1 vote

The Student Loan Swindle by Mike Whitney

Alan Nasser is professor emeritus of Political Economy at the Evergreen State College in Olympia, Washington. He co-authored "The Student Loan Debt Bubble" along with Kelly Norman, which appeared in CounterPunch.)

MW: Is it possible to "walk away" from a student loan and declare bankruptcy?

Alan Nasser--- No, it's not possible for student debtors to escape financial devastation by declaring bankruptcy. This most fundamental of consumer protections would have been available to student debtors were it not for legislation explicitly designed to withhold a whole range of basic protections from student borrowers. I'm not talking only about bankruptcy protection, but also truth in lending requirements, statutes of limitations, refinancing rights and even state usury laws – Congress has rendered all these protections inapplicable to federally guaranteed student loans. The same legislation also gave collection agencies hitherto unimaginable powers, for example to garnish wages, tax returns, Social Security benefits and -believe it or not- Disability income. Twisting the knife, legislators made the suspension of state-issued professional licenses, termination of public employment and denial of security clearances legitimate measures to enable collection companies to wring financial blood from bankrupt student-loan borrowers. Student loan debt is the most punishable of all forms of debt - most of those draconian measures are unavailable to credit card companies. (Maybe I'm being too harsh. Sallie Mae recently announced that it will after all forgive a debt under either of two conditions: in case the borrower dies or becomes totally disabled.)

http://counterpunch.org/whitney02042011.html

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

I have to point out that the professor is WRONG!

When asked if it is possible to "walk away" from a student loan and declare bankruptcy, professor Nasser incorrectly says no. That is most definitely untrue. All the loan companies and the government would like you to believe that student loans cannot be discharged in bankruptcy, but an exception exists at 11 USC 523(a)(8) that allows for student loans to be discharged where the debtor can show undue hardship. Unfortunately Congress did not define what undue hardship consists of and the bankruptcy court can use several tests from precedent cases to determine undue hardship. It is true that getting a student loan discharged is difficult but not impossible. With the economy as it is today, default rates on student loans are on the increase. As a result, I would venture that getting student loans discharged will become easier as more people attempt to rid themselves of ever increasing student loan debts.

Become a student loan creditor

and reclaim the credit from whence it came. Take the credit out of circulation and pay the credit transfer tax. Reduce the overall debt. Your student loan was established through your own account, reclaim it or recoup it and get a refund.
Credit is for recycling not for the creation of more debt.
Read Title 26 USC Sections 671-679, UCC Code (almost the same stuff) Articles 2,3 and 8. Something else you might want to bone up on is Title 26 USC Section 1.856-6, this gives you the skinny on foreclosure. If you want some help write me here or @ riceowlex@gmail.com

Just one last kick in the nuts, then a final deathblow

Student Loan Shark Industry

Student Loan Shark Industry:
http://www.mybudget360.com/student-loan-shark-industry-total...

Let it not be said that we did nothing.-Ron Paul
Stand up for what you believe in, even if you stand alone.-Sophia Magdalena Scholl

Well, there's always hyperinflation...

At least for a short while, dollars will be both cheap and legal tender to all debts public and private, right?

my wife and I both have degrees.

We both have degrees, mine is business B.S. and MIS (Management Information Systems/Computer Science) and I am a kernel programmer/engineer, and my wife has her R.N. and B.S. in Nursing.

We are still paying on our loans 10 years after graduation. Of course, we don't owe too much at this point (less than 10K), but this was our only way to get through. We both had jobs during school; both near full-time. Those who think they can go to school entirely on the tuition program including housing and food are going to be slaves to the debt. I personally know people in over their head $125k to institutions like ITT tech and still have not graduated. This is what concerns me greatly; it's people not realizing how difficult it will be to have a first mortgage payment on your education before you ever try to start a family and buy a home. However, I don't like the idea of regulation not allowing people in certain professions not able to borrow enough; namely those going to medical school. The whole notion of out of state tuition is nonsense and is nothing more than usery.

Personally, my degree did not help my situation in life in terms of income; but my wife's degree is a great backup for my family if my health fails; or something serious happens to me; then she can take care of the kids and work. At some point we can both work and pay off our debts fairly rapidly.

