8 ms·

A Student Loan System Stacked Against the Borrower

74 points by guiseroom 11y ago

steven2012 11y ago
Does the fact that you can't get rid of your student loans via bankruptcy mean that students should get the lowest rate possible? Since the creditors will get paid? It seems ridiculous that not only can you not get rid of the loands through bankruptcy, but also that you're not charged lowest-interest-rate deals for them.
- vzcx 11y ago
  I would reckon that this is because default is not the same as bankruptcy: it is entirely possible for someone to be late or stop making payments altogether and not go through the formal process of bankruptcy. I would further guess that buyers are primarily concerned with stability of these cash flows, with prices being determined upon that basis. There are probably many people making their living attempting to estimate the relative likelihoods of student loan defaults, distilling this paper into tranches and repackaging them into bundles to be resold to investors.
- matwood 11y ago
  Not being able to discharge a loan through bankruptcy doesn't mean the borrower will pay. If that rule is changed expect to see people complaining not long after that no one will give them a student loan. Not getting the lowest rate is a direct function of propensity to pay. Getting a college degree in anything does not always mean more money for the borrower. The rates reflect that reality.
  - Frondo 11y ago
    Oh, it's much worse than that. These are government-backed loans. If they go into default, the government pays the loan in full, automatically. And the lender can still go after the borrower! After being fully reimbursed for the loan, they keep going after the student who defaulted, who can't get that loan discharged in any but the most extreme circumstances (i.e. can't work and will never be able to again). What a scam.
    - matwood 11y ago
      > These are government-backed loans. If they go into default, the government pays the loan in full, automatically. And the lender can still go after the borrower! Please cite something that explains this fully. The government does back and will pay the loan on default, but then it is the government that attempts to collect. The lender is not getting paid twice. My problem with all the complainers of student debt is that everyone who took that loan knew what they were signing. I'm tired of hearing the sob stories of people who go to an out of state school, do not work, live completely on loans in order to have the 'college experience' and end up 100k in debt. No private lender would ever lend an 18 year old money for that and it is only possible because of government backing to start with. The government wants to recover at least of portion of that money, hence the rules.
      - tuckerman 11y ago
        I don't have a citation, but I think they might be referring to the fact that the government sometimes outsources this collection of students loans. E.g., the government backs a Sallie Mae loan, you default, the government pays Sallie Mae, the government wants to collect, the government sells the debt to Sallie Mae to collect it. It's this that gives at least the perception that the originator of the loan has it in their best interest to have at least a portion of their loans go into default, as they can then purchase the debt from the government. Edit: I think some of this has changed post Sallie Mae's split into Naviant and Sallie Mae, but perhaps this perception still exists?
        dvanduzer 11y ago
        The government always outsources collection. Further, collection is distinct from origination. Underwriting a loan is also distinct from guaranteeing a loan, but none of this speaks to servicing a loan. And even with all that jargon, we still haven't covered what it actually means to own debt.
      - ChuckFrank 11y ago
        The government sells the loans out of the gate. Once the loan is complete, and consolidated, they sell them to second and third party loan servicers. Please see the article about the number of times his loan has been sold. And people willingly buy them because they can make a boat load of money of late fees and other penalties, and because they are 'backed' by the government. But to maintain the liquidity of the market, the loans are sold immediately. The government doesn't hold the loans for a day longer than they need to. And from what I understand, the school of the loan, the degree of the loan, the race of the borrower, the home address of the borrower, every available data point all impact the income from the secondary sale of the loan. So it's all already in the marketplace as it is.
- steve19 11y ago
  You cannot repossess an education. Most loans are to buy something tangible that can be sold for at least something if the debtor defaults.
  - paulddraper 11y ago
    Collect on my credit cards. I dare you.
    - dvanduzer 11y ago
