Well, we were all waiting for this to start and here it comes. In today’s Wall Street Journal there is a report regarding the student loan default rate increasing from 5.2% to 6.9% in the last year. As the Department of Education correctly states:
Robert Shireman, a senior adviser to Secretary of Education Arne Duncan, says he expects the default rate, which reflects the early part of the recession, to continue to rise. “When people are facing a job loss, figuring out how to pay their student loan is not No. 1 on their list,” he said.
That’s right. For better or for worse, the last thing on many people’s minds at this time is their student loans. Like Mr. Shireman reports, if you’re losing your job and you’re at risk of going into default on your mortgage, then the last thing that you care about is paying back a student loan that is ten, fifteen, or twenty years old!
But you’ve got to make those payments, folks. Student loans are among the few pieces of debt that cannot be discharged in a bankruptcy filing. Further, the government can (and will) garnish your wages if you default on your student loans.
All of this gets back to a point that I’ve made a few times in the last few weeks on this blog – that one of the best ways to stimulate the economy would be to cancel some, if not all, student loan debt for existing borrowers. And this point is related to something else that I think many of us stunted by student loan debt understand that the rest of the people out there don’t get yet – namely that even with all of the stimulus plans and other money being pumped into the economy, those who have a great deal of student loan debt are not going to be able to contribute to the economic recovery.
Now, if there were only a few of us, then the effect wouldn’t be so bad. But the number of people with out of control student loans is growing and that is not a good thing for the economic recovery…
Even more about the state of student loans and defaulted student loan collection:
Student loans, over the past 10-15 years, have had all standard consumer protections stripped away. Truth in lending disclosures, usury protections, fair debt collection practices, legal due process in collection cases, standard refinancing rights, bankruptcy protection, statutes of limitations — all don’t exist for student loans.
Charge up a bunch of junk made in China at the mall on credit cards? No problem, you can negotiate, refinance, or discharge the debt in bankruptcy. Buy a house for five times your income? No problem, you deserve a bailout! Student loans? You will be hunted like a fugitive for the rest of your life.
All other government debt, such as Veterans Administration loans and Small Business Administration loans – are covered by normal consumer protections as mentioned above. Default on a student loan, and you are not entitled to any proof of the debt, you are not entitled to legal process, you do not have a statute of limitations or bankruptcy protection, and you can only refinance (consolidate) your student loans once.
The $600 billion in current outstanding student loan debt is a lead weight anvil suffocating the middle class.
For more information, see StudentLoanJustice.org