Student Loans: In Support of Bankruptcy Protection

Comments 44 Comments

As a follow-up to my recent post on the student loan “bubble,” I chatted with Alan Collinge, author of The Student Loan Scam: The Most Oppressive Debt in U.S. History — and How We Can Fight Back. Collinge is also the founder of and a self-described “complaint box for the [student loan] industry.”

It goes without saying that Collinge is not a fan of the current lending practices (he calls them “predatory”) and likes to reference the rising student loan default rates as evidence of a deteriorating student loan market that will soon, like other inflated bubbles, burst. It’s only a matter of time, he says.

Collinge’s primary proposal to alleviate the problem is reinstating bankruptcy protection laws for student loan borrowers. (In 2005 lawmakers issued an amendment making it nearly impossible to discharge student loans in bankruptcy protection without “undue hardship.”)  Collinge supports proposed legislation, the Private Student Loan Bankruptcy Fairness Act of 2010, which aims to reverse part of the 2005 law by allowing private student loans – which offer far fewer repayment options than federal loans – to be discharged in bankruptcy.

Proponents like Collinge believe bankruptcy protection on a loan instrument will make lending practices more fair. “Bankruptcy is a fundamental free market mechanism…not so borrowers can run off and avoid their debts, but for two critically important reasons,” says Collinge. “One, it keeps lenders honest and working in the interest of borrowers and two, [bankruptcy protection] controls market prices.” Critics predict the opposite. They think lenders would raise interest rates in that environment to offset their losses.

While passionate, Collinge is skeptical that the proper reform will take place – at least not from within the system. Instead, he foresees fed-up borrowers joining forces. “Consumers are going to just stop paying regardless of the powers that be. People are at some point simply not going to put up with…the lending system.”

Image by m00by, via

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • WI Will

    There is another fundamental American principle at stake as well. In our free market system we are all expected to function as entreprenuers of sorts. And we are suppose to try to do things to make the economy grow. However, most efforts frankly fail. Thus the system must provide a means of getting a fresh start, a way to start over and apply what you learned the first time. Thus bankruptcy protection protects the free market system and has been a part of the laws of the land since the drafting of the consitution.

    So Boehner if you really supported the principles of the tea partiers and others you would get out of bed with Sallie Mae and restore a meaningful level of bankruptcy protection for students. Don’t you think they could at least make the penalties, interest and other non-principle items dischargible and freeze the priniciple in order to allow the financially distressed and unemployed some chance at recovery?

    • Alan Collinge


      If you understand well the systemic implications of removing bankruptcy protections from a government sponsored lending system, you would know that your proposal is a wholly unacceptable compromise. I urge everyone to consider the argument clearly linked on the main page of the website, which shows clearly why full bankruptcy protections for all student loans must be restored at this time.

      If critics and subversives wish to debate the likely impact when full bankruptcy protections are, at long last, restored, I am happy to engage, because these “nip at the edges” tactics, and shameless fear mongering carry no real currency (and never did), and I suspect those engaging in such tactics must be growing weary of dishonoring themselves with such tactics. Hopefully interested readers are starting to be able to see these sorts of maneuvers and call them what they are.

      • WI Will

        You are right of course Alan, the real point I would like to make is that the supposed free market society thinkers are in bed with the lenders, and it has never been about priniciple, it has only been about profits through favorable legislation for those that can pay for it. The loan system as designed is intended to insure that there will be a pool of people who can not pay their debt off ever. Then the bill collectors can pursue these trapped souls with impuny forever, with no intent of ever giving them the least opportunity to get back on their feet. Thus the obsurdity of not only making the actual school debt non-dischargible, but making every nickle and dime of penalities, interest, and compounding factors they can put together to keep the debtor forever indebted. If the other items were dischargible, there would be almost no profit motive for the system anylonger anyway, and the loan industry would not even care about keeping the principle of the loans out of bankruptcy. The whole lifting of bankruptcy protection is not about any priniciple or any altruistic effort to fund higher ed, it is to create a cottage industry for the loan industry, forever collecting on defaulted loans on millions of ambitious people – at the cost of our economy, our freedoms, equity, fairness and justice. That’s kind of where I was headed with that….. wanted to try to keep it short though.

  • Dan

    Stop paying? So, you go into default and wages get garnished. They’ll still get the money.

    • Miguel

      Not if you are unemployed like so many Americans with student loans. And if they garnish wages, they’ll still get less than the outrageous minimum payments they ask for. 15 percent of my monthly paycheck is better than the 2000 dollars they want from me every month. They can also have my tax returns. I get more money throughout the year than at the end anyway.

  • ChangeLending_notDebt

    The predatory lending position is outdated as the credit crunch of 2008 drove many lenders that were in the practice of securitizing psl’s out of the market. In fact the # of psl’s (private student loans) originated the following year (2009) was cut in half and credit standards were raised. Asset backed securitization of psl’s was a big driver in the predatory lending practices. As a lender, if I’m not holding the loans to maturity, credit criteria loosens and the goal is to generate large very attractive portfolios for securitization later on.

    The gallup study confirms that income from families to pay towards a college education went up (529′s, home equity, 401K[not recommended], out of pocket) in the subsequent years.