      This is a pretty basic financial distinction. A credit card is an unsecured loan. A car loan is a secured loan, with the car itself as the asset backing the loan. A college education is unlike all the other kinds of assets that individual humans tend to "own". The only thing they could meaningfully repossess is the sheepskin.
- Shivetya 11y ago
  they already get low rates. the problem with discharging such loans is that people will game the system. so what do you do if suddenly they come into money or have the means to pay them? I can see putting them off without interest for a set period of years but it is debt they willingly took on.
- patio11 11y ago
  Student loans are at below-market interest rates and are guaranteed to be available in quantity. The market does not generally offer non-secured signature loans for $20k to $140k to people with no credit history or limited credit history and no income. When it does, it charges literally 10+% more.
  - kefka 11y ago
    I only care at what the banks' interest percentage is. Student loans should be at that. And that's 0.25% Student loans are 8%. And that's bullshit. Theyre making 8% on us for absolutely nothing. And they get guaranteed repayment, since default risk is 0 due to garnishments.
    - nordsieck 11y ago
      It's not true that there's zero risk. As they say - "you can't get blood from a stone". There are plenty of people who just don't pay their loans and make so little money there is no realistic recourse for the banks.
      - kefka 11y ago
        Unfortunately, the recourse is a lifetime of garnishment. That may (and can) include garnishment of Social Security.
    - tptacek 11y ago
      This doesn't sound right. The markets are populated with people who will invest hundreds of millions of dollars to outcompete other firms for sub-penny advantages on trades, and, contrary to popular belief, the largest and most successful of those firms are not making so much money that they're upending the finance industry. So if somebody is making 8% for doing "absolutely nothing", can you explain why somebody else isn't taking them to the cleaners by offering to do the same nothing for 7.9%?
      - kefka 11y ago
cryoshon 11y ago
"A report issued late last month by the Consumer Financial Protection Bureau supports this view. Even though the economy and labor market have improved, student loan borrowers are experiencing high distress levels compared with borrowers with other types of consumer debt, the government report found. More than one in four student loan borrowers are delinquent or in default on their obligations." 1 in 4 are delinquent or in default. Read that again. This situation is a failure mode, and is only fail-safe for the lenders who forced it there. This means that on some level, the lenders knew their interest rates were impossible to keep up with, yet knowingly went forward anyway because they knew they could get away with it. The USA's system is utterly bought out against the common good. At this point, I think we'd be better off with a widespread boycott of student loan payments in order to bankrupt the lenders. They can't call collections on all of us, and there would be riots if they tried. I know that a lot of people are jaded as a result of societal failure to address the student loan crisis. These intentional failures for the sake of profit have long term consequences, as nearly everyone can blatantly see. "Some 41 million Americans owe $1.2 trillion in student loan debt. The median debt burden among borrowers was $20,000 in 2014, up from $13,000 in 2007." This is an entire generation worth of people that have been cursed to start their adult lives with an anchor around their neck. As though the brutally competitive ultra-hostile economic depression they graduated into wasn't enough to weigh them down to begin with. To top it off, the boomers find a way to hold us in contempt.
- paulddraper 11y ago
  This is dangerous. Just as dangerous as, say, the government taking over a bunch of uncollectable housing loans. Or the United States federal government renouncing all its public debt. If there has been illegal acts, they should be rectified. But saying "I really don't want to follow through on what I agreed to" just because minds changed is not justifiable, and sets a an ill-advised precedent.
  - toomuchtodo 11y ago
    > But saying "I really don't want to follow through on what I agreed to" just because minds changed is not justifiable Great attempt at a moral hazard. It's a business contract. Default on the contract, face the consequences. There is no "right" or "wrong" about it. If at anytime you can default on a debt without consequence, or minimal consequence, it behooves you to do so.
DDickson 11y ago
"It brought a case against Discover Bank last summer, saying it inflated the amounts it said borrowers owed on their loans. Discover Bank paid $18.5 million without admitting or denying wrongdoing." These fines are just a calculated cost of doing business for companies like Discover, Sallie Mae, etc. They take the likelihood of getting caught breaking the law, multiply it by how much they'll have to dish out when they get caught, and subtract that from what they'll make by extorting their "customers." In this case, Discover made a good financial decision on their part. Hooray for creating value for the shareholders.