-------------------------------------------------------
Peace, Freedom and Prosperity. Not War, Welfare and Bankruptcy.

------------

I have to say that . . .

with the new medical plans and with the economy beginning to crumble, I don't think it's a good idea even for medical students to take out loans--

I mean, these young doctors are never going to make as much as the doctors are making now (or were making 10-20 years ago)--

so, overall, I think the entire system is crumbling.

And, as I say, *I* can talk; spouse and I both have our undergraduate degrees, and one of us nearly completed a masters' degree (the program was terminated at a state university; we were paying as we went, so we had no debt, but ALL those hours of classroom time and all that tuition made no difference in pay)--

the other one of us only took several graduate classes--

when I think of all the money we poured, all the CASH we poured into graduate programs, one of which, if the university hadn't terminated it, would have given us much greater economic prosperity--

and I think of how we could have invested that money--

shortly thereafter, we experienced long-term unemployment (company downsizing)--

etc.--

we are now MUCH older and much wiser, and we aren't in debt, except a small mortgage, but at our ages with most of our former college friends now retired, we shouldn't even have a small mortgage--

!?

My heart goes out to the young people. Our married child and spouse are paying off school loans and are under/unemployed; THAT is heart-breaking, and we can't help them out--

so they are on food stamps--

:(

at least one of our other adult (single) children has decided that there will be no school loans, even if there is no school!

and we are the third/fourth generation of college-educated people in our family--

it's hard to be awake; it's easier to dream--

Study Dave Ramsey's financial peace program

A few short years ago, I was miserably in debt. In 06, I started following his plan. Paid off $62k by August 08. Was laid off in Oct 08, but it barely changed my lifestyle.

I purposefully stayef unemployed for about a year (inspiref by Ron Paul, I did not want to pay income tax...seriously). In 10, it was time to go back to work, I purposely took a lesser paying job (to pay less income tax...my little war against the gov).

Last week, I bought my dream car...in cash.

Today, I completed my contract...so as of right now, I'm unemployed.

Am I or my family concerned? Not a bit.

You see, it is not as hopeless or evil as people (including those here) make it out to be...if you take responsibility, if you have a good plan.

Try Dave's plan. His books are in your library. His radio archives are free on his website. What have yoy got to lose.

Tuition increase linked to Student Loan Guarantees

Clearly the schools are in on the game. They have no problem raising tuition and fees. Why not the money is guaranteed regardless of the fate of the student. What a business model. Get some suckers (I mean students) to sign away their future earnings for a some time at the school. The suckers are told all kinds of wonderful things about the earning potential and the nice banks are so friendly with giving them all this money.

Sounds like a complete racket to me. Don't borrow for school. Save up, get scholarships, get a company to pay, join the national guard or military. Just don't borrow.

This hits so close to home

I do not expect anyone to feel sorry for me, just to read my story and hopefully learn so as not to repeat my mistakes.

I was a high achiever in high school, graduating with a 4.0 and therefore receiving many merit based scholarships. Because of this I was able to avoid incurring large amounts of debt as an undergraduate that otherwise I likely would have because my family was quite poor and I am a first generation college student. College was of course my "ticket to a better life" and I took it very seriously.

I majored in biology and graduated four years later with honors and a relatively small $7,000 in student loan debt I had taken out to cover the gap between my scholarships and the small amount I could contribute out of pocket. I knew nothing about the economics of debt at the time, other than that having too much of it was "bad". So I took a year off between graduating and applying for med school (my dream), took two jobs, and worked very hard while living frugally which allowed me to pay off the entire loan balance within a year and start med school with a "clean slate".

I soon learned just how fierce the competition for med school is, when despite my excellent grades I was unable to gain entry to any school except a private for-profit one based in the Caribbean. My greatest concerns had to to with the quality of the education offered there, but once those were allayed I saw this as the path to my dream. Of course I was uneasy about signing the paperwork for the very large loans required to attend, but I had complete faith in my ability to do well and graduate with a medical degree that would enable me to pay back the loans as long as I was willing to continue living frugally for several years. This did not daunt me at all since I had lived frugally my entire life.

