March 8, 2007

Students’ Lives Ruined by Debt

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Yesterday in Anabel Taylor Hall, Alan Collinge, founder of Student Loan Justice, spoke about massive problems he has seen arise from student loans. Though approximately 50 percent of Cornell students receive financial aid, according to Collinge, only two out of 10 know where their loan is coming from.

With colleges around the country raising tuition rates in response to budget cuts, many students are forced to compensate for these changes by taking out loans to finance their education. However, Collinge said that many students are unaware of the hidden penalties and fees that come attached to these loans, which could potentially cause financial ruin.

Collinge said that student loans are the worst kind of loans because they are not covered by the Consumer Credit Protection Act, leaving students vulnerable to the predatory tactics employed by loan companies.
In this light, he said, “students are like turkeys at Thanksgiving waiting to be served up to the loan companies.”

According to Collinge, many students operate under the illusion that most loan companies are a direct subsidy of the government and do not stand to gain profit. He said this misconception began in 1994, when Congress enabled student loan companies to spin off from the government and become for-profit organizations; as a result, companies started strictly looking to make money and disregarding the situation of the student.

More frightening, said Collinge, is that the collection agencies go after people who are willing to pay their principle with interest.

He pointed out that “most students are willing to pay back their loans at a reasonable amount, which includes the principle with interest. “It is only when companies start charging exorbitant penalty fees that people run into trouble.”

One aspect of Student Loan Justice is to compile stories of people whose lives, according to their assessment, have been ruined due to the overwhelming debt they have accrued and the strategies collection agencies use to retrieve their money.

“It is not uncommon to read stories about people committing suicide because they cannot deal with the burden of their debt. It becomes insurmountable,” Collinge said.

He said that many people are forced to flee the country due to the belligerent tactics employed by collection agencies.

He recalled the story of a young woman attending John Hopkins University who had taken on so much debt during her battle with breast cancer that she ended up committing suicide despite recovering from illness.

“Financial debt is an embarrassing nightmare, but then there just gets to be a point where enough is enough. People want to fight back … people want to pay. It is a massive psychological strain,” he said.

Heather Dunbar, who organized Collinge’s speech, said she knew the effects of overwhelming debt. Recently, the 40th anniversary of her unpaid loan just passed.

“The biggest consequence of that debt is that is really takes money out of the community,” Dunbar said.

Collinge, who himself at one point amassed debt up to $100,000 after attending The University of Southern California and California Institutite of Technology, said that the behavior of most lenders is monopolistic.

Because of the current structure of student loans, a person can only consolidate their debt once, so they are forced to stick one lender . He said that universities also enable lenders to trap students, since many institutions take on preferred lenders that bind students to one company without their knowledge.

Collinge is in the process of lobbying for political action that creates a fairer process of debt payment.

“Students are in dire need of counseling when it comes to debt. They need to know the infrastructure behind these loans,” he stated.

Collinge said he hopes to see results with the Student Borrower Bill of Rights but admits the document will probably go nowhere despite backing by Hillary Clinton. In spite of these setbacks, he said the goal is to have more people speak out and incorporate the ideas presented in the bill into a larger document sponsored by the Higher Education Act.

“Student loan is a national problem that ruins millions of lives. The word needs to spread about this. There is true strength in numbers when people seek out others in the same circumstances,” he said.

  • C. Victoria Patrick

    While Sallie Mae pretends to have the best interests of their customers at heart, they have covertly worked hard behind the scenes to pass anti-competitive legislation that costs students and parents billions of dollars.

    Can you imagine the uproar if homeowners were suddenly told that if they want to refinance their home, with a different lender, they can’t; — or even worse, if they were informed that they cannot re-finance at all?

    Specifically, I’m talking about Sallie Mae’s successful effort to add to and solidify the restriction-of-trade laws that have dogged the federal student loan program for decades. This collection of laws has made it difficult, if not impossible, for student loan borrowers to shop around for the lowest available rates when they wish to consolidate their education debt.

    Put another way, Sallie Mae and a few other big lenders didn’t want the lure of lower rates tempting their customers to switch to competitors. That’s why they lobbied so hard for these restrictions. And as of now, they are still winning.

    For years, participants in the federal student loan program have converted their variable-rate federally guaranteed college loans into fixed-rate federal consolidation loans, to lock in favorable interest rates, in much the same way that homeowners do with their mortgages. And for the same reasons.

    But under the laws effective July 1, 2006, the vast majority who had previously consolidated their loans are now legally barred from ever re-financing again, no matter what other lender later might have offered them a better deal. And no matter how many times you read this paragraph, its meaning will remain the same.

    Some would argue that because the government is subsidizing student loans, open market re-financing is not appropriate. But the fact is that under the just repealed laws that heretofore allowed reconsolidation, lenders — and not the taxpayers, absorbed the cost of lower rates offered to borrowers.

    Also, until the Congress finally repealed the Single Holder Rule, borrowers whose loans are owned by a single lender had been prohibited from shopping around for the best of rates and terms when it came time to consolidate.

    The dollars lost to higher interest rates resulting from this collection of restriction-of-trade legislation will never show up in the Congressional Budget Office cost estimates that everyone in Washington is forever quoting. And if you are wondering where those dollars will end up, you need look only so far as the bottom line of Sallie Mae’s income statement.

    And to add insult to injury, Sallie Mae, like a football player spiking a ball after a game-winning touchdown, began celebrating. Their VP, Tom Joyce, was quoted in USA TODAY as saying, “The consolidation loan program was never meant to be a re-financing bonanza for students.” And later, his crowing grew even louder when he told the Orlando Sentinel, “Smaller corporations will now think twice about getting into the student loan business.”

    Such ugly statements by Sallie Mae’s chief media spokesperson graphically emphasize the immediate necessity of Republicans and Democrats joining forces to restore open competition in this very important marketplace. The cost of college is just too high to protect Sallie Mae’s profits at the expense of America’s students and their parents.

    C. Victoria Patrick
    Retired Educator, College Administrator and Financial Adviser

  • Anonymous

    Just a side-note for everyone. Alan Collinge has not 1, not 2, but 3 engineering degrees. All this and he still was unable to make the simple payments on money he chose to borrow. Look into his story just a little and you realize that HE is exactly what is wrong with the system. He borrows, gets his degree, then wants a free pass which lets him off the hook. This is exactly the reason why bankruptcy isn’t an option with student loans, because of slackers like him. For his entire story, as written by him, check out:
    Alan Collinge Story