Student Debt Mayhem
Can’t pay your student loans? Sallie Mae couldn’t be happier.
By Jennifer C. O'Donnell
Tuesday, Mar. 6, 2007
In May, when college graduates leave academia for the real world, many of them will be thinking about landing the perfect job or making a difference in the workforce they’re finally qualified to join. They’re on the fast-track to the American dream, they hope.
Some grads, however, have to take a detour.
College loan debt has skyrocketed nationwide in the past decade, with the average graduate owing $19,200 in loans, compared to just $9, 250 in 1993. Students seeking professional degrees can expect student debt of more than $74,000.
The burden of debt, compounded by the threat of penalties and accrued interest should a graduate fail to make payments, has put a generation of young Americans in financial peril, says Alan Collinge, founder and executive director of Student Loan Justice. SLJ is a grassroots organization of student borrowers working to reform the federal student loan system.
Last week, Collinge visited the Newport News office of Congressman Bobby Scott to speak with staffers about student debt concerns and to raise local awareness of a system he thinks is badly broken. The visit was just one stop on a nationwide bus tour in which Collinge hopes to make contact with every member of the House and Senate education committees in their home districts. The tour will end later this month in Washington D.C.
You know something is wrong, said Collinge, when people admit to you that the worst mistake they ever made was to go to college and to take out loans to pay for it.
Collinge isn’t alone in blaming his current woes on the Student Loan Marketing Corporation, also known as Sallie Mae, the country’s largest private provider of student loans.
The Student Loan Justice website, www.studentloanjustice.org, is literally peppered with testimonials from former borrowers in deep debt. For many, their troubles began after a job layoff or an illness – payments doubling, tripling, or quadrupling due to late fees, penalties and accrued interest. Others ran into trouble when entry-level salaries weren’t enough to cover the cost of rent, food and student loan payments. The stories abound on the site, but the outcome is always the same – futures compromised by overwhelming debt.
Collinge’s crusade isn’t just that of a concerned citizen. He’s the poster boy for student debt mayhem. His own "personal freak show" as he calls it began after September 11, when he lost his job as an aerospace engineer. Struggling, in-and-out of work and unable to keep up with his loan payments, he saw his student loan debt jump from $38,000 to more than $100,000.
He tried to defer, but was told he couldn’t. He tried to shop around for a better interest rate, but found out that, too, wasn’t allowed. He tried to reduce his debt amount – a common practice for those with consumer debt problems. Again, the answer was an emphatic no.
Critics of Sallie Mae say the problems all began in 1995, when the quasi-government organization privatized. With stockholders to please, Sallie Mae wasted no time petitioning Congress for legislation that supported its bottom line.
Amendments to the Higher Education Act (the act that was originally created to help those considered a credit risk find loans) made the student loan business a very lucrative one. The amendments imposed large fees on defaulted student loans, made bankruptcy impossible and refinancing for a better rate just a dream.
Just as concerning, says Collinge, is Sallie Mae’s reach, which has some websites dubbing the corporation Bullie Mae. Sallie Mae’s collection measures include wage garnishment, tax garnishment, withholding of professional certification and termination of employment.
Not everyone finds the student loan system undesirable. Sallie Mae stockholders have enjoyed a one-way ride as the company’s stock jumped by 2,000 percent (that’s right, 2,000) from 1995 to 2005, and stockholders weren’t the only winners. The company’s former CEO, Al Lord, is reported to have received a total compensation of $225 million.
It’s no crime for a company to make a profit, says Collinge. His beef and claim is that Sallie Mae made it off the backs of young, struggling graduates and at the expense of their financial futures. The company’s annual report even credited its stock success in a large part to fees collected from defaulted loans, Collinge wrote recently in an editorial published by the Denver Post.
What Collinge seeks is fairly straighforward. He makes it clear that he’s not supporting a system that gives student borrowers a free ride. Loans should be repaid – with interest, he says. He just seeks terms that are fair. Specifically, the PAC seeks to:
* pass legislation which allows borrowers to refinance, or shop around, for a better rate.
* pass legislation which allows borrowers in default to repay their original debt, plus a reasonable amount of interest
* ban "school as lender" programs where universities steer students to certain lenders due to financial incentives
* make student loan repayments (not just interest payments) tax deductible.
In short, Collinge wants student borrowers to enjoy the same options that home, car and other borrowers have.
Change could be on the way.
Collinge himself has received a fair amount of press, including segments on 60 Minutes, and coverage in The Wall Street Journal, Fortune and other publications
In addition, legislation has been introduced in both the House and Senate in the past month to support his cause. Hillary Clinton (D-NY) introduced S511, the Student Borrower Bill of Rights, earlier this month which Collinge says would undo most of the damage caused in the last 12 years.
Collinge’s frustration and earnestness are clear when he speaks about the system he thinks treated him and other student-borrowers unfairly.
"They took all the non-profit goodness out of the student loan system," he says, "and turned it into a money-making machine." • |