In an ironic twist, it was my so far short but outstanding credit history that allowed me to qualify for such large loans that would likely ruin my credit. Because the school was based in the Caribbean it was considered a foreign school and therefore it's students could not obtain government loans, only private. However at the time this fact meant very little to me.

Fast forward two years, and I have successfully completed the first half of my medical education and am preparing to go on break when I am informed by the school that due to "worldwide instability in the financial markets" the private company that provided the loans for approx. 90% of the students would no longer be offering loans. I would need to find "alternative financing" in order to continue my education. It turns out that the financial crisis was upon us and the market for very large private loans to students of foreign for-profit schools completely dried up. There was literally not one place that would loan more money at that point, no school that would allow me to transfer, nothing I could do. The boat that I and many of my fellow students found ourselves in was massive debt, half a degree, and no prospects for a job that would possibly allow us to pay it off.

The only silver lining is I had no cosigner that got dragged into this with me. I had my "Ron Paul awakening" about six months before this all happened, and now understand how foolish it was to risk so much on an uncertain school, my only defense is that dreams die hard, and my heart was truly in the right place of just wanting to do something to make my small corner of the world better. Now I have a modest job I had to search very hard to get, and will run out of deferments in a year and a half at which point I will have payments of over $900 a month for 30 years which is impossible on the $1500/month I make. Soon my credit will be in the toilet, I will have debt collector's hounding me, and it is hard not to feel like my life that once had so much promise is over. I am trapped with no way out, and no chance to contribute to society in a meaningful way except perhaps to serve as a warning to others. I cannot even file for bankruptcy.

Ironically, shortly after the crises started, several of the private loan companies and the loan guarantors applied for and received the bankruptcy protection that they had lobbied congress so hard to deny student borrowers. I can tell you this problem is large enough that when it all comes to a head it may very well throw us into another economic crisis. At that point it will affect everyone and then perhaps something can get done. In the meantime, I watch the high interest accrue on my loans, and pray.

Organizations for Stupid loan Slaves

There is a group that exist for people with student loan problems. You can visit: http://www.studentloanjustice.org/

I suggest you visit there and tell your story as well. Also, please tell everyone you know of this site.

Finally, you might want to consider leaving the country since your potential to contribute is apparently not appreciated by this country at this time. Others have.

Vince Iori
vinceiori.com
arnshop.com

may I say "bless your heart"?

Thank you for sharing this--

a family 'friend' (used to date one of my children) is finishing year #2 of medical school, paying VERY high out of state tuition--

and had some serious medical problems in the middle of last summer--

high medical bills--

I am watching this, wondering--

we still care about this young person; things weren't 'broken off' very 'cleanly', if you know what I mean--

I have begun to wonder what will happen; fact is, this young person at one point wanted to finish with a clinical degree and get a fairly high-paying job and the parents encouraged finishing medical school, and we also watched how difficult it was to get in, in spite of high grades, etc., etc.--

(sounds much like your story)

parents have believed that this is the answer and will give this young person the 'dream' life--

and now we wonder, as we see the medical bills, etc.--

we are not 'involved' anymore, but we do still care--

and now we are hearing, more and more, that the medical field is not continuing to pay as much as it did before, etc.--that many doctors want to change careers, etc.--

(in other articles posted on DP)

I agree with the praying; I know that at some point this has to break--

and . . . I believe that you will be free.

God bless you, young one.

Spouse and I (married, old and with young adult children, married and single)--worked hard to get through college but experienced serious downturns and major health crises--

we're doing better now, but we are NOT financially successful--just out of debt and maintaining.

it's hard to be awake; it's easier to dream--

reedr3v's picture

What a story you have, and you tell it well. .

Maybe you could gain a little payback by sending out inquiries for paid publication? Is there already a website with an active forum for people in your specific predicament? If not, starting one could build your repertoire as a writer and expert in the field.

With your aptitude and skills, I am hoping you can forge ahead as an entrepreneur or free lancer in an area requiring little capital investment.

Good luck to you.

I would say this. Go to

I would say this. Go to college if and only if you study something that would require you to go to college.

If you want to be a chemist, probably a good idea to go and get some training at a 4 year school. Although it is really a rip off that a lot of schools require you to take things that don't directly apply to your choice of study. In this case chemistry.

