Nearly two years ago, I was interviewed by Leslie Stahl, of 60 Minutes, for a piece on Student loans. My position at the time was that student loans have become a predatory lending instrument, with the lenders often having a perverse incentive to default students, rather than an incentive to keep borrowers in good stead.
The toughest question I was asked (paraphrased) was , "Why should we care about this? Student Loan defaults are at historic lows, so the system works, doesn't it?"
I didn't have a great answer for this question then, but I do now, in light of new evidence.
Please come to www.studentloanjustice.org to read more about this problem.
Year after year, the U.S. Department of Education releases statistics showing that defaults on student loans are decreasing. This data is pointed to again and again by the industry as evidence that the student loan system works.
Currently, students who default on their loans wind up in a nightmarish world of penalties fees, and compounded interest that can easily triple or quadruple their original debt. There are no bankruptcy protecitons for the most part,no refinancing rights, no statutes of limitations...not too mention the draconian collection tools provided by Congress specifically to the student loan industry.
Even the Department of Education ultimately retrieves not only every dollar of principle, but also an additional 20% in interest and fees.
So the system works. Defaults are down, right? Sorry for the poor bastards caught in the trap, but they are few and far between. Right?
Wrong.
A study by the National Center for Education Statistics showed that for a group of 10,000 borrowers graduating in 1993, 10%, overall, had defaulted on their loans by 2003.
For those borrowing $15,000 or more, this number doubled to 20%...this is 1 in five! Even worse: for African Americans, the default rate was about 40% across the board.
These are astonishingly high numbers. This problem is far larger than the Department of Education would have us believe.
But it gets worse, recent data released by the Department of Education, under request from Congress, whowed that for 2002 graduates, fully 10.6% had defaulted within FIVE YEARS of leaving school.
While comparing these data is kind of tough, it is looking more and more like the default rates for student loans have been increasing, not decreasing, this whole time.
This is an outrage, and calls into question the forthrightness of the Department of Education, not to mention the lenders, guarantors, and their collection companies, who are making record "fee income" since the legislation that removed these consumer protections. Sallie Mae, for instance, saw their "fee income" increase by 160% between 200-2004.
People should be really pissed about this scam--particularly those who have been caught up in it, and have paid with their livelihoods.
The astonishing lack of standard consumer protections needs to be restored to student loans, and the people in charge at the Education Department need to be held accountable for their consistent misleading of the public.