(I recommend reading these articles from Harvard Law Review, http://hlpronline.com/2010/05/lamort_deb/ , and the Wall Street Journal, http://online.wsj.com/article/SB124027600001437467.html , just to get some background information and context)
I have previously written about the injustices inherent to student loans in the United States, but I would like to supplement my criticisms with an example that shows just how devastating unforgivable student loan debt is. For background, consumer protections for people with student loans were removed in the 1970s and still have yet to be restored. This means student loans are the only loan that can never be forgiven through bankruptcy.
Today, I overheard a conversation between a roommate of mine, Tom, and my landlady, Tonei. He was saying that, because he was unable to pay his student loan debts, he now had 15% of his paycheck garnished by the banks he owed money to. The worst part is, this 15% of his paycheck (he works 48+ hours a week at barely above minimum wage) doesn’t even cover the interest that is accumulating; so, at the current rate, it appears that Tom will be paying off his student loan until he dies.
The tone of desperation, disgust, and resignation permeated his voice as he explained to my landlady, “that I can’t do anything about it” and “I am going to be paying until I’m 92.” (for the sake of honesty and accuracy, these quotes are probably a little off, but they cover the basic concepts of what he was saying. Also, a hint of anger and despair were present in his voice, but they were muted; by now, he has lived with spiraling student loan debt for a decade and has resigned himself to being under the heel of banks for the rest of his life.
Sure, Tom made a mistake in taking out so much in student loans. I don’t want to excuse him for that. But he is paying for one mistake that he made while young with an entire lifetime of work.
We need to begin to educate ourselves about student loans. I urge you to talk about this to your friends and family to raise awareness that student loans are the only loan that you cannot have forgiven through bankruptcy. I didn’t know this when I took out student loans; my dad didn’t know this. Schools don’t tell you this because they don’t want to scare away prospective students; banks don’t tell you this because student loans are immensely profitable. There is no reason for any institutions involved in this to mention it, and that is why it is so important that it gets around through word of mouth and the Internet. Otherwise, we cannot fight this injustice.
Here is why banks make so much on these types of loans:
If the student pays off their loan, then the bank makes the amount of the loan back plus the interest that has accumulated. If the student doesn’t pay off the loan and defaults, then the banks can extract more money than if you paid it off. This is because the interest keeps accumulating, so they get the original amount plus more and more interest. Through collection agencies, they can garnish wages, tax refunds, and so on. Here is a list of all the banks can do. The debt is never forgiven.
If you make no money and have no property, the banks cannot get anything; however, the interest constantly accumulates so that if you ever do get an influx of money it will then begin to get garnished by the banks. Coupled with the increase in people being jailed for their debts and it is not a pretty picture facing students graduating with record amounts of debt in a weak economy.
There are still a few ways out of student loan debt in the US. However, as I’ve emphasized, none of these are through the usual way of simply declaring bankruptcy, taking the associated hit to your credit score.
There are some ways for a sizable minority of recent graduates who enter into certain programs. Very few entirely forgive the debt and it would arguably be better just to get a well-paying job in the private sector (if you can net a good job, that is), but there are several ways mentioned here.
One is through a provable amount of “undue hardship”, such as major long lasting illness, disfigurement, or overwhelming mental problems. However, this usually requires a bankruptcy lawyer to argue the case in court, who costs money. Thus, people eligible for this are caught in a Catch-22: severely distressed and too poor to hire a lawyer to argue that they are severely distressed and without money and a way of making money. Despite the hurdles, a few people are able to have their debt forgiven because of “severe personal distress.”
However, the vast majority of students only have one other way out: through death, and that is a miserable, stressful way to go through life. And escape from debt through death increasingly becomes the norm as the price of college, fuel, and food increases while the average salary (not to mention job availability) decreases or stagnates. Defaults are on the rise according to the Wall Street Journal and the US Department of Education.
But there is a glimmer of hope. Through sites like StudentLoanJustice, we can begin to organize to restore consumer protections to anyone with student loans. A fascinating article has been written by the Harvard Law Review that reveals the problems and what might be done to solve them. I sincerely urge you personally to spread the word because there is no other way that people are going to hear about this mounting injustice.