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You can find the current article at its original source at http://www.guardian.co.uk/money/us-money-blog/2013/mar/19/studen-loan-debt-providers-soul
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| How student loan servicers have a hold on your soul | How student loan servicers have a hold on your soul |
| (6 months later) | |
| I'm waiting for someone to record a new cover of the classic coal-miner dirge Sixteen Tons – but, instead of having country singer Tennessee Ford warbling the tune, let's update it for the millennial generation. The new title: 26 Bills. Instead of coal mines and the company store, we'd now sing along to a tune about banksters and student loans: | I'm waiting for someone to record a new cover of the classic coal-miner dirge Sixteen Tons – but, instead of having country singer Tennessee Ford warbling the tune, let's update it for the millennial generation. The new title: 26 Bills. Instead of coal mines and the company store, we'd now sing along to a tune about banksters and student loans: |
| St Peter don't you call me 'cause I can't go I owe my soul to my student loan servicer. | St Peter don't you call me 'cause I can't go I owe my soul to my student loan servicer. |
| As of this week, the nation's college loan bill stands at more than $1tn. The average college graduate with debt now leaves school $26,000 in hock, which is more than a 50% increase since 2005, when Congress stopped allowing students who sought education loans from private providers such as banks to discharge the debt in bankruptcy court. Those who had received federal loans lost that right much earlier, in 1998. | As of this week, the nation's college loan bill stands at more than $1tn. The average college graduate with debt now leaves school $26,000 in hock, which is more than a 50% increase since 2005, when Congress stopped allowing students who sought education loans from private providers such as banks to discharge the debt in bankruptcy court. Those who had received federal loans lost that right much earlier, in 1998. |
| This millstone of debt that cannot be forgiven is having an enormous not-good impact on the lives of millions of people. Increasing numbers of men and women in their twenties and thirties are overwhelmed by their monthly tab. Our not-good-enough economy, with its chronic shortage of well-paying jobs, makes a bad situation worse. | This millstone of debt that cannot be forgiven is having an enormous not-good impact on the lives of millions of people. Increasing numbers of men and women in their twenties and thirties are overwhelmed by their monthly tab. Our not-good-enough economy, with its chronic shortage of well-paying jobs, makes a bad situation worse. |
| Many economists believe the ever-increasing tab is having a ripple effect on millenial finances, preventing them from saving for retirement or owning a house or car. People under the age of 40 have a significantly lower net worth than someone their age did 30 years ago, according to a recent report released by the Urban Institute. There is even some evidence student loan bills are even changing marriage patterns: research by Fenaba Addo, a fellow at the University of Wisconsin, demonstrated that men don't make permanent passes at women with student debt chassis', leaving these ladies less likely to marry than their debt-free peers. | Many economists believe the ever-increasing tab is having a ripple effect on millenial finances, preventing them from saving for retirement or owning a house or car. People under the age of 40 have a significantly lower net worth than someone their age did 30 years ago, according to a recent report released by the Urban Institute. There is even some evidence student loan bills are even changing marriage patterns: research by Fenaba Addo, a fellow at the University of Wisconsin, demonstrated that men don't make permanent passes at women with student debt chassis', leaving these ladies less likely to marry than their debt-free peers. |
| It's no easier for parents. The net worth of American households plunged by about 40% between 2007-2010, mainly due to the housing bubble's sudden deflation. Housing, even now, is one of those factors that contributes to a feeling of family wealth. As foreclosures and lower home prices swept the nation, even middle-class families started to feel poorer. As Dan Alpert, managing partner at Westwood Capital and author of a forthcoming book on economic imbalances, points out, this likely forced many families who had thought they would pay for their children's college educations with home equity lines (goodbye Viking range, hello college degree!) to turn to student loans instead. | It's no easier for parents. The net worth of American households plunged by about 40% between 2007-2010, mainly due to the housing bubble's sudden deflation. Housing, even now, is one of those factors that contributes to a feeling of family wealth. As foreclosures and lower home prices swept the nation, even middle-class families started to feel poorer. As Dan Alpert, managing partner at Westwood Capital and author of a forthcoming book on economic imbalances, points out, this likely forced many families who had thought they would pay for their children's college educations with home equity lines (goodbye Viking range, hello college degree!) to turn to student loans instead. |
| It's the private student loans that are the real sticking point for many families. Federal student debt – the kind that leads to statements and phone calls from Sallie Mae – is no fun, but privately issued debt is a whole other realm of torture for those who have it. Privately issued loans come from banks, which don't have the same rules as the federal government. With a private loan, students pay higher interest rates, and there are no repayment or debt-forgiveness programs based on the lower income that new graduates often command. If students with government loans are anchored – unable to move on with their lives – then students with private debt are actually sinking. | It's the private student loans that are the real sticking point for many families. Federal student debt – the kind that leads to statements and phone calls from Sallie Mae – is no fun, but privately issued debt is a whole other realm of torture for those who have it. Privately issued loans come from banks, which don't have the same rules as the federal government. With a private loan, students pay higher interest rates, and there are no repayment or debt-forgiveness programs based on the lower income that new graduates often command. If students with government loans are anchored – unable to move on with their lives – then students with private debt are actually sinking. |