Other professions that come to mind that, I think, would be a good idea to at least consider school if not attend.

* Computer Science/Engineering
* Chemistry
* Doctor
* and just about anything that would be a productive member of society.

I'm sure there are more but for those schools that are give degrees away for things that are useless in society is a scam. Like studies degree. I mean really?

eh?

I know that you are just saying what many others have said, and I understand that you are talking about liberal arts degrees, etc.--

and up 'til now you are correct--

but I just read what the young person who is halfway through medical school posted; I know someone with a ph.d in chemistry who works for a composting company, and I know all too many engineers out of work--

it's getting to be a serious problem--

it's hard to be awake; it's easier to dream--

I wouldn't get a Ph.D. There

I wouldn't get a Ph.D. There was an excellent article about it on lewrockwell.com a long while ago. I have a several degrees. BS Computer Science, BA Stuido Art (worthless), and MS Computer Information Systems.

The art degree I got even though I realized halfway through my sophomore year it wasn't going to make any money ever in Art. I was not okay with spending thousands of dollars on a worthless degree. The next semester I enrolled in Computer Science, which I was really into. I then realized I would spend the same amount if dropped the BA and just got the BS so I opted to get both the BS and BA. It helped getting a cool job when I got out of school.

The MS I got was worth every cent (so far) as it has increased my base pay a ton and has gotten me a lot more interviews that I had otherwise.

So in all it was a good investment. I'm done with school unless I can convince my employer paying for it as it is a good resume builder. ;)

But like with any investment you've got to weight the risks. A Ph.D in chemistry is good if you're willing to move anywhere at any time for a job, you have the network setup to hook you up with a job during or after you get the degree, and you really want a job in that field.

Honestly, I think it's really up to the individual to decide. If they are dumb enough to get a degree in teaching and pay $120,000 (I know someone who is doing this) and get out and get a job for maybe $30,000, assuming they can find a job where they want to live (I know someone it took them over 2 years to find a teaching job here). Then so be it. Let them make the mistake and hopefully learn from it. God forbid that they listen to me! lol That's the sad part. If they would only listen.

Good stuff! I can't wait

Good stuff!

I can't wait until this bubble burst and we have to bailout the "Higher Education" system for another $700 Billion!

Bobby you are the best!

every day you are finding so many great articles!

This coffee is to you
Cheers!

LL on Twitter: http://twitter.com/LibertyPoet
sometimes LL can suck & sometimes LL rocks!
http://www.dailypaul.com/203008/south-carolina-battle-of-cow...
Love won! Deliverance from Tyranny is on the way! Col. 2:13-15

Thanks--I hope to meet you one day Tom

at a conference or something like that

Follow me on Twitter for breaking news from a libertarian perspective

www.twitter.com/AbolishTheFed

Oh well...

If someone is DUMB enough to borrow money from the federal government and expect no strings attached (unless of course you are Goldman Sachs et all), then they are seriously misinformed.

Anytime it comes to a Federal privilege, in this case a federal loan, the federal government can legislate anything they want to about it. That's the way the Federal government works. If someone is ignorant enough to sign such an agreement, then this is what they get.

After all, since when did everyone think they had a RIGHT to that money. Nobody does and nobody should. I don't believe the Federal government should even be involved in the loan process for school loans anyway.

If you want to go to College, then borrow privately or save your money. As for me, I dropped out of college. It wasn't for me. That was about 12 years ago. I did repay my loans and wish I had never attended. My mother was convinced I "Needed" to go because all of her friend's said that "ALL" kids need to go to college after high school. I was already doing what I'm doing today in the "computer field" and am happy to say it worked out great for me dropping out.

After all, all these loans have done is NOT to further educate most Americans, but to further in debt them! Those who hold the debt are slaves to the lenders, who then become their masters.

Most people who come out of college don't have a "better life". Many go work regular jobs anyway just to pay off ridiculously sized loans. Loans of which that have really just gotten them into debt, making their quality of life worse, not better. Financial stress is one of the more daunting stresses that exists today.

College has become a joke unfortunately. And schools know just how to financially take advantage of the students. After all, where else can you go pay 10 times the amount for a book then you can get it elsewhere!? A book that should cost $50, ends up costing $200. Wow, I'm in the wrong business.

