Posts Tagged ‘Student debt’

Student debt may be dischargeable in bankrupcy

July 22, 2021

‘The Trillion-Dollar Lie by Matt Taibbi for TK News.  “Universities built palaces and financiers made fortunes in part through a lie: that student loans can’t be discharged in bankruptcy.  But a series of court cases is helping unravel the scam.”

For years, it was believed that .. [the Bankruptcy Act of 2005] absolutely closed the door on bankruptcy for whole classes of borrowers, and one in particular: students.  Nearly fifteen years after the bill’s passage, journalists were still using language like, “The bill made it completely impossible to discharge student loan debt.”

Even I did this, writing multiple features about student loans stressing their absolute non-dischargeability, which is one of the reasons to write this now — I got this one wrong.

In 2017, I interviewed a 68 year-old named Veronica Martish who filed for personal bankruptcy — as I put it, “not to get free of student loans, of course, since bankruptcy protection isn’t available for students” — and described her being chased by collectors to her deathbed. “By the time I die, I will probably pay over $200,000 toward an $8,000 loan,” she said. “They chase you until you’re old, like me. They never stop. Ever.”

In fact, the bankruptcy situation was murky.  Beginning in the 2010s, judges all over the U.S. began handing down decisions …. that revealed lenders had essentially tricked the public into not asking basic questions, like: What is a “student loan”?  Is it anything a lender calls a student loan?  Is a school anything a lender calls a school?  Is a student anyone who takes a class?  Can lenders loan as much as they want, or can they only lend as much as school actually costs?  And so on.

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Imprisonment for debt, and other injustices

December 4, 2020

When Medical Debt Collectors Decide Who Gets Arrested by Lizzie Presser for ProPublica.  “Welcome to Coffeyville, Kansas, where the judge has no law degree, debt collectors get a cut of the bail and Americans are watching their lives—and liberty—disappear in the pursuit of medical debt collection.”

Student Loan Horror Stories: Borrowed $79,000. Paid $190,000.  Now Owes? $236,000 by Matt Taibbi for TK News.  “At 59, Chris pleaded for a renegotiation.  ‘My life expectancy is 15 more years.  At this rate, you’re not going to get very much … ‘  Their response was, ‘So?'”

Public Defender Tales: Innocent, But Fined by Matt Taibbi for TK News.  “The state of Iowa collects millions of dollars from people whose charges were dismissed.  There’s also a Catch-22: financially, you’re better off guilty.”

Lawmakers Unify to Give Corporate Donors a License to Kill You by David Sirota and Julia Rock for The Daily Poster.

I Was a Useful Idiot for Capitalism by Kurt Andersen for The Atlantic.  “How I got co-opted into helping the rich prevail at the expense of everyone else.”

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The real problem with college debt

August 2, 2013

Congress passed a law which will lower interest rates on certain student loans for the immediate future.  But Alan Collinge, author of The Student Loan Scam and founder of StudentLoanJustice.org, told the Real News Network that interest rates are not the most important problem.

The big problem, he told the Real News Network, is that people who take out student loans do not have the same legal rights as other borrowers—bankruptcy, statutes of limitations, truth-in-lending laws, refinancing rights and abusive collection practices, including predatory fees on defaulted loans.  This may have been what he had in mind when he said some lenders find it more profitable to have a loan in default than to be paid up.

The other problem is not the payment plan but the sticker price.  The cost of college tuition and fees is rising faster than anything else, even medical costs.

Higher Ed Inflation (more…)

Medicine for an economy sick with debt

July 9, 2012

Ratio of total U.S. debt to U.S. economic output

Our great recession is due to the bursting of a debt bubble, and not just the normal ups and downs of the economic cycle.  We had an economy in which many and maybe most Americans were unable increase their earning power, but maintained their material standard of living by going deeper into debt.  As long as the real estate bubble and the stock market bubble lasted, they were able to keep on borrowing.  Now that the bubble has burst, and it is time to pay up.

The old Keynesian medicine doesn’t seem to work.  As long as the government pumps money into the economy, there is some recovery, but noy enough to keep going when the government stimulus ends.  Paul Krugman proposes a stronger stimulus.  If deficit spending can spark sustained economic growth, he says, that growth will make it possible to pay down the debt in the long run.  Very true, but what if it doesn’t?  What if deficit spending just adds to the deficit and nothing more?

“Austerity” doesn’t work either.  Cutting necessary government services — schools, road maintenance, public health — just creates a different kind of deficit, if you look at things that way.   This “saving” is going to have to be made up by much more spending in the future.

