The Student Loan Catastrophe; Postcards from the Rubble, by Richard Fossey. ISBN 978-1-5485-9171-7
Reviewed by J. Rick Altemose, Ph.D., a former Catholic Worker at Casa Juan Diego.
Let’s start with a pop quiz. Of the following people, which one faces a “catastrophe?”
PERSON A, a wheeler-dealer whose habit of taking extreme business risks worked out very well for him until it didn’t. Now, all his casinos are bankrupt, and nobody will lend him more millions.
PERSON B had a very high paying job in finance until he got fired for his habit of sexually harassing his staff. The banks took a while to close down his credit cards; as a result, he managed to run his credit card debt up to $250,000. This would have been chump change in his previous life, but because of his diminished earning power it looks as if he is never going to be able to pay it back.
PERSON C was having a hard time supporting his wife and three kids with his job at Walmart, even with his extra jobs. He answered an ad from the University of X, a for-profit institution. A very slick “admission counselor” convinced him to get an on-line degree which would change his life.
It certainly did. He worked hard for years to get the degree, but it turned out to be worthless. He is still at Walmart, still working the extra jobs, but now a good portion of what he makes goes to the bill collectors. Not enough to pay the interest, fees and penalties, however, let alone the principal, so his debt gets bigger every year.
If you picked PERSON C, you win. PERSON A and PERSON B are destined to get relief in bankruptcy court. PERSON C, though, will not. He is trapped simply because his debt is in the form of a student loan, a uniquely bad type of debt for the borrower. Under current law, student loans are treated differently; they are extremely hard to erase in bankruptcy, and the collection process never ends, even to the point of garnishing social security checks.
Because they are uniquely bad for the borrower, student loans are uniquely good for lenders, bill collectors, and colleges and universities. The loans are guaranteed by the federal government, so lenders get to pocket the profits while the government reimburses them for loans that go bad. Bill collectors flourish because loaning money to people who are not necessarily creditworthy (the law forbids the lender from even inquiring about the likelihood of getting paid back) inevitably leads to millions of borrowers behind on their loans or in default – 1,100,000 defaulted in 2016 alone. The biggest beneficiaries, however, are colleges and universities, who are the ones who actually get the 15 billion dollars in government guaranteed loans every year. The term “student loan” is misleading – students do not get any money, it goes directly to the universities. Students just get to pay it back, if they can.
There are consequences to lending money to people who will not be able to pay it back, of course, but they fall on the taxpayer and on the borrower, not on those who profit. It is the harm that is done to the borrower that most interests the author of The Student Loan Catastrophe, Richard Fossey. He points out that the consequences of defaulting on student loans are far more serious than defaulting on a mortgage or a medical debt. Student loan defaulters face a lifetime of harassment by some of the most relentless bill collectors in the business, followed by the very real possibility of the garnishment of social security checks when they retire. Fossey’s method is to illustrate his points with real people. To illustrate the extraordinary treatment of student loan debtors he introduces us to Naomia Davis, 80 years old, suffering from advanced Alzheimer’s disease. Her only income is a social security check, which used to be $894 before the Department of Education started taking $134 of it every month to pay her student loan debt.
Ms. Davis will never pay off her student loan, and she likely needs the $134 more than the government, but that is all irrelevant. Loaning money to people that are unlikely to be able to pay it back is the foundation of the student loan system. To keep this system from collapsing, debtors must be forced to pay the unpayable. The irony is that Ms. Davis’ social security would be safe if she defaulted on any other type of loan – credit card debt, personal debt, mismanaged casinos – garnishing her social security check would be illegal. But if you default on your student loans, you will be pursued to the grave.
The author is a college professor, a profession that tends to believe in the importance of higher education. But the punishment dealt out to those who cannot pay their student loans is such that he suggests that the benefits of college may not be worth it.
- “Parents should never borrow money for their children’s higher education” (p. 25).
- “If you had to enroll in a twenty-five-year income- based repayment plan to pay for your college education, then you attended the wrong college.” p. 28
- “If your children can’t finance their college educations without you going into debt, then they need to develop other plans.” (p.25).
“If your children cannot afford to go to Harvard or Dartmouth or Amherst without putting you into debt, they need to enroll at nearby public institutions and take part-time jobs at McDonalds.” (p. 27)
Easier said than done. Who can pay today’s exorbitant tuition costs without loans? It is a perfect vicious circle: students generally are not deterred by excessively high tuition, since it does not seem to them that they are paying. To an 18-year-old, a loan that you do not have to start paying back for years is free money. Universities happily respond to this lack of customer resistance to increased costs by increasing costs still further. The increased cost causes students to have to borrow even more, allowing the universities to raise tuition still higher. The more borrowed, the more the university gets, the more interest the lenders are paid and the more fees and penalties the bill collectors can collect when things go south for the debtors. An additional “benefit” is that the states can greatly limit their support for their colleges and universities, since student loan money replaces the money that states used to devote to their state schools.