    While i can appreciate Collinge’s position, it was more applicable in 2005-2008 time frame. the securitization market on psl’s is relatively quiet now compared to then and the crunch in 2008 proved to scare enough investors away. This would mean more balance sheet lending and less rubber stamp approvals on loans to 19 year old w/out any credit history.

    Rember psl’s are credit based and the reason they are now a topic in this article is because students who attended school 2005-2008 are recent grads who now meet tough job market.

    My advice, move back in with mom and dad, spend less, and find ways to consolidate your psl’s with some of the new players in this market…credit unions and community banks!

    If you support this legislation, we WILL see an entire generation of graduates file for bankruptcy to escape this debt.

    Whatever happened to just knowing and understanding what taking out a loan of any kind means? It’s interesting that Collinge’s proposed solution is to address the debt as opposed to the lending practices deemed predatory.

    I agree that during the time of 2005-2008, there were predatory lending practices, but there was also rampant oversight on the consumer in not understanding borrowing money to buy a house one couldn’t afford let alone a college education and the debt that comes with it.

    I’m a 30 year old that has 45K in federal loans, and just paid off my psl last year. luckily i have a job and like many, have held off on buying a home on my own to focus on paying off the debt as quickly as possible. Paying these loans has helped build a credit score of 750 so as I get close (hopefully soon) to buying a home, the mortgage terms are more favorable.

    • LC Loggins

      ……“we will see an entire generation of graduates file for bankruptcy to escape this debt”….so what if they do?? It certainly didn’t happen when bankruptcy was available before…in 1982 through 1986, the student loan interest rate (HEAL Loans) was 3 points above the 3-month T-bill rate which fluctuated at 8 to 10 percent; that level of interest made my loan of $100,00 ($25000/yr for 4 yrs) to become $250,00 by the time i graduated! This crisis is Not a 2005-2008 school year problem, it has multiple tentacles of which many elude your logic. For you to make such a harsh rejoinder while disregarding much of the salient facts does a disservice to the good people who simply attempted to advance themselves, ostensibly for the benefit of their community as a whole. Good people like me, who don’t need your considered unconstructiveness in our quest for the same consumer protection most Americans enjoy.

      • ChangeLending_notDebt

        My position is to change lending and not attacking folks like you that attempted to advance themselves. Your argument talks about the past, the 80′s with the HEAL and if lending policies were different..or CHANGED, your loan should not have accrued interest like it did.

        We can’t change your past, but we can challenge lenders on minimizing the amount of interest being applied for the future.

        In fact I think Private Student Loans should be capped at a low interest rate and only accrue interest upon entering repayment (graduate). Another solution would be to require students to make payments while in school so they can graduate with debt management education and a credit history.

        Again these are solutions to progress..not a horror story about my loans. Part of these solutions don’t include my support for bankruptcy protection.

        You can critique my logic all you want but I don’t see your comments supporting or proposing anything for progress or improvement.

        You can benefit your community by suggesting a solution if that’s what is important to you.

      • Alan Collinge

        Well said, KC. This guy is not to be taken seriously. Any reasoned individual not acting as a tool for the industry would be compelled to agree with the truth of your statements and backup proof.

    • DDG

      Yes, “luckily” YOU have a job and are able to pay of YOUR debt, which goes back to the fundamental reason for having bankruptcy protections: On occasion, some people aren’t able to pay their debt and need to restructure their finances. These companies have denied me and many others the right to defer based on financial hardship when myself and others have been laid off or ill. If restoring bankruptcy protections allows them to make only a few billion instead of tens of billions, I say TOUGH COOKIES! Student loans should be interest free in the first place!

    • aidancharles

      If only it were that easy to move back in with the parents….. Not too feasible when you are married with children, have your own home that you can not sell, have lost your job or are making much less in this economy, have cut back everything you can, and can not consolidate anything because your once perfect credit score (which allowed you to get the private loans in the first place) is now trashed because you can’t afford to pay your credit cards, car payments, insurance, food, gas, utilities, etc…….. Oh and in my case my parents live in another state and my in-laws in another country. I don’t believe that every private borrower will rush to file bankruptcy. I certainly would not if I could AFFORD to pay my debts. The truth is most of us never saw this economic downturn/recession/depression coming. We made mistakes…. Hopefully we have learned from our mistakes. I have learned that my identity is not tied to my credit score nor what balance my checking account shows… If only we could institute a year of Jubilee like in ancient Israel… Every 50 years debts were released and people were free…..

    • Alan Collinge

      You obviously are a spin tool, display not even a glimmer of understanding about the argument we make, and have no real standing in this debate. I hope that the informed people on this board will understand why I don’t waste my time responding to the large volume of false claims contained in this post.

      It is posts like this that compel me to wish for ID verification for comment boards.

      • Anna

        I am right there with you Alan.

    • WIWILL

      Hey Change Lending not Debt,

      One of the many problems with your type of thinking is that you think all Americans are born into your white bread upper middle class world. You assume the students taking loans have parents to move in with, a huge percentage don’t. You dream that everyone is like you and that it is OK to force people to indefinitely live substandard lives, forgo children, not buy a home, etc, etc, etc. Meanwhile you probably think a system that lets AIG execs survive in their gated communities on their yachts, is just fine, so what if they cost the rest of use trillions in home equity. Hey that’s the breaks right.