- IkmoIkmo 11y ago
  I literally took a course in Finance while in business school in which we were taught how to run these calculations (obviously the 'governance' week of the course). Pretty scary to think people actually sit down at their desk and knowingly run the numbers and decide from there. But that's what you get when hardly anyone who commits a blatant crime like that generally is held accountable (i.e. individual culpability, e.g. individual fines or jail time), and the only negative (a fine) is already priced into the model, and the individual's rewards are a promotion. That's a system that, essentially, delivers incentives for crime and it's insane.
  - grendelt 11y ago
    ...Literally? Not just the figurative "course in finance" we all hear so much about?
    - jsprogrammer 11y ago
      No, they actually picked up that course and moved it somewhere else.
    - IkmoIkmo 11y ago
      :)
fiatmoney 11y ago
Why is the face of these stories always someone who majored in something like "media arts"? Can the reporters not do better? Are they just mining their social circle? Does making it intentionally representative of the kind of person who makes poor life choices to begin with generate extra hate-links?
- ChuckFrank 11y ago
  Says a person on a technology forum. Without the media arts people who do you think does your UI, and your UX, and all your graphic design work, and makes those snappy Apple commercials. Or works for all those ad companies that you love so much. If anything, he is part of your ecosystem.
  - fiatmoney 11y ago
    The existence of people who do jobs like that does not imply that $50K sunk into an academic degree on a related subject is a good investment, unless Temple somehow has much better outcomes than other art / design related programs. Regardless of the payoff, the weird thing is that stories in this genre really disproportionately mention people with degrees in some art / design field, like MFA-in-puppetry guy. http://www.thenation.com/article/audacity-occupy-wall-street/ http://www.thenation.com/article/audacity-occupy-wall-street...
- HarryHirsch 11y ago
  That's right, they could just as easily have found a Java school or second-tier law school graduate. Or someone from the University of Phoenix.
  - ChuckFrank 11y ago
    Yeah, but it was his fault that he or she is only second-tier. Right? It's always his or her fault, regardless. In which case, the solution is still the same one, don't let to the second-tie schools get loans, and force them to become more affordable, competing on price with first-tier programs, or if there are not enough students interested in low cost second tier programs, force them to shut down.
ChuckFrank 11y ago
I'm in arrears on my student loans. I'm one of the millions that is. The first few lines of this article sums it up completely as to why. "Between misdirected payments by one of the companies servicing his loan and the abusive collection tactics he encountered when he fell behind ..." These companies that bought the loans on cheap from the secondary market, make more money from penalties they they do from loan servicing. And they have as many tricks up their sleeves as they can discover to help make that fact true. They are the true sharks in the whole equation, with guaranteed support from the government and the tax payers. I recommend that every last student default as things are now. If I were in charge of writing new laws for new student loans, which I am definitely not, I would allow them with three additional conditions. 1. They qualify for personal bankruptcy like any other consumer or investment loan, 2. they could NOT be sold off but would be held in a public trust fund, initially funded by public money, and topped up as needed, and 3. (Scandinavia does this) make repayment a modest surcharge in one's income tax. Make a lot, pay a lot and pay off fast. Make a little, pay a little and maybe never pay it off.
- aianus 11y ago
  > They qualify for personal bankruptcy like any other consumer or investment loan You can't do this, nobody will pay them back. I'll take 7 years of shit credit for 200k cash, thank you very much.
  - ChuckFrank 11y ago
    Then don't give them the loans. That's how the system works. And if they don't get the loans, force the colleges, and the college towns to compete for the lesser funds. Why should student loan originators get a free ride, when other consumer or investment loan providers don't?
    - sokoloff 11y ago
      Because the thinking was that by allowing access to higher education to less well-off students, you could end or reduce the classism and perpetuation of same. A loan for which no collateral can ever be repossessed necessarily has a different economic profile than a personal loan and even moreso than a real property loan. Absent those protections, you would see a very different (read: people who need loans won't qualify) student lending market. Whether that's good or bad is a matter of which there will be a variety of opinions.
