Shocking Student Loan Debt

sallie-mae-2New Orleans In talking about Citizen Wealth around the country I’m frequently asked about education and the old saw that education creates income security.  Odds are that there is still truth to that, but it was shocking to read how predatory the least slipup can be for students taking on debts for a key to supposedly a richer future.  An article in today’s Wall Street Journal by Mary Pilon detailed some scandalous charges and run-ups that can take student loans up to as much as a half-million bucks. It’s not surprising to see how these vultures lure the young into a lifetime of debt servitude or more frequently loan defaults.

The tricks of the trade are seductive:

  • Deferrals:  sure seems like a friendly thing to do but the debt accumulates and grows while the payments are postponed.
  • Compound Interest:  I forget the movie where the old rich fellow was telling the callow the youth the secret to wealth, and it was “compound interest,” not “plastics.”  The ability to charge interest on top of interest on top of interest, takes the simple debt and its simple interest rate to stratospheric levels once you add time.  You are thinking this isn’t predatory, right?  This is just the way loans work, chump!  If there is no effort to explain the consequences transparently, then over time this morphs into a predatory practice as well.  Get it?
  • Penalties and fees:               The story detailed preposterous charges of $20000+ and $50000+ for turning over collection to a debt agency.  What?!?  How can that be possible?

More of this is going to happen to young people given the huge recession.  But according to the story there is over $750 billion and only 40% of the debt is being actively repaid.  This also means the debt (see above on compound interest) is also soaring on that 60% for sure.

There was a story of a doctor who had $250,000 in debt which has now gone over $500000+ in 5 years with what and what.  There was another story of a mother whose unemployment check of $300 is being garnished by the federal lender, Sallie Mae, for $120 because she had signed for her son while he was in school, and he lost his $29000 job, and defaulted because he was unable to keep up.

If trying to own a home is one ticket to trying to achieve financial security for working families, and we are watching much of that dream wash away in foreclosures and fallen prices, then education was certainly supposed to be another investment in a better future.  With eroding jobs, increasing debt, escalating college pricing, and no relief, this looks like a mess.

Seems to me that getting these young scholars right sized on their debts would have been a good investment by the government when it was in bailout mode, but perhaps the reason the government is allowing the banks to patty cake around on the foreclosure mess, is the fact that clearly the government is not willing to write down some of this outrageous debt that they are allowing to grow unabated through predatory practices.

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