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Web Letter

Many will say, it is your responsibility to pay back your loans, but this logic skips over the responsibility of the government and the society as a whole to provide affordable quality education as an alternative to debt. In fact, what the government appears to have done is funnel the money needed to keep tuition costs low away from state colleges and universities and put this money instead into more and more student loans. The predictable result is that tuition costs have risen, requiring students to shoulder more and more debt to pay for ever increasing education costs.

In the meantime, Congress quietly passed a law supported by banking lobbyists taking away all consumer protections from student loans. Importantly, under the new laws, there are no time limits for collecting the debt.

What would motivate the government to hand such a wonderful present to eager, young students and their families--money, of course.

By taking the money needed to fund college in the first place and using it as loans to students, government can claim to support higher education while quietly pulling the funding rug under public universities that in turn need to raise tuition on students.

The private banks that lend to students have used Congress (and Congress has used the private banks) in support of mutual interests. The government pays far less for education in public universities by moving the cost onto the shoulders of the student. The banks, on the other hand, make a tidy profit on years of interest, late fees and penalties on the increasing larger loans that are made to students to cover increasing tuition, books, housing and transportation costs. The most attractive aspect for bankers is that loans are federally guaranteed so there are no bankruptcy protections and no statute of limitations.

It’s a win-win for the banks and government: dominance, administration and exploitation.

In Holland, tuition at a public university is half the cost as in the US. Not only is tuition less expensive, but students are offered affordable quality housing for about $250 a month. In addition, student’s transportation costs are subsidized by the government. Obviously, the less things cost, the better the student is prepared to pay for university.

In addition to this, all students have the right to a one-time study grant between the ages of 18 and 30. Next, depending on income, you have the right to a need based grant. Finally, only after these options, is there recourse to a small study loan with a capped 4 percent interest rate.

Sam Conley

San Francisco, CA

Feb 24 2009 - 3:28pm

Web Letter

[Letter writer] Alex Hamilton's nonchalant defense of the revision of US bankruptcy law that made all student loans, including private loans which have nothing to do with the government, perpetually non-dischargeable in bankruptcy is very disturbing. This law was wrong-headed when it was passed in 1998 and remains extremely damaging to an entire generation of young people who will be emerging from school tens, or perhaps hundreds, of thousands of dollars in debt in the coming years. Debt they face even before they have secured a job. Moreover, a college education and even a graduate degree is no longer a guarantee of even a mediocre income in the new economy. Yet young people are having to borrow heavily to get an education that often only qualifies them for an income that barely pays basic expenses, not including their debt.

What nobody mentions in this discussion is that like the subprime mortgage crisis, there is a real student loan crisis brewing where an entire generation of young people will be condemned to debt from which they cannot ever, except under the most dire of circumstances, receive a fresh start. At least those suffering from the subprime crisis can subject their assets to bankruptcy and start over, an opportunity which under current law is not a right student debtors can exercise.

The bankruptcy code's exclusion of student loans from discharge is currently being challenged as an unconstitutional violation of due process in a California case, although the outcome there is far from certain. In the meantime, Congress should change the law and give student debtors the same rights as those suffering from subprime mortgages. It's the right thing to do. The American taxpayer has more to fear from Wall Street than student loan debtors. Virtually every independent organization that has studied the issue, including the American Bankruptcy Institute, has concluded that making student loans dischargeable in bankruptcy would not pose a serious danger to the system.

You know there is something wrong when educated young people are making the painful decision to flee the country or live off the grid in order to feel they have a chance for a future. This is a scandal even more disgusting than the subprime crisis, but unfortunately few are taking notice.

Pat Williams

Parkersburg, WV

Jan 9 2009 - 7:18pm

Web Letter

I work in student loans and am pretty familiar with the issues addressed by this article (and Alan Collinge's letter). For the vast majority of college students who have taken out federal student loans, their repayment has been manageable. Close to 90 percent--not 25 percent, as Collinge asserts--repay their loans entirely, according to the Office of Management and Budget. For the vast majority of borrowers, low-cost federal student loans were important, if not crucial, to their being able to go to college. For many it allowed them to pursue degrees that otherwise would have been out of reach financially. But you would never know it from the article and letter.

