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For Immediate Release May 11th, 2011  

SLJ to Defaulted Federal Borrowers:  DO NOT PAY!

revised 5-28-11

Earlier this month, the U.S. Department of Education quietly seeded a story in USA Today announcing that they would be "stepping up" collection activities against defaulted federal student loan borrowers.  This could include, according to the article,  putting liens on peoples bank accounts, their homes, other personal property, and that of their cosigners.  This is in addition to the wage garnishments, Tax income garnishment, and other extraordinary collection powers that they have exercised routinely for years.

Let there be no mistake:   Department of Education staff blatantly and consistently failed to inform the public for decades that the true default rate for these loans was greater than 1-in-four (it is likely over 1-in-3 currently), and also failed to ensure that the vast majority of students were explicitly warned about the absence of fundamental consumer protections like bankruptcy, statutes of limitations, and many others.  This is critical and relevant information that the students and their families absolutely would have found troubling, and that would certainly have caused many to rethink their borrowing decisions. 

These grossly negligent Dept. of Ed managers, executives brought in from Sallie Mae and other well connected industry players, are the same people who repeatedley failed to warn Congress that the citizens were taking on unmanageable levels of student loan debt. This has been a key factor, if not the key factor responsible for the massive inflation this country has had to accommodate in the price of college for so many years.

Importantly, this is the very same Department of Education that has been MAKING, not losing, money on defaulted student loans for many years, as have the lenders, guarantors, and collection companies...these are ALL of the functional system elements of the entire system!  This is the definition (or should be) of a predatory lending scheme, and the  Education Department is not only not practicing any kind of meaningful oversight- it is actually enabling, participating in, profiting from, and ultimately protecting the system!

Most importantly, however: this federal student loan system has been
 destroying lives, families, and communities.... for many years.  This wrongly directed financial incentive lies at the core of the problem,  obviously, and is a direct result of the removal of the consumer protections mentioned above.  This has without doubt proven to be a massive cost to the public, with the damage done to millions of citizens and their families far outweighing any fiscal benefit accrued through exaggerated default collections.

This must be corrected immediately.  

Therefore, we are calling for defaulted federal student loan borrowers to immediately stop making payments to the holders of these loans.  Only when full, and fair bankruptcy, and other consumer protections- protections that were removed without defensible basis- are returned to all student loans should citizens entertain notions of attempting to negotiate fair and reasonable settlements of this debt.  

It is very unfortunate that the obvious systemic failings that have permeated this lending system as a direct result of removing bankruptcy, and other fundamental consumer protections have not been identified, acknowledged, and fixed by those in positions to do exactly that.  This is not a difficult defect to address; in fact, by merely returning nominal bankruptcy protections such that the Department of Education, at least, has a vested interest that loans not default, we would surely see a sea change in the quality and effectiveness of the oversight that the Office of Federal Student Aid is charged with exercising over the universities to keep academic quality high, and price low.  

While this system has gone unchecked by previous presidential administrations, and continues to operate without meaningful oversight from the current administration, it does present the current Administration with a clear and obvious opportunity to deliver on their promise to "fix what is broken", with little if any partisan disagreement.

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Contact:  Alan Collinge

2123 Mt. View
University Place, WA
(253) 617-3407