Many don't realize how important Sen. Kennedy was on the issue of Student loans. I can only hope that whoever fills his spot on the Senate HELP committee follows the path that he was on, and has the big balls and spine to get things done.
The following is an excerpt from my book, The Student Loan Scam (Beacon Press, 2009), I also follow this with a real story from a real student loan borrower.
Please come to Studentloanjustice.org to find out more.
The creation of Sallie Mae signaled the continuation and expansion of a trend begun with the passage of the Higher Education Act of 1965: namely, to shift the financial burden of attending college to the students. This trend was described in a groundbreaking article by Larry L. Leslie and Gary P. Johnson of Penn State University in 1974 where they note that traditional federal and state funding of universities was decreasing, while funding in the form of loans and grant aid to students was increasing.
In effect, the government was acting to realize the public benefit of higher education without having to make the corresponding investment in it. According to Dr. Leslie, this shift away from traditional funding of higher education institution towards focusing on student aid was "doomed from the beginning", and is a primary cause for the spiraling cost of college that we see today. Dr. Leslie also feels that this policy has "greatly damaged the support of the middle class, who now pay their high taxes, then must turn around and pay high costs for their children".
The Fall of Consumer Protections
Sallie Mae grew to virtually control the student loan industry by the 90’s, and it used its power on Capitol Hill to great effect, convincing Congress to strip away nearly all consumer protections from student loans. It also lobbied for –and got- legislation that allowed for massive penalties and fees for delinquent debt-legislation that actually made it more profitable for the lenders and guarantors when a student defaulted.
As Senator Ted Kennedy, who was minority leader of the Senate Education Committee until he became majority leader in 2007, remarked remarked before a Senate education committee in spring of that year, "...At every reauthorization, we kept sweetening the deal for banks, sweetening the pot", Kennedy remarked before a Senate education committee in Spring 2007. He lamented the fact that this "deal sweetening" progressed until it reached the point where it became more profitable when the students defaulted , as opposed to their loans remaining in good stead.
In 1976, Congress passed a law making federally guaranteed student loans non-dischargeable in bankruptcy. Initially, a provision in the law set a 5-year time period, after which the loans could be discharged, and also a provision that permitted bankruptcy if the debtor could prove undue hardship. The five-year exception was extended to 7 years by Congress in 1990, but watershed legislation that was part of the 1998 Higher Education Act reauthorization abolished this exception altogether. At the time, and still today, student loans are the only type of loan in U.S. history to be non-dischargeable in bankruptcy. According to one borrower who found herself in bankruptcy court, "The judge told me not to come back to court unless I was in a wheelchair".
One might suspect that the student loan industry would be satisfied with the removal of this basic, standard consumer protection for federally guaranteed loans, but the industry still wasn’t content. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was passed. Stealthily inserted into this bill was language that, in effect, made student loans that are not guaranteed by the federal government non-dischargeable in bankruptcy. This language was never debated by Congress, and became law on October 17, 2005. This legislation was seen by experts as incontrovertible proof that the student loan industry held sway over the U.S. Congress, more than any other lending industry .
In addition to bankruptcy protections, the amendments to the Higher Education Act eliminated all statutes of limitations for the collection of student loan debt. This opened up a whole new market of old loans from the 70’s and 80’s that suddenly became collectable debt. Student loans were also specifically exempted from state usury laws, and even exempted from coverage under the Truth in Lending Act (TILA). In 1988, the Federal Trade Commission issued a determination that non-profit, state run student loan agencies were exempt from the requirement to adhere to the Fair Debt Collection and Practices Act. This meant that most student loan guarantors did not have to adhere to this legislation in pursuing defaulted borrowers.
By 2006, student loans had fewer consumer protections than any other type of loan instrument in the nation’s history.
REAL Borrowers and their stories
Those negatively affected by the student loan system are as diverse as the American population. They include individuals from a wide range of professions, from blue- to white-collar, but what they share is a reluctance to speak publicly about their situations. The embarrassment, humiliation and intimidation that borrowers feel when their loans spiral out of control, or when they are trapped in predatory lending situations, prevent most of these citizens from speaking out. Some are even too embarrassed to tell their families about their defaulted loans.
There is David, a chiropractor in Texas, who originally borrowed $70,000 for college. After a period of unemployment in the mid 90s, David’s loans defaulted, and to date have escalated to about $400,000. The state of Texas has suspended his license to practice medicine, and he has been unable to negotiate a reasonable settlement of the debt. In David’s words, "It doesn’t make sense. It’s almost like the government doesn’t want me to practice medicine—never mind that it’s the only way I can reasonably even have a shot at paying this mountain of money back!" David is currently driving trucks in Amarillo to make ends meet.
Then there’s Tina Lutz, a single mother of two in Tupelo, Mississippi, whose original loans of $6,000 are now over $31,000. As a result of being hounded by collection companies, Tina has "been a nervous wreck for years," and is considering quitting her job and "dropping off the radar" in order to escape the relentless pressure put on her by various collection companies.
Douglas' student loans had defaulted while he was serving in the Army in the mid-90’s. His original $35,000 in loans grew to $155,000 despite his efforts to negotiate with the lender, The Illinois Student Assistance Commission, which continues to demand payment in full for this balance. Like most Student Loan Justice members, Captain Matos absolutely agrees that he should pay what he owes, but simply cannot deal with a debt of this magnitude.