The Wrongologist

What’s Wrong Today:

A
new report from the Federal
Reserve Bank of New York shows that nearly one-third of all Americans with
outstanding student loans are over 40, while 4.2 % are over 60. While borrowers
in their 30’s had the highest average balance, at $28,500, those in their 40’s
were close behind, with an average balance of $26,000. Wanting to finally rid yourself of your debt, no matter what it’s from? You can go to debtconsolidationnearme.com or similar sites and see how they’re able to help you.

The outstanding student
loan balance now stands at about $870 billion, larger than both the total
credit card balance ($693 billion) and the total auto loan balance ($730
billion).

Here is the distribution of
student debt by age:

So, What’s Wrong?

• Student loan debt is treated differently
  than other kinds of consumer debt. Among the differences:  

• Student loan debt is
  not dissolved in bankruptcy

• Student loan debt
  cannot be refinanced (even if a new lender offers lower rates or better terms)

• Student loan lenders
  can garnish Social Security benefits without a court order

These “enhancements” were passed in successive
versions of the Higher Education Act over the past 15 years. The fact that the banking
industry lobbied for the ability to garnish SS benefits tells you they had very
low expectations regarding when these loans would be paid off. 
 
BTW, these are federally guaranteed loans!

Pretend you were in
congress when these changes to the law were being considered: Your task is to
help amend the laws about the collection of student debt in this country. What’s
the one thing you want to change about student debt that you don’t have for any
other type of debt, the one thing that radically shifts the relationship
between student loan creditors and debtors both practically and symbolically?

It would be this, from
the Debt
Collection Improvement Act of 1996:

“Notwithstanding
any other provision of law… all payments due to an individual under… the Social
Security Act… shall be subject to offset under this section.”

This means that when it
comes to collecting student loans, the government can take funds from your
Social Security check. There ARE limits to this: the first $750 a month can’t
be touched, and only 15 percent of benefits above that can be taken to pay back
student loans.

But this is still a radical
break in the social contract and it has no equivalent in private debt.

In the original text of the
Social
Security Act, you will see that Social Security payments were not
“subject to execution, levy, attachment, garnishment, or other legal process,
or to the operation of any bankruptcy or insolvency law.”

Yet
in the 1990’s, congress was willing to break the social contract for of all
things, loans people take out to educate themselves.

Also, student loan debt has
no statute of limitations as it regards social security payments, and the
law was upheld by the
Supreme Court in 2005
. This is one of the very few kinds of debt without such limitations.

Credit cards face a statue
of limitations. As this site
puts it, ”Creditors
have a limited time window in which to sue debtors for nonpayment of credit
card bills… In most states, the statute of limitations period on debts is between
three and 10 years.”

But for student loans,
the Department of Education notes,

”[b]y virtue of
section 484A(a) of the Higher Education Act, statute of limitations of no kind
now limits Department’s or the guaranty agency’s ability to file suit, enforce
judgments, initiate offsets, or other actions, to collect a defaulted student
loan.”

And student debt is
growing: According to the Project on
Student Debt, the
average debt load for graduating seniors in 1996 when the law was passed was
$12,750.  Now it is over $23,200. 

Student loan
debt
held by parents is growing even faster than
loans taken out by students. Parents’
loan debt has more than doubled over the last decade, now exceeding
$100 billion dollars or 10 percent of all outstanding student loan debt, as tuition costs and unemployment rates of
college grads both continue to rise. FinAid.org founder and publisher
Mark Kantrowitz says:  

“Parents of every income level are
increasingly borrowing for their children’s college education. It doesn’t
matter whether the parents are low income, middle income or upper income.
There’s been dramatic growth in the percentages of parents who’ve been borrowing,”

Some
parents who co-signed loans or borrowed money for their children’s education
now face the loss of their portions of their retirement nest eggs, home equity
and other assets. As student loan debt has topped U.S. credit card debt,
“America faces the very real possibility of another major threat on par
with the devastating home mortgage crisis,” according to a new study by
the National Association of Consumer Bankruptcy Attorneys (NACBA).

Parents
have an average of about $34,000 in student loans and the payback figure rises
to $50,000, including interest, over a standard 10-year loan repayment period.

Looking at student loan
delinquencies by age, we find that 40% of past due balances are held by people
over 40, while 4.8% is with people over 60:

The
bad news on this chart is:
70 percent of people with past due loans are thirty years of age or older. So,
a lot of people who are well into midlife are apparently unable to meet their
student loan obligations.

No one should think that they
can escape payment of any properly arranged loan, but there should be rules to
help students out in either a high unemployment economy, or when their parents who
took out a loan to help their kids, retire.

For certain, we should not
have removed the social security benefits exemption from student debt
repayments.

To continue to garnish social
security benefits to make these payments is WRONG!