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The Student Loan Scheme

THE STUDENT LOAN SCHEME 16655440 TE ¥455448 100 FME7744SSH GATEWAY DRUG TO DEBT SLAVERY E776455 -AND EDITION- Everyone knows we Americans are swimming in credit card debt. But just this year a new debt has quietly surpassed our consumer spending addiction. Student loans, now at $829 billion. How did this happen? Lets start from the beginning... Lyndon Johnson signs the Higher Education Act (HEA) as part of his 'Great Society. Millions of students are now able to afford college with Federally guaranteed loans and scholarships. 1965 After stories surfaced of some doctors and lawyers dis- charging their student loan debt by filing for bankruptcy immediately after graduation, the Bankruptcy Reform Act disallowed discharge for 5 years after first payment. The actual discharge rate at the time was less than 1%. 1978 1990 The non-discharge period was extended to 7 years. Congress completely eliminated the ability to discharge student loan debt in bankruptcy. The same rules apply to debt from criminal acts (you murder someone and are sued) and debt from fraud. Loans for education are the only type of loan that has this Federal 'no-escape' clause. 1998 Amendments to the Bankruptcy Code provide the same non-discharge protection to private student loan lenders. Now all student loans, government and private are almost impossible to discharge. 2005 Additionally, the following protections were removed from student loans. Statute of limitations on collections Truth in Lending Act Fair Debt Collection Practices Act The right to refinance Adherance to state usury laws "Student-loan debt collectors have power that would make a mobster envious" The harshest collection methods are reserved for student loans. Miss a few payments and you can be subject to: Wage garnishment without a court order Suspension of state professional licences Garnishment of social security/disability income Withholding IRS tax refunds HarvardWarren I Law Professor Chair of the TARP Congres- Now wait just a minute. Why are we treating our fledgling students like criminals? sional Oversight Panel LOL! Because it's obscenely profitable of course. Why else? Here is how it works Sallie Mae is the largest originator of student loans. Albert Lord CEO of SLM Corp (Sallie Mae) Sallie Mae loans you $20,000 with a 12 year term. The federal government guarantees the full amount of this loan. There is no risk to Sallie Mae. You pay off the loan at 8.8% interest over 12 years. Total finance charges: $23,376 You are unable to make the monthly loan pay- ments of $293. After 270 days, the loan is in default status. The federal government pays Sallie Mae the balance of the loan plus interest. GRC is owned by Sallie Mae. This is known as the second bite of the apple. GRC adds 25% to the loan as a collection fee. GRC also gets a 28% commission on the loan, which you have to pay for. The government needs to get it's money back so it sends the debt to a collections agency like General Revenue Corpora- tion (GRC), the nations largest. There is no statute of limita- tions on your student loan debt. You WILL pay, even if it has to be deducted from your social security checks or those of your cosigner. GRC can then take money from your paycheck and tax refund until they are paid. When ever there is millions of losers there is always a few giant winners. Al Lord and Tim Fitzpatrick have taken home over $400 million from Sallie Mae over the past decade. This is why it's so profitable for everyone involved when you default. Sallie Mae get huge returns with no risk and the government eventually gets its money back with interest. Defaulting students are a money machine. It even benefits the school. Since defaulted loans are a net gain to the government and its collection agencies, they have no incentive to moderate school prices. High prices means higher loans. Higher loans means more defaults and more profit for everyone. This has allowed school tuition to rise at twice the rate of inflation and four times the rate of wage growth. How are defaulting students a benefit to schools? Well there can't be too many students who default. All you have to do is get a job and pay it off. 25% of government student loans default. At community colleges its 30%. At two year colleges it's 40%. At the height of the subprime mortgage mess, default rates were 25%. And those were loans people could walk away from in bankruptcy or even be bailed out by the government. But don't expect any bailouts for students, since it's the government doing the loan sharking here. Didn't Obama overhaul the student loan program this year? He called it "one of the most significant investments in higher education since the G.I. Bill." CATIONR TUKE MY EPUC MY FUT Obama's changes are big wins for the government and tax payers. He basically cut lenders like Sallie Mae out of the loop by eliminating the subsidies. So all loan profits that used to go to private lenders, now go back to the government. Despite the rhetoric this is not a big win for students. They still don't have the consumer protections and rights they need. Huge for-profit collection agencies like GRC have been replaced with huge non-profit collection agencies like EdFund whose job is the same; spin a $37000 loan into a $100,000 repay- ment. Since the government is making even more money, they have even less of an incentive to keep tuition prices in check. Sal Mae Banetfn So we have a debt larger than all of our credit cards, more toxic than subprime mortgages and a nightmare to recover from. It's a grim outlook for the next generation of students. But you don't have to finance your education with loans at all. Here is how to avoid the mess all together. Save. Saving is a critical life skill, and saving for college should be a priority for student or parent. As always, earlier is better. Aid. Do well in school and seek out merit-based financial aid and scholarships. Exhaust all grant opportunities before ence turning to loans. Work. A part-time job during school and full-time during the summer can give you a leg up in terms of money and experi- Frugal. Live at home and go to a local community school for twO years, then transfer the credits when you have more direction. Wait. Learn part time online until you figure out what you really want. Bill Gates said "Five years from now, on the Web for free. you'll be able to find the best lectures in the world. It will be better than any single university." C typicat dropout Or you can. Fight. Tell Congress to stop treating you like a criminal and to restore consumer protections for stu- dent loans. brought to you by: AE T

The Student Loan Scheme

shared by lee on Apr 16
Change you address, change you email address, change your name, get plastic surgery and still, your student loan officer will still track you down. Student loans are surpassing credit card loans for ...


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