      Bankruptcy was in place to prevent indentured servitude of old, and it was in place to keep the economy greased up, and entrepreneurs ready to go. Yes, like any business decision you should take on some risk. But here you have no choice but to get a college degree now. Whether it is needed or not, even asst. managers at the burger joints are competing for jobs with college graduates. The way the system is now, if you find yourself in a bad area of the country, can’t get a job, don’t have parents or other relatives to take you in and put you in their basement (and sometimes even if you do) and find yourself unable to pay your loan, it will grow, and grow and grow, until you are forced to compete for jobs knowing you will ALWAYS be paying a significant chunk of your money to Uncle Sam or some private lender, or some bill collector.

      Student leading is an unfair, unethical, dishonest system that specifically destroys opportunity for lower middleclass and the poor, regardless of talent, ambition or drive. It creates a weight on our economy, and it will never be paid back.

      By the way, it is not like filing bankruptcy is like some sort of grand gift. Filling personal bankruptcy is devestating to an individual, it limits for a significant amount of time their credit worthiness, decreases their ability to borrow substantially and increases the interest they have to pay when they can borrow. On top of that for years they will be challanged in finding places to live, and they will be out of luck with many employers. It is no cake walk. But to bury someone, kid, non-traditional adult student, whatever, under a pile of compounded interst and burtal collection costs and late fees, is a travesty. Come on be real.

    • WI Will

      You are not going to see a bunch of people file for bankruptcy. I will tell you why, unlike AIG and Lehman Bros. the vast majority of the underclass, the lower middle class and middleclass, value their word, and value their credit. It is for the most part all we fricking have. We do not have rich mommy or daddy or grandpa or whatever to move in with, so only in the most desperate of situations do we resort to begging for forgiveness. ANd by the way filing bankruptyc has serious consequences for many years, it effects your employability, it affects how much you pay for everything for years and years.

      So no there will be no horde of students other than thus that have been left destitute by the last recessionn or health or other freakish things. And yea it will be more than we like, but in the end they can not pay the debt anyway, so what is the point of locking them out of economic life forever?

    • Mike

      “My advice, move back in with mom and dad, spend less, and find ways to consolidate your psl’s with some of the new players in this market…credit unions and community banks!”

      What? Seriously, buddy? Move in with your parents and consolidate? Pay it?

      Here’s a newsflash, I was hit with fraud by 2 for-profit colleges in 2003-2006. They both used the same deceptive practices as found in the GAO investigations.

      This being said, I have over $83,000 in student debt. I work to earn $30,000ish. I work HARD. I love my job and I put my entire heart into it.
      I’m 30 and I CANNOT move in with my parents. Why? Because my mom died in 2007.

      I honestly don’t ever plan on buying a house. It’s not worth it to me.

      Right now someone can go gamble their butt off in Vegas, get a loan, and blow it all until they have nothing left, and then declare bankruptcy scott-free.

      Meanwhile, us students, who have a legitimate, world-helping attempt to improve ourselves to benefit the rest of the population, fall victim to predatory lending practices by greedy companies driven by wall street investors who just want to make a quick buck, are trapped in unmanageable and utterly bogus debts.

      The for-profit schools offered a carrot, they told us they would get us to the goal, a gainful job doing what we loved. Yes, I was an idiot for falling for it, but must I be forced to relive my mistake over and over and over and over and over and over and over and over?

      I thought America was the land of the free. No, I don’t want a free education, but I got fooled by deceptive sales people manipulating the system/laws/regulations. I don’t think this is freedom. I think I live my life worried about how I’m going to survive now that I’m stuck in these debts. instead we’re trapped in a world where lenders and schools have all the say, the rich get richer, and the poor just die in a ditch because they probably can’t even afford a proper burial.

    • Jane

      Sallie Mae doesn’t even allow consolidating with another company.

  • Carry_O

    I am 24 years old. I pay my loans on time. And I feel dead inside.
    I have lost hope for a home, I do not believe anyone in their right mind would marry me, I have no hope for children. My life is spent paying my loans. I have two jobs, 65 hours a week. I pawn my belongings, I have even collected cans from my friends for gas several times. All I do is work.
    I will be doing this until I am 37.
    I don’t know what to do. All I know is I can’t give up.
    The loan amount never, never goes down. The interest I pay on it is 45% of the monthly payment alone. Sallie Mae has strangled any hope I have for the future…which is funny because I thought that’s what college was supposed to give me. Now I have found myself back in the very same town I tried to leave, and now recently forced to move back in with my parents.
    I am a shell of a person. I feel hopeless and scared most of the time.
    Let’s pray our officials do something self-less for once and restore a BASIC consumer protection to these student loans. And remember, in bankruptcy court you HAVE TO PROVE HARDSHIP. You can’t just waltz in and have it discharged. It’s a long painful process which leads me to the point that not everyone will go in and immediately discharge.

    If you don’t understand what a terrible mafia-level racket this student loan business is, this business sold to YOUR CHILDREN, you haven’t been paying attention.
    God help me.

  • Sarah

    I was lied to and got hooked into getting an online degree. I told the lady I have less than basic math skills ability…I could not sign up on any degree that would give me math issues…and she LIED TO ME saying the program I chose wasn’t going to be a problematic issue…Ohhhh boy you should have seen the math program when I was more than half way into the game. Good God. And every class I failed, added MORE DEBT. The college (AIU online) even took all of my grant money and I had NOTHING to pay for the mortgage calculator they suggested I have for yet ANOTHER horrendous math coarse.

