PDT.

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Comment Preferences

  •  There are a couple of terrible injustices here. (15+ / 0-)

    First and foremost, predatory lenders are ripping off students who are trying to pay for increasingly expensive college educations. PELL grants have been stagnant for years, and there are limits on the amounts of subsidived Stafford that students can take out each year. This opens the door to private lenders with usorious rates. In addition, college have raised prices, but they have NOT invested in faculty salaries. In many cases, they have replaced full-time faculty with cheaper part-times. And university presidents' salaries are out of sight.

    •  To be fair, though ... (1+ / 0-)
      Recommended by:
      fiddler crabby

      many public colleges and universities have had no choice but to raise prices and cut back on faculty salaries because red-state legislatures (and Missouri is a prime example) made drastic cuts to the $$ they budgeted for higher education. Plus, like everywhere else, health care costs for permanent university staff has skyrocketed, pinching a strapped budget even tighter.

      I have a college sophomore at a state school. We're paying probably twice what we would have paid for that education 10 years ago. But it's not all the school's fault.

      •  Same happened in Ohio. (1+ / 0-)
        Recommended by:
        blue jersey mom

        16 years of Republican administrations, all cutting back on higher ed funding and now the result is that tuition at a public university is now near $10,000/yr.  There also used to be abundant state assistance as well as  longer.  Its almost non-existent.  

        And I'm so glad you tied this back in with healthcare costs...its another way we are becoming enslaved.  Not only universities, but all city and state governments are becoming increasingly strapped to provide healthcare for employees.  Its why our property taxes keep rising...its why every service is becoming so much more expensive to provide.

  •  You are dead on (10+ / 0-)

    My son had to quit after a year and a half. We're broke, and not interested in seeing him accumulate tons of debt with the economy and the nation in its current state. I am so angry about this situation -- well, I am angry for so many reasons -- and damn, the stress ain't good when you can't afford health insurance either.

    We feel like serfs. Welcome to the new America.

    "There are four boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order." Ed Howdershelt

    by JuliaAnn on Thu Aug 09, 2007 at 01:45:22 PM PDT

  •  Sallie Mae is a predator and must be stoppped.... (4+ / 0-)
    Recommended by:
    akeitz, Builderman, BobOak, techno

    freed from the government and fuelled by wall street it has become gluttonous in devouring its competition.  Diary Rec'd.

    "I have not and will not announce a time-table for our withdrawl." Richard Nixon 11/3/1969

    by duckhunter on Thu Aug 09, 2007 at 01:46:07 PM PDT

  •  Excellent (4+ / 0-)
    Recommended by:
    fumie, BobOak, dirkster42, junta0201

    Just superb.

    And I thought student loans were a rip-off back in the 70s.  I have made a video outlining the deterioration of the USA economy.  Of course, the treatment of students is included.  The video is called, Creating Prosperity.

    Remember the I35W bridge--who needs terrorists when there are Republicans

    by techno on Thu Aug 09, 2007 at 01:48:16 PM PDT

  •  predatory loan (4+ / 0-)
    Recommended by:
    akeitz, techno, duckhunter, dirkster42

    I do not doubt for one second that the wealthy people who operate these sort of loan programs are looking for ways to force people to be in debt from birth till death.  I don't see how this benefits society or makes this a stronger, better country.  I was fortunate to avoid student loans.  However, I have friends who, after failing to find jobs in their field, work for low paying jobs in near poverty conditions because they have no ability to put off repayment of loans.  

    Why congress ever allowed this sort of madness is damn near criminal.

  •  Excellent diary (6+ / 0-)

    Many years ago, before Sallie Mae was created but when subsidized federal loans already existed, I worked in admissions on a private college campus.  One year, the trustees were considering a 4% tuition hike.   I warned the president that families could not afford the bite.  His response:  "They'll be fine. It doesn't come out of their pocket. They can always borrow the money."  Up went the tuition.

    When Sallie Mae was created and federal loans expanded, I listened as the late Senator Jacob Javits (R.-NY) worried that campuses would raise tuition to capture the expansion of grant and loan money.

    These are just two anecdotes, but they support your point.  Tuition, fees and room and board at highly selective private colleges and universities have risen at astounding rates and are now at obscene levels.  Public institutions, quite naturally, have followed suit, although their prices still strike me as reasonable.

    I'm not normally a big fan of markets around education or public policy, but these fantastic increases in college costs have all been made possible because the financial aid industry has essentially eliminated price as a consideration in selecting a campus, loading the costs on the back end.  Students don't know what they're doing and desperate parents hope for the best, because, after all a degree from "If you have to ask the price you don't belong here University" is thought to be a ticket to their child's security.

    Thar's a lot of gold in them thar guaranteed loan hills.  The crooks in designer suits known as lenders aren't hovering protectively over this corner of the banking world out of altruism.

    •  Javits was a smart guy (0+ / 0-)

      Congress can make all the grant programs it wants, colleges will just eat it with tuition increases.  In my mind the criminal part is not the obscene tuition at private colleges but the obscene tuition at public institutions.  A lot of this is because states cut back on funding higher ed cause it's not sexy, so public universities became more business-like as a result.

