A Student Loan System Stacked Against the Borrower

from NYTs

“It feels like I’m being set up to fail.”

That’s how Patrick Wittwer, 31, described his experience trying to repay his roughly $50,000 in student loans. Between misdirected payments by one of the companies servicing his loan and the abusive collection tactics he encountered when he fell behind, Mr. Wittwer said the repayment process simply seemed stacked against him.

A 2008 graduate of Temple University with a degree in media arts, Mr. Wittwer is not alone in his experience. Consumer advocates say student-loan servicers often make an already heavy debt load even more burdensome for borrowers.

A report issued late last month by the Consumer Financial Protection Bureau supports this view. Even though the economy and labor market have improved, student loan borrowers are experiencing high distress levels compared with borrowers with other types of consumer debt, the government report found. More than one in four student loan borrowers are delinquent or in default on their obligations.

In the aftermath of the financial crisis, we learned repeatedly about dubious practices among mortgage servicing companies that made it harder for homeowners trying to repay or renegotiate their loans. Now, similar horror stories are emerging about the companies servicing student loans.

Some 41 million Americans owe $1.2 trillion in student loan debt. The median debt burden among borrowers was $20,000 in 2014, up from $13,000 in 2007.

Companies servicing these loans manage borrowers’ accounts, process their payments and enroll them in alternative repayment plans, including those based on a fixed share of the borrowers’ income. Among the biggest companies are Navient, Great Lakes and Discover Bank.

The Education Department has contracts with 11 loan servicers. But with no federal standards governing these activities, student-loan servicers have great leeway in their practices. Making matters worse, borrowers are not allowed to choose their servicers, so if they encounter problems, they cannot take their business elsewhere.

More here.


52 Responses to A Student Loan System Stacked Against the Borrower

  1. Liz Martinez April 9, 2016 at 1:32 pm #

    After reading this article, I felt extremely privileged. I do not currently have any student loans, nor do I plan on ever having any student loans. I have been fortunate in my life to have had parents that saved enough money when I was younger for me to go anywhere I wanted to school as long as I got a scholarship, even though we have never been wealthy, or upper class. This article made it much clearer why so many of my friends freak out about their loans, and made me worry greatly about the ones that I know who don’t. I really am incredibly lucky that my mother and father put as much of an emphasis on saving when I was little as they did.
    That being said, I tried my best when reading this article to put myself in the place of someone who is in one of these financial positions where school is costing them a fortune which they won’t even start to make for a number of years, and I found myself getting extremely angry with the system. These loans are supposed to be helping people get an education, not turning them into slaves of the system. Anyone who had read a book by George Orwell should see what I mean by this. They (the rich, the powerful, and the banks) market these loans as a way for people to escape a life of poverty which is “guaranteed” to result if one is without an education, when all it really does is puts people in an inescapable pit. It tricks people into believing they are making the best decision by going to a better teaching institution with the hopes of coming out guaranteed a job, when in reality, it would be a better decision to go to a free online college, or to a community college instead of throwing yourself into debt before you are able to realize how painful that debt can actually be to you.
    Of course, there is nothing illegal about this, even though it may seem morally wrong, and I can understand that it is a business’s job to make money by whatever means they deem are necessary, but in doing so, they are jeopardizing the financial stability of thousands upon thousands of people. It’s no wonder people making extremely low salaries (like teachers) are demanding higher wages, and unionize to try and receive them. How can someone be expected to pay tens of thousands of dollars to get an education, because without it they would have no job, only to find out that then once they get that job (because of their education) it is only paying them a few thousand a year, in some states, less than even what it costs to go to a good university in a year.
    I just found this article really sad and upsetting. We put so much pressure on education in this country, but are then unwilling to reward those who actually take that extra step, that leap of faith to go out and get one.

  2. Daria Di Paolo November 4, 2017 at 10:26 pm #

    College is not another type of education that people can take without hesitation. It’s an investment, an investment into one’s future to better themselves when they go for their career. But now, it’s not being treated as such. Instead back then, college was not needed, unless you were going for a career that needed a higher education, such as being a doctor or another type of professional career. But now, high school students are, in an essence, forced to go to college. Teachers and principals, talking to students about they must prepare for the SATs or the ACTs, even having morning classes to prepare them, or recommending students to outside sources to prepare. The college life is now not becoming an option, but to a requirement just to get into regular jobs that are not just being a cashier or a fast food worker.

    Which, I find to be disappointing and ridiculous. You are having these high school students, who are not even adults yet, making decisions that they may not know what they really want to do. On top of that, they are now investing, thousands of dollars which, for a career, they may not even know if they will stick around for in their future. In the article, it is stated that students’ debt is averaged as 20,000 dollars. Which is a lot of money, sure, it isn’t a house, but, to start out in your early career in debt. That can be extremely damaging to a person’s future. Instead of getting a car, or to start putting money for an apartment, you have been paying this debt first. Which gives you a huge disadvantage in the working world. You need money to make money, and for these young adults, they don’t just have money, they owe money.

    What makes this even worse, is that these borrowing companies are making it difficult to pay back. Which, just hurts these students even more. Especially if there are no federal standards, giving these companies free range with what they want to do. As well that this gives little to no choice for where these students could go to get a loan. Pitting these students into a corner, including myself, with having to choose a company to get these loans from. The lack of student loan protection is not only disappointing and disgusting but, it is idiotic. Typically, those who are getting these loans, are students, who want to give themselves a better chance to get into a better career. Yet, the first few months after college can be tough with getting a job. I had two older siblings, who, after college, didn’t get a job right away, making it hard to pay back the loans first. Even then, after getting a job, they had to put more money invested for other things, such as money for transportation so they could get to their job. If my siblings were not allowed to stay home or had to move for their job, they would have to put money in to get a different place to live. It is not the times like they were before, where you could graduate high school, get a nice entry level job where you will move up in a year, and be able to move into a nice apartment or house after some hard work. We are not starting at no debt anymore when we go job searching, we are going into the job market with 20,000 dollars or more to owe. Which, with these loan companies doing practices that will hurt the borrower, in the end, this is just a burden and abuse students must sadly endure to hope to get a better career in the end.

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