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thepeoplesvoice.org
Permanent Debt Bondage from America's Student Loan
Racket
01/06/11
05:19:47 am
by Stephen Lendman

An earlier article compared the 1950s to today, saying:

It was a different time, good and bad. Elected in 1952, Eisenhower was still president.
Unemployment was low. Anyone wanting work found it. Most years the economy grew
during a post-WW II expansion. Inflation was low. The average new car cost $1,500, a
typical home under $10,000. College was affordable. Harvard's 1952 full year tuition
was $600. Four years later it was $1,000 - for a full, two-semester year. During the
period, anyone could attend evenings at $5 a course and get a Harvard degree for about
$175, astonishing but true.

America was unchallenged economically, its manufacturing base offering high

paying/good benefits jobs. Union representation was high. Southern and northern US
cities were segregated. They still are, all 1960s civil rights gains lost plus most good
jobs and benefits. Alaska and Hawaii additions grew America to 50 states.

The Korean War left an unsettled armistice. Cold War politics settled in. Developing
"mutually assured destruction (MAD)" and accommodation prevented WW III. Censure
ruined Joe McCarthy, and by May 1957 he was dead at age 48. The CIA's first coup
deposed Iran's Mohammad Mosaddegh. A generation of terror followed. A year later,
another toppled Guatemala's Jacobo Arbenz Guzman, fueling decades of genocide
against its indigenous peoples.
Throughout the decade, few followed Vietnam events, its defeat of France, and
America's growing involvement in what became three decades of war. Palestinian
Territories weren't occupied, and during the period Israel was young, growing, but
mostly out of the news and public mind. Times indeed changed, for the worse, not
better, including college tuition costs.

Harvard tuition for the 2010/2011 academic year is $35,568. Add room, board, health
insurance fees, books and supplies, local transportation (if needed), plus miscellaneous
and personal expenses raises the total to nearly $60,000. Moreover, with annual
tuition/fees hikes, incoming freshmen may need $70,000 for senior year expenses.

According to an October 28 Los Angeles Times article titled, "College costs increase
faster than inflation:"

"State budget cuts and declines in philanthropy and endowments help push (college
tuition costs) up much higher than general inflation across the country this year,
amounting to an increase of 7.9% at public campuses and 4.5% at private ones,
according to a new study by the nonprofit College Board."

In fact, some schools, like the University of California, raised fees by 32%, then
announced a further 8% hike. The University of Illinois announced a 9.5% increase.
Other public and private schools followed suit, some by over 10% when fewer students
can pay it. The College Board said for the decade ending in 2008, tuitions rose 54%
after 49% in the previous decade.

Student Loans/Debt Information

The Project Student Debt web site (http://www.projectonstudentdebt.org/) has a wealth

of information on student loans and debt. Using US Department of Education data for
the 2007/08 academic year (the most recent available), it said two-thirds (or 1.4 million)
of 2008 college graduates had student loan debt, a 27% increase from 2004, breaking
down as follows:

-- at public universities, it was 62%;

-- for private nonprofit ones, 72%; and

-- at private for-profit institutions, 96% were debt entrapped.

In 2008, graduating seniors had an average debt burden of $23,200, a 24% increase from
$18,650 in 2004. At public universities, it was $20,200. For private nonprofit ones,
$27,650, and at private for-profit universities, $33,050.

However, given how government data is manipulated, true totals are far higher and
rising exponentially. Many graduates have debt burdens approaching or exceeding
$100,000. If repaid over 30 years, it amounts to a $500,000 obligation, and if default,
much more because debt obligations aren't erased.

Moreover, regardless of inflation changes, tuition and fees rise annually. As a result,
future costs are less affordable. Greater debt burdens are created, and for many students,
higher education is out of reach.

For most others, completing college includes debt bondage because of what Valley
Advocate.com writer Stephanie Kraft called "Killer Loans" in her October 14 article,
saying:

"....a large segment of the population is squeezed for interest payments and fees on loans
taken out to pay for college, or for graduate or professional school."

The numbers are staggering - $96 billion loaned annually to attend college, graduate,
trade or professional schools, excluding "shadow" borrowing. It includes tapping home
equity, retirement accounts, other sources, and credit cards. A 2005 Smith College
survey found 23% of students use plastic for college tuition and fees.

In the past decade, student loan debt ballooned over four-fold. In 1977, about $1.8
billion was borrowed. By 1989, it was $12 billion, and in 1996 $30 billion. According to
the Student Loan Debt Clock, its cumulative principle and interest exceeds $877 billion,
surpassing credit card debt for the first time last June, and will exceed $1 trillion in early
2012.

At its present rate, it increases $2,854 per second, entrapping most borrowers and
forcing others to default. According to the Chronicle of Higher Education (CHE) last
September:

"The percentage of borrowers defaulting on their student loans (rose) for a third year in
a row, reaching an 11-year high of 7 percent," based on US Education Department data -
again grossly understated to hide a serious problem for millions.

The data is based on the number of graduates defaulting within two years of graduation
so only capture "a sliver of the defaults that occur over the life of a loan," according to a
CHE analysis. It estimates that one in five government loans entering repayment in 1995
defaulted. For community college graduates, it's 31% and at for-profit schools, 40%.

Yet little is reported on the scope of the student loan racket. The web site Student Loan
Justice explains it (http://studentloanjustice.org/argument.htm), saying:

"The federal student loan system has become predatory due to the Congressional
removal of standard consumer protections and....sanctioned collection powers that are
stronger than those for all other loan instruments in our nation's history."

As a result, student borrowers are greatly harmed by unmanageable loan demands.