  •  students as products and consumers (3+ / 0-)
    Recommended by:
    akeitz, techno, duckhunter

    Honestly I saw testimony (I wrote about it over on our blog) where the degrees are looked at as product and the students are we really need a spotlight on Academia in terms of seemingly being in the business of education, even when they are funded with taxpayer money, public and non-profit.

    Academia is supposed to increase value into our society and seemingly they are more and more just tools for the great squeeze, globalization machine.  Of course this is not a generalization, or a reflection of those doing research, teaching, more on the administration, NSF policies.

    by BobOak on Thu Aug 09, 2007 at 01:53:32 PM PDT

  •  I have worked for decades in low income... (9+ / 0-)

    urban and rural communities. When I went to the student loan office during college I was told over and over again hat if I taught in these "areas of need" that most of my student loans would be "forgiven."  Well I still have another $32,000 to pay back and you want to know how much I have had "forgiven."  $500.00, yes five hundred dollars.

    Scammed, yea I feel scammed.

    Never Give Up On Peace!!!

    by Gator on Thu Aug 09, 2007 at 01:53:50 PM PDT

  •  America! (5+ / 0-)

    The only developed nation that graduates its best and brightest to burgerflipping!

    AND they pay for the privelige.

  •  This says it all. (6+ / 0-)

    profitable, uncompetitive, oppressive, and predatory

    IMHO this all started with the Reagan Administration and has just exploded during the Bush-2 years. I hesitate to call it an Administration anymore, they just don't know how to do anything except dismantle government.

  •  is this displaced anger? (1+ / 0-)
    Recommended by:
    Sister Havana

    I used college loans to go through college.  It took me 7 years but I finally paid them off.   Paying them off helped me establish good credit that was used to buy a house, etc.

    What I'm concerned with is the stagnation of wages under Bush due to massive off-shoring of American jobs.

    Off-shoring takes massive amounts of money away from American workers not to mention infrastructure support and tax coffers.

    Kids today do not have the earning potential adjusted for inflation than older generations because Bush is turning the USA into a 3rd world country.

    If you don't believe me go buy your Chinese toothpaste, tires and food.  You will not live long enough to continue this conversation.

  •  Unless you are in law school (1+ / 0-)
    Recommended by:

    or medical school about $5,000 a year is the maximum you should borrow and only if you are really a good student.

  •  The building trades (1+ / 0-)
    Recommended by:

    can pay very well if you get a license.

    Young people have a choice.

  •  Remember (1+ / 0-)
    Recommended by:

    if every potential incoming student insisted on no more than $5,000 a year in loans, the colleges would have to budge.

    In return for becoming a freshman, _ College agrees to provide sufficient grant aid in this and three subsequent years to ensure that student ___ does not have to take on more than $5,000 a year in loans if said student pays _ a year and his/her parents pay _ a year.  

    •  No they wouldn't.... (0+ / 0-)

      The reason they wouldn't is because there is always another sucker willing to pay whatever is asked of them.

      With colleges do compete for students, the students unfortunately do not get to name their price for education. Higher Education is not

      The only way that I can ever see this happening is if College enrollment declines so sharply because no one can go that they have to start begging for students and rolling out programs like these. I think we are still a long way from that time though.

      Also you mention that people in skilled trades get paid very well. I'm sure they do but how exactly do you think people would pay for the training necessary to become a Wielder or an Electrician. Those schools cost a good bit of money too.

  •  Students have bargaining power (1+ / 0-)
    Recommended by:

    Use it!

    Each college campus represents a huge capital investment.

    Like the airlines, colleges are actually in a very bad bargaining position.

    Like a hotel room, each student year is an irreplaceable revenue opportunity.

    If a college can handle 3,000 incoming students, having only 2,000 students means 1,000xstudent cost (~$10,000)~=$10,000,000 in revenue is lost.

  •  I am so old (1+ / 0-)
    Recommended by:

    that my first semester tuition at a private college cost $480!  I finished with $1,500 in loans.  I cannot imagine beginning my adult life under the burden of tens of thousands of dollars of debt and the job market as it is now.  One thing that has not been brought up is the kinds of career choices that students will make as a result of all of this.  How many people will choose to be teachers, nurses, social workers, etc. when they will graduate from 4 years of college with the same debt as those in other professions which will pay them better?  Those who previously chose "helping" professions did so realizing that they would probably make less than their more business-minded colleagues. They were willing to accept the small difference because the total debt was reasonable.   With the cost of education so disproportionate to the earning capacity, the shortages we are beginning to experience now will be astronomical in the future.    Every time we get a student teacher in our school I am in awe that they would choose to do this despite it all.  I guess that's one way to assure an ignorant, compliant electorate, but I think it stinks!

    "We told the truth. We obeyed the law. We kept the peace." - Walter Mondale

    by luckylizard on Thu Aug 09, 2007 at 04:47:23 PM PDT

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