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To: Senator Richard Durbin
Over the past thirty years, Congress has been catering to the interests of large financial institutions - like Sallie Mae, the Consumer Banker's Association, and others – by removing standard consumer protections from student loans. Without these critical protections (bankruptcy protections in particular), students who default on their loans (often despite their best efforts to maintain their loans in good stead) have no recourse but to submit to a hugely expensive "loan rehabilitation" process whereby they are forced to make extended payments, and then sign for a much larger "rehabilitated" loan that defaults again 60% of the time. As a result, students across the country are facing devastating levels of debt - often double, triple, or even far more than the amount of the original loan.

Last year, graduating college seniors who took out loans to fund their college education owed well over $25,250. Crippling debts limit the professional potential of countless young Americans and hamper their opportunities to meaningfully contribute to society post-graduation. As an elected official who has supported bankruptcy protection in the past, we urge you now to take action on behalf of our nation’s students.

Please draft and submit a bill that would extend the return of bankruptcy protections to all student loans, both private and federal.

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Comment Preferences

  •  It's worse...in some states, it is illegal to hire (6+ / 0-)

    anyone who has defaulted on their student loans.

    Talk about a Catch-22.

  •  Would love to sign, but not if I have to use FB. (5+ / 0-)

    Have an alternative?

  •  Here's the problem (7+ / 0-)

    For some students, declaring bankruptcy at age 22 when they have no real assets is not a horrible thing.  So, for some students, if they can go through college, amass say $150,000 in debt ($40,000 - $50,000 a year for a private school, for example) and then, immediately upon graduation, file for bankruptcy protection and make that entire amount go away (and stick the taxpayers with the bill for their -education), it might make financial sense to do that.  Financially, you'd be providing an incentive for a newly-graduated student to do just that -- go to a very expensive private school (perhaps, without the loans, the student might have gone to a state school or done his/her first two years at a junior college), and then immediately upon graduation, declare bankruptcy.  For some, it may well make financial sense to take the hit to the credit report early, before they even have started on their careers,  or at least while they are still in entry level jobs or even while they are in graduate school, in exchange for getting rid of that immense debt.  Pretty much any 22 year old can figure that out.  Is it worth it to, perhaps, not buy a house for a while (because of the credit hit) in exchange for getting out from under a six figure debt?  The problem is that means that you and I pay for their college education, while they are the ones who use that to make money the rest of their lives.  

    I agree that the current situation is harsh for people who (in an economy like today's) can't find a job that uses their degree.  But before I would sign on to some long-term change in the system, I'd have to know that the change addresses the perverse financial incentives I discussed.  Perhaps it would be that they couldn't discharge that debt in any bankruptcy filed within the first 10 years of their last attendance at any school where any part of the debt accrued.

    •  Those who game the system game ANY system (1+ / 0-)
      Recommended by:
      Caj

      and is it really fair to punish everyone else for the crimes of a few?

      If it's
      Not your body,
      Then it's
      Not your choice
      And it's
      None of your damn business!

      by TheOtherMaven on Sun Nov 18, 2012 at 01:25:24 PM PST

      [ Parent ]

      •  Not going to happen (3+ / 0-)

        It is this very "spectre" of students rushing off to bankruptcy court that caused bankruptcy to be removed in the first place.  Turns, out, however, that when bankruptcy was the same for student loans as all other loans, far less than 1% were discharged this way.

        Recent graduates are less likely to file for bankruptcy than the general population.  Also, there are far more attractive repayment programs to choose instead.  This imposition of one's more cynical attitude upon the younger generation really has got to stop.  It is not accurate today, and it was not accurate thirty years ago.  

        Not having bankruptcy protections, however, is the real problem.  It has inflated, corrupted, weakened the entire system, and completely reversed the fiscal incentives of the lending system from being on the side of the borrower (which is a necessary condition for any healthy, stable, acceptable lending system) to being against the borrower (ie having a preference for default).  No other lending system in this country has ever been perturbed into this realm, and now we are seeing why.

        See studentloanjustice.org/argument.htm to see more.

        Please support the StudentLoanJustice.Org PAC

        by studentloanjustice on Sun Nov 18, 2012 at 01:36:46 PM PST

        [ Parent ]

      •  how few is a few? What are the numbers? (0+ / 0-)

        What is the current default rate for student loans?  I would never put myself on the line to the tune of 50 or 75 grand unless I had a good and reasonable expectation of being able to repay the loan per the terms up front.