    And now, me with my part time minimum wage job (that i am soooo lucky to have) will struggle continuously to make ends meet while my federal taxes get RAPED from me as I struggle to keep up with car repairs etc. I hate this country and it’s sickening system of raping to poor. Sorry.

  • kenneth r keough

    Here is the facts 89,000 pvt and fed loans from grad school degree in 2005. Now licensed and no jobs; certainly none at 65,000 per annum and above required to service loans and live. I am currently in chapt 13. Student loans are nearing default and cannot be included in any bankruptcy. Balanace is now over 100,000. I am 54. this is debt approaching untenable proportions. I remain unemployed for last 1 1/2 years.

  • LC Loggins

    I saw my borrowed $125,000 turn into $700,000, eventually forcing me to quit practicing podiatric medicine after I was booted out of Medicare and Medi-Cal. Yes after 13 years of providing podiatric medical service in the inner-city, while receiving substandard reimbursements and many times no reimbursement at all due to Med-Cal’s arcane rules, claim denials, and ponderous paperwork requirements, I was summarily kicked out from participating in federal programs – all because I decided to complete residency training in order to upgrade my skills for the benefit of my patients.

    That this government can allow a person like me, with three degrees, advanced training and a devotion to bettering the community to be railroaded, minimized and discarded by the Graduates-Will-Be-Destroyed-By-The-Government-Approved&Sanctioned-Student-Loan-Corporate-Complex. How is it that I can rise myself up by the bootstraps, struggle to gain an education (after Encinal High School in Alameda, CA told me I was not “college material”); complete podiatry school against all odds – only to be told, “now that you’ve finished 10 years of schooling, you have no value!”. That it is more important to protect corporate interests than to allow basic consumer protection to this group of motivated and accomplished persons called college graduates. And some wonder what’s wrong with this country.

  • Emmanuel

    The beginning of the end, my friends!

    Collinge is a very perspicuous critic of the industry, and he is right to identify massive non-payment of these loans as the simplest way for borrowers to revolt and protest these unfair laws. Given what we know from the financial sector’s documented, fraudulent behavior, I would not be surprised whether they are not actively working for a massive default….as it happened with the Housing Market’s insured swaps on so many Collateral Debt Obligations…You can’t really monetize degrees the same you can houses, but that would be the only way the industry could be understood to be acting in a rational way. Otherwise, they would rather choose to loosen their grip on the petrified, desiccated remains of the middle class and the indentured professions…

    Congress and the Department of Education, need to act TODAY to stave off the ‘next housing crisis’…but it will not. Congress is too sclerotic to do so, even if it had the political will to help the distressed borrowers. We know the Republicans are threatening to limit how much the government can borrow, so it is unclear how the United States is going to be able to continue its direct loan program when private capital pulls out of student loans entirely. We also must understand that as we speak Wikileaks is amassing damning information regarding the health of Bank of America and SallieMae, Chase and other players in this pitiful scandal.

    But suppose you can do something about this? Have you ever thought about why it is as it is? If you look at’s media links, you will find a law review article by a John A. Pottow (who writes at essentially describe how legal history of student loans’ conditional dischargeability that essentially describes how the industry lobbied for preferential conditions in bankruptcy proceedings, much to chagrin and annoyance of the American Bankers Association. You have to read that article!


    That article describes six doctrinal reasons why debt is, as a matter of law, not dischargeable in BK filings. There’s absolutely no legitimate reason why these protections had to be revoked. You either presume students are taking these massive debt loads fraudulently (which is risible, because their parents are broke) or you think the purpose of college is simply to invest in education for personal gain (which is not the goal is education) or you think you are making loans cheaply available to everyone by giving lenders the upper hand to collect from everyone, including people deceived into entering a shady program or school, as in the case of proprietary colleges…Now, the latter is rarefied, Serious Argument: it’s premised on value of private and public capital. But Pottow concludes that these loans are not cheaper because they are more collectable: in the case of federally guaranteed loans, these will be guaranteed only as far as the government is able to do so or there’s political will. And in the case of the private lenders, these exist only because the present limits on federal aid cannot keep up with the increasing rises in tuition.

    We know faculty in schools are not living it up (lavish administrators’ wages notwithstanding) the real scandals that are brewing will be in how the endowments of these schools are opened up to reveal how the Board of Trustees from so many prestigious schools are steering funds to the members’ own companies or managed portfolios.

    So Collinge is right, but the question remains: what type of pressure do Congress people need to avoid a revolution? ( Because, College age, unemployed kids rioting in the streets and burbs of good ol USA is what happens when they don’t get to go college) Do you persuade them that this is the humane thing to do for poor kids, or do you let me know their days as ruling class are numbered unless they get smart real soon?

    • Alan Collinge

      I agree largely with the major points here, but your characterization of me planting the seeds, or otherwise planning and/or hoping for a systemwide loss of confidence in, and adherence to, the lending system is incorrect and not justified.

      I have no motives other than precisely what I have said:

      1. Provide long oppressed borrowers who should have never been caught up in such a predatory lending system as this- the bankruptcy protections they should have always had so that they can negotiate settlement of the debt with the same powers that borrowers of all other types of debt can. No more, No less).

