Student loans offer an opportunity for financing one’s education, but these loans have a dark side, and for some having gone to college turns into the biggest mistake of their lives.
At least 200,000 Americans are enduring silently the corrosive effects of student debt, if the numbers of subscribers of a Facebook page created by student loan forgiveness advocate Robert Applebaum are any indication. Like most Americans who take on significant debt, all these folks wanted was to improve their lives. But the student loan system, with its punitive rules and no provisions for life’s changing circumstances, makes that hard, if not impossible, for many do change their lives for the better. And when student loans go bad, lives can be destroyed.
The potential for trouble has grown with the prevalence of student loans as major sources of financing a college education, the traditional path to a better life in America.
Current economic problems have led to a record of defaults—over 9%, the most since 1998—as thousands find themselves unable to make monthly payments. Often running into hundreds of dollars a month, monthly payments become an impossible burden when the jobs that borrowers planned on getting after graduation, the jobs that were going to cover the tens of thousands of dollars in student loan debt, simply aren’t there.
But even before the current economic crisis, student loans posed enormous financial burdens on those who relied on them in order to finance their education. It is not uncommon for students to carry tens of thousands of dollars in student debt, which usually might translate into hundreds a month in payments. Such circumstances may vastly reduce the student’s options, even forcing them to move back home.
Even the more marketable majors do not always lead to financial security. It is possible to carry an enormous debt burden even when one graduates from hot and in-demand fields like nursing or other medical specialties. Debts of over $100,000 in such situations are not uncommon, especially when students with prior degrees and associated debts re-train. Enormous debt forces such individuals to not only work longer, but it causes them to bring home a lot less pay. Few student loan lenders are interested in working with borrowers toward a more affordable repayment scheme.
Those with professional degrees, like lawyers and doctors, face even greater financial woes—often owing amounts exceeding 100,000, they become de facto debt slaves, having to work long, hard hours just to meet the payments. According to a Forbes article “The Great College Hoax” by Kathy Kristof, attorneys Joe Kellum and his wife accumulated nearly $200,000 in combined student loan debt. Despite their high salaries and a never-ending stream of payments, the debt crushed their marriage. “Two people with this much debt just shouldn’t be together,” Kellum said.
If living with student loan payments was hard in good years before the Great Recession, the recent economic downturn has made it even harder. The crisis has led some to simply break down financially and become unable to make any payments, making the default rates skyrocket.
Though defaulted loans are written off by the lenders, the money is still owed by the debtor, and the total amount of the debt increases dramatically because of the penalties. Default also ruins credit, making it even more difficult to obtain employment as companies will not hire those with bad credit history, even for menial jobs.
But defaults are good business for the lenders, Alan Collinge said in a Democracy Now! interview: once in default, a loan in default often triples. Collinge is one of those whose life has been complicated by the presence of a debt that can’t be reasoned with. Unlike many who remain silent, Collinge is one of a handful of people who have decided to organize other borrowers in trouble in order to push for reform of the system. Author of a book on the problems of student loans, The Student Loan Scam, Collinge has become an expert on the realities of the dark side of student debt.
When a loan defaults, Collinge said during the interview, the lenders are paid nearly book value for the loan by the federal government; then they turn around and get a second bite at the apple by stripping the borrower of any money he or she happens to have as they try to collect on a debt that they also get to dramatically inflate through various penalties. But trouble only begins for the debtor at this point.