The author's statements about student loans are incorrect and illogical. The methodology used in the government's budget-scoring rules for loan programs is hotly debated. No serious legislator would suggest giving the direct loan program a monopoly on student loans (and thus force 4,000 schools, who don't want to use direct loans, to spend a lot of time and money to switch programs) on the basis of cost estimates.

The author then suggests that the government take over student loans entirely, since the government is providing liquidity to student loan companies during the worst credit crisis in US history. By that reasoning, the government should take over the mortgage business, and maybe even car loans and credit cards as well. The cost of funds is always cheaper for the government, at least for now.

The government's liquidity program is a temporary measure. Eventually, private capital, rather than taxpayer dollars, will be used to make student loans. That's not a bad idea, considering our budget deficit will eclipse a trillion dollars.

Finally, US taxpayers are not out a penny because of the student loan liquidity programs. A net cost of zero is required by the statute.

As for Collinge's letter, it was the Congress at the suggestion of the Clinton administration that repealed the discharge provision for federal student loans in bankruptcy. There is no reason why Congress could not go back to prior law, which allowed discharge after certain number of years of repayment. Except that it costs money. Not lenders' money, but taxpayers' money.

This is not about lenders. The discharge provisions protect taxpayers.

Alex Hamilton

Washington, DC

Jan 7 2009 - 12:58pm

Web Letter

It is disturbing to me that for both bailouts (home mortgage and student loan) the federal government has failed to address the harm that is being done to the borrowers of these loans--except perhaps as an afterthought. As in the home mortgage industry, inflation has caused a massive increase in the amount that students must borrow to go to school. In fact, tuition has risen at double the CPI for decades running, and paying for this increase has been left largely to the students and their families.

Unlike home mortgage loans, however, student loans--both FFEL and Direct--are astonishingly devoid of the most basic consumer protections, protections that exist for every other type of loan in the United States. Standard bankruptcy protections and statutes of limitations are largely unavailable for the student borrower, while the home mortgage borrower can, if worse comes to worst, gets a fresh start through bankruptcy protection.

Thanks to the lobbying efforts of Sallie Mae and other lending interests, even private loans were given the same special exemption from bankruptcy discharge in 2005. Today we are seeing the results.

This has proven to be deeply lucrative for the lenders, and even highly advantageous to the federal government. My organization has documented thousands of stories from citizens who have been forced off the grid as a result of their student loans escalating wildly with interest, penalties and fees. Without standard bankruptcy protections, the lenders have no real reason to negotiate--thus the borrowers are effectively paralyzed, due to the uniquely Orwellian collection powers given to the industry, combined with other consequences of defaulting on federally guaranteed student loans. In short: student loans in the US--both federal and private--are predatory by design, and have been for years.

Most borrowers whose loans are put in default (about one in four) see their loans skyrocket (double, triple or worse) with fees, collection costs and interest, so that what likely began as an unmanageable debt grows into an unreal one. But the choice remains: pay the inflated amount, or be relegated to second-class citizenship.

Some citizens are even fleeing the country as a result of their exploded student loan debt. Others are forced out of the professions for which they went to school.

I believe that the Congressmen who created the Higher Education Act in 1965 would be apalled at this, particularly in light of the fact that the federal government is now bending over backwards to protect the financial welfare of the lending industry, yet still neglects to even acknowledge this government-sanctioned predatory scam that is hurting so many decent citizens.

Standard consumer rights, such as bankruptcy protections, should be restored for both public and private loans at the earliest opportunity. Otherwise, the bailouts being provided will only reward and promote predatory lending.

Alan Collinge

University Place, WA

Jan 3 2009 - 9:51am

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