College in my eyes has become a "conditioned" way of life for most. The assumption that you just have to go to be anything in this world is just more of the same nonsense preached by most average folks and loved by lenders of money who reap the benefits of loaning all this money to people who can barely pay it back. There are also a lot of useless degrees available from these institutions.

People need to get back in the business of making stuff! College is not that vehicle to make that happen in most cases. But yet again, most are convinced to pile on loads of debt, usually the parents on behalf of their kids, because they believe they won't have the "best chance" at life unless they attend college.

I truly believe College's do take advantage of those who enroll into their "Institutions" for a "Higher Education". Like I said, most who go to college do not come out producing more or becoming more relevant to society or themselves for that matter. It's just become more of continued "High School" education for those who in most cases do not want to become responsible for themselves after High School.

Love Liberty, be Vigilant

"Now the Lord is that Spirit: and where the Spirit of the Lord is, there is liberty" (2 Corinthians 3:17)

Faith in God will prevail all things!

Michael Nystrom's picture

I agree with you but...

I think it is unfair to hang this around the neck of a 16 or 17 year old kid:

If someone is DUMB enough to borrow money from the federal government and expect no strings attached (unless of course you are Goldman Sachs et all), then they are seriously misinformed...

Yes, it is true, and clear with the perspective of hindsight. But how is a senior in high school supposed to know that?

  • They don't teach it in school.
  • If parents are college grads, they're working off a 25 year old model in their heads - of the way things used to be.
  • If the parents aren't college grads, they've no doubt bought into the MSM propaganda that college is the ticket to freedom (so you don't end up working a bum job like me)

So how are they supposed to know?

Colleges are mainly profit centers now. Look at the most innovative companies of high tech: Microsoft, Apple, Dell. All started by college DROPOUTS.

If college is good at anything, it is good at teaching students to think inside the box.

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.

Excellent Points

I agree with you on that.....

Love Liberty, be Vigilant

"Now the Lord is that Spirit: and where the Spirit of the Lord is, there is liberty" (2 Corinthians 3:17)

Faith in God will prevail all things!

bumping--

.

it's hard to be awake; it's easier to dream--

Michael Nystrom's picture

Incredible.

Thanks for posting Bobby.

The youth of today are really getting the shaft. Before they know which way is up, they're lured into huge loans that will be with them for life. No way out.

When I moved here, I met a guy who was $100K in debt with student loans that he couldn't pay. Interest was accruing at $1K per month. He was beaten, broken, defeated. He was on a complete cash economy because his official wages would be garnished.

If anything, this will be one of the major factors moving this country towards Revolution. It is immortal, unfair and unjust.

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.

This issue is personal to me

Today I see scores of recent law school grads who have gone to the local law school here, which is a very expensive For-Profit school. They have over $150,000 in student loans and are lucky if they can land a job paying $45,000/year. They come to Jacksonville Legal Aid just to get experience so that can eventually find a job or hang a shingle.

I reckon some people here will say "Nobody forced them to go to law school and incur that debt." Those people don't get it.

You summed it up correctly with:

If anything, this will be one of the major factors moving this country towards Revolution. It is immortal, unfair and unjust.

Follow me on Twitter for breaking news from a libertarian perspective

www.twitter.com/AbolishTheFed

Michael Nystrom's picture

Bobby I can only imagine

It must be a supreme disappointment for those graduates.

I agree that those who say, "Nobody forced them to go to law school and incur that debt" don't get it.

The kids are only 17 years old when they get lured into the trap. No one gave them the other side of the story. The scam is almost literally "like taking candy from a baby."

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.

no, *we* (spouse and I) won't say that--

we both went to college many decades ago with high hopes of enough prosperity to have 'good' lives--

we did both work our way through all undergraduate and beyond--

and didn't take out loans, but it didn't matter; our degrees have done nothing for us, and we're in a low income bracket now. We have worked very hard--

So, though there may be general cynicism about college on DP now, it's not directed towards those of you who are still trying--

many of us have 'been there and done that'--

it's hard to be awake; it's easier to dream--

You are correct

You are correct

Follow me on Twitter for breaking news from a libertarian perspective

www.twitter.com/AbolishTheFed