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Student Debt Lawsuits Are a Lucrative Business

71 points by thisisit 9y ago

emodendroket 9y ago
I suspect these guys are not the only debt collectors operating this way, but the whole thing is shameful. Talk about an industry crying out for more stringent regulation.
- ams6110 9y ago
  Is it more shameful than the colleges and universities that push students to taking out these loans (calling them "financial aid") knowing full well what waits them on the other side?
  - StudentStuff 9y ago
    No way to discharge these loans besides leaving the country and going native elsewhere, or paying them off entirely. Essentially, if your gamble doesn't pay off, you get a life long debilitating STD known as student loans.
- talmand 9y ago
  More stringent regulation from the very people that are encouraging it? How does that work exactly?
- QAPereo 9y ago
  Crying out for a metaphorical noose is more like it.
arcanus 9y ago
It is remarkable that you cannot declare bankruptcy from student debt. We have essentially decoupled the price of college from the expected return.
- nemo44x 9y ago
  The other side of it is everyone qualifies for a loan. So there's an enormous amount of risk associated with it and the interest rates do not reflect that risk. It's difficult to loan 18-year olds money as they tend to lack income and credit worthiness and it's also unreasonable to expect an 18-year old to really understand the future debt they are setting themselves up for.
  - StudentStuff 9y ago
    Hence why the federal government backs nearly every student loan either directly or indirectly. None of the private banks risk their own money in this market, as the feds have happily hand them cash and encourage said banks to loan it out! This has resulted in costs spiraling out of control, as universities can charge whatever they want with minimal repercussions, and students often end up with the STD known as student loans haunting them for the rest of their lives.
- ChrisBland 9y ago
  If we didn't prevent it, then you'd be stupid to not go to college take out $120k in loans and then declare bankruptcy at 22 prior to taking a job (you'd have no income and no assets). You'd be 29 by the time the bankruptcy fell off your credit report, meaning credit might be tight in those years to buy a car or house, but you'd be debt free - something many people in their 20s and 30s would gladly do if they were given the option. Since a degree is not tangible, there is nothing to secure it with, they can't foreclose on your education like they can a piece of property. Without anything to secure it, there would be 0 market for college loans except for the privileged who can pay out of pocket for their education. IMO the only way to solve it is to put the school on the hook for part of the $$ if the default rate exceeds X%. Then it forces the school to look at costs, as well as expected outcomes of the program. At the end of the day, maybe giving an 18 year old 120k to study underwater basket weaving for 4 years is not the best investment of money?
  - distances 9y ago
    Or alternatively, you could make sure there's an affordable public option for university level education for qualifying students, to avoid the need for a loan in the first place. It was feasible before, and I'm sure there isn't any non-political reason why it'd be impossible now.
geggam 9y ago
Slavery is illegal. Letting people enslave themselves however is not. An indentured servant or indentured laborer is an employee (indenturee) within a system of unfree labor who is bound by a signed or forced contract (indenture) to work for a particular employer for a fixed time. The contract often lets the employer sell the labor of an indenturee to a third party. Indenturees usually enter into an indenture for a specific payment or other benefit, or to meet a legal obligation, such as debt bondage. On completion of the contract, indentured servants were given their freedom, and occasionally plots of land. In many countries, systems of indentured labor have now been outlawed. When you are enslaved by the monetary system... well... You made that choice
- amorphid 9y ago
  Indentured servitude is also illegal.
  - deleted 9y ago
    [deleted]
- Thorncorona 9y ago
  That's a terrible argument. Even in the 1600s where indentured servitude was commonplace, the system was essentially slavery, with comparable death rates. Hell America had a rebellion because of white slavery - Bacon's rebellion. We got rid of slavery because of the social impact and also because of the moral implications. There's no reason to bring it back in another form.
  - geggam 9y ago
    Its not an argument. Its an observation of the existing monetary system. When you borrow on your future earnings you are essentially putting yourself in indentured servitude to the banks.... and this is your choice. No one forces you to do this.
dsfyu404ed 9y ago
I'm rarely one to advocate for legislating solutions to problems but forcing schools be responsible for more of the communication with student/customer/debtor when it comes to loaning money, collecting payments and handling defaults would really cut down on the number of student loans that aren't paid back on schedule. If the school is responsible for the overhead cost of that communication they will have a strong incentive to make their students capable of paying back their loans or accessing the various deferment/income based repayment options in order to avoid the cost of collections. A work study student who hates their minimum wage job will be a lot more helpful to a debtor who received a payment due and is calling the 1-800 number on it because they are confused than some random person in a call center that's an Nth level subcontractor for some bank that owns the debt. A work study student who hates their minimum wage job will be a infinity more helpful to a debtor who is in default and is calling the 1-800 number on it because they are confused than some random person in a call center who makes a commission based on how they handle the account in question. If the school was responsible for the cost of communicating with the debtor a lot fewer loans would make it into default in the first place.
- politician 9y ago
