Dealing with the Aftermath of Student Loans
The opening page of StudentLoanJustice.org is a call to action:
- "We are banding together. If you are a student borrower hurt by your student loans, welcome. Do not be intimidated or ashamed. Please start by telling your story. It needs to be told...Above all, please help spread the word about this site."
The Web site was started by Alan Collinge, who considers himself the "complaint box for the industry," as he told The New York Times.
Collinge has made his struggle with paying off thousands of dollars in loans public - very public - appearing on 60 Minutes, major newspapers across the country and developing a Web site to disparage Sallie Mae.
He has also established a political action committee, which is now 3,000 members strong and has raised over $12,000.
The goal: Change bankruptcy law so that limits are placed on how and for how long lenders can pursue debtors.
Last year, Collinge traveled through 42 states to meet with the staff of all the lawmakers on the Senate and House education committees.
Although he has made tremendous efforts to get the word out, representatives of loan companies are not thrilled with the way Collinge has gone about making his point. A spokesman for Sallie Mae, Tom Joyce, told The New York Times that the lender agrees that student loans are a serious issue, but Collinge's tactics of calling loan company executives at home to criticize corporate policies and sending emails full of profanity to lender advocates are not a fitting way to go about calling attention to the problem.
Collinge recognizes that some of his words in phone calls and emails were inappropriate, but he feels his words "reflect the resentment of thousands of borrowers who are too embarrassed to talk about their debts publicly."
Meet the People Behind the Loans
Collinge, 38, attended the University of Southern California; there he earned two degrees and a certification in aerospace engineering as well as $38,000 in federal student loans.
In 2001, Collinge asked for a raise while working in research at the California Institute of Technology.
When they turned down his request, he quit his job.
Finding himself overwhelmed with loans where his lender wouldn't grant forbearance, Collinge went into default in 2001. In the next three years, his interest and fees pushed the amount he owed to $100,000. He lost any chance working for a military contractor when his debts kept him from passing a security check, he told The New York Times.
Collinge devoted his time to learning about student loans and becoming an activist while supporting himself with oddball jobs. He has learned a hard lesson that many college graduates struggle with: student loans are hard to get rid of, unless you pay them off.
Donna Troestler, 47, earned a degree in biology and microbiology from the University of Wisconsin in Oshkosh. After graduating in 1998, she took a job selling scientific instruments. In 1999, she suffered an injury that caused recurring problems. Her health restrictions limited what jobs she could take and caused her to defer payments on $23,000 in loans.
Troestler finally found a job at the University of Wisconsin in Madison but not until after she defaulted on her loans in 2002, incurring around $63,000 in fees and penalties. A man Troestler was dating helped her pay off her debts in 2006, but the tension over the loans ended up forcing the two to split.
Garrett Mockler earned his Master of Fine Arts in 2003. While living in Los Angeles, he worked as a teacher, dancer and choreographer to stay afloat; however, in December of 2004, he filed for bankruptcy protection after struggling to make payments on credit cards and $40,000 in student loans.
Once he emerged from filing bankruptcy, Mockler learned that his student loans stayed with him. The government gave him "more forgiving" repayment terms on his guaranteed loans, but the company that gave him a private and unguaranteed loan did not need to negotiate a payment plan with Mockler because there was no way he could avoid his obligation of paying them.
Student Loans: A Bottomless Pit of Debt for Some
It seems like a great idea: have someone else pay for your expensive college education so you can focus on your grades instead of working four part-time jobs, but the looming question that is beginning to plague many college graduates is what happens after you borrow the money?
The tight job market is making it hard for graduates to find jobs to pay off the loans. Lenders who make loans guaranteed by the federal government can reduce your wages or benefits until you pay back what you owe.
Even if you file for bankruptcy, it is hard to get rid of your student loans. With the economy in such a state of disarray, borrowers who have reneged on student loans are beginning to suffer from the consequences.
While the number of borrowers behind on payments and in default continues to grow, investors are convincing lenders to "raise revenue by minimizing losses," according to The New York Times.
The most recent data on defaults available is from 2005, and it states that the overall default rate was under five percent, as recorded by the federal Education Department; however, this figure only includes those defaults within two years of beginning repayment.
The New York Times reported that the National Center for Education Statistics completed a study in 2006 that followed federal loan borrowers for 10 years; they found that about 10 percent defaulted.
Adding to the mess, lenders can reduce up to 15 percent of borrower's wages when they default on federally guaranteed loans, Deanne Loonin, a lawyer at the National Consumer Law Center, told The New York Times. Lenders can also cut off tax refunds, Social Security payments and the stimulus checks issued by the government this year.
Student Loans: How to Shake Your Debt
Although people in debt can get rid of credit card debt through bankruptcy, the only way to shake student loans is if they can prove "undue hardship," a term not defined in bankruptcy law and narrowly interpreted by judges.
Why has the government made it so difficult for borrowers to get out of their debts? In private loans, lenders have no collateral to seize, which makes it riskier for them.
The government is funding students by promising the borrowed amounts and setting terms that are more favorable than private loans; however, the guarantee put taxpayer money at risk when a person defaults on their loan so they take strong measure to protect everyone else's money.
The bankruptcy code was changed by Congress in 2005 to make private loans as hard to get out of as federal loans. According to College Board, private loans have become one of the main sources for students to pay for college; they increased from $2 billion in 1996-97 to $17.1 billion in ten years.
But last year, the government started questioning the relationship between financial aid offices and lenders; they have approved legislation to ban ties between the two groups and have increased how much people can borrow through federal programs.