        And if anyone can steer me to a site that lists loan stats by degree area, that would be useful to know as well.

        Oregon: Sure...it's cold. But it's a damp cold.

        by Keith930 on Sun Nov 18, 2012 at 02:56:01 PM PST

        [ Parent ]

        •  It is very high. (0+ / 0-)

          The Department of Education astoundingly keeps this data very close to the vest.  

          The three year default rate, currently, is over 16%, so the lifetime rate (ie the true default rate) is certainly more than double that. I suspect we may be running at over 40%, and this will only go up in the foreseeable future.

          The thing is, though, that the colleges never talk about the true default rate.  They only talk about the two-year "cohort" default rate, which typically is around 5% or so.  Many millions of people have been duped into believing that they had a tiny chance of defaulting, when in fact it was more like 1 in 4.  The for-profit colleges average about 60%, which in my view is grounds for shutting more than a few of them down.

          Please support the StudentLoanJustice.Org PAC

          by studentloanjustice on Sun Nov 18, 2012 at 03:07:47 PM PST

          [ Parent ]

    •  What about collateral consequences of bankruptcy? (0+ / 0-)

      Like having your credit rating ruined, which makes it very hard to get an apartment and in many cases a job (lots of potential employers run credit checks). It means either being unable to use credit cards or having to use ones that charge insane fees. It would probably also affect the ability to gain admission to grad school or getting professional certifications. For example, I am pretty sure that filing for bankruptcy, especially if it looked like you gamed the system, would be a grounds for being denied admission to a state bar after law school.

      There are enough consequences of bankruptcy that I can't imagine it would be an attractive option to someone just starting their career and life as an adult absent extenuating circumstances.

      •  Agreed. (0+ / 0-)

        Agreed.

        The banks have spent millions, tens of millions of dollars pushing this scare language into the public debate over the years.  They have succeeded in stalling the debate to the point where we now are.

        Please support the StudentLoanJustice.Org PAC

        by studentloanjustice on Sun Nov 18, 2012 at 03:10:40 PM PST

        [ Parent ]

    •  Okay, then how about a compromise? (0+ / 0-)

      Suppose you allowed bankruptcy protections up to a reasonable amount, e.g. however much the borrowing limit is for a federally subsidized Stafford loan?  Include any extra debt that may be incurred from fees and penalties.

      Then, people who borrow money for college but are laid low by circumstances have remedy in bankruptcy.  Meanwhile, someone who borrows insane amounts of money with no intention of paying it back cannot use bankruptcy to game the system.

      Taking jokes seriously is the exact mirror activity of laughing if someone says they have cancer. --jbou

      by Caj on Sun Nov 18, 2012 at 03:45:19 PM PST

      [ Parent ]

  •  this entire system (5+ / 0-)
    Recommended by:
    tardis10, bnasley, kck, jessical, happy camper

    has become a way for for-profit institutions to rip off the taxpayer.  So far due to their lobbying prowess they have been able to head off any major reforms. Right now they just load up their victims with bigtime loans; most of them never graduate; of those that do many cannot find jobs.  

    Bankruptcy reform needs to be part of a larger package to end these abuses.

    •  It's absolutely true that the vast majority (7+ / 0-)

      of the abuse is in the for-profit institutions, not the traditional four-year universities.  Some of this could be stopped by linking the ability to get the federal government to back a student loan to the institution's graduation rate.

      •  Many countries limit funding or enrollment in (1+ / 0-)
        Recommended by:
        VClib

        Higher education based upon expected demand for different jobs.  So if their Ministry of Education concludes that they need 100,000 college freshmen studing to become k-12 teachers, they only fund (or enroll) what they think are the top 100,000 that apply.

        Maybe government supported loans and grants should qualify the school as to graduation rates and have quotas for different university programs based on expected market demand for the resulting careers (taking into account that not everyone stays in that career).  

        It is not just the for profit schools that are not honest with their students as to how sensible taking on big debt for their education programs are.  

        The most important way to protect the environment is not to have more than one child.

        by nextstep on Sun Nov 18, 2012 at 01:44:46 PM PST

        [ Parent ]

    •  nobody shoves these loans down your throat (0+ / 0-)

      don't you have to actually apply for a student loan?  That is to say, request one?

      Oregon: Sure...it's cold. But it's a damp cold.

      by Keith930 on Sun Nov 18, 2012 at 02:57:28 PM PST

      [ Parent ]

      •  No (1+ / 0-)
        Recommended by:
        wilderness voice

        No, you don't.  Often, there isn't even a choice of lender.  The students just go into autopilot as they are trying to get registered.  