| Here is one of the most frustrating flashpoints: unlike almost every other kind of major debt, you can't unload student loan debt in bankruptcy court. | Here is one of the most frustrating flashpoints: unlike almost every other kind of major debt, you can't unload student loan debt in bankruptcy court. |
| The rules are against any young person who wants to pay off their debt. So what is to be done? | The rules are against any young person who wants to pay off their debt. So what is to be done? |
| How about changing the rules? | How about changing the rules? |
| On one side, there is legislation in Congress, sponsored by a number of left of center Senators including Al Franken and Tom Harkin, that would restore the right of graduates to discharge private education loans. | On one side, there is legislation in Congress, sponsored by a number of left of center Senators including Al Franken and Tom Harkin, that would restore the right of graduates to discharge private education loans. |
| Without the threat of being able to file for bankruptcy, student loan debtors, unlike people who are overextended on their credit cards, are unable to negotiate with their lenders for smaller monthly payments or lowered interest rates. What incentive do the banks have, after all, to give in to such requests? Not even retirement will stop the bills. Holders of student loan debt enjoy the right to garnish Social Security checks. Imagine paying your student loans back all the way into your 60s, or if you get Social Security survivor or disability benefits. This is beyond being haunted by loans – it's getting hounded by them. | Without the threat of being able to file for bankruptcy, student loan debtors, unlike people who are overextended on their credit cards, are unable to negotiate with their lenders for smaller monthly payments or lowered interest rates. What incentive do the banks have, after all, to give in to such requests? Not even retirement will stop the bills. Holders of student loan debt enjoy the right to garnish Social Security checks. Imagine paying your student loans back all the way into your 60s, or if you get Social Security survivor or disability benefits. This is beyond being haunted by loans – it's getting hounded by them. |
| On the other end of the spectrum, the libertarian Institute for Humane Studies is climbing on the bandwagon. They're releasing a series of YouTube videos about the student debt crisis on their LearnLiberty channel. The videos are hosted by Daniel Lin, a professor of economics at American University. | On the other end of the spectrum, the libertarian Institute for Humane Studies is climbing on the bandwagon. They're releasing a series of YouTube videos about the student debt crisis on their LearnLiberty channel. The videos are hosted by Daniel Lin, a professor of economics at American University. |
| Lin points out that student loans are a great business for banks and other lenders because you can't get rid of them in bankruptcy. (In fact, you can't get rid of them short of death or disability in most cases.) | Lin points out that student loans are a great business for banks and other lenders because you can't get rid of them in bankruptcy. (In fact, you can't get rid of them short of death or disability in most cases.) |
| That means the lenders, confident they'll get paid back, don't do a rigorous analysis to determine who should get a loan. Why should they worry? They'll get their money unless you die. So Lin argues that making student debt dischargeable in bankruptcy would impose some discipline on the system: banks would probably give out fewer student loans if they were forced to actually evaluate the ability of students to pay back the money. In turn, the colleges and universities would find themselves suddenly cut off from the easy, inflated source of cash provided by students taking out loans that are worth more than underwater houses. Colleges would run out of people who could pay the inflated tab and be finally forced to rein in tuition increases. | That means the lenders, confident they'll get paid back, don't do a rigorous analysis to determine who should get a loan. Why should they worry? They'll get their money unless you die. So Lin argues that making student debt dischargeable in bankruptcy would impose some discipline on the system: banks would probably give out fewer student loans if they were forced to actually evaluate the ability of students to pay back the money. In turn, the colleges and universities would find themselves suddenly cut off from the easy, inflated source of cash provided by students taking out loans that are worth more than underwater houses. Colleges would run out of people who could pay the inflated tab and be finally forced to rein in tuition increases. |
| It's a popular message. Lin's most recent entry received 17,000 views in two days. | It's a popular message. Lin's most recent entry received 17,000 views in two days. |
| If none of this is convincing, think about the issue this way: do you really believe that the recently acquitted Casey Anthony, who recently declared bankruptcy because of $792,000 in legal bills, should have the right to a fresh financial start because she never had student loans – while millions of men and women who simply sought to get an education and improve their life prospects are weighed down for life? You've got to admit, there's something not quite right about that. | If none of this is convincing, think about the issue this way: do you really believe that the recently acquitted Casey Anthony, who recently declared bankruptcy because of $792,000 in legal bills, should have the right to a fresh financial start because she never had student loans – while millions of men and women who simply sought to get an education and improve their life prospects are weighed down for life? You've got to admit, there's something not quite right about that. |
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