Student Loans: Legal Loan Sharking
Student Loan Sharking. Harsh? NO! Outstanding student loans in this country have exceeded $1,000,000,000.00 (One Trillion Dollars). At least 15% of those loans are "private" loans, meaning not made by a government agency or sponsored lender. So what is the difference.
Remember all of the discussion (still heard throughout the country) about "Sub-Prime" and "Predatory" Lending? It's live and well on campuses all over. And why not? The Bankruptcy law change in 2005 created a form of indentured servitude. Have a PRIVATE student loan that is at a level 5 times the entire annual salary that can be earned, accumulating interest at 6%-20% (based on payment history - a default of a payment and the rate jumps to the maximum in most cases - how can anyone pay it?
"Too many student loan borrowers are struggling to pay off private student loans that they did not understand and cannot afford,...We must do our best to leave the next generation in a better place than we are today, rather than buried under a mountain of debt." - Richard Cordray, Director of the COnsumer Finance Protection Bureau ("CFPB"). Both the CFPB and the Federal Reserve are gravely concerned about the problem. 25% of the outstanding loans are in some state of default.
I deal with the problem on a daily basis. I have clients who have no possibility of ever paying their student loans, whether they be PRIVATE or FEDERAL. The issues include federal loans as well as private loans. It is true that Federal loans are able to be modified through the lender, and payments made based on a current income/ability to pay. They can also be consolidated through "DIRECT LOANS" which is THE WILLIAM FORD FOUNDATION". However the loans will hinder the student's ever purchasing a house or a car or anything else where credit is needed. The loans stay on credit reports until paid.
The 2005 Bankruptcy law change made it next to impossible to prove EXTREME AND SUBSTANTIAL HARDSHIP in repayment, the requirement for discharge.
The Bankruptcy Courts are able to modify all loans except First Mortgages on primary residences and STUDENT LOANS. The commonalities - the PREDATORY nature of the lending tactics and the LOBBYING by the respective trade groups. And, Private Student Loan Lenders DO NOT have to allow a consolidation, nor forebearance in payments.
Here is a link to the 131 page report which details the entire issue. The report was published by the CFPB and the Secretary of Education. (It's a .pdf so it's easily browsed) http://tinyurl.com/c8eudpr
Advice: Don't borrow more than is needed for SCHOOL costs and borrow from a Federal Agency. And READ EVERYTHING & ASK QUESTIONS. TRUST NO ONE!
Author's Copyright by Richard I. Isacoff, Esq. July, 2012