Challenge for 2010

As 2009 comes to a close I am inspired that more and more people are taking up the cause of the student loan debtor in America.

I have spent more time reading recently, especially at ForgiveStudentLoanDebt.com. What I have learned is that we need to educate everyone in America about the student loan debtor crisis.

While there seem to be pockets of people, both indebted and not, informed about the issue, there are still far more people unaware of what is going on.

So to everyone reading this I would like to present a delightful challenge for 2010, that if properly accepted and accomplished, could result in such sweeping change to how we operate in America that history would certainly note this as a turning point in the salvation of our culture.

The challenge is simple, rise up and become part of the movement to educate yourselves and others about the enslavement of the educated in this country to lifelong indentured servitude via student loan debt. Make this a secret that is shared and not kept and shame our leaders, both political and financial, for ever trying to silence one of the best parts of the American spirit - it's intelligence!

We the people deserve better - so let us all demand it.

May the New Year bring grace to you all.

Christmas and Good Will

Well it is almost Christmas once again and I have been so busy working that I have had very little time to spend here. (The irony is not lost on me that I have so little time for the most important financial issue in my life.)

So the time has come to rededicate myself to the task at hand - which is to reveal the problem of the student loan scam to the sleeping masses of the United States. Maybe, just maybe, with all the good Christmas cheer and will out there new warriors will come to the aid of the student loan serfs.

Many articles abound about the problems with the student loan lending system that is currently in place. And while it is this system that is to be blame there is very little chatter going on about how to get student debtors out of debt.

So to President Barack Obama, whom I voted for, I call you to arms. Return to student loan debtors our rights to seek relief from our financial burdens in court. If wealthy developers like Donald Trump have used this system - why oh why can't we?

And since I have such great respect for President Obama I hereby formally invite him to personally appear as a guest writer on my blog. I would love to hear your thoughts on this issue Mr. President, so long as you leave the political talk out of it and get down to brass tacks. I'm sorry to be so blunt but time is of the essence so verbal sidestepping just won't do.

Merry Christmas to all of you and Happy Holidays!

Lost in the Shuffle

To my loyal fans out there (cricket, chirp,chirp) I just wanted to let you know that the issue of student loan indebtedness was still hot on the stove.

I never did hear back from my local politicians. I can only assume that it's not a priority for them because it won't keep them in or out of office.

I wonder if there are any institutions out there that can can lend a hand with getting the message out that another way to stimulate the economy is to get students out of debt.

Any suggestions out there?

No Response From Sen. Schumer

Well here I am two full weeks later and I have yet to receive a response from Senator Schumer's office about what he intends to do with the current student loan crisis.

From the lack of response I think its fair to assume that he plans to do absolutely nothing.

My next approach is to contact the US Department of Education about what they are doing.

An inquiry into the status of the Direct Loan Servicing Center website has revealed that it is run through the Department of Education.

Getting Some Answers

Well, I have come to the point in my communication where I am trying to get some answers about the student loan industry and what is currently being done to address the ridiculous debt students carry in this country.

I started with my state senator, Senator Charles Schumer, then the Federal Direct Loan Service Center and now I am looking at contacting the Department of Education. I have yet to hear back from Senator Schumer or his office but I will give them a chance to respond.

The Direct Loan Servicing center is forwarding me some requested information about my loans so I can see just how it all breaks down.

The Department of Education looks to have some worthwhile pages so if anyone is on the same path or interested here you might want to check out the link.

As for drawing more readership to this site I am open to suggestions. Come one, come all I need some insight to get this site rollin.

Penalize or Incentivize?

I thought it might be useful to look at how student loan borrowers are treated to gain some insight into why we languish and suffer so much. It has dawned on me that the system might be setup to make it so.

Commonly, student loan borrowers are punished when they experience trouble paying back their loans or default altogether. While punishing those that don't pay their debts is an acceptable concept within our society, it has its limitations and weaknesses and therefore may not be in everyone's best interests.

Merriam -Webster defines punishment as a penalty inflicted on an offender. In the United States the principle of using penalties is most commonly used within the criminal justice system. Our system of imprisonment is often called rehabilitation but for those imprisoned I would say it is a actually a form of punishment. Furthermore, the criminal justice system in the United States is far from perfect. The law often acts blindly and without compassion. As a result, mistakes are often made and we have a system that currently incarcerates millions.

So it might be fair to say that punishment is not always the best answer to a problem, especially if rehabilitation is the goal. Other methods of correction, such as positive reinforcement, often work more effectively when trying to show someone the right way to do something or to keep them on the right track.

Positive reinforcement involves providing some kind of positive stimulus to a subject so that they begin to attach strong, positive feelings with the desired outcome or behavior. This kind of system is used in business, in the form of bonuses. Bonuses are promised in expectation of profitable work. A bonus is therefore a type of incentive.

Merriam-Webster defines an incentive as something that incites or has a tendency to incite to determination or action.

Where student loans are concerned, or any loan for that matter, it would be ideal to incite student loan borrowers to courses of action such that they pay off their loans successfully and preferably in the short term. So if incentives work well then why does our financial system prefer to treat student loan borrowers like criminals and not like people who we want to do successful business with? That certainly is a question that I have yet to see answered by anyone in power, politically or financially, but its time it was asked.

