What is Studentloanjustice.org?
Studentloanjustice.Org is a grassroots, citizens organization dedicated to returning standard consumer protections- bankruptcy protections in particular- to student loans. The group was started in March, 2005, and has focused primarily on research, media outreach, and grassroots lobbying initiatives.
The group and its members have been featured on 60 Minutes, 20/20, The News Hour, CNBC, and many other television programs, print media including the New York Times, Wall Street Journal, Washington Post, Fortune Magazine, The Chronicle of Higher Education, and many others as well as numerous radio and internet broadcasts. The group is also featured in two documentaries airing and screening in Fall, 2010.
The group was credited as the inspiration for The Student Borrower Bill of Rights, and has broken numerous news items in the press with its research findings regarding conflicts of interest in the student loan system, Student Debt levels, Default Rates, corporate lobbying, and other areas.
The group is funded entirely by its members, with a budget that averages less than $15,000 per year.
Founding Fathers like Thomas Jefferson and George Washington were abused badly by British banks and merchants under the thumb of predatory debt. When these men created the U.S. Constitution, they called for the creation of a “uniform system of bankruptcies” ahead of the power to declare war, ahead of the power to raise an army and a navy. Ahead of the power to coin currency. Bankruptcy was clearly important to the Founders, as evidenced in Article I, Section 8 of the Constitution. Not the Bill of Rights, the Constitution itself! The student loan exception proves their wisdom in spades.
We studied this problem intensely for years, and are extremely confident that the absence of bankruptcy protections lies at the heart of this problem. It has created a multitude of systemic problems in higher education, including tuition inflation, widespread conflicts of interest, rising indebtedness, rising default rates, declining educational quality, indefensibly bad oversight, and other issues.
Furthermore, we concluded that other solutions, like the various forgiveness programs currently in place and those that have been proposed, are being administered in bad faith, and in fact are hurting the vast majority of borrowers who try for them. In fact, we estimate that only about 10% of the people trying for these forgiveness programs will make it through. The rest will be expelled, and left owing far, far more than when they entered these programs.
Won’t returning bankruptcy protections cause a mass wave of borrowers to use bankruptcy to get rid of their debt?
There is no evidence to suggest this. In fact, when bankruptcy protections were the same for student loans as all other loans, far less than 1% of federal loans were discharged in this manner.
There will, indeed, be an initial surge in filings by the most severely affected borrowers-but ultimately, there is no reason to expect filings for this type of debt to exceed those for other types of unsecured debt. In fact, it is reasonable to assume that bankruptcy filings will be LOWER than other types of debt, given that far more attractive alternatives will exist for the repayment of these loans.
It is estimated by experts that the annual cost of bankruptcy discharges will be less than $3 Billion per year. This is a small fraction of the $100 Billion that is lent annually, and a vanishingly small percentage of overall outstanding student loan debt, currently about $1.5 Trillion.
Remember, also that the bankruptcy laws have been strengthened considerably to prevent abuse, and people who have gainful income are often held responsible for repaying a significant portion of the debt. Bankruptcy is not the “walk-away” solution that it may have been in years past.
Ultimately, bankruptcy protections will have the desired “free market” effect of forcing lower prices, and therefore lower indebtedness for the students. This will tend to reduce defaults and bankruptcy filings further.
Shouldn’t you have to pay back money that you borrow?
Yes. Of course. Bankruptcy is a painful, stigmatizing, unpleasant choice for the vast majority of borrowers who choose to use this protection-
Who is to blame for this problem?
There are many areas to point in the assignment of blame for this problem. This includes the student loan industry, the private banks, the colleges, and perhaps most importantly, parts of the federal government like the Department of Education, The Treasury Department and others. Ultimately, however, the most accountable entity that must be held accountable for creating this predatory lending system is the US Congress. It is the Congress that removed the bankruptcy rights, statutes of limitations, and other consumer protections. It is Congress that created an incredibly profitable collection regime to take unfair advantage of borrowers. Most importantly, it is the U.S. Congress that can and must undo what they did, and AT A MINIMUM, return the standard bankruptcy protections that should never have been taken away!
Why not just offer generous repayment programs?
All available evidence suggests that various repayment programs either in place now, or proposed, are extremely unlikely to be administered fairly or adequately in the absence of bankruptcv protections. In fact, it is likely that without bankruptcy protections to ensure proper administration, these programs will, in fact, hurt far more citizens than they will help.
How will this bring down college prices?
By returning proper financial incentives to the Department of Education, who will be compelled to reduce the amount of money the students can borrow, thus providing a direct and immediate reduction in what the schools can charge.
How else will this help?
This environment will, ultimately compel the government to use its considerable influence to encourage the universities- in a serious and meaningful way- to both provide a quality education that gives the student the best chance for success, and also to do this at a reasonable cost. Instead of looking the other way as Congress deliberates on whether to raise the loan limits yet again, the Department of Education will be compelled to object. The Department will certainly discover the creativity to come up with meaningful tools for ensuring academic excellence, low cost, and ultimately, student success,..and these tools will work because the Department will want them to work., and employ its soft and hard resources to that end.
This long overdue “good government” model is precisely what voters called for during the last presidential election…and what both Republican and Democratic members of Congress, President Obama is in the unique position to deliver to the great benefit of the public.
Can you give me advice?
In the absence of bankruptcy protections, statutes of limitations, and other consumer protections, all avenues of recourse for the borrowers have been eliminated. The ONLY good advice is that you should help us fight to get, at a minimum, standard bankruptcy protections returned to all student loans. There is a GOOD BILL in the House of Representatives right now, HR 2366, that will achieve exactly this. Please join us, and help us get this bill passed into law.
How can I help?