      2. Correct the obviously defective and perverted revenue stream that actually rewards all the players- INCLUDING THE DEPARTMENT OF EDUCATION- financially when students default. This type of financial motivation has clear and severe consequences, systemically, on the system that include runaway inflation, non-existent oversight, wholly inadequate customer service, loan administration, and on and on…

      If these failures are allowed to persist into the new system, inflation and thus defaults are likely to continue to increase, and at some critical point, enough people will have defaulted to w here almost everyone will simply decide, en masse, that the lending system is not credible, and will simply walk away.

      This would be a horrible outcome. It would not cause the good government solution that returning bankruptcy protections would. It would also likely freeze the entire system for a year or more. , and in general, it would signal a very large divide opened by years of greed, and so forth.

      I would never want that outcome. I frankly believed that the nameless, faceless bureaucrats behind the wall would have taken a long look in the mirror by now, and simply fixed the damn thing with an eraser, and a quick, hush hush vote through Congress.

      That would have been my ideal outcome. Being labeled a radical, etc, is really not my cup of tea, and being wrongly implicated in an evaporation of wealth of this magnitude would not be pleasant.

      I do, however, know how American’s react to scams, and I know how they tend to act in large groups. Something like what I describe is likely to happen before the citizens self organize in sufficient numbers to strongarm our elected officials to make it returning bankruptcy protections. Therefore, it is incumbent upon Congress and the President simply clean house, make it right again, and try to put guards in place that will keep the system functioning in a healthy manner longer next time, before eventually getting terminally corrupted. (I am quite sure that any government entity is destined to be hopelessly corrupted or conflicted over time, and the battle scarred guys holed up in there should admit as much, accept that this is pretty much what happens over time, and leave. I think the citizens deserve this sort of acknowledgment, and would gain much respect for the indiciduals not too caught up in the game to simply tell the truth, and do what good sense dictates from there.

      (let’s say) percent of the borrowers are thrown into default

      • Emmanuel


        I did not meant to say you were actively agitating for people to people to collectively default, but that raising awareness of the systemic corruption of how corrupt the lending system operates, will no doubt breed mistrust amongst student borrowers, because they know the companies are not making in good faith negotiations…

        That mistrust is warranted, as you document.

        Believe me, I would welcome the restoration of those rights, too.

        I thank you for your efforts and believe you should be consulted when those rights are restored but I have to admit to some cynicism on my behalf that observes how Congress is indifferent to the plight of students, and that we can’t simply plead for mercy from them and the lenders.

        The truth itself, as analyzed by any objective person, would motivate SLM to allow some bankruptcies (as they were in 1978, for example) when one had to wait 5 years after beginning repayment…

        • Alan Collinge

          Agreed, Emmanuel.

          Why and how a financial institution could allow itself to act from a standpoint of bad faith in the first place is the truly disturbing question, here, and while this question appears to be valid in several other lending industries, it comes into much, much sharper relief in the context of student loans.

  • Pitiful & Pathetic

    Just read an article about PhD’s waiting on tables. Like everything else, this has all gotten way out of hand. America is on its way out now that the great equalizer is gone. We might as well bring back monarchs, bloodlines and such because everything is determined at birth, nothing is earned anymore, its inherited.

  • LaughinSue

    My student loan horror story: I was severely injured and permanently disabled in the Sept 11 2001 attack on NYC. I received a small amount of money from the Fed. Victim Compensation fund – not enough to live on for the rest of my life. Most of that money, and my savings went towards medical expenses that were not covered by my insurance company. I was forced to move from my home to public housing. The student loan people deemed that my disabling injuries in the 9-11-01 attack, was not reason enough to forgive my student loans under the “undue hardship” clause. My member of Congress was stunned by that one. The Dept of Education began garnishing my Social Security Disability checks. Eventually, with the help of many advocates we got them to stop garnishing my checks for the moment. They still will not discharge my loans. I wonder if when I die they will garnish the burial money that is supposed to bury me?

  • Josephus P. Franks

    ChangeLendingnotDebt is not making a serious argument. Of course, securitization incentivized the creation of loans that were bad for borrowers and lenders – rather, those who purchased the lenders’ loans after they had been bundled into a security – alike. This is indisputable.

    However, a borrower who got a loan to buy a house (whose price was inflated beyond the level the borrower could afford by easy credit and tax incentives) would be able to walk away from the house, and start anew – albeit with a damaged credit score. Even if a borrower got a second mortgage that was a recourse loan – meaning that the lender could go after the borrower for any principal not recovered in a foreclosure sale – if the borrower could no longer pay, or simply realized that it was economic stupidity to pay off debt on an underwater house, the borrower could still file for bankruptcy, and start their economic life anew. This was why our Founders wanted bankruptcy laws in the first place: to prevent the economy from debt sclerosis and allow it to start up again.

    In the student loan scenario, we have an entire generation whose lives as human beings will be scarred, their options constrained, by a mistake they made starting at age 18. As consumers, their purchasing power will be drastically reduced: and this is the economic sclerosis caused by our government listening to special interests’ lobbying – not our Founding Fathers – and removing bankruptcy protections for student loan debt.

    This is the only serious analysis possible on this issue. Those who disagree are either insufficiently informed, or disingenuous flacks for the student loan special interests.

