My daughter is in her senior year in high school and I am trying to learn as much about the various mechanisms available to finance her education as I can. I was really stunned to read about all the problems with student loans and how Congress has given the banks and loan guaranty organizations a free ticket to extract as much money from students as possible.
Some of the actions of our government include making student loans the only loans available that cannot be discharged through bankruptcy, allowing the loan companies and guarantee companies to own the collection agencies, which provides to them an incentive to allow (and push) the student to default, being able to attach Social Security retirement and disability income for repayment, allowing interest rates to be as high as 29.9% and a host of other goodies.
The stories in this book will cause you to cringe. The author does name names and lets you know who has been a friend to student's and their families and who has been bought by the loan companies PACs. In addition, you will learn about the various pitfalls and tricks used by the loan companies to increase the profit margin on these loans.
While the writing is a little redundant, it generally is a well written book that contains crucial information for anyone who has a student loan or for the families of anyone considering taking out a loan. Read this book and learn the pitfalls that are waiting for you!
on November 10, 2009
If you take out a student loan in the US today, you are walking the edge of a volcano.
If you slip (and it doesn't take much to slip), you could end up little more than an indentured servant, owing 2x or 4x or more what you originally borrowed. Your wages, tax refunds, social security payments, even disability payments will be garnished from now until the end of time. Chances are slim you'll ever be able to pay it off, because the allowable fees and penalties on a student loan are impossibly huge. At the whim of the student loan companies, you can have your professional license yanked or be forced out of public employment. Did I mention debt collectors don't need to follow fair collection practices because it's a student loan? Oh and forget about discharging it through bankruptcy... it's a student loan... not allowed.
Every page of this book reveals jaw-dropping, horrifying facts of how the student loan industry put Congress in their pocket and began a massive wealth transfer (from student loan borrower to them) that has resulted in some student loan executives earning 500 million dollar salaries. The saddest part of this is not only the individuals who suffer due to this; it's all of society because we need a well-educated workforce to prosper, and the student loan industry is making that more and more impossible.
I highly recommend this book and think it would be a very good choice for a discussion group.
Collinge argues that student loans have become the most profitable, uncompetitive, and oppressive type of debt in American history. This has occurred in large part due to legislation passed since the mid-1990s that removed stand consumer protections from student loans, and allowed for massive penalties and draconian mechanisms to collect these inflated debts.
Americans borrow almost $90 billion/year to attend college. About 2/3 of college students require loans to make it through, and typical undergraduate borrows leave school with over $20,000 in student loan debt, $42,000 for graduate students. Student-loan holders can garnish a borrower's wages, tax returns, Social Security, and disability incomes - without a court order. Defaulted loans do not qualify for forgiveness for eg. teaching in under-served areas.
Federal loan limits, with protections, are $8,500/year for graduate students.
Fortune magazine called Sallie Mae the second most profitable company in 2005, and its CEO topped the list of highest paid CEOs in D.C. Sallie Mae's (major student loan provider) fee income increased 228% between 2000 and 2005, while its loan portfolio rose only 82% - the difference was penalties and fees from defaulted loans. As of 2007, Sallie Mae's top two executives together made more than 500 million. Universities often have "preferred-lender" arrangements with the universities and receive kickbacks. In 1999 Sallie Mae purchased Nellie Mae, followed by USAGroup and Southwest Student Services (nonprofit student loan companies and guarantors).
The national average interest rate is 12% for private student loans. Student loans are the only type of loan in U.S. history to be non-dischargeable in bankruptcy. They are also exempt from statutes of limitations for collection, usury laws, Truth in Lending, and Fair Debt and Collections. Borrowers wanting to consolidate their loans must use the original lender, if there only was one, giving them an iron grip. Further, only one consolidation is allowed, even if other firms are willing to take over.
Lenders are also allowed to take up to 25% as collection fees on defaulted loans. Loan guarantors and collection agencies can also seize tax refunds, suspend state-issued professional licenses, and even terminate public employment.
The Bush II administration strangled the Federal Direct Loan Program to about 19% of the market.
Important Point: A loan cannot be considered in default unless NO payment, even insignificant, is made for 270 days. Send registered mail!
There are now about 5 million defaulted loans, with penalties and extra interest running 2X and more than the original loan.
on July 2, 2009
The Student Loan Scam is an excellent look at the conflicts of interest, corruption, and exploitive practices within the student loan industry. It is a must read for anyone contemplating using student loans to fund their education (especially if they plan to take out high amounts of loans), as well as for folks saddled with a heavy debt burden.
The author, among other things, makes a compelling argument to return basic consumer protections to student loans. Stories in the industry of taking disability payments from the sick or disabled or raiding an elderly person's meager finances to pay for student loans is criminal.
The bottom line is that students are told that they should "follow their bliss" and that higher education will open doors for them and provide them with good jobs and financial security. They are told either directly or it is strongly implied, that taking out student loans for higher education is "good debt."