  Given the benefits schools receive from being able to raise prices year after year with such limited downside, your idea makes a lot of sense. It might be some way to impose some kind of responsibility onto the schools.
- deleted 9y ago
  [deleted]
googletazer 9y ago
Imagine a world without ever inflating funny money, where people only buy what they need instead of junk.
- matt4077 9y ago
  The funny thing is that inflation would actually be among the easiest ways to get out of such debt.
  - googletazer 9y ago
    You're right, but why cure the symptoms? Take care of the disease instead.
Sir_Cmpwn 9y ago
>In Miami, a law firm working for Transworld brought a lawsuit last year against Antonio Fuentes, seeking payment on a $13,356 student loan. With interest and fees, Mr. Fuentes now owed $25,322.31, according to the complaint. >“Many judges take the attitude: ‘I paid my student loans. You ought to pay yours. Don’t give me this nonsense about technicalities.’” That judges are even allowed to do this is awful. Why should this person have to go through the arduous and expensive appeals process just to get justice administered correctly?
- alexanderstears 9y ago
  Because there isn't enough skin in the game. Judges don't get punished for bad decisions and Transworld was allowed to mislead the courts for too long.
  - Verdex_3 9y ago
    I don't think judges should necessarily be punished for bad decisions. The judiciary is a mechanism for allowing society to get along peacefully with one another (ie you can take your grievance to a judge instead of to the mob). I don't really want judges having to worry about punishment when doing their job. On the other hand. Incompetent and corrupt judges have no place in the judiciary because it's basically an attack on the citizenry's ability to live peacefully. Now you need money, power, or violence to live security and that doesn't go well. Incompetent results in dismissal forever (sorry I don't have a good test for this). Corruption results in loss of past, present, and future benefits and significant jail time. Third parties abusing the judiciary to abuse the citizenry is just as bad as a corrupt judge. Their end should be in a jail cell.
    - logfromblammo 9y ago
      You forgot lazy. What do you do with the judges that simply can't be arsed to read the filings or briefs, and arbitrarily rule against those that seem to be making the most work for them? They want a light calendar, so they can spend more time doing literally anything else. So what do you do with those who will only do their job half-assed?
aplummer 9y ago
I think this is another situation where you can look at the models in the UK, Europe, other similar countries to find solutions. If I grew up in the US and could have managed it, you can study in Germany as a foreigner for free. Other countries like Aus have a system where your loan is interest free and indexed with inflation, and you start paying it off after you make about $35k per year as a percent of income.
- godelski 9y ago
  Here in America we gain interest while we are in school and have to start paying it off 6mo after we graduate. For context, that is the average time it takes a student to get a job (right when they are also paying moving costs and such). Payment used to initiate after 9mo after graduation.
  - tudelo 9y ago
    Not all loans accumulate interest while attending school. Look at unsubsidized vs subsidized federal loans.
    - EADGBE 9y ago
      Not all students qualify for such subsidations.
exabrial 9y ago
Good Lord. There are two issues with college tuition: The first problem is people are not shopping around for a college education. There are thousands of incredible colleges around the USA that will give you the same or better education as a pricey school on the coasts. I did my easiest credits at Bulter County Community, then Wichita State University, before finishing up at Kansas State University. I only took on about $8k of debt for a degree in Information Systems (computer science with an emphasis in business classes) from their engineering school (which is one of 24 schools that has a nuclear reactor on campus). K-State itself was a hoot to go to, it's a great little school in a swanky town isolated by 2 hours of prairie grass. The second problem is people are paying way too much for a nearly useless degrees that some colleges offer. You can get a degree in "music therapy" or "insurance administration", both of which a motivated individual could also get on-the-job training for. Somewhere there should be a list of "Degrees you should not get if you're going to pay more than $x for" to help bright-eyed high school kids make good decisions.
- reverend_gonzo 9y ago
  The problem is a little bit more than people are paying too much for a worthless degree. It's that they are being given a loan that is backed by the US Government to get that worthless degree. If the government removes the backing and allows the free market to give loans and set interest rates, suddenly you'll see that the lowest rates will be for STEM degrees, and those who want to study music theory, art therapy, English literature, are going to get loans for school. However, that defeats the entire narrative of "everybody should go to school and everybody should learn whatever they want."
  - exabrial 9y ago
    Completely agree (except maybe on music theory, bit more technical of a degree that most people realize)
    - iterati 9y ago
      Doesn't matter how technical it is, it's still pretty worthless.
ebfd 9y ago
Kind of interesting how the housing and student loan bubbles were both caused by initiatives to bring access to minorities. I wonder if that has predictive power.
smaddox 9y ago
I just had an idea this morning for how to fund universities that I think could solve many of the issues associated with student loans. The idea is that instead of students paying tuition, they would sign contracts to pay a fraction of their income for several years after graduation, e.g. 1% of income for 15 years (perhaps with a cap). Enforcement could be difficult, but this would much better align incentives with the desired result, i.e. to educate! It would also incentivise universities to help alumni get and hold high paying jobs. Starting such a university would require a lot of startup capital, but it would become self sustaining in less than a decade.

