The Need for Student Loan Consumer Protections
Aug 24th, 2009 @ 9:28 AM by Alan Collinge
The federal student loan system has become fundamentally predatory due to the Congressional removal of standard consumer protections, combined with Congressionally-sanctioned collection powers that are stronger than those associated with all other loan instruments in our nation’s history. These actions by Congress have, predictably, created an inherently predatory, state-sponsored lending and collection system where the motivations of the various functional elements of the system are fatally misdirected.
The system promotes inefficiency in administration, unchecked inflation, bureaucratic malaise and conflicted oversight. Moreover, the resulting set up also promotes needless and expensive complexity and redundancies, fails to encourage academic excellence, and ultimately, promotes delinquency and default.
While this system has been extremely lucrative for a few individuals, it causes massive harm not only to borrowers and their families, but also to non-borrowing students and their families, due to the dramatic inflation that the system promotes. The nation suffers a massive cost due to the large amount of wealth trapped in this system, the quality of the education received by the citizens, and the public’s opportunity cost associated with the materialistic career paths that citizens are forced into at the expense of public interest work and entrepreneurship.
Importantly: this problem exists across both Direct Loan (DL), and Federal Family Education Loan (FFEL) Programs. Both lending systems are absent the most basic consumer protections that exist for every other type of loan in the nation. This includes standard bankruptcy protections, statutes of limitations, refinancing rights, and others. The president’s plan, unfortunately, does nothing to bring these back. Meanwhile, millions of decent American citizens are being forced off the grid, under the weight of loans that have tripled, quadrupled, or worse with federally sanctioned collection costs, interest, etc. Citizens are quite literally fleeing the country as a result, and worse.
My organization, Student Loan Justice, strongly encourages President Obama to realize and acknowledge that this unique and astonishing lack of consumer protections for student loans has come at a massive cost to our nation. We hope that he will act with Congress to restore these protections as soon as possible.
Alan Collinge is Founder of StudentLoanJustice.Org, and author of The Student Loan Scam
Nicely written Alan. I have left the country and probably will not be coming back out of fear of my defaulted loans. $30K borrowed jumped to almost 60K with penalties, fees and interest. Similar to Slavery, Indentured Servitude and Debtor’s Prisons, Student Loan Debt is a stain on America’s ideals of freedom. All of these institutions were once justified and then villified…. The politicians know exactly what they are doing. It is high time that their sons are sent to inner city schools, made to take public transportation, sent to serve in Iraq. I think you would be surprised how quickly we would have better schools, infrastructure and less wars….