The Impact of Student Loan Defaults: A Lifetime of Debt

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Let's face it; the news hasn't been very pleasant lately. Heated talks about raising the debt limit ... rising deficits ... default fears, credit rating downgrades, high unemployment ... and looming fears of stock markets crushing people's retirement funds, I thought I'd heard it all.

But that was until I got 27 minutes of pure education watching Default: The Student Loan Documentary --a powerful film that demonstrates how student loans have become more of a burden than a benefit to many people.

If you have 27 minutes to spare -it could save you 27 years worth of debt.

Default was an eye-opener for me. I didn't realize that private student loans have for years been treated so differently than any other debt --nor did I realize the debt may be nearly impossible to pay off. While changes enacted in March 2010 will help some new student loan borrowers beginning in 2014, the reforms are only applicable for loans signed after July 1, 2014, and will not be retroactive, nor do they apply to private loans. People who have taken out private student loans and run into trouble paying them, soon face a harsh reality when they find out the hard way:

     • There are no rules-and NO limits when it comes to how much a private student loan company can charge for interest, penalties and fees once a debtor falls into default.

     • The debt can NOT be discharged in bankruptcy, the way credit card, medical and even gambling debt can be.

     • The debt has no statute of limitations, and is void of any refinancing rights, truth in lending or fair billing protections.

     • The private loan industry is a set up -it sets you up to fail and allows others to reap fortunes.

Would it surprise you to know that it's possible for a student to take out a loan for $35,000, pay back $26,000 and still owe $57,000? It did me. Exorbitant interest charges, fees and penalties can be rolled into principal and then accrue even more interest. Based on the widespread debtor complaints, this industry appears to be following the lead of the sub-prime loan industry; massive servicing runarounds, claims of lost documents as loans are sold and resold, and downright fraud.

The film shows people who are forced to decide between paying student loans --or rent.   Others have been forced to work long after retirement and endured years of trashed credit.  With the shrinking job market--what happens when the student buried in student loan debt obtains his or her diploma - and can't obtain a job?  That's right - the interest and debt climbs along with his/her fears and anxiety.

Does anyone find it disturbing that education has become unaffordable? Or that it's viewed as acceptable lending practices to charge interest of tens of thousands more than originally borrowed? Isn't this just another dose of bad politics that smacks of greed?

If you go into default on a student loan it accrues interest, the interest is compounded, and so too are the problems. Lenders can charge unlimited interest, exorbitant fees and penalties knowing they're going to get their money back --one way or another. Why? Well here's the kicker: the government allows garnishment of future benefits, including wages, tax refunds, Disability and Social Security payments, and threatens suspension of state issued professional licenses, if they don't first pay back all student loan debt, fees and penalties included!

The people sharing their real-life stories in Default talk about how easily their loans grew out of control. One woman shared how she learned at 60 years old that her student loan of $35,000, on which she had paid over $20,000, still had a remaining balance of $52,000.  That's enough to make anyone think twice about getting a degree. Is a degree worth a lifetime of debt?

It's difficult to understand why students would be set up to fail. It's equally difficult to understand why Congress thinks it's okay that students are subject to predatory lending practices. Sallie Mae --the country's largest private student loan issuer --is set up in such a way that students have no way out of debt.

When education loans carry loan shark terms --it's not only interest compounding -it's troubles compounding when families realize they will be in debt for a lifetime.  The weight of this debt rules lives --and ruins lives. Can we comfortably advise our kids to follow the path to their dream career --when we know the path is a risky one --and one that could lead them straight into a personal nightmare? Getting a college degree was once viewed as the only choice we had to reach our potential -and grab that key to a better life -the one that comes with a degree. Today getting a degree should come with a warning label: BEWARE: Getting an education may bring you a lifetime of debt!
For those that say, "Hey, you signed on the dotted line," think about this: Did you know everything at 18? Most of us thought we did -but soon learned we didn't have a clue.  Eighteen-year-olds do not pay attention to interest rates and terms. Their only concern is they want to go to school. Most think about all the money they are going to make when they graduate --and how they don't even need to worry about making a payment until then! At that age, who thinks about the consequences of long-term debt?  Up until college their focus was on what they were wearing and where was everybody hanging out? They are vulnerable to sales pitches from for-profit colleges and for-profit lenders.

Years ago, families could depend on Pell Grants. Grants could end up paying for 75 percent of the cost of going to school. Today, Pell Grants are hard to qualify for, and students are lucky to find a scholarship that covers much more than the cost of books.

If that's become "the American way" -it's not only disgraceful --but time to change!

The burden to pay the debt, become educated and contribute to our communities has become a burden on the back of children who don't always have parents to help them. If you don't have parents who've worked hard at stashing away money to finance your college degree - you're going to be faced with finding a way to do so yourself. We always assumed we'd have plenty of money once we graduated with a degree in our hand. That was then and this is now.

Watching Default was a teachable moment for me. You owe it to yourself and your children to watch this movie --and if you walk away with a different view of what faces today's college students, then write your own review--to your legislators. Urge Congress to restore basic protections for all student loans --before we don't have any students willing to take on this heavy burden of debt. Shouldn't they expect at least --the same protections from predatory lending as home buyers and credit card users do? If not, I'd like to hear why.

Here's the 5 minute trailer -watch it and then visit to find out how you can view it in its entirety

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It's not just 'private' student loans... ALL student loans have been divested of virtually all consumer protections and the student-loan racketeers are making record-breaking profits.

If ANYONE 'offers' any college student today a 'loan', understand that what they are offering is virtually lifetime debt slavery.

Get the facts AND watch the movie.

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