71 points by thisisit 9y ago

I suspect these guys are not the only debt collectors operating this way, but the whole thing is shameful. Talk about an industry crying out for more stringent regulation.

ams6110 9y ago
Is it more shameful than the colleges and universities that push students to taking out these loans (calling them "financial aid") knowing full well what waits them on the other side?
- StudentStuff 9y ago
  No way to discharge these loans besides leaving the country and going native elsewhere, or paying them off entirely. Essentially, if your gamble doesn't pay off, you get a life long debilitating STD known as student loans.
talmand 9y ago
More stringent regulation from the very people that are encouraging it? How does that work exactly?
QAPereo 9y ago
Crying out for a metaphorical noose is more like it.

arcanus 9y ago

It is remarkable that you cannot declare bankruptcy from student debt. We have essentially decoupled the price of college from the expected return.

nemo44x 9y ago
The other side of it is everyone qualifies for a loan. So there's an enormous amount of risk associated with it and the interest rates do not reflect that risk. It's difficult to loan 18-year olds money as they tend to lack income and credit worthiness and it's also unreasonable to expect an 18-year old to really understand the future debt they are setting themselves up for.
- StudentStuff 9y ago
  Hence why the federal government backs nearly every student loan either directly or indirectly. None of the private banks risk their own money in this market, as the feds have happily hand them cash and encourage said banks to loan it out! This has resulted in costs spiraling out of control, as universities can charge whatever they want with minimal repercussions, and students often end up with the STD known as student loans haunting them for the rest of their lives.
ChrisBland 9y ago
If we didn't prevent it, then you'd be stupid to not go to college take out $120k in loans and then declare bankruptcy at 22 prior to taking a job (you'd have no income and no assets). You'd be 29 by the time the bankruptcy fell off your credit report, meaning credit might be tight in those years to buy a car or house, but you'd be debt free - something many people in their 20s and 30s would gladly do if they were given the option. Since a degree is not tangible, there is nothing to secure it with, they can't foreclose on your education like they can a piece of property. Without anything to secure it, there would be 0 market for college loans except for the privileged who can pay out of pocket for their education. IMO the only way to solve it is to put the school on the hook for part of the $$ if the default rate exceeds X%. Then it forces the school to look at costs, as well as expected outcomes of the program. At the end of the day, maybe giving an 18 year old 120k to study underwater basket weaving for 4 years is not the best investment of money?
- distances 9y ago
  Or alternatively, you could make sure there's an affordable public option for university level education for qualifying students, to avoid the need for a loan in the first place. It was feasible before, and I'm sure there isn't any non-political reason why it'd be impossible now.

