Student loans: immortal

BY TERRY BIBO

Instead of “Pomp and Circumstance,” the Class of 2017 probably should have graduated to the tune “Sixteen Tons.”

Their grandparents may have been toddlers when Tennessee Ernie Ford’s cover of a coal miner’s debt struggles topped the charts in 1955. And their parents may be sharing the load for one of the most expensive pieces of paper they will ever tote.

Still, our future workforce could use better shovels to dig their way out from under their diplomas some time before they die. Under current rules, their student loans could outlive the family. Unlike other forms of debt, student loans are almost impossible to discharge in bankruptcy.

The numbers are daunting, metastasizing and affecting the whole economy. In late April, The Wall Street Journal reported that the number of Americans with student loans has jumped 14 million — to more than 42 million — over the last decade. Overall student debt has more than doubled over that time period.

“Total student loan debt currently stands at about $1.5 trillion,” said Alan Collinge, founder of studentloanjustice.org, via e-mail.  “Interest ALONE on this amount (which averages about 6 percent across all loans) is roughly $90 billion per year!!! This is a tremendous amount of otherwise disposable income to be sucking out of the economy, and it is growing quickly.”

Put another way, college students graduated with an average debt of $37,172 in 2016. Assuming current numbers are similar, that’s the equivalent of a 2017 Jaguar XE or Ford F-350 SuperCab. It could have been the down payment on a house.

“In the past month, people like Jamie Dimon (CEO of JP Morgan Chase) and the president of the New York Fed have noted declines in home purchases and other big ticket purchases as a result of student debt, so the macro-economists are no longer able to ignore this problem,” noted Collinge.

Collinge is the author of “The Student Debt Scam: The Most Oppressive Debt in U.S. History and How We Can Fight Back.” He has been interviewed by everyone from The New York Times to “Sixty Minutes” to Fox News. And he has been pilloried on-line for his own struggles as a naive student borrower. He was trolled as “an idiot” and a “loser” when he couldn’t find a job after getting aerospace engineering degrees. He’d complained because penalties and fees during underemployed years inflated his $38,000 in loans to $80,000, later $109,000, even though he’d paid $4,000.

On the other hand, Collinge was selected as one of seven Financial Heroes by CNN/Money Magazine in 2008. Studentloanjustice now has members in all 50 states and the District of Columbia.

Another day older

Chances are excellent you know one or two such “losers” or have friends with adult children living at home.

Andre Allen

It may be true that no one is forced to take out a student loan. It may be true that a diploma, unlike a car, represents an investment in the future which will more than repay the sticker price. But the Great Recession changed that calculation in a couple different ways. When there were no jobs, many people opted for college to prepare for better times. (The same WSJ story noted college enrollment grew 20 percent between 2005 and 2010.) But the jobs that have appeared do not necessarily pay well, and the loans must be repaid.

“You’ve got to be very strategic with college right now. If you’re not ready, it’s alright not to go. Live in your mom’s basement for awhile,” said Andre Allen, student life and career services coordinator at Methodist College UnityPoint Health. “That’s why I’m a fan of community college. You can afford to make a mistake here.”

Allen recently spoke at a graduation reception for TRiO Student Support Services at Illinois Central College. The Richwoods High School grad appreciated ICC’s help and advice, even more when he went on for a four-year degree at Eastern Illinois University, so he returned the favor for the Class of 2017. Now 28, with a wife and baby girl, he has a master’s degree and contemplates a doctorate. He doesn’t advise against education, but he does advise against debt.

“A lot of people say, ‘I’m investing in myself,’” he said. “They don’t realize you have to have a return on investment.”

He knows they can’t walk away. He was an academic advisor at Illinois State University, as well. He knows tax returns can be taken. Wages can be garnished. Parents or friends who co-signed can and will be caught in the bind.

“Now you can’t get that car. Now you can’t get that house. Or you have to pay interest through the roof,” Allen says. “It affects everything.”

His advice is proactive: Do your research. Be strategic. Find resources. Work hard. And, if you’re in over your head, don’t duck.

“You can’t just go MIA on the student loans. You’ve got to man up. You’ve got to woman up,” he said.

Otherwise, it only gets worse.

And deeper in debt

Student debt spans the territory from “You signed on the dotted line” to “The system is rigged.”

In February, Illinois joined the state of Washington and the federal Consumer Financial Protection Bureau in filing lawsuits against Navient, the nation’s largest student loan servicing company. Together, they allege the company profited from up to $4 billion in unnecessary interest and misapplied payments. And that’s a fraction of the $50 billion a year the federal government makes on student loans.

“I think it’s terrible that one of the only profit centers we have is student loans,” said presidential candidate Donald Trump last year.

Although possible charges loomed last fall, Navient stock soared the day after the election, reportedly because CFPB’s future was considered a cypher under a President Trump. Now that he’s in office, even limited debt forgiveness programs may be a thing of the past.

Coincidentally, perhaps, a report from the Government Accountability Office had showed debt forgiveness means the federal government could lose $108 billion from money-making student loans. On May 18, The Washington Post reported Trump’s upcoming budget would end public-service loan forgiveness, halve funding for college work-study programs and eliminate $700 million in Perkins loans for disadvantaged students.

Already, hundreds of thousands of people got a notice from the U.S. Department of Education this spring that they may not be eligible. Some had been enrolled since the program started in 2007 — taking lower-paid jobs in fields like social work on the promise of loan forgiveness after 10 years — and thought they were about to be cleared.

“The federal government really likes the lending system exactly as it is:  Predatory, profitable and hyper-inflationary! In fact, it turns out that the federal government even makes a profit on defaulted loans! This is a defining hallmark of a predatory lending system, and this is precisely what has happened with the federal lending system,” said Collinge.

In Illinois, a student loan bill of rights co-sponsored by state Sen. David Koehler, D-Peoria, made it to the House and was assigned to the executive committee on May 15. Collinge said such a bill is “well-meaning,” but the problem is federal. He thinks non-binding resolutions calling for a return of standard bankruptcy protection to student loans, which passed both House and Senate a few years ago, were probably more helpful. He’d like to see Illinois “really get bold” and pass a resolution for protection of student loan borrowers in bankruptcy.

“This would obviously create large supremacy issues between the state and the federal government, but frankly, I think this is exactly what is needed,” Collinge said. “Where better than the ‘Land of Lincoln’ for this to happen?”

Terry Bibo



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