Fossey is by training a lawyer, and the heart of his book are discussions of law cases, particularly cases on the discharge of student loans in bankruptcy court. This is more interesting than it sounds, since these discussions illustrate beautifully the harm done to real individuals. It is easy to say that the student loan program loans money to people who are not going to be able to pay it back. That it does not cap the amount that can be borrowed and allows students to take out new additional loans even if they are not making payments on the ones they have. That when borrowers, predictably, fall into arrears, it sics the bill collectors on them and subjects them to truly horrendous fines and penalties, then denies them relief through bankruptcy. All this is true, but it is abstract.
By using real cases, Fossey makes the harm done much more vivid.
For instance, Kelly v. Sallie Mae, Inc., introduces us to Laura Kelly, who made the mistake of borrowing $24,000 to finance her undergraduate education. She made her payments of time for years but ran into financial difficulty and filed for bankruptcy. But by the time she entered bankruptcy, her student loan debt had ballooned to $105,000.
Similarly, Butler vs. Educational Credit Management Corporationis about the plight of Brenda Butler, who borrowed $14,000 to get her degree. Working as a poorly paid school teacher for the next 20 years she managed to pay back $15,000, which left her only $33,000 more to pay. (I know, those figures look like misprints, but that is what interest and penalties do to you).
She filed for bankruptcy, but the judge refused to discharge her student loans, ruling correctly that she did not meet the very stringent requirements for “undue hardship” that the law requires for student loan discharge. The fact that she was now unemployed, despite her best efforts to get a job? That she had never made more than $35,000 a year? Owns nothing but a beat-up car? None of this was enough to establish “undue hardship.”
Ms. Butler is now in a restructured repayment plan. The good news is that if she manages to get another job she will have her loans paid off in 2037, forty-two years after graduating from college!
Fossey’s discussions do get a little technical, and he is much more interested in individual harm than he is on the social and structural issues posed by the student loan system. He does mention the tantalizing tidbit that Bernie Sanders’ proposal for free college tuition would cost less than the current student loan system, but he does not follow up on that idea, and the few changes he does mention, such as putting a cap on loans and not allowing additional loans if the borrowers are not paying the ones they have, are logical but limited. Now, if we could replace student loans with free tuition, wow! That discussion, however, will have to wait for a different book.
A topic I do wish he would have mentioned in this one is the moral importance of bankruptcy. The biblical view on debt is basically that “the rich rule over the poor, and the borrower is slave to the lender,” as Proverbs puts it. This is a colorful way of pointing out the simple fact that if there is no practical way to forgive debt, the poor will eventually lose everything they have. In ancient Israel the land was the source of wealth. Over time, the poor lost their land to their creditors, becoming indentured servants, in effect, slaves. The remedy in the Hebrew scriptures was the Jubilee – every 50 years slaves would be set free and debts would be forgiven. Whether or not this actually was ever put into practice, the existence of the Jubilee in scripture shows that the ancients realized the necessity of having some method of forgiving debts, some way of getting a “new deal.”
The modern equivalent of the Jubilee is bankruptcy, which is our way, the only way, of giving deserving debtors a second chance. Lenders, the “rich” that Proverbs speaks about, hate bankruptcy, and they have managed to all but close it off to student loans debtors. There are pretty much no second chances if you cannot pay your student loans. As Fossey makes clear, the repayment and restructuring plans that are available usually make things worse. You are trapped.
So, bottom line, do you want to read this book? You very well might, if you fall into one of these three categories:
1.You have heavy student loan debt that you cannot pay and are contemplating bankruptcy. Many people, including many lawyers, think that discharging student loans through bankruptcy is impossible. It is difficult, very difficult, but not impossible, and this book will help you if you want to try.
2.You are a parent and are thinking about taking out a parent Plus loan to finance your child’s education. Don’t do it! Easy to say, there is going to be pressure on you to do it, but it is a terrible idea. This book will help stiffen your spine.
3.You are contemplating (or you are being forced into) an Income Based Repayment Plan. These plans look good on the surface, but they have a fatal flaw, which Fossey very clearly describes.
The book will not help you much if your main interests are in broader structural issues, such as the possibility of replacing student loans with free or affordable tuition. That is what other nations do, and what we used to do before the student loan era. But I digress – structural issues are not the focus of this book. It may very well help you with your individual problem of student loan debt, and that is no small thing. If you are caught in the student loan trap, you need all the help you can get.
Usurers Not Gentlemen
by Peter Maurin
The Prophets of Israel
and the Fathers of the Church
forbid lending money at interest.
Lending money at interest
is called usury
by the Prophets of Israel
and the Fathers of the Church.
Usurers were not considered
to be Gentlemen
when people used to listen
to the Prophets of Israel
and the Fathers of the Church.
When people used to listen
to the Prophets of Israel
and the Fathers of the Church
they could not see anything gentle
in trying to live
on the sweat of somebody else’s brow
by lending money at interest.
Houston Catholic Worker, April-June 2018.