geggam 9y ago

Slavery is illegal. Letting people enslave themselves however is not. An indentured servant or indentured laborer is an employee (indenturee) within a system of unfree labor who is bound by a signed or forced contract (indenture) to work for a particular employer for a fixed time. The contract often lets the employer sell the labor of an indenturee to a third party. Indenturees usually enter into an indenture for a specific payment or other benefit, or to meet a legal obligation, such as debt bondage. On completion of the contract, indentured servants were given their freedom, and occasionally plots of land. In many countries, systems of indentured labor have now been outlawed. When you are enslaved by the monetary system... well... You made that choice

amorphid 9y ago
Indentured servitude is also illegal.
- deleted 9y ago
  [deleted]
Thorncorona 9y ago
That's a terrible argument. Even in the 1600s where indentured servitude was commonplace, the system was essentially slavery, with comparable death rates. Hell America had a rebellion because of white slavery - Bacon's rebellion. We got rid of slavery because of the social impact and also because of the moral implications. There's no reason to bring it back in another form.
- geggam 9y ago
  Its not an argument. Its an observation of the existing monetary system. When you borrow on your future earnings you are essentially putting yourself in indentured servitude to the banks.... and this is your choice. No one forces you to do this.

dsfyu404ed 9y ago

I'm rarely one to advocate for legislating solutions to problems but forcing schools be responsible for more of the communication with student/customer/debtor when it comes to loaning money, collecting payments and handling defaults would really cut down on the number of student loans that aren't paid back on schedule. If the school is responsible for the overhead cost of that communication they will have a strong incentive to make their students capable of paying back their loans or accessing the various deferment/income based repayment options in order to avoid the cost of collections. A work study student who hates their minimum wage job will be a lot more helpful to a debtor who received a payment due and is calling the 1-800 number on it because they are confused than some random person in a call center that's an Nth level subcontractor for some bank that owns the debt. A work study student who hates their minimum wage job will be a infinity more helpful to a debtor who is in default and is calling the 1-800 number on it because they are confused than some random person in a call center who makes a commission based on how they handle the account in question. If the school was responsible for the cost of communicating with the debtor a lot fewer loans would make it into default in the first place.

politician 9y ago
Given the benefits schools receive from being able to raise prices year after year with such limited downside, your idea makes a lot of sense. It might be some way to impose some kind of responsibility onto the schools.
deleted 9y ago
[deleted]

googletazer 9y ago

Imagine a world without ever inflating funny money, where people only buy what they need instead of junk.

matt4077 9y ago
The funny thing is that inflation would actually be among the easiest ways to get out of such debt.
- googletazer 9y ago
  You're right, but why cure the symptoms? Take care of the disease instead.

