Predatory Lending

No, I'm not talking about mortgage brokers, nor about traditional big banks.  I'm talking about colleges and universities.

Yes; you heard me right. 

Between the ages of 18 and 22, Jodi Romine took out $74,000 in student loans to help finance her business-management degree at Kent State University in Ohio. What seemed like a good investment will delay her career, her marriage and decision to have children.

Ms. Romine’s $900-a-month loan payments eat up 60% of the paycheck she earns as a bank teller in Beaufort, S.C., the best job she could get after graduating in 2008. Her fiancé Dean Hawkins, 31, spends 40% of his paycheck on student loans. They each work more than 60 hours a week. He teaches as well as coaches high-school baseball and football teams, studies in a full-time master’s degree program, and moonlights weekends as a server at a restaurant. Ms. Romine, now 26, also works a second job, as a waitress. She is making all her loan payments on time.

They can’t buy a house, visit their families in Ohio as often as they would like or spend money on dates. Plans to marry or have children are on hold, says Ms. Romine. “I’m just looking for some way to manage my finances.”

Both private and government loans, however, lack “the most fundamental protections we take for granted with every other type of loan,” says Alan Collinge, founder of StudentLoanJustice.org, an advocacy group. When borrowers default, collection agencies can hound them for life, because unlike other kinds of debt, there is no statute of limitations on collections. And while other kinds of debt can be discharged in bankruptcy, student loans must still be paid barring “undue hardship,” a legal test that most courts have interpreted very narrowly.

Deferring payments to avoid default is costly, too. Danielle Jokela of Chicago earned a two-year degree and worked for a while to build savings before deciding to pursue a dream by enrolling at age 25 at a private, for-profit college in Chicago to study interior design. The college’s staff helped her fill out applications for $79,000 in government and private loans. “I had no clue” about likely future earnings or the size of future payments, which ballooned by her 2008 graduation to more than $100,000 after interest and fees.

She couldn’t find a job as an interior designer and twice had to ask lenders to defer payments for a few months. After interest plus forbearance fees that were added to the loans, she still owes $98,000, even after making payments for most of five years, says Ms. Jokela, 32, who is working as an independent contractor doing administrative tasks for a construction company.

By the time she pays off the loans 25 years from now, she will have paid $211,000.

Comments

[J. Reed Anderson]

My wife and I have $120,000 in debt to the feds, on what was originally $40,000. Six months after I graduated in 1990, I was sued by my alma mater for default on one of their loan programs. Back in those days, we were on AFDC, food stamps, medical assistance, because we were poor, unskilled, but trying to advance ourselves. My one job offer after graduating (and over 150 resumes) was as a "telephone banker" for $8 an hour, not that I could've afforded moving to the Cities, an apartment, the loan, and family on that. All of my family's benefits would have ended with that $320 gross pay a week. (Anyone want to know more about being on the dole, let me know.)
The $40,000 in debt seemed a good investment because, our college professors--and America in general--told us with our degrees, we'd be highly sought after. Right. That $40,000 was nearly $90,000 by the time we got to where we could afford the original payments. Knowing what I know today, I'd have become a welder or an electrician and would have $120,000 in the bank. It will be repaid someday; I've got a hefty life insurance policy just for the feds.

[Peg]

My God, J. Reed. What a story!

I have always enjoyed school. Both my undergraduate and graduate experience were wonderful. But - back in those days, a year of school was $3,000 - and that was out of state tuition; akin to a private school! I was fortunate to have parents who could help me - and I had no debt when I finished.

It's really hard for me to fathom your story and similar ones. What I wonder, too, is if the advanced education industry will ever own up to what it's done - and whether the mainstream media will ever publicize it?

[John Pepple]

Oh, dear, J. Reed, I had no idea. I can vouch for the figure Peg gives, because we were in graduate school together. Plus, as a half-time TA, I made enough so that I didn't have to work in the summers. By the 1980s, that had changed, and TAs had to have extra jobs even during the school year. Things have gotten progressively worse since.

[J. Reed Anderson]

Did we take on more debt than we should have? Arguably, and especially in hindsight, yes. However, because we had a family, no skills, and the restrictions welfare placed on recipients working, we judged additional debt, because we'd be college grads, as justifiable. Going out and getting a part-time job would have taken benefits from my family. Additional loans didn't.
I enjoyed school, too, Peg. It was a wonderful time, and I did feel fulfilled.
And has it changed, John. As the government's increased loan amounts, coincidentally tuition has increased, to accommodate all the "needed" expenses that go with running a college.

[Tom Henry]

People should really be careful on what to choose. There is a lot of scam! Predatory Loans said it well, and look now, they are paid more than what they said it would have been.