Meanwhile we’re stuck.  As Sarah Jaffe of AlterNet put —

The student loan debt alone is going to be a trillion dollars sometime in the next couple of months. That’s a trillion dollars that we’re all paying in interest to Sallie Mae, to Citibank—mine was with Citibank for several years—to Wells Fargo, to Discover Card Services, which bought a bunch of student loan debt recently, and to the federal government. But we’re not paying that into our local businesses. We’re not paying this into the corner store. We’re not paying this to the farmer’s market. We’re not paying this to anything. We’re not buying a home because we have student loans or we’re not going back to school because we have a home loan.

Debt has been a substitute for wage increases in this country for about the last thirty years, give or take.  Real wages haven’t gone up in a really long time.  We’re mortgaging our future on credit cards and home equity.  And when the housing bubble popped, and the credit markets froze, we suddenly realized exactly how little we had that wasn’t promised to somebody else already.  It becomes a drain on the future. 

via n + 1: Debt.

Inflation is one historic method by which nations have made their debts go away.  We don’t want to go that route.

The other historic way to address the debt problem is to “restructure” the debt—have people pay what they can afford, so much on the dollar, and chalk it up to experience.  The creditors learn to be more careful in the future when they lend money.  The debtors find that it is much more difficult to borrow money.  Both are able to move on to new things.

During the 2008 election campaign, there was talk of something called “cramdown”—giving federal bankruptcy judges the authority to restructure mortgages in hardship or legally cloudy cases.  Various proposals have been advanced for giving relief on student debt.  Internationally, government debt crises almost always result in a restructuring of debt, but usually after a period of “austerity” in which the public is subjected to higher prices, lower wages, higher taxes and denial of essential government services.

I think that when you borrow money, you have a moral obligation to make a good-faith effort to pay back the money.  But when a borrower is honestly unable to repay a loan, it means both the borrower and the lender have acted unwisely (or are the victims of bad luck), and they both should suffer.  The lender suffers by taking a loss; the borrower suffers by having to pay up to the limit of what they can and by not being able to borrow in the future.  But you cut short the agony.  You make it possible to start fresh.

Click on n + 1: Debt for a panel discussion of debt by David Graeber, author of Debt: the First 5,000 Years; Mike Konczal of the Roosevelt Institute; Brian Kaltenbrenner of Occupy Student Debt; and Sarah Jaffe of AlterNet.

Click on Okay, Folks, Let’s Put Aside Politics and Look at the Facts for useful charts and information from Henry Blodget of Business Insider.   Blodget is a Wall Street guy who thinks the answer to the federal budget deficit is a combination of tax increases and cuts in Social Security, Medicare and Medicaid.  My problem with this is that Social Security (contrary to the propaganda) is solvent and Medicare delivers health insurance more efficiently and at lower cost than for-profit health insurance systems.  It is true that Medicaid spending is a problem, but I think a solution needs to be something other than denying essential medical care to poor people.  That said, Blodget provides a great deal of good information.

Click on Hubbert’s Third Prophecy for more useful charts and information from ClubOrlov.  The post concludes with an argument against banking as such, which I don’t understand and with which I probably would disagree if I did understand it.  That said, there is a lot of good information, as well as food for thought about exponentially increasing debt in a world that cannot sustain exponentially increasing economic output.

Click on Parsing the Data and Ideology of We Are the 99% for an analysis by Mike Konczal of the demands of the people on the “We Are the 99 Percent” Tumblr page.  His conclusion was that their basic demands were debt relief and the means of basic economic survival.

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The student loan crisis

April 26, 2012

This video is a good summary of the larger problem of higher education behind the student loan debt problem.  Nowadays young people believe that the only way to be able to earn a decent living is to have the credential of a college degree.  Employers use the college degree as a way to sort job applicants, even when you don’t really need to have taken college courses in order to qualify for the job.  But increasing the number of college graduates doesn’t, in and of itself, increase the number of jobs.  Instead it raises the hurdle to qualify for a good job.

The Foundation for Economic Education, which produced this video, is a right-wing libertarian organization which thinks government programs do more harm than good.  I don’t think that’s always true, but in this case I have to agree.  The Foundation is right to say that it was irresponsible in encouraging young people to take on debt regardless of their potential ability to repay.  It also is right to say that putting more cash in the hands of students does no good if that cash is absorbed by increased tuition.

Click on The Freeman | Ideas on Liberty for more from the Foundation for Economic Education.

The explosion in student loan debt

April 26, 2012

Speaking in North Carolina yesterday, President Barack Obama had this to say about student loan debt.

For the first eight years of our marriage, [Michelle and I] were paying more in student loans than what we were paying for our mortgage.  So we know what this is about.