Along with inflation and annual tuition/fee hikes, most graduates face an enormous
burden, with no consumer protections, even in default. Once entrapped, escape is
impossible. Debt bondage is permanent, and future lives and careers are impaired.

Congress ended bankruptcy protections, refinancing rights, statutes of limitations, truth

in lending requirements, fair debt collection ones, and state usury laws when applied to
federally guaranteed student loans. As a result, lenders may freely garnish wages,
income tax refunds, earned income tax credits, and Social Security and disability income
to assure defaulted loan payments. In addition, defaulting may cause loss of professional
licenses, making repayment even harder or impossible.

Under a congressionally established default loan fee system, holders may keep 20% of
all payments before any portion is applied to principle and interest due. A borrower's
only recourse is to request an onerous and expensive "loan rehabilitation" procedure
whereby they must make extended payments (not applied to principle or interest), then
arrange a new loan for which additional fees are incurred. For many, permanent debt
bondage is assured. No appeals process allows determinations of default challenges
under a process letting lenders rip off borrowers, many in perpetuity.

"This fee system and associated rehabilitation schemes have provided a massive revenue
stream for a shadowy nationwide network of politically connected (lenders), guarantors,
servicers, and collection companies who have greatly enriched themselves at the
expense of misfortunate borrowers."

As a result, millions of students and families have been gravely harmed, relegated to
lifetime debt bondage. Yet industry predators thrive. The fee system is their "lifeblood,"
providing on average 60% of their income through "legalized wealth extraction" - a
congressional sanctioned extortion racket like Wall Street and unscrupulous investment
companies scam customers.

Lenders thrive from defaults, deriving income from debt service and inflated collection
fees. A conspiratorial alliance of lenders, guarantors, servicers, collection companies,
and government prey on unsuspecting borrowers. Lifetime default rates approach up to
one-third of undergraduate loans, higher than for subprime mortgages. "This is, in fact,
is higher than the default rate of any known (US) lending instrument...."

A Brief History Federally Guaranteed Student Loans

In 1965, the Higher Education Act (HEA) let millions of students afford college with
federally guaranteed loans and scholarships. It was later amended six times to benefit
lenders at the expense of borrowers.

In 1978, the Bankruptcy Reform Act was the first comprehensive change since 1898. It
established federal bankruptcy courts, substantially revamping former practices. It also
made it easier to file, and prohibited discrimination when declared.

Bankruptcy discharges release debtors from personal liability for certain types of debt.
In other words, debtors no longer must pay those discharged permanently. Collection
actions are also prohibited, although the debt remains. Bankruptcy doesn't eliminate it.
Non-dischargeable debts, however, stay legally enforceable despite bankruptcy
discharge. In 1990, the non-discharge period was extended to seven years.

In 1998, Congress eliminated federal Title IV, HEA student loan debt dischargeability in
bankruptcy. Education loans are the only ones affected by a federal "no-escape"
provision. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act
made all student loans (federal and private) non-dischargeable.

As a result, avoiding debt bondage in bankruptcy is impossible, unleashing the current

predatory system for lenders like Sallie Mae. In 2009, the Department of Education
reported over five million student loans in default. So are at least another one million
private ones, and these numbers are likely underestimated.

In addition, as explained above, prior protections were removed, including statute of

limitations on collections, truth in lending, fair debt collection practices, the right to
refinance, and state usury law prohibitions. Washington corrupted the system for lenders
at the expense of student borrowers.

An Example of Systemic Predation

Sallie Mae (SM) is the largest student loan originator, servicer and collector, managing
over $180 billion in federally guaranteed and private loans from over 10 million
borrowers. If they can't repay after 270 days, loans are in default. Washington pays SM
the balance plus interest. For repayment, collection agencies like General Revenue
Corporation (GRC), the nation's largest, impose 25% loan collection fees plus 28%
commission charges on borrowers, and can garnish wages and other income for
payment.

No statute of limitations applies. For GRC and other predators, a steady profit stream is
assured at the expense of borrowers. Even schools benefit by raising tuition and fees far
above inflation rates and income growth, making college more expensive, less
affordable, and assuring higher future defaults on greater amounts.

Obama's student loan overhaul was a scam. Effective July 1, 2010, it does little to
mitigate lenders' ability to rip off borrowers in perpetuity, yet he called it "one of the
most significant investments in higher education since the GI bill." He lied.

The 1944 Servicemen's Readjustment Act (the GI Bill) covered most college or
vocational training costs for 7.8 million returning vets plus a year of unemployment
compensation. In addition, 2.4 million got VA-backed low-interest, no down payment
home loans at a time their average cost was under $5,000, enabling millions of families
to afford them, many with government help. In contrast, Obama's Student Aid and Fiscal
Responsibility Act enriches providers, not borrowers, given chump change as usual.

A Final Comment

More than ever, higher education is out of reach for millions. Most others require
substantial scholarship and/or student loan help. During times of economic crisis,
families are greatly burdened to assist financially. A 2008 National Center for Public
Policy and Higher Education study said they contribute, on average, 55% of their
income for public, four-year institutions, up from 39% in 2000, and higher still today to
meet rising school costs.

As a result, today's higher education means crushing debt burdens at a time systemic
high unemployment and fewer good jobs make repaying them onerous to impossible.
America's ownership society is heartless, favoring capital, not popular interests, a policy
with strong bipartisan support.

Stephen Lendman lives in Chicago and can be reached at

[email protected]. Also visit his blog site at sjlendman.blogspot.com and
listen to cutting-edge discussions with distinguished guests on the Progressive Radio
News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and
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http://www.progressiveradionetwork.com/the-progressive-news-hour/.