This is a simplified version of a previous diary. All claims made in this piece are well supported by research described at Studentloanjustice.org.
We have been claiming for years- and recent data supports our controversial claim- that the student loan default rate is well over 30%. This is due directly to the dynamics described in this diary.
I do hope that people will finally begin to understand the point of this diary, and why consumer protections for student loans...or any lending system for that matter...are so critically important. If you understand and agree with this diary, please help us spread the word. It has been largely suppressed by the mainstream media thus far, so the grassroots really have to get going on this.
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College prices have skyrocketed because the loans used to pay the cost have become predatory...meaning the primary lenders, guarantors, and even the Federal Government are making, not losing money when loans default.
When the lenders and guarantors prefer defaults, this is inexcusably bad...but it is intolerable when this financial incentive goes up to and includes government oversight entities (ie the Department of Education in this case). "Unnamed" Department officials, and a small army of lending system cronies are bending over backwards trying to make the public believe that they are losing money on defaults, but a 122% return is simply too high to be able to make this claim...collection costs, and the "cost of money" just don't eat up that much profit, despite the wave of disingenuous claims to the contrary.
Making, not losing money on defaults makes the Department turn a blind eye to the true default rate, the quality and costs of the colleges, etc. So When Congress is pushed to raise the loan limits and asks the Department of Education how everything is going...ED says "Great...defaults aren't too bad, we don't see any problems". With no skin in the game, or even perverted financial incentives tilted against, instead of with the students, this is the result, along with a cascade of other systemic defects (ie horrible customer service, major conflicts of interest, etc, etc.). They are, in the interest of brevity, too numerous to mention here.
It is hugely unwise to remove bankruptcy and other fundamental consumer protections from any loan instrument. This pits the lender against the borrower- an arrangement doomed to fail ultimately in the ways we are seeing now with the federal student lending system. The actual student loan default rate, skyrocketing tuition and fees, and heinously bad oversight history of the Department of Education prove this.
Only when these protections are returned will the financial incentives of the Department of Education be reoriented to where they should be...cracking the whip on the schools to keep quality high, and costs, down....and meaning it...
This is a fundamental defect that any free market economist would agree must absolutely be corrected...corrected immediately, and in a bipartisan fashion.