And we were lucky to land good jobs with a steady income.  But we only finished paying off our student loans—check this out, all right, I’m the President of the United States—we only finished paying off our student loans about eight years ago.

via Obama for America 

Click to view.

That’s really something.  I never had to think about student debt when I sent to college in the 1950s.  In that era, public universities provided an affordable college education for everybody who was capable of doing college work.

President Obama, and also Governor Mitt Romney, favor extension of a 2007 law which freezes interest rates on subsidized Stafford student loans.  If the law is not extended, interest rates will rise from 3.4 percent to 6.8 percent a year, with an added annual debt burden of nearly $1,o00 for the average new college graduate.

This will subtract $6 billion a year from federal revenues.  Romney said there needs to be an offset by cutting federal spending, but he didn’t say where.  Obama hasn’t said anything about the budget impact.

The real problem, as I see it, is that it doesn’t get at the real problem, which is the high cost of college tuition.  So long as college and university administrators are guided by economic incentives alone, making more money available to students will simply result in increases in tuition.

Nor does it address the debt burden of existing college graduates.  Note that the College Cost Reduction and Access Act was phased in slowly, so only a minority even of those who graduated after 2007 got the full benefit of the interest rate reduction.

Click on Student loan debt is growing at an accelerating rate for more facts and figures on student loan debt.

Click on Student Loan Debt Exceeds One Trillion Dollars for background from National Public Radio on extension of the College Cost Reduction and Access Act.  The charts I’ve found indicate that student loan debt actually is less than $1 trillion, but it is on track to reach that level.

Click on The next act in the student loan fight: Offsetting the cost of lower rates for background from the Washington Post on the budget impact of extending the law.

Click on Dissecting the Fight Over Student Loans for Talking Point Memo’s report on Democratic and Republican differences over how to handle the budget impact.

Let the student loan debtors use bankruptcy

November 8, 2011

A lot of the Occupy protesters are unemployed or underemployed college graduates who can’t pay their student loans.  Well, you may say (if you’re in my generation), they shouldn’t have borrowed the money in the first place if they weren’t in a position to repay it.  But they have little choice.

Double click to enlarge

Young people today believe, with good reason, they have no economic future without higher education.  The cost of higher education has gone up so much that it is not affordable for most middle class and working class families without borrowing.

But unlike with any other form of debt, you can’t go through bankruptcy, sell what you have and pay what you can, and make a fresh start.  If you don’t get a good job right out of college, you may be struggling for the rest of your life.  Even when you go on Social Security, your income can be garnished to pay your outstanding college loan debt.

As the chart shows, this wasn’t always the case.  When the student loan program was established, college debt could be discharged through the bankruptcy process, the same as anything else.

Mike Konczal on his Rortybomb web log asked a good question.   Why not turn the clock back to 1989 or 1997, when student loan debtors could at some point use the bankruptcy process like everybody else?

Consider these facts, as recently reported in USA Today.

  • Last year the amount of college loans taken out crossed the $100 billion mark for the first time.
  • Total college loans outstanding are expected to go above $1 trillion this year.
  • Americans now owe more on student loans than on credit cards, maybe partly because credit card debtors can go through bankruptcy.
  • Students nowadays are borrowing twice as much, adjusted for inflation, as they did 10 years ago.
  • Total outstanding college loan debt has doubled in the past five years.

As Elizabeth Warren once asked:

Why should students who are trying to finance an education be treated more harshly than someone who negligently ran over a child or someone who racked up tens of thousands of dollars gambling?

Click on Student loans headed for $1 trillion this year for the full report in USA Today.

Click on Two Steps Toward Ending Our Current Student Loan Problems for Mike Konczal’s full comment on this subject on his Rortybomb web log.  (Hat tip to him for the chart.)

Click on Student Loan Scandal Fallout for Elizabeth Warren’s full comment on Credit Slips, a group web log about credit, debt and bankruptcy.

Click on Dancing Around the Edges of Student Loan Reform for a rebuttal to Mike Konczal [Added 11/1o/11]

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Why no youth revolt?

May 2, 2011

A friend of mine noted that 20th century political revolutions of the left and right were led by young unemployed college graduates, as were the recent protests in Egypt.  Since unemployment among recent U.S. college graduates is the highest on record, he wonders if and when there will be a similar explosion in the United States.

One reason for the lack of an American youth revolt, in my opinion, is that so many recent graduates are too busy paying off their college loans.  They spend too much time looking for jobs or working multiple jobs to have time for political activity.  And they are aware that, in today’s labor market, getting a reputation as a troublemaker or dissident will make you unemployable.

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