  • deryk

    Well Im 43, hopelessly in debt to student loans. I graduated with a degree in photography and owed way more then I ever could earn. The financial aid people make all these promises of how much your going to make when you graduate college, well I still havent hit 50k a year they said I would at 22. When living on my own since I was 18, not everyone has parents who can just pay for everything, I took the loans because the school promised the payments would be low and I would be makeing so much more money that it wont be a problem. They lied about the actual loan default rates, and how it would destroy your credit over time.

    Well for a long time I was barely makeing above minimum wage and didnt have money for the loans, so they didnt get paid. When you dont have enough money, you pay your rent to have a place to sleep, food so you can live and car insurance to keep the car on the road legally and that was it. No vacations, no fancy stuff just worked and worked trying to better myself.

    Problem is my credit went to hell, its hard to find a place to live because they run your credit and if its bad they wont rent to you… alot of companies run credit checks, so haveing shitty credit limits me career wise… I pay more on my car payment because of shitty credit, and my car insurance is higher as well.

    Currently I owe over 50k. Ive been unemployed now for 10 months and my loans are in deferment and the balance is just riseing and riseing. If they froze the interest rate after 20 years maybe I can dig myself out of this mess but it just keeps getting worse and worse.

    My parents fear that when they die and leave me their house it will get taken to satisfy the debt… who knows? I know as much I can never afford to have nice things, I know I cant afford to go on vacations, my life is pretty dam shitty and its not going to get anybetter. Companies bragged how they had such record high profits this year…well why is unemployment at 9.5% then? The few places that are highering arent paying anything. I cant afford to work at $13 dollars an hour and pay $900 a month rent because rents are out of hand… can pay $700 and share an apartment with someone else but at some point as you get older you want your own place. I was bringing home $2000 a month after taxes, add in rent, car payment, car insurance, food, gas, misc bills who has $400 a month for student loans? So I pay $160 which doesn’t cover the interest so it keeps going up and up. At some point they need to stop chargeing interest when its clear by looking at my bank account and W2′s that Im not makeing alot of money… but its all about greed.

    Something neds to be done. I really regret going to college to try to better myself… who wants to marry me and be burdened with my debt, so Im just alone…

  • Jerry Ashton

    there is little argument that the term “predatory” can fairly be applied to a number of the tactics used by financing institutions to snare – and keep in their thrall – student debtors. This was brought to my attention by my young webmaster who has a number of friends who are victims (and, that’s the correct word) of this industry.

    I have written two blogs of my own:

    Predatory Student Loans – Further shame on the Credit Industry and ‘just doing my job’ bill collectors, and Our next Finance-Manufactured Bubble About to burst – Student Loans. Grant Bankruptcy Relief – ASAP.

    You can read these at my book site: WrittenOffAmerica dot com.


  • Cindy Warner, Student Loan Justice California

    Resources for victims of student loans.

    Google group at Student Loan Justice California

  • C Cryn Johannsen

    I am the Founder & Executive Dir. of All Education Matters, Inc. I encourage all of you to get involved with this non-profit. We carry out letter writing campaigns to the White House, etc., etc. I have been on phone calls to the White House and am in touch with higher education policy analysts. If you would like your story to be featured on All Education Matters, please reach out to me ( Your stories need to be heard, and AEM receives a lot of hits, especially from people on the Hill.

  • Shekinah

    I am a financial aid director. You would think that I would know better than to buy into the private loan industry. However, since I have never wanted to be a financial aid director for my entire life, I decided to work on a second BA about eight years ago. Since I already had a BA I only qualified for loans. And because many of my colleagues worked for the private loan industry as lender reps I believed what they said about private loans. Oops. Now the economy has gone bad, I still work in financial aid but at a smaller school and for a smaller salary. My husband is also making much less now than he was eight years ago. In the meantime we bought a bigger house, two new cars, and I became a mom (twice!). I have used every deferment and forebearance I qualifed for and have almost come to the end of them. My federal and private loan payments combined will be over $1000 a month — more than my monthly mortgage payment. The lenders don’t care that we are struggling to buy food and shoes for our four-year-old and formula and diapers for our newborn. The private loan customer service reps I have spoken with have been rude and uncaring. I am praying fervently that Congress will pass the legislation and allow bankruptcy for private loans. Sallie Mae, Great Lakes, AES, and all the other dishonest private loan lenders should be held accountable for their outrageous and unethical business practices. The government is giving these companies enough work in servicing the Direct Loan program (to finance health care reform, of course) that they will never notice a few thousand people declaring bankruptcy on private loans!

    • Alan Collinge


      You would do very well to take a leadership position among your colleagues, whatever the backlash from your peers. The Financial Aid Administrators have done much, as a group, to enable the lenders to engage in shameless, harmful, and even illegal tactics that have hurt students and their families, collectively. They should be representing the interests of the students in their political activities, not colluding, partnering with the lenders. As a community, I would say they are among the most shameful “student advocacy” group around, and you are in a key position to cause that to be corrected.

  • Megan

    Not being able to clean one’s slate (as explained above) has been the biggest impediment to my making a good life for myself. I borrowed a small fortune to attend law school, struggled with depression and anxiety issues, then ended up having a nervous breakdown and dropping out after 3 semesters. I wasn’t worried about paying back the loans when I thought I would be making an attorney’s salary, but I learned in a very hard way that was the wrong field for me, and have been struggling to repay those three semesters for 15 years now. I’ve easily paid over $75,000 to student loan companies, and yet none of my principal has been touched–all of that has gone toward interest. This is what Alan means by “predatory.” At 22, no one explained how compound interest works, and I guess I was naive. When you are young and borrowing at 5% interest, you think, “OK, for every $1,000 I borrow, I’ll owe them $50 in interest.” Wrong. For every $1,000 I borrow, I’m repaying $2,000 by the time all is said and done.