ChuckFrank 11y ago
The student loan system is propping up weak real estate markets in college towns by using guaranteed student funds from student loans to pay for outrageous rents. Many of these communities would not be able to afford their lifestyles (see. Davis, California vs. Woodland, California rental rates) if it was not for the fact they the student loan money is being laundered through attending students, and funneled directly into the local economy through increased rents and cost of services. At this level it's a scam. As anecdotal evidence, my father went to Berkeley when there was no student loan structure, and the community was considered a poor real estate investment, since it was commonly known as a 'Student Ghetto'. A term which has since disappeared as rents in Berkeley are among the highest in the East Bay. All on the back of the students financing their housing costs on student loans. Again, it's a scam. The students don't get a better education than my father, and while the housing might be nicer, it's debt that they have to pay well into their later years, as opposed to being able to graduate debt free. My father thinks this is directly attributable to the death of the student free speech movement and other student political enterprises, since being forced to accommodate ones debt takes priority over trying to change the world, or fix the system. In short it becomes a type of indentured servitude, where lower and middle class people are unqualified for good paying jobs without the debt, and with the debt, they are forced into high level debt maintenance, and can't have any other discussions about where society is going, or how it is getting there.
- rpedela 11y ago
  Any references for the first paragraph? I would like to learn more.
  - ChuckFrank 11y ago
    I just googled. College towns are often seem as insulated from larger market conditions because of the constant supply of student loan support students. http://money.cnn.com/galleries/2012/real_estate/1203/gallery.college-towns/ http://money.cnn.com/galleries/2012/real_estate/1203/gallery... http://www.investopedia.com/articles/mortgages-real-estate/08/real-estate-speculation.asp http://www.investopedia.com/articles/mortgages-real-estate/0...
heapcity 11y ago
Laws preventing bankruptcy on student loans is tantamount to indentured servitude imho; ergo a violation of Thirteenth Amendment. See Debt Bondage.
- ChuckFrank 11y ago
  You are correct.
pbreit 11y ago
Student loans have low rates, slow payback lengths, lenient default terms and government assistance. How are they stacked against the borrower again?
- ChuckFrank 11y ago
  Low rates compared to what? Wall Street banks? Lenient default terms compared to what? Government assistance for the borrowers in what form? And stacked against the borrowers due to the rapacious secondary market servicers. More money can be made off late fee and penalties than off simply servicing the loans, so they do everything in their power to make that the case, including misdirecting funds, misstating loan amounts, requiring burdensome documentation, while at the same time setting penalties on accounts.
  - pbreit 11y ago
    I guess I'm thinking mainly of the government loans which require little or no credit, rates in the single digits, 25 years to pay and I'm not really sure much happens after that.
  - norea-armozel 11y ago
    It's why I won't refinance my student debt since all of it comes under an income based repayment. At worse, I will get dinged in 25 years for the remaining as a tax bracket jump, but I hope by then Congress will be forced to even drop that provision since it would literally sink quite a few people's fortunes who would be eligible and active voters.
    - ChuckFrank 11y ago
      You are smart. Good thinking. The best solutions, like this, should be available to us all.
Larrikin 11y ago
The companies I have to deal with for my loan for the most part are absolutely disgusting. Two out of three do not allow me to setup recurring payments and do not send email reminders before payment is due. They only let me set up scheduled payments two months in an advance. To keep a rhythm I try to pay every month at the same time, however the worst company does not count those monthly payments against what is owed every 3 months on a random day. Theres no email reminders but if I'm a day late I immediately get an email saying how much I owe and how much extra I have to pay now.
- ChuckFrank 11y ago
  And if you dispute it, you still have to pay the penalty first before you can pay any of the outstanding loan amount, allowing them to hold the funds and determine, with your funds in their hands, whether or now the dispute is valid. Imagine 9 out of 10 times what that will result in. Once you've lost control of the money, you've lost the dispute. The money is the only leverage you have in the dispute.