Nothing could be further from the truth. Tens of thousands of graduates now pay whopping sums of their meager paychecks to pay debts that never actually go down, but keep rising.
Frankly, one would be safer paying for their education on credit cards if they had to, for at least if they ran into financial or medical problems that prevented payback, they would be afforded chapter 7 bankruptcy as an option.
Anyway, the last two paragraphs are my opinion based on what I have seen from dozens of graduate school graduates who are struggling to just get by, including some that can't even land $10 grocery store jobs with master's degrees because they are "over qualified," but can't find jobs in their field.
If you plan to go to school, live cheap, work as much as you can, and find any way you can to fund your education without "the debt that keeps on giving."
on December 11, 2010
It really pains me to give this book only 3 stars, because the issue of student loan reform is vitally important in America today, and indeed crippling the future of a large number of young people. And this is still the best overview I have read on the subject matter, which has been far too overlooked in the public discourse we hear daily.
That being said, this book isn't the smoothest read. It's very choppy, with the subject matter changing every page and a half, often without going into detail about some travesty just described. I feel like many important details are often left out. Also, the author mentions his website numerous times... while I know his experiences with the website contributes a lot to the book, very often it almost feels like he's shouting to the reader, "Visit my site and submit your story! Tell all your friends about it too!"
Numerous factual tidbits, while important, are repeated endlessly throughout the book. There are probably a dozen or more points that he mentions in the book at least 6 or 7 times each. Among them:
* Defaulted loans being more profitable for lenders. This is counterintuitive (as almost every other lender throughout history loses money on a default), and creates a perverse incentive to create a system where default is easier.
* Student loans have no bankruptcy protections, and the rationale for this misguided. This can hold students as basically indentured servants towards lenders.
* Lenders lobby and pay Congressmen lots of money for favorable treatment, which includes keeping bankruptcy protections out and making sure fees are astronomical
* Allowing consolidation only with the lender you originally took out the loan with is blatant protectionism, and eliminates the normal free market benefits students might have to search around for the best interest rate when consolidating.
* The students themselves who took out the loans want to pay them back, but feel like the abusive system, high interest, and fees has stuck them into a debt spiral from which they can't escape
I swear every page hits on at least one of these points. And while they're all very important issues, a great deal of what the book says (though without many of the specific stories) could be said in 10 or 15 pages.
This is an issue which I firmly believe is larger than almost anyone anticipates. I suspect it will come back and affect the economy with a vengeance in the next decade or two, as a generation grows up mired in debt and unable to escape and become productive citizens. And while this is the best book I've read on the topic directly, and by far the most up-to-date (though it doesn't discuss the Obama reforms, which were passed after publication), it's far from a perfect book. I still recommend it as the best book on the subject matter, at least at the moment.
on March 1, 2009
Readers may already be familiar with Alan Collinge from his website [...] or his appearance on "60 Minutes" two years ago in a piece about the student lender Sallie Mae and the way that it has destroyed the lives of many college graduates by burdening them with exorbitant fees and finance charges on their student loan debts. College is the riskiest and perhaps the most foolhardy investment anybody can make, as student loan debts can NEVER be erased with bankruptcy. Warning to parents: NEVER cosign on a student loan. Many parents are facing financial ruin because they cosigned on a student loan for a child. This 150 page book examines the huge student loan industry and how it derives colossal profits by destroying peoples' lives.
Chapter 1 - "The Rise of Sallie Mae and the Fall of Consumer Protections" -How Sallie Mae became a vertical corporation with control of all aspects of student loans: issuing loans, guarantees, and collections. In 2002 it purchased Pioneer Credit Recovery, a student loan collection company. It lobbied Congress for laws that permitted huge penalties and fees for defaulted debt.
Chapter 2 - "Who Benefited" - The huge salaries of Albert Lord, CEO of Sallie Mae, and other executives in the industry. Reveals that Edfund, a "guarantor"--is just another entity that relentlessly extracts money from debtors.
Chapter 3 - "Collection Abuses" and Chapter 4 "The Borrowers" - Readers may have already heard some of these stories from[...]. One particularly sad story is a graduate of Illinois State University who committed suicide after completing his master's in chemistry because his student loans had grown to $100,000. Many student debtors report being called several times every day by Sallie Mae loan shark collectors.
Chapter 5 - "The Oversight Fiasco" and Chapter 6 "Corruption of the Universities" - The most shocking part of the book. Describes how numerous personnel of the Dept. of Education are actually former Sallie Mae officers, and instances where university financial aid officials hold stock in student loan companies such as Student Loan Xpress. Also describes kickbacks, donations, luncheons, and gifts paid by student lenders to universities in return for steering their incoming freshmen to those lenders (such as putting them on "preferred lender lists"). These universities include the University of Nebraska, Johns Hopkins, the University of Texas at Austin, and many others. For example, one financial aid director of Johns Hopkins received $93,000 from American Express and Student Loan Xpress. On many occasions, students who called their universities' student loan hotlines didn't know they were really talking to representatives of student loan companies.