    Because my problems have been mental and not physical, I do not qualify for the “undue hardship” clause. I have given generously to my community, earning very little by working for non-profit educational programs. Because these programs are only during the school year, however, not year-round, I cannot qualify for the 10-year non-profit cancellation program recently touted, because it requires 10 years without a single break in employment status. During the summers I take whatever work I can find to make ends meet. California schools would cease to function without artists-in-residence like myself contracting for them, since so few full-time teaching positions are available in this line of work. We enrich your children’s lives because we believe it teaches them to be express themselves and become better people, at the expense of our own livelihood. Is that fair?

    I’m 38 years old and see no end in sight. I will never own a house. I don’t see how I will ever be able to afford to have children. My marriage ended because of my husband’s frustration with making a decent living, but never having anything to show for it, due to my debt. All of this contributes back to the depression, which sometimes impacts my ability to function productively, despite regular counseling and medication. It’s all a downward spiral that I don’t see ever improving, and I feel totally hopeless. 16 months of my life in school has destroyed my ability to get ahead in the 15 years of repayments since. I haven’t defaulted, but have come very close at times. The student loan companies have already received the amount I borrowed back, yet the way the loans are structured causes this angush to drag on and on and on. Again, is this fair? I think not.

    If all of us who are struggling with these unfair practices could put the same amount of money back into the economy as consumers instead of into the hands of Sallie Mae, just think what a boon that would be to the economy as a whole! It would greatly improve the lives of the borrowers as well, who could finally see something concrete coming from our hard work. Enough is enough. The only people who benefit from the student loan scam are the lenders. How is that possibly bettering our society as a whole?

  • Joseph Knebel

    I have to weigh in on this. I’m a man 58 years old who did not finish a four-year degree, but I did get a degree from one of those two-year business colleges. With fees and penalties and interest accruing on interest, my $20,000 has ballooned into $85,000. I have never made more than $13 an hour (and that was a brief six or seven months; I did make about $11 an hour for about two years one time). It”s impossible for me to pay this back. Let me say it again: It’s IMPOSSIBLE for me to pay it back. Now, with my real wages going back for thirty years hovering around $10 an hour, I don’t expect much in the way of Social Security benefits, and the draconian enforcement measures of the college loan measures are guaranteeing that I’ll live in abject poverty for the rest of my life. Abject poverty. I won’t be able to enjoy the little money I do have. I can arrange from income contingent payments, but at the amount I’ll be making, how much of that money can I really spare?

    I’m stunned by this development. How did this happen in this country? Any other debt would have been written off as uncollectable, or it would have at least stopped accruing into itself. Looking back, even if I had finished college, this level of debt would have been grindingly burdensome. How did this happen, and over something as necessary as a higher education? All I can do now at this point is throw myself on the mercy of society and hope that someone with real morals steps up and takes appropriate action. I didn’t mean to do this. I’m just a man who made a mistake. I wasn’t willfully corrupt like people in the banking business or at Enron. I’m simply a man who made a mistake.

  • jfb

    I regret going back to college in mid-life, to pursue a BS degree. By the time I graduated in 1993, my technology skills were already static ( there were so many changes in the technology software/hardware) and I had to reskill myself and pay additional money to do so to keep up with the changes. My college did not have the current software/hardware in place to teach to begin with ( yet they benefited from my student loan money – another story but they knew how to get around this before they closed my program so they didn’t have to pay back money) . My two-year degree as a Medical Assistant provided me with the same money I have made with my 4 year degree. So I had a student loan and the same salaries. Fortunately, I worked in Healthcare, which in this country has more waste than you can imagine — but I always had/have a job. My heart goes out to those whose degrees don’t have the jobs available. Something has to be done, but it is more than just addressing the student loan debacle which Mr. Coolidge addreses so eloquently on This country is now experiencing the downturn of bad decisions and choices made by all Americans. Although, we the average John-Q-citizen have little power as individuals to make legislative changes or change processes in the system to make corrections when we make poor choices ( as I did in returning back to school), the wealthy elites, the lenders, the legislators and lobbyists that pander to them can make adjustments and survive economic storms, as the banking industry has by lobbying congress and getting bailouts!) We are stuck. We can’t bail ourselves out of any mistakes, such as student loan borrowing. So the conclusion I draw is that we live in a Nation where only some people can make mistakes, and get bailed out, and for others who don’t have the resources or weren’t born with a silver spoon in their mouths, it’s just too bad. Though I am not hopeful about the future with the John Boehners in office – (who are very wealthy by the way) –I do hope that we call continue to work on being heard, as the President did promise that we would be heard. We need to e-mail and let him and Arne Duncan know that we expect to be heard and expect to be treated the same as the lenders who were assisted by taxpayer dollars. Total loan forgiveness may not be feasible, but bankruptcy protection and further changes to the student loan lending system and possibly refunding/crediting the borrowers their frivolouos compounded interest may be a good place to start. I am planning on sending my loan information and a packet to the President and to some Senators sympathetic to our cause and letting them see if they can figure out how my loan went from $18,000.00 to $43,000.000. I bet they can’t figure it out either. When I rehabed my loan years ago they couldn’t explain it. I credit all of those fighting for student-loan-justice for helping get the new IBR system in place, which I am in now, and that has made my payment affordable. It will never be paid off, however, in my lifetime, and that is not what I wanted, it is what our lending system wants, and what they want they apparently get. I take full responsibility for trying to better myself utilizing the wrong approach to attain my BS degree, but I don’t think the Government/lending institutions, whom we have all seen guilty of extortion, in one way or anothe, and of some corrupt lending practices, should be exculpated from some degree of responsibility for this mess. But, again we can’t afford to rectify our decision making processes as our Congress, and the lenders can. So we are stuck — at least for now — with minimal consumer protection, as the lenders, their lobbyists, and our Congresspersons laugh all the way to the bank. Sad, and dangerous course for our country, as we are witnessing day in and day out… and they still don’t get it. I guess it’s because we are suffering… and they are not. Hope that we may reach a few individuals who have morals and values and are willing to acknowledge their part in this student loan debacle and help those in need before the Bubble Really Bursts!!!