74 points by guiseroom 11y ago

steven2012 11y ago

Does the fact that you can't get rid of your student loans via bankruptcy mean that students should get the lowest rate possible? Since the creditors will get paid? It seems ridiculous that not only can you not get rid of the loands through bankruptcy, but also that you're not charged lowest-interest-rate deals for them.

vzcx 11y ago
I would reckon that this is because default is not the same as bankruptcy: it is entirely possible for someone to be late or stop making payments altogether and not go through the formal process of bankruptcy. I would further guess that buyers are primarily concerned with stability of these cash flows, with prices being determined upon that basis. There are probably many people making their living attempting to estimate the relative likelihoods of student loan defaults, distilling this paper into tranches and repackaging them into bundles to be resold to investors.
matwood 11y ago
Not being able to discharge a loan through bankruptcy doesn't mean the borrower will pay. If that rule is changed expect to see people complaining not long after that no one will give them a student loan. Not getting the lowest rate is a direct function of propensity to pay. Getting a college degree in anything does not always mean more money for the borrower. The rates reflect that reality.
- Frondo 11y ago
  Oh, it's much worse than that. These are government-backed loans. If they go into default, the government pays the loan in full, automatically. And the lender can still go after the borrower! After being fully reimbursed for the loan, they keep going after the student who defaulted, who can't get that loan discharged in any but the most extreme circumstances (i.e. can't work and will never be able to again). What a scam.
  - matwood 11y ago
    > These are government-backed loans. If they go into default, the government pays the loan in full, automatically. And the lender can still go after the borrower! Please cite something that explains this fully. The government does back and will pay the loan on default, but then it is the government that attempts to collect. The lender is not getting paid twice. My problem with all the complainers of student debt is that everyone who took that loan knew what they were signing. I'm tired of hearing the sob stories of people who go to an out of state school, do not work, live completely on loans in order to have the 'college experience' and end up 100k in debt. No private lender would ever lend an 18 year old money for that and it is only possible because of government backing to start with. The government wants to recover at least of portion of that money, hence the rules.
    - tuckerman 11y ago
      I don't have a citation, but I think they might be referring to the fact that the government sometimes outsources this collection of students loans. E.g., the government backs a Sallie Mae loan, you default, the government pays Sallie Mae, the government wants to collect, the government sells the debt to Sallie Mae to collect it. It's this that gives at least the perception that the originator of the loan has it in their best interest to have at least a portion of their loans go into default, as they can then purchase the debt from the government. Edit: I think some of this has changed post Sallie Mae's split into Naviant and Sallie Mae, but perhaps this perception still exists?
      - dvanduzer 11y ago
        The government always outsources collection. Further, collection is distinct from origination. Underwriting a loan is also distinct from guaranteeing a loan, but none of this speaks to servicing a loan. And even with all that jargon, we still haven't covered what it actually means to own debt.
    - ChuckFrank 11y ago
      The government sells the loans out of the gate. Once the loan is complete, and consolidated, they sell them to second and third party loan servicers. Please see the article about the number of times his loan has been sold. And people willingly buy them because they can make a boat load of money of late fees and other penalties, and because they are 'backed' by the government. But to maintain the liquidity of the market, the loans are sold immediately. The government doesn't hold the loans for a day longer than they need to. And from what I understand, the school of the loan, the degree of the loan, the race of the borrower, the home address of the borrower, every available data point all impact the income from the secondary sale of the loan. So it's all already in the marketplace as it is.
steve19 11y ago
You cannot repossess an education. Most loans are to buy something tangible that can be sold for at least something if the debtor defaults.
- paulddraper 11y ago
  Collect on my credit cards. I dare you.
  - dvanduzer 11y ago
    This is a pretty basic financial distinction. A credit card is an unsecured loan. A car loan is a secured loan, with the car itself as the asset backing the loan. A college education is unlike all the other kinds of assets that individual humans tend to "own". The only thing they could meaningfully repossess is the sheepskin.
Shivetya 11y ago
they already get low rates. the problem with discharging such loans is that people will game the system. so what do you do if suddenly they come into money or have the means to pay them? I can see putting them off without interest for a set period of years but it is debt they willingly took on.
patio11 11y ago
Student loans are at below-market interest rates and are guaranteed to be available in quantity. The market does not generally offer non-secured signature loans for $20k to $140k to people with no credit history or limited credit history and no income. When it does, it charges literally 10+% more.
- kefka 11y ago
  I only care at what the banks' interest percentage is. Student loans should be at that. And that's 0.25% Student loans are 8%. And that's bullshit. Theyre making 8% on us for absolutely nothing. And they get guaranteed repayment, since default risk is 0 due to garnishments.
  - nordsieck 11y ago
    It's not true that there's zero risk. As they say - "you can't get blood from a stone". There are plenty of people who just don't pay their loans and make so little money there is no realistic recourse for the banks.
    - kefka 11y ago
      Unfortunately, the recourse is a lifetime of garnishment. That may (and can) include garnishment of Social Security.
  - tptacek 11y ago
    This doesn't sound right. The markets are populated with people who will invest hundreds of millions of dollars to outcompete other firms for sub-penny advantages on trades, and, contrary to popular belief, the largest and most successful of those firms are not making so much money that they're upending the finance industry. So if somebody is making 8% for doing "absolutely nothing", can you explain why somebody else isn't taking them to the cleaners by offering to do the same nothing for 7.9%?
    - kefka 11y ago