Sir_Cmpwn 9y ago

>In Miami, a law firm working for Transworld brought a lawsuit last year against Antonio Fuentes, seeking payment on a $13,356 student loan. With interest and fees, Mr. Fuentes now owed $25,322.31, according to the complaint. >“Many judges take the attitude: ‘I paid my student loans. You ought to pay yours. Don’t give me this nonsense about technicalities.’” That judges are even allowed to do this is awful. Why should this person have to go through the arduous and expensive appeals process just to get justice administered correctly?

alexanderstears 9y ago
Because there isn't enough skin in the game. Judges don't get punished for bad decisions and Transworld was allowed to mislead the courts for too long.
- Verdex_3 9y ago
  I don't think judges should necessarily be punished for bad decisions. The judiciary is a mechanism for allowing society to get along peacefully with one another (ie you can take your grievance to a judge instead of to the mob). I don't really want judges having to worry about punishment when doing their job. On the other hand. Incompetent and corrupt judges have no place in the judiciary because it's basically an attack on the citizenry's ability to live peacefully. Now you need money, power, or violence to live security and that doesn't go well. Incompetent results in dismissal forever (sorry I don't have a good test for this). Corruption results in loss of past, present, and future benefits and significant jail time. Third parties abusing the judiciary to abuse the citizenry is just as bad as a corrupt judge. Their end should be in a jail cell.
  - logfromblammo 9y ago
    You forgot lazy. What do you do with the judges that simply can't be arsed to read the filings or briefs, and arbitrarily rule against those that seem to be making the most work for them? They want a light calendar, so they can spend more time doing literally anything else. So what do you do with those who will only do their job half-assed?

aplummer 9y ago

I think this is another situation where you can look at the models in the UK, Europe, other similar countries to find solutions. If I grew up in the US and could have managed it, you can study in Germany as a foreigner for free. Other countries like Aus have a system where your loan is interest free and indexed with inflation, and you start paying it off after you make about $35k per year as a percent of income.

godelski 9y ago
Here in America we gain interest while we are in school and have to start paying it off 6mo after we graduate. For context, that is the average time it takes a student to get a job (right when they are also paying moving costs and such). Payment used to initiate after 9mo after graduation.
- tudelo 9y ago
  Not all loans accumulate interest while attending school. Look at unsubsidized vs subsidized federal loans.
  - EADGBE 9y ago
    Not all students qualify for such subsidations.

exabrial 9y ago

Good Lord. There are two issues with college tuition: The first problem is people are not shopping around for a college education. There are thousands of incredible colleges around the USA that will give you the same or better education as a pricey school on the coasts. I did my easiest credits at Bulter County Community, then Wichita State University, before finishing up at Kansas State University. I only took on about $8k of debt for a degree in Information Systems (computer science with an emphasis in business classes) from their engineering school (which is one of 24 schools that has a nuclear reactor on campus). K-State itself was a hoot to go to, it's a great little school in a swanky town isolated by 2 hours of prairie grass. The second problem is people are paying way too much for a nearly useless degrees that some colleges offer. You can get a degree in "music therapy" or "insurance administration", both of which a motivated individual could also get on-the-job training for. Somewhere there should be a list of "Degrees you should not get if you're going to pay more than $x for" to help bright-eyed high school kids make good decisions.

reverend_gonzo 9y ago
The problem is a little bit more than people are paying too much for a worthless degree. It's that they are being given a loan that is backed by the US Government to get that worthless degree. If the government removes the backing and allows the free market to give loans and set interest rates, suddenly you'll see that the lowest rates will be for STEM degrees, and those who want to study music theory, art therapy, English literature, are going to get loans for school. However, that defeats the entire narrative of "everybody should go to school and everybody should learn whatever they want."
- exabrial 9y ago
  Completely agree (except maybe on music theory, bit more technical of a degree that most people realize)
  - iterati 9y ago
    Doesn't matter how technical it is, it's still pretty worthless.

ebfd 9y ago

Kind of interesting how the housing and student loan bubbles were both caused by initiatives to bring access to minorities. I wonder if that has predictive power.

smaddox 9y ago

I just had an idea this morning for how to fund universities that I think could solve many of the issues associated with student loans. The idea is that instead of students paying tuition, they would sign contracts to pay a fraction of their income for several years after graduation, e.g. 1% of income for 15 years (perhaps with a cap). Enforcement could be difficult, but this would much better align incentives with the desired result, i.e. to educate! It would also incentivise universities to help alumni get and hold high paying jobs. Starting such a university would require a lot of startup capital, but it would become self sustaining in less than a decade.