This is a bit different from what we normally talk about. But tonight, I was looking at my "progess" in repaying my student loans. I have to tell you, it is demoralizing. I took my first student loan out in 1994. I managed to use deferments and such through 1996. I started repaying in late 1996 only to go back into deferment for 2 more years. During that time, I took out 2 more loans. Now, my annual income is less than the amount of the loans I took. I have been in full repayment since 1999. I have repaid $21,000 in interest and only $7,000 in principle. (I think the $2000 I put on my visa card last year at 2.99% was the fastest $2000 I ever paide on it. I may have to try doing more of that! ) Eighty percent of my current monthly payment goes to interest. The interest accumulates daily. So sending extra money in doesn't get you ahead. By the time you send the money and they process the payment, 8 days of new interest will have accumulated. Because I consolidated, I am stuck with an interstate of about 7%. I am not alone. There are many of us! I can commiserate with Developing Countries. I, me, I am ARGENTINA! And cry for me, damn it!
Here is the insidious part. Corporate interests (i.e. Sallie Mae) has blocked congressional attempts at
loosening the student loan refinancing laws. As recently as last month, attempts to level the playing field for those of us with student loans were beat back. So everyone else gets 3% interest while we pay 7-8%!
Baby boomers can refinance their houses, and get tax breaks on the property tax while their children are saddled with a huge debt burden before even stepping foot in their first real jobs. I have always said that having a whole generation of your best and brightest burdened with debt is a disaster in the making.
Maybe it is a good thing that Congress is seeking to cut funding for student loans. If there is less money for student loans, perhaps more fair financing options will be available. Perhaps the likes of Sallie Mae, the now independent from the government, would not be able to practice such usury.
Adults, like myself, and some if not all of my fellow bloggers, who have these types of student loads should be allowed to refinance them. They are 30 year loans, like mortgages. The tax breaks for loan interest need to be raised, and these loans should not be held by private companies. Interest rates should be capped lower. The idea is not for lenders to make a huge profit , but to lend students money for higher education at a fair and reasonable rate.
In the meantime I welcome ideas on how we can get around this type of financial abuse. For now, I am going to visit my credit union to see if I can at least take a private loan at a lower rate and I will continue to lobby my employer to offer student loan repayments as a retention bonus. What do my fellow Citizen's think?
Tuesday, December 06, 2005
Government usury
Posted by USWest at 12:21 AM
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14 comments:
I'm one of those lucky ones who conslidated at the far lower interst rate.
The general rule of thumb is that if you are plagued by debt you want inflation. Assuming your wages keep up with inflation (and wages for most government employees and many private employees are indexed to inflation by contract), the value of the debt relative to your income will drop. Unless you have a flexible interest rate. If you have one of those you're screwed.
By the way, lots of people have flexible rate mortgages. Inflation is gradually increasing as are interest rates. All these people with flexible rate mortgages are going to start defaulting on their house payments in the forseeable future. That's going to be a political nightmare!
// posted by Raised By Republicans
It's hard to find figures on total debt outstanding, but a study from 1997 showed that nearly $230 billion had been borrowed by students since 1967, when federal student loan programs began, but amazingly, 1/3 of that total was in 1993-1996 alone. As of 2000, another report showed student borrowing of $30 billion/year and increasing. That's a huge debt burden on a generation. It's also a sad policy decision to shift the cost of education.
// posted by LTG
Students who borrowed over the last 5 years had a pretty sweet deal because interest rates were very low. LTG points to the $30 bil a year in borrowing. Think of the interest payments on that! Sallie Mae gets the interest paid by the government while students are in school. So basically, the company gives unsecured loans to students and can afford to loose the principle entirely after 4-5 years. And actually, Sallie Mae (SLM Corp.), formerly federally chartered, doesn't risk a thing. It simply repackages the loans and sells them. It's a sick business, if you ask me.
An entire industry of consolidators has grown up. I couldn't find figures on the value of that industry now. But judging by the amount of junk mail I get from them, it is huge.
There was a time when you could agree to bad credit for 7 years and file for Bankruptcy. That came to an end in 1998. The USDE can seize portions of borrowers paychecks, tax refunds, disability check, and Social Security payments without a court order, a power that only the Internal Revenue Service regularly uses. Unlike consumer debt, there's no statute of limitations on student loans. So the USDE can even go after decades old loans.
The USDE boasts that if you go into default, it will get not only every dollar of principle, but 20% more in fees and backed interest. Loan collectors are entitled to 20% of what they collect and that gets added onto the principle of the student loan. Short of death or permanent disability there isn't any getting free. In one case I read about, a musician had $100,000 in student loans. He was working 60 hours a week earning $20K an year. He tried to file of bankruptcy. The government attorney's said he had to trim his costs. They told him to get rid of his $23/month internet connection (that he used for finding jobs), his $48/month gym membership (he needed to rehabilitate a back injury) and his cat. That would save him an additional $20 a month. The judge sided with the man and called the debt void. However, the man lost on appeal. Might as well bring back debtor prison.
Are we sure the Costra Nostra isn't running the program? And to think the Republicans wanted to abolish the Department of Education! That money maker????
Now I don't think people should "get out" of their loans. But as I said, the refinancing laws need to be liberalized and tax breaks should be increased. Loans need to be treated more like consumer debt.
This all really got bad in 1998 when the Clinton administration tried to get student loan interest rates reduced. Instead, the Republican congress tightened all the rules. That is some family values for you.
// posted by USWest
The federal government makes direct loans through the education department, and you can refinance student loans through the government. I did that to cut out the middleman. Because Republicans controlled Congress when Clinton set up the Direct Loan program, they insisted that the loan officers suggest consolidating with private, for-profit lenders (who, because they operate at a profit, have to charge more than the government, which doesn't). Let go of Sallie Mae.
// posted by LTG
Consolidated with the feds. It doesn't matter- the terms are all the same. Clinton tried to do something good. In fact, Stafford loans exploded in 1994 in large part because of Clinton's reforms. I think, however, there have been serious unintended and potentially unforeseen consequences, as there often are with any policy.
Student loans allow universities to get around the market. They can charge higher fees knowing that the money will come. It is a form of subsidy, but as LTG pointed out, the costs fall on the wrong people. Businesses complain that they can't get qualified people and have to go overseas to find them, yet how many bother to help new hires with student loans?
My personal problem aside: the system is broken. It raises bigger issues and points, yet again, to the Republican strategy of squeezing the middle class. It also raises the question of abuse of power of the a government agency. Do the acts of the USDE to collect on these loans rise to the level of government abuse of power?
// posted by USWest
To be honest, I've had nothing but good interactions with USDE. They give a forbearance, it seems, at the drop of a hat, and until recently interest rates were very low. I took my 8.25% loans from the early 1990s and consolidated at 4.7%. One loan with Sallie Mae resulted in endless nasty phone calls over a payment dispute. Never with USDE - always very pleasant.
I do agree that the inability to discharge the loans in bankruptcy is a problem. But now that we've basically abolished bankruptcy for the middle class, who cares any more?
// posted by LTG
A timely post, USWest! As it happens, in a unanimous ruling today, the Supreme Court now says that Social Security benefits can be garnished to pay off student loans. Read here .
// posted by Anonymous
I've had great interaction with USDE as well. That isn't the point.
// posted by USWest
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