cryoshon 11y ago

"A report issued late last month by the Consumer Financial Protection Bureau supports this view. Even though the economy and labor market have improved, student loan borrowers are experiencing high distress levels compared with borrowers with other types of consumer debt, the government report found. More than one in four student loan borrowers are delinquent or in default on their obligations." 1 in 4 are delinquent or in default. Read that again. This situation is a failure mode, and is only fail-safe for the lenders who forced it there. This means that on some level, the lenders knew their interest rates were impossible to keep up with, yet knowingly went forward anyway because they knew they could get away with it. The USA's system is utterly bought out against the common good. At this point, I think we'd be better off with a widespread boycott of student loan payments in order to bankrupt the lenders. They can't call collections on all of us, and there would be riots if they tried. I know that a lot of people are jaded as a result of societal failure to address the student loan crisis. These intentional failures for the sake of profit have long term consequences, as nearly everyone can blatantly see. "Some 41 million Americans owe $1.2 trillion in student loan debt. The median debt burden among borrowers was $20,000 in 2014, up from $13,000 in 2007." This is an entire generation worth of people that have been cursed to start their adult lives with an anchor around their neck. As though the brutally competitive ultra-hostile economic depression they graduated into wasn't enough to weigh them down to begin with. To top it off, the boomers find a way to hold us in contempt.

paulddraper 11y ago
This is dangerous. Just as dangerous as, say, the government taking over a bunch of uncollectable housing loans. Or the United States federal government renouncing all its public debt. If there has been illegal acts, they should be rectified. But saying "I really don't want to follow through on what I agreed to" just because minds changed is not justifiable, and sets a an ill-advised precedent.
- toomuchtodo 11y ago
  > But saying "I really don't want to follow through on what I agreed to" just because minds changed is not justifiable Great attempt at a moral hazard. It's a business contract. Default on the contract, face the consequences. There is no "right" or "wrong" about it. If at anytime you can default on a debt without consequence, or minimal consequence, it behooves you to do so.

DDickson 11y ago

"It brought a case against Discover Bank last summer, saying it inflated the amounts it said borrowers owed on their loans. Discover Bank paid $18.5 million without admitting or denying wrongdoing." These fines are just a calculated cost of doing business for companies like Discover, Sallie Mae, etc. They take the likelihood of getting caught breaking the law, multiply it by how much they'll have to dish out when they get caught, and subtract that from what they'll make by extorting their "customers." In this case, Discover made a good financial decision on their part. Hooray for creating value for the shareholders.