        They also are almost never told that there are no bankruptcy or other protections.  

        If someone was selling you a car that had no brakes, wouldn't you want to be informed of this fact before driving it off the lot?

        Would you be pissed if they didn't tell you?  What about if they not only didn't tell you, they also secretly took out an insurance policy against you?  What would you think about that?

        Please support the StudentLoanJustice.Org PAC

        by studentloanjustice on Sun Nov 18, 2012 at 03:14:02 PM PST

        [ Parent ]

  •  YESSSSS!!!!!!!!!!!!! (5+ / 0-)

    I am a bankruptcy attorney and one of the most frustrating and difficult things I have to tell parents is -- you can't discharge that $100,000 that you borrowed for you kids' education.  That is going to follow you around forever.  

    Non-dischargeability of student loans started because of people graduating from med school or law school and abusing the law by filing for bankruptcy to get out from under their student loans.  That was 30 years ago.  Now the world looks much different.  College costs are astronomically higher.  Some form of relief for student loans is needed.  

    •  Even thirty years ago there was no crisis (0+ / 0-)

      In my experience with borrowers (and cosigners) usually the penalties, fees, and other exorbitant add-ons overwhelm the debt.  So it's not the "$100,000 that you borrowed", its the "$220,000 they stuck you with" that follows you around.

      Credit card companies play this sort of game routinely...jacking up debt to astronomical proportions.  But ultimately, common sense usually prevails if the borrower cries uncle, and the borrower winds up repaying something like what was borrowed and some interest.  With student loans, however, no such thing occurs.  The lending side knows that for every citizen whose live is crushed, who is pushed "off the grid", there is one citizen who will somehow manage to repay many multiples of what was borrowed.  Therefore, it is a worthwhile way to do business.  

      And as I mentioned earlier, when bankruptcy was allowable, FAR LESS THAN ONE PERCENT of federal loans wound up being discharged.  So there was no crisis.  There was only exaggerated media used to removal this most fundamental consumer protection for the personal enrichment of a few well connected, bad faith student loan executives and their buddies.

      Please support the StudentLoanJustice.Org PAC

      by studentloanjustice on Sun Nov 18, 2012 at 01:49:04 PM PST

      [ Parent ]

  •  we need a jubilee (1+ / 0-)
    Recommended by:
    happy camper

    and a move away from the tuition/loans paradigm towards free public education, as a public good as important to be accessible to all as clean water, roads, public transit or fire departments.

    bankruptcy is a baby step, as is better loans, but we won't be rid of this debilitating problem until we attack the root, which is the privatization of public education.

    •  You aren't wrong (1+ / 0-)
      Recommended by:
      wu ming

      You should start a group if you feel strongly about this.  The previous people claiming to be fighting for loan forgiveness turned out to be faking it....

      Tough argument to make publicly, though...even bankruptcy has met with ridiculously strong resistance.

      Please support the StudentLoanJustice.Org PAC

      by studentloanjustice on Sun Nov 18, 2012 at 01:52:27 PM PST

      [ Parent ]

      •  it's going to take a while to build support (0+ / 0-)

        at a popular level before we make much progress organizing to push back on policy. the students are doing a fair job in CA at pushing back against fee hikes, and calling openly for rollback and free tuition as well.

    •  free education is not going to happen (0+ / 0-)

      how about free medical care?  Free housing?  Nothing is free.

      Oregon: Sure...it's cold. But it's a damp cold.

      by Keith930 on Sun Nov 18, 2012 at 03:00:17 PM PST

      [ Parent ]

      •  roads are free (1+ / 0-)
        Recommended by:
        happy camper

        fire departments are free, public k-12 is free, the military is free, lots of things are "free"in the sense that we treat them as public goods and fund them not by onerous user fees rationed by ability to pay but instead by various forms of general taxation at a societal level.

        bringing up medical care is not a great counterargument, as both medicine and education are major sources of odious debt in this country, and both systems are prime examples of the devastating costs of an underfunded public sphere to exacerbating costly social inequality.

      •  furthermore, lest i be accused of being utopian (1+ / 0-)
        Recommended by:
        happy camper

        public higher education was free in california just a generation ago, and it worked exceptionally well for the time that it was allowed to exist as such. this is not pie in the sky stuff, this is the status quo ante, at least in CA. the degree to which we have privatized and commodified education in this country is a huge and radical change from a model that worked far better, not some natural state of being that cannot be questioned.