  • Sophia Vackimes

    My loan is up to $250,000 in an economy that has slowed down in drastic ways. Hiring in the humanities is stalled, and my Ph.D. is virtually worthless in a job market that is basically stagnant. Besides, instead of responding to public education needs (purportedly because of a tough economic situation) and instead of following healthy and ethical hiring standards, universities are resorting to piecemeal employment practices using aspiring hirelings to teach individual courses instead of filling traditional full time positions.

  • DebtSlave

    My life has been a string of Hardships, but I kept trying hard to be my own hero. I went to school every chance I got, usually at night. I could never go full time, I had to work. I started working at 16, and went to school for years. I finally finished my BA in 2005 at 50 years old. Even tho I paid for everything up to the AA degree, Im still 30,000 in debt. Im tired, I know I wont live ling enough to pay it off. I know now that the hero role I cast for myself was a socially generated falsehood to keep the poor in line (if I only play by the rules, someday I will make it) yeah, right. I tried hard, but the game was never designed to be won. Only to keep us in line. I will hold out for awhile longer, but when I finally get enough and decide to go, I will get as far away from home as I can, hopefully no one will ID me and my family will think I just dissappeared. No stigma for them to carry if I can help it. The USA is just a big lie. None of the BS about “equal opportunity” is true, its only fed to you to make you think theres a chance until they have worked you to death.

  • StillHopingForChange

    I’m a little late in posting on this but I want to share this experience. I was “lucky enough” to file for bankruptcy prior to the 2005 changes taking effect. At that time, I was able to include my private loans. I was in an auto accident, hit by an uninsured motorist, and due to medical bills and physical rehab, I was unable to make payments. Since the psl companies don’t have any hardship deferments available for someone unable to work, walk, talk, etc…I had to file bankruptcy. I received a chapter 7 discharge and thought I could breathe easier and get my life back on track.
    Here I am 6 years later still getting harassed by SallieMae who seems to believe that the changes in 2005 include bankruptcy that occurred before the new law. Never underestimate the power of denial and congress in your bed. I’m grateful to have a dedicated attorney who continues to work on my behalf with this issue. Many turn their backs on the client once the discharge is in.
    Something has got to change! The word “predatory” doesn’t even do it justice. I have the order of the court in my favor and they still call, send notices, threaten collection and legal action and threaten to list me in default. If I didn’t have a piece of paper from the Federal Courts, I would be losing even more sleep. The point is, we need to have a change on the books so mafia tactics like these will finally come to an end.
    I urge all of you to contact Dick Durbin and Danny Davis of Illinois along with Steve Cohen of TN, and put the pressure on them to continue to push for this relief. It appears to be stalled but we cannot allow them to forget this…we are all out here waiting for protection. I realize many of us feel that this is now the United States of Sallie Mae and no longer a govt of the people, by the people and for the people but we can still make noise and, last time I checked, even people with psl debt still get to vote.
    I support and hope that the organization gains momentum and supporters…becoming a voice to be reconned with.
    The CEO of Sallie Mae has built his own private golf course on the backs of students…this nonsense has got to stop! The era of greed must come to an end.

  • jane

    Just leave the country and never look back!

  • jane


  • Rex

    I am going to claim a chain of islands and start a new country. This country will be for people who have made honest mistakes in america but are paying for those mistakes in both physically and mentally harmful ways for the rest of their lives. This country will give them a fresh start, but mostly, it still give them genuine freedom, a permanent seperation from the evil con artists of america who manipulated youths ambition and hope for a better future. The only requirements is you have a college degree of some sort or its equivelant work experience. Imagine that, a country that is comprised of skilled citizens who are able to utilize their knowledge and skillset acquired in continued education, and finally being able to do so for personal and community growth and not for false compensation, money that you have earned but belonging to a corporation for their entire life.

  • WASP

    They gave all our taxmoney to the ones that caused the economic crisis but we’re on the hook for life for overpriced college educations. Our government is always looking out for us. <– *sarcasm*.

Find out where you stand.
Get your FREE personalized credit report card.

Sign Up Now

Stay connected to our experts

Please submit your email address to get credit & money tips & advice
from our team of 30+ experts, delivered weekly to your inbox.