Saturday, November 19, 2011

America's Student Loan Debt Bondage

America's Student Loan Debt Bondage - by Stephen Lendman


Higher education today isn't like it used to be. US students face crisis conditions. Washington and lenders wage financial war on them. In addition, dozens of budget-strapped states cut funds to public colleges and universities.


Students are directly impacted by sharp tuition hikes (double-digit at some schools) and less financial aid. As a result, many thousands are entirely shut out. Others relying on student loans face permanent debt bondage.


By end of 2011, student loan debt will top $1 trillion. It already exceeds credit card indebtedness. Moreover, in the past year alone, students borrowed over $100 billion, double the amount a decade ago adjusted for inflation.


Borrowing is one thing, repaying another. Therein lies the rub. Many former students end up debt slaves for life. With interest, collection charges, penalties, and other costs, some burdens exceed $100,000, Over their lifetime, they can rise five-fold or more for some.


Repaying graduate school debt pushes it higher. New medical professionals can owe $200,000 or more at first. An unidentified one said he'll pay $1,000 a month for the next 30 years. With higher inflation, monthly costs will rise exponentially.


Many end up trapped for life because debt can multiply five-fold or more over its lifetime. As a result, a new medical professional paying $1,000 a month now may owe $5,000 or more monthly in 30 years, and if obligations aren't repaid, burdens rise annually.


A March 2011 Institute for Higher Education Policy study titled, "Delinquency, The Untold Story" examined repayments from October 2004 - September 2009.


It showed only 37% of student loans are paid on time. Another 15% of students default, 26% are delinquent, 12% use forbearance to temporarily suspend payments, and 11% defer them because of re-enrollment, economic hardship or unemployment. However, doing so increases burdens as interest and other costs rise.


Moreover, default data greatly understate an exponentially rising burden, facing growing numbers of students indebted for life and unable to repay. More on that below.


On September 12, New York Times writer Tamar Lewin headlined, "Student Loan Default Rates Rise Sharply in Past Year," saying:


According to way understated Department of Education data, "8.8% of borrowers overall defaulted in the fiscal year" ending September 20, 2010, "up from 7% the previous year."


According to Institute for College Access & Success and Project on Student Debt program director Debbie Cochrane, "The extent of borrower distress is barely touched upon" by these numbers.


Last spring, the Senate Health Education Labor and Pensions Committee found "some companies estimated their former students had staggeringly high lifetime default rates - in one case, 77.7%."


On November 2, Tamar Lewin headlined, "College Graduates' Debt Burden Grew, Yet Again in 2010," saying:


Student loan burdens increased another 5% in the fiscal year ending September 30, 2011. Average debt hit a record high. At least two-thirds of the class of 2010 graduated with student debt, besides others incurred for them by parents or other family members.


Finaid.org's Mark Kantrowitz said "Student debt goes up and it doesn't ever go down. We're clearly heading in the direction of decreased college affordability." Lower income family students already are greatly impacted.


Kantrowitz estimates class of 2011 loans by students and parents at $34,000. Whether or not they graduate, many students have debt burdens approaching or exceeding $100,000. If repaid over 30 years, it's multiples higher, and defaulting brings no relief.


Once entrapped, escape is impossible. Bondage is permanent, and future lives and careers greatly impaired or ruined.


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 garnish wages, income tax refunds, earned income tax credits, as well as Social Security and disability income to assure defaulted loan payments. In addition, defaulting may cause loss of professional licenses, making repayment harder or impossible.


Moreover, under Congress' default loan fee system, holders may keep 20% of all payments before any portion is applied to principle and interest. A borrower's only recourse is to request an onerous, expensive "loan rehabilitation" procedure.


It requires extended payments not applied to principle or interest. A new loan must then be arranged, incurring additional fees.


As a result, many former students face permanent debt bondage. In addition, no appeals process allows determinations of default challenges under a process letting lenders rip off borrowers, many in perpetuity.


A congressionally sanctioned conspiratorial alliance of lenders, guarantors, servicers, and collection companies enrich themselves hugely at borrowers' expense. They thrive from extortionist fees and related schemes. Millions end up scammed.


Moreover, lenders thrive on bad debts. They derive income from inflated service charges and collection fees. Today they're more than ever as default rates soar.


Lifetime rates now affect one-third of undergraduate loans, higher than for subprime mortgages. In fact, they exceed other lending instrument burdens and are rising.


Obama's new student loan repayment plan (unveiled in late October) is more scam than relief.


Since taking office, he created few jobs, did little for beleaguered homeowners under water on mortgages or facing foreclosure, and promises harder times head under planned austerity on top of cuts already made.


Few students will benefit from his new loan repayment plan, none facing default. Federal student loan repayment schedules will be modestly relaxed. Congress already approved them. Students who consolidate multiple loans may save half of 1% on interest charges.


Instead of mandated payments up to 15% of annual incomes over 25 years, indebted students will pay up to 10% over 20 years. Qualifying students will get debt forgiveness after 20 years.


Out of 36 million indebted current and former students, less than half a million choose repayment caps because of onerous terms. Expect fewer numbers to accept Obama's.


Pre-2008 borrowers are excluded. So are those with private loans and others in default. Only federal Stafford, PLUS, and consolidated Direct Loan and Federal Family Education Loan borrowers are covered it they qualify.


As a result, expect few indebted students to be helped. Total indebtedness will rise, not fall. Rising tuitions and fees will increase growing burdens. Relief is nowhere in sight. At a time Wall Street practically borrows free, federal education loans cost 6.8%. Over time, interest burdens alone increase exponentially.


The Department of Education scams borrowers instead of helping. In today's environment, student and other federal loans should be near interest-free.


Given a protracted Main Street Depression, austerity exacerbating it, and budget priorities favoring Wall Street, war profiteers, and other corporate favorites, expect greater than ever student loan repayment burdens.


Americans face rising poverty, unemployment, home foreclosures, homelessness, hunger, student debt entrapment, and despair. The very notion of a fair and equitable society is mocked.


With no planned relief coming, imagine what's ahead for millions, including inescapable lifetime student debt burdens.


Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.


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 Saturdays and Sundays at noon. All programs are archived for easy listening.


http://www.progressiveradionetwork.com/the-progressive-news-hour/.