IkmoIkmo 11y ago
I literally took a course in Finance while in business school in which we were taught how to run these calculations (obviously the 'governance' week of the course). Pretty scary to think people actually sit down at their desk and knowingly run the numbers and decide from there. But that's what you get when hardly anyone who commits a blatant crime like that generally is held accountable (i.e. individual culpability, e.g. individual fines or jail time), and the only negative (a fine) is already priced into the model, and the individual's rewards are a promotion. That's a system that, essentially, delivers incentives for crime and it's insane.
- grendelt 11y ago
  ...Literally? Not just the figurative "course in finance" we all hear so much about?
  - jsprogrammer 11y ago
    No, they actually picked up that course and moved it somewhere else.
  - IkmoIkmo 11y ago
    :)

fiatmoney 11y ago

Why is the face of these stories always someone who majored in something like "media arts"? Can the reporters not do better? Are they just mining their social circle? Does making it intentionally representative of the kind of person who makes poor life choices to begin with generate extra hate-links?

ChuckFrank 11y ago
Says a person on a technology forum. Without the media arts people who do you think does your UI, and your UX, and all your graphic design work, and makes those snappy Apple commercials. Or works for all those ad companies that you love so much. If anything, he is part of your ecosystem.
- fiatmoney 11y ago
  The existence of people who do jobs like that does not imply that $50K sunk into an academic degree on a related subject is a good investment, unless Temple somehow has much better outcomes than other art / design related programs. Regardless of the payoff, the weird thing is that stories in this genre really disproportionately mention people with degrees in some art / design field, like MFA-in-puppetry guy. http://www.thenation.com/article/audacity-occupy-wall-street/ http://www.thenation.com/article/audacity-occupy-wall-street...
HarryHirsch 11y ago
That's right, they could just as easily have found a Java school or second-tier law school graduate. Or someone from the University of Phoenix.
- ChuckFrank 11y ago
  Yeah, but it was his fault that he or she is only second-tier. Right? It's always his or her fault, regardless. In which case, the solution is still the same one, don't let to the second-tie schools get loans, and force them to become more affordable, competing on price with first-tier programs, or if there are not enough students interested in low cost second tier programs, force them to shut down.

ChuckFrank 11y ago

I'm in arrears on my student loans. I'm one of the millions that is. The first few lines of this article sums it up completely as to why. "Between misdirected payments by one of the companies servicing his loan and the abusive collection tactics he encountered when he fell behind ..." These companies that bought the loans on cheap from the secondary market, make more money from penalties they they do from loan servicing. And they have as many tricks up their sleeves as they can discover to help make that fact true. They are the true sharks in the whole equation, with guaranteed support from the government and the tax payers. I recommend that every last student default as things are now. If I were in charge of writing new laws for new student loans, which I am definitely not, I would allow them with three additional conditions. 1. They qualify for personal bankruptcy like any other consumer or investment loan, 2. they could NOT be sold off but would be held in a public trust fund, initially funded by public money, and topped up as needed, and 3. (Scandinavia does this) make repayment a modest surcharge in one's income tax. Make a lot, pay a lot and pay off fast. Make a little, pay a little and maybe never pay it off.

aianus 11y ago
> They qualify for personal bankruptcy like any other consumer or investment loan You can't do this, nobody will pay them back. I'll take 7 years of shit credit for 200k cash, thank you very much.
- ChuckFrank 11y ago
  Then don't give them the loans. That's how the system works. And if they don't get the loans, force the colleges, and the college towns to compete for the lesser funds. Why should student loan originators get a free ride, when other consumer or investment loan providers don't?
  - sokoloff 11y ago
    Because the thinking was that by allowing access to higher education to less well-off students, you could end or reduce the classism and perpetuation of same. A loan for which no collateral can ever be repossessed necessarily has a different economic profile than a personal loan and even moreso than a real property loan. Absent those protections, you would see a very different (read: people who need loans won't qualify) student lending market. Whether that's good or bad is a matter of which there will be a variety of opinions.

