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"As through this world I've wandered, I've seen lots of funny men; some will rob you with a six-gun. And some with a fountain pen."
Alan Collinge, and thousands of other college graduates have discovered just how true these fabled words of Woody Guthrie are. They took on loans to pay for their college education and discovered what can be done with a fountain pen.
Collinge, the founder of a Web site, StudentLoanJustice.org, borrowed about $38,000 in federal student loans to help pay for two degrees in aerospace engineering from the University of Southern California. He lost his job at the California Institute of Technology in 2001 when he asked for a raise. That drove him into default on his loan payments. Over the next three years, his debt, with interest and fees, grew to over $100,000. His best shot at a job disappeared when the debts and debt collection kept him from passing a security check.
Collinge then learned just how powerful the banking lobby is. The loans banks make to students are guaranteed--principle and interest both--by the federal government. The banks get the upside, with taxpayers covering the downside.
But because the collection industry is so profitable, many lenders own subsidiaries to collect the loans. Under the law, most of them defined by the banking lobby, collection agents can--without a court order--garnish up to 15 percent of the wages of borrowers who have defaulted on federally guaranteed loans. They can also intercept tax refunds, Social Security payments, even this year's stimulus checks.
Even borrowers driven into bankruptcy get no relief. Student loans generally can't be shed in bankruptcy because the law says they can only be reduced if the student can show "undue hardship." Most judges read that as excluding anyone who is working. Meanwhile, fees and penalties pile up. Students end up paying far more than they borrowed over decades.
This problem is getting worse, not better. The cost of college has soared over the last few years, as states fail to keep up their contributions and colleges load more and more of the costs on students. The numbers are staggering. In the early 1990s, less than one-third of college grads left school with debts. By 2004, that number had soared to 70 percent of students. And those with debts now gradate owing an average $20,000. The number of people owing more than $25,000 has tripled. Talk to doctors and lawyers, and you will hear about debts mounting to the hundreds of thousands of dollars.
Now, after the smarmy relationships with financial aid officers were revealed last year, the lenders are on the defensive. President Obama has called for increasing Pell grants, the grants that help students from low-income families go to college, and for moving all federally subsidized loans to direct lending, saving about $4 billion a year that can be plowed back into student aid. But Obama's plan doesn't do much of anything to give students a break.
Surely students who make a good-faith effort to pay off their loans but get hit by illness or loss of a job or personal tragedy need a little flexibility, and some relief from racking up obscene fees and penalties.
But why are we privatizing the costs of public college at the very time we know we need to give our children more advanced education and training? After World War II, the GI Bill paid to educate a generation. Shouldn't we make a similar commitment to the next generation?