Chapters 6-8 "The Grass Roots Awaken" ," Solutions", "Practical Advice for Students" Collinge offers little hope for current debtors --at this time legislation to allow student loans to be discharged in bankruptcy is nowhere close to being passed. However, perhaps the groundwork is being laid for the next generation of lawmakers to revise the laws concerning student loan debt.
This book about student loans is extremely relevant and timely. We are in the Depression of 2009 and it is obvious that college graduates may not find gainful employment. Sallie Mae and other student lenders don't care about your problems with unemployment, sickness, a death in the family, or anything else. They will hound you until your debts are paid or until you are resting in your grave.
on August 12, 2009
This book is so on-point with the student loan business that its scary. Although, I'm not in default on any student loans, this was a "head-up" to what could happen to me if I do. So for me, the book served as a warning to just pay the money b/c it could be VERY messy if I don't.
the book also confirmed, i'm doing something right. Anyone getting a student loan, I highly recommend you stay on top of the amounts you are actually requesting, the amounts being certified by the school and the amounts the lender is sending to your school. Depending on how "slick" the schools are, the numbers can be different. So watch it. Also, keep every single peice of paper (E-mail) the school, lender, Dept of Ed, etc. sends you so you can have a paper trail when it comes time to start paying back.
I'm so glad he wrote this book.
on January 12, 2009
Mr. Collinge de-mystifies many of the policies surrounding the student loan industry. The book examines the intricate relationship between the university, various student loan entities as well as other stakeholders such as financial aid administrators. The author does an excellent job of providing a historical backdrop for the case against unscrupulous lending practices. A reader who lacks any prior knowledge can easily be brought up to speed on the current trends. The best part is that you won't get lost in any technical jargon. His case studies represent a very diverse pool of graduates whose lives have been ruined by attempting to pursue a better lot in life. This might include moving out of poverty or just being a productive young citizen. The irony is that "borrowing" has vastly turned into a movement of it's own.
The author is very clear on the consequences of borrowing and the fact that these loans should come with a "buyer beware" disclaimer. This is due to the fact that de-regulation largely occurred during the 80's but it's effects are currently crushing an entire generation. Student loans are the only loans in our nation's history to be specifically exempted from basic bankruptcy protections, state usury laws, refinancing rights, truth in lending requirements and fair debt collection practices. Borrowers can also face termination from public employment due to the status of their student loan. They can also have their driver's and professional license suspended due to the status of their student loan in certain states. In addition to discussing the consequences, he continues to explore the ways in which we can investigate the situation intelligently and how to be "proactive" in the fight.
It helps to be in touch with your political action committee state representative and your peers. It also helps to be informed about the industry facts which will help bring this issue to the forefront. The borrower's ability to effectively argue and advocate for congressional intervention is essential. Another course of action that you have as a borrower is to tell your own story which will "personalize" the struggle. This will make legislators aware of the methods employed and strengthen the role of the (PAC). This, in turn, is how we often create new policy in the US. His book covers a lot of territory and is an excellent read for anyone who is swimming in student loan debt or anyone who might be searching for a practical approach.
on June 11, 2009
What American dream has not turned into a nightmare? Homeowners face foreclosure, their houses worth less than what they owe on them. Middle class breadwinners, their computer programming jobs shipped to India, are driving Airborne Express trucks. And, according to Alan Collinge's THE STUDENT LOAN SCAM: THE MOST OPPRESSIVE DEBT IN U.S. HISTORY - AND HOW WE CAN FIGHT BACK, college graduates are one missed student loan payment away from financial liability so great even bankruptcy law won't protect them.
Incredibly, loan shark operations such as Sallie Mae bribed Congress into exempting student loans from bankruptcy protection, THE STUDENT LOAN SCAM explains. Immoral interest rates and penalties resulted in author Collinge facing over $100,000.00 in debt on a $38,000.00 loan. Other stories in the book indicate his story is too common. Higher learning institutions are in on it, too, THE STUDENT LOAN SCAM says, taking kickbacks for steering incoming students to "preferred lenders" who prefer to see them default on their loans so they can charge even more money.
As college graduates toss their caps in the air on commencement day, little do many realize that, signing off on their student loan agreements four years earlier, they fell for a scheme that makes Three-Card Monte look like a sure thing. Read THE STUDENT LOAN SCAM.
on March 27, 2009
Alan Michael Collinge has written a shocking indictment of the student loan industry. He exposes the lack of standard consumer protections that have created debtor's prison for hundreds of thousands of students who borrowed money with the hope of a better future. I literally could not put this book down.
Anyone who is struggling with student loans should read this book. Parents who are sending their children off to college should read this book before they allow them to sign a single loan document. And most importantly, legislators should be reading this book.
I am recommending The Student Loan Scam at every opportunity.