      •  absolutely agree with you.... (0+ / 0-)

        but one friend of my son's, who graduated summa at an Ivy League university and then went on to grad school, is going to owe $160,000 at 7.5%.

        He is an honorable kid so he will pay it off, but 7.5%?
        Ridiculous in this economy, when banks are paying .05%APR
        on savings account.... if you are lucky!

        If a free society cannot help the many who are poor, it cannot save the few who are rich. John F. Kennedy ( inaugural address, January 20, 1961)

        by Outraged Mom on Sun Nov 18, 2012 at 03:41:13 PM PST

        [ Parent ]

    •  You have a point. (0+ / 0-)

      I don't disagree with you.  But I am fighting the fight that is most absolutely critical right now.  After bankruptcy is returned, We can talk about future funding models, etc.

      Please support the StudentLoanJustice.Org PAC

      by studentloanjustice on Sun Nov 18, 2012 at 03:15:39 PM PST

      [ Parent ]

  •  the reason bancruptcy stopped covering student (4+ / 0-)

    loans was because of abuse.  However, if we're going to bail out TBTF banks and such... i find it improbable students/graduates will abuse the system/privelege at a rate greater than the financial sector has.

    also: i'd love to sign, and tried to, but not if i have to use facebook.  is there another way to log in? i couldn't find one (though i could comment via my yahoo account)

    to republicans rape is "God's will" but homosexuality is somehow a "choice". republican yahweh is a dick.

    by bnasley on Sun Nov 18, 2012 at 11:04:29 AM PST

  •  Short term emergency forgiveness... (1+ / 0-)
    Recommended by:
    Calamity Jean

    ...for obligations in excess of, say, 2% interest with structured payments linked to employment would satisfy the public failure of oversight and lender regulation.

    Bankruptcy doesn't seem to e in the public interest and would likely prevent student loans from being available. What would prevent students from over spending and colleges form over charging?

    No, my opinion is that that public schools for the "top n%" should be publicly funded. I don't care about private universities - you go you or they pay, not a public interest. But state colleges - 4 or 2 years - are a public interest and tuition for students who go and finish are a public asset.

    Let all Bush tax cuts expire and , bring on the Sequestration cuts to defense.

    by kck on Sun Nov 18, 2012 at 11:26:23 AM PST

    •  Bankruptcy absolutely IS in the public interest... (0+ / 0-)

      The social, and real cost that removing bankruptcy has had on the public has been massive.  Far more than the $1 Trillion that is currently outstanding.  

      I'm not against Directly funding the public colleges, but your prescription leaves millions of people with outrageous, predatory, and unpayable debt. This is not acceptable.

      Please support the StudentLoanJustice.Org PAC

      by studentloanjustice on Sun Nov 18, 2012 at 01:57:52 PM PST

      [ Parent ]

      •  That's why I would support a short term fix... (0+ / 0-)

        ...for those suffering in the wake of predatory collusion between lenders and schools or ridiculous interest rates. But the underlying problems must be solved rather than build a back door process that encourages and enables misuse.

        Let all Bush tax cuts expire and , bring on the Sequestration cuts to defense.

        by kck on Sun Nov 18, 2012 at 05:41:00 PM PST

        [ Parent ]

  •  T&R but not signing (0+ / 0-)

    I think we need a specific provision to deal with unpayable student loans, which takes out the profit motive and eliminates their ability to triple the amount when all is said and done...as structured, all the consumer protection happens before the loan, and all the lender incentive is for a default, which creates a much larger paper asset which can be packaged and resold.  The mechanism has no brakes and no human limits.

    I suspect we need these loans to remain bankruptcy proof if we want them to continue (another issue, but this isn't all going away that fast regardless).  But if we want the system to be anything more than yet another out of control social grotesque, there has to be a way that people who hit the wall do not become a much much more valuable junk debt asset -- so that lenders have some skin in the game per what they can max out at, how screwups are handled, maximum payments overall...and these rules need to cover both public and private loans.

    ...j'ai découvert que tout le malheur des hommes vient d'une seule chose, qui est de ne savoir pas demeurer en repos dans une chambre.

    by jessical on Sun Nov 18, 2012 at 04:13:48 PM PST

  •  Just reminding people... (0+ / 0-)

    ...there already are loan forgiveness provisions for student loans.

    The loans were only extended because they were secured by non-discharge provisions.  No one was going to give a 18-year-old with no assets a $100,000 unsecured loan otherwise.

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