ChuckFrank 11y ago

The student loan system is propping up weak real estate markets in college towns by using guaranteed student funds from student loans to pay for outrageous rents. Many of these communities would not be able to afford their lifestyles (see. Davis, California vs. Woodland, California rental rates) if it was not for the fact they the student loan money is being laundered through attending students, and funneled directly into the local economy through increased rents and cost of services. At this level it's a scam. As anecdotal evidence, my father went to Berkeley when there was no student loan structure, and the community was considered a poor real estate investment, since it was commonly known as a 'Student Ghetto'. A term which has since disappeared as rents in Berkeley are among the highest in the East Bay. All on the back of the students financing their housing costs on student loans. Again, it's a scam. The students don't get a better education than my father, and while the housing might be nicer, it's debt that they have to pay well into their later years, as opposed to being able to graduate debt free. My father thinks this is directly attributable to the death of the student free speech movement and other student political enterprises, since being forced to accommodate ones debt takes priority over trying to change the world, or fix the system. In short it becomes a type of indentured servitude, where lower and middle class people are unqualified for good paying jobs without the debt, and with the debt, they are forced into high level debt maintenance, and can't have any other discussions about where society is going, or how it is getting there.

rpedela 11y ago
Any references for the first paragraph? I would like to learn more.
- ChuckFrank 11y ago
  I just googled. College towns are often seem as insulated from larger market conditions because of the constant supply of student loan support students. http://money.cnn.com/galleries/2012/real_estate/1203/gallery.college-towns/ http://money.cnn.com/galleries/2012/real_estate/1203/gallery... http://www.investopedia.com/articles/mortgages-real-estate/08/real-estate-speculation.asp http://www.investopedia.com/articles/mortgages-real-estate/0...

heapcity 11y ago

Laws preventing bankruptcy on student loans is tantamount to indentured servitude imho; ergo a violation of Thirteenth Amendment. See Debt Bondage.

ChuckFrank 11y ago
You are correct.

pbreit 11y ago

Student loans have low rates, slow payback lengths, lenient default terms and government assistance. How are they stacked against the borrower again?

ChuckFrank 11y ago
Low rates compared to what? Wall Street banks? Lenient default terms compared to what? Government assistance for the borrowers in what form? And stacked against the borrowers due to the rapacious secondary market servicers. More money can be made off late fee and penalties than off simply servicing the loans, so they do everything in their power to make that the case, including misdirecting funds, misstating loan amounts, requiring burdensome documentation, while at the same time setting penalties on accounts.
- pbreit 11y ago
  I guess I'm thinking mainly of the government loans which require little or no credit, rates in the single digits, 25 years to pay and I'm not really sure much happens after that.
- norea-armozel 11y ago
  It's why I won't refinance my student debt since all of it comes under an income based repayment. At worse, I will get dinged in 25 years for the remaining as a tax bracket jump, but I hope by then Congress will be forced to even drop that provision since it would literally sink quite a few people's fortunes who would be eligible and active voters.
  - ChuckFrank 11y ago
    You are smart. Good thinking. The best solutions, like this, should be available to us all.

Larrikin 11y ago

The companies I have to deal with for my loan for the most part are absolutely disgusting. Two out of three do not allow me to setup recurring payments and do not send email reminders before payment is due. They only let me set up scheduled payments two months in an advance. To keep a rhythm I try to pay every month at the same time, however the worst company does not count those monthly payments against what is owed every 3 months on a random day. Theres no email reminders but if I'm a day late I immediately get an email saying how much I owe and how much extra I have to pay now.

ChuckFrank 11y ago
And if you dispute it, you still have to pay the penalty first before you can pay any of the outstanding loan amount, allowing them to hold the funds and determine, with your funds in their hands, whether or now the dispute is valid. Imagine 9 out of 10 times what that will result in. Once you've lost control of the money, you've lost the dispute. The money is the only leverage you have in the dispute.