1. We knew what we were doing when we took out these loans. What we didn’t realize was that the system was rigged.

  • Lenders carry little risk when distributing student loans, thanks to federal laws insuring student debt. Due to the lack of bankruptcy protections and the profitability of collection costs, there are no incentives for lenders to help students avoid defaulting.
  • Defaulting on student debt can have serious financial consequences for one’s lifelong financial future, and this can happen after only several months of missed payments.
  • With 53% of new graduates facing unemployment, the default rate is clearly bound to skyrocket – it is already estimated at 1 in 5.
  • America’s largest lender, Sallie Mae, acts as both a lender and collector, servicing federal and private loans while making $700 million yearly in fees from students in default. This is predatory lending, plain and simple.
  • There has been record of unethical profiteering by those involved with the student loan industry, including but not limited to lenders bribing school officials to promote their loans, and Department of Education officials profiting off of student loan company stock.
  • Unfortunately, much of the dialogue surrounding the student debt crisis has blamed students themselves as opposed to lenders, college administrators, and government officials.

2. “Why take out student debt to begin with? Why not turn to grants and scholarships, or work while going to school?”

3. The difference between federal and private student loans, and why it matters:

  • Federal loans provide certain “safety nets” such as income-based repayment (IBR) in order to help students avoid defaulting; private loans do not.

    The Project on Student Debt writes:

    “Private student lenders are not required to provide the important borrower options and protections that are guaranteed with federal student loans, such as unemployment deferments, income-based repayment, public service loan forgiveness, and cancellation if the borrower dies, is severely disabled or is defrauded by a school.”
  • Private lenders such as Sallie Mae, Chase, CitiBank, Wells Fargo, Key Bank are also exempt from federal fair debt collection requirements.
  • Sallie Mae assigns low-income students variable interest rates of up to 25%. These high rates can send total debt snowballing out of control within a short amount of time.
  • If you have loans through Sallie Mae, there is no way to refinance your debt, or work out an income-based payment plan according to your household budget. These are options that are available for credit card debt, but student debt is subject to unique double standards.
  • There is currently a class action lawsuit against Sallie Mae for moving as many problem loans as possible into forbearance to hide the true number of private loans that were delinquent or in default.
  • Sallie Mae is also being sued for giving unfair loan terms to black, Hispanic, and Native American students.

4. Bankruptcy isn’t an option.

5. What happens if I default on a student loan?

6. Even if you’re able to make payments and don’t default, you’re still affected.

The New York Times writes:

“A study of recent college graduates conducted by researchers at Rutgers University found that 40 percent of the participants had delayed making a major purchase, like a home or car, because of college debt, while slightly more than a quarter had put off continuing their education or had moved in with relatives to save money. Roughly half of the surveyed graduates had a full-time job.”

  • Student debt is delaying the steps of adulthood that are considered crucial to following the American dream, and withholding vital consumer spending that can stimulate the economy.
  • The similarities between the ongoing student debt crisis and the 2008 housing crisis are apparent. Action must be taken immediately before the economy faces even further damage.