The unprecedented removal of fundamental consumer protections from federal student loans has caused the entire system and its players to become predatory. This has inflicted massive harm on a huge segment of the country's citizens, and has also caused a wave of systemic problems ranging from high inflation to widespread corruption and much more. This problem is custom made for someone like Elizabeth Warren who was tapped today to run the new office for consumer protections. Unfortunately, she will have no jurisdiction to solve this problem. Please visit Studentloanjustice.org to find out what the citizens can do about it.
Alan Collinge September 17 at 6:26pm
Warren and the Office for Consumer Protections
September 17th, 2010
In 2006, Dr. Elizabeth Warren appeared in a watershed segment on 60 Minutes that examined the effect of removing fundamental consumer protections from federal student loans. The piece showed pretty conclusively that the system had turned predatory as a result. This was underscored by the fact that the nation's biggest lender refused to show up for an interview, and punctuated by a classic Warren synopsis that the students "are served up like turkeys at the Thanksgiving dinner"
Today, more than 4 years after that broadcast, bankruptcy and other protections remain as absent from these loans as they were then, and to my astonishment, neither Obama nor Warren have even mentioned bankruptcy and federal student loans in the same sentence since before the president announced his intention to run for the executive office.
What is more painful to note: federal student loans, which cry out for consumer protection louder than any other type of lending instrument- is specifically exempted from coverage under Warren's office.
I suppose it makes some sense, since the new offices's mission is to enforce consumer protection laws, but for federal student loans, there really are none- not bankruptcy, not statutes of limitations, not truth in lending requirements, weakened Fair Debt Collection Practices, no state usury laws, and no refinancing rights...are there any left?
On the positive side, their silence is just that. Neither has come out against returning consumer protections to federal loans.
But still and all, their silence on this important issue exacerbates and frustrates millions of borrowers who want to repay a fair amount on their loans, but have been railroaded into a federally sanctioned trap where they must repay triple, quadruple, or more than they originally borrowed, or face a life (along with their family) of marginalized, second class citizenship.
The problem has grown far worse since 2006...and it turns out that the default rate for these loans was never low as reported in that 60 Minutes piece. In fact, they were over 25 percent...higher, even, than the rate for subprime home mortgages...easily pushing them into "exploding toaster" range, and well beyond.
But Warren will be in a position insulated from this problem, despite the name of her office. I guess she will act like all DC bureaucrats do on this issue, and point us down the hall when we plead for justice? Or could it be that she and President Obama might show a flash of good-government brilliance, and simply fix the defect in the system before the politics can stop them?