Instead of creating a situation in which borrowers are strongly encouraged to make successful repayment, the current system makes threats and inflicts severe punishments in the case of nonpayment or default. The current system does little to incite heightened or lifted spirits for those struggling to repay. Instead it penalizes them with interest, penalty fees, and crushed credit scores if they experience trouble repaying in the expected amounts.

While it would be naive to think that a system that relied on positive reinforcement would be without problems and not have any defaults its not too outlandish to expect defaults to drop dramatically. Let me illustrate with an example.

If a student loan borrower, who we have every expectation of becoming successful and eventually a generous taxpayer, was given a ten year moratorium on any interest on their loans what might be the outcome?

For many people, that ten years would be an incentivized opportunity to get completely out of debt. Many would work harder, perhaps even more than one job for the hope of being free of the burden in the short term.

To further incentivize repayment we could add in some negative reinforcement, by adding in an undesirable stimulus such as interest after the first ten years, perhaps on a graduated scale for each year after the ten years was over.

My point with all of this is that obviously the penalty system is working for finance companies. It is however not so successful for borrowers or the government. So its time for new ideas. Its time to elevate the hopes of all students everywhere - that they can get an education and they can pay for it.

This is only one part of the bigger picture however. We must also begin to address the why of the current system and how we change that. As I have already alluded to, who benefits from the current system of loan punishment and why would they fight like hell to keep the status quo? That, my friends, will be the subject of future posts.

Get Active: Contact Your Senator

Today I wrote an email to New York's Senator Charles Schumer to ask what he is doing to seek relief for people with excessive student loans. I will be posting his response as soon I receive that.

As I see it, the problem for anyone in this situation is the shame and fear you feel with this debt. You are made to feel completely responsible and alone with this burden and no real help is offered currently in the law or by politicians in general.

While the dream to get an education, a good job and a better life becomes a realization for so many, there are a growing number of us who fall between the cracks and end up ruined by student loans. We tried to do the right thing but we hit hiccups along the way and the dream quickly became a nightmare.

Please, to anyone reading this, help us end the nightmare and see daylight again. Recommend this blog and others for people to read. Maybe together we can create a movement to set things right once again.

Another blog that I found interesting can be found at http://www.icantpaymystudentloans.com.
Please go there and read what has happened to Gavin. His story might be your story or your child's story. It shouldn't have to be anyone's story.

Getting Out of A Sticky Delinquency

So even though I have already laid out some of the history of how I got into this mess in three separate posts, (Part 1, Part 2, Part 3), I have yet to explain some of the more ridiculous aspects of dealing with the loans when they came due.

When the student loans came due I also had accumulated a mountain of personal debt in the form of credit cards. To deal with the personal debt I had the option of seeking credit counseling or filing for bankruptcy. At the time, I felt extremely pressed as the end of the availability of chapter 7 bankruptcy was close at hand, or so I thought. As of October 17, 2005 bankruptcy law did change but in retrospect the change in the law wouldn't have affected me because my income was so low.

However, I didn't know that at the time and the bankruptcy lawyer that I consulted with didn't know that either - at least he didn't seem to know or he didn't tell me. Suffice to say - I looked at my personal debt and made the best decision I could with what I knew.

But after the bankruptcy I still had a vehicle payment and my student loans. With my credit in ruins I had to pay for everything directly for awhile. On the small income I had things were very tight.

When my student loans came up for repayment I unfortunately let them go. I ignored them - wishing somewhere in my bankruptcy traumatized mind that they would just go away. By the time I had the strength to face them they had fallen into delinquency. And for you I told you so people out there - yeah I know - it was all my fault. My mistakes. I get that.

Anyway, when I approached the nice people at the Federal Student Loan Service Center to deal with my loans they would only acknowledge that my loans were in delinquency and that the case had been forwarded to their collections agency - PIONEER.

That's when things got ugly. The good folks at Pioneer informed me that they could only get me on a plan out of delinquency if I agreed to make 9 consecutive payments of approximately $900 a month. I explained to them that they were insane because that was 73% of my monthly net income!

I went around and around with them explaining that I couldn't do that - that there must be some other way. I insisted that no one on my income could afford 73% of their income and still live. They didn't care. In fact, they even suggested at one point that I take the single credit card that I did have at the time and make the first payment on that and then maybe borrow the rest from friends or relatives as need be. I explained to them that I was not going to make more bad decisions to quote "do the right thing" by them. I further explained that if they were already asking for 73% of my income there would be no way for me to pay the credit card off under this much financial duress. Again, they didn't care but they did their best to try and make all this seem legitimate.

Aside from the $900 a month, the only other option, they explained, was that I could make maintenance payments that showed some good faith on my part. This payment amount was not going to get my loans out of delinquency, mind you - it was just to show good faith.

I felt that I needed to start somewhere so I agreed and started paying them some $400 a month to keep the account from getting worse. That was 32% of my monthly net income. Over the next nine months I made every payment on time but I kept trying to get them to relent and release the account. All my requests were to no avail.

It wasn't until I came across an obscure reference on the internet to the Office of the Ombudsmen for the Federal Student Loan Service Center that I got some relief. One late night I sent a frustrated and exasperated letter explaining what I had done to deal with these people at Pioneer. Within three days the Pioneer people called me and released the loan from delinquency.

The sad thing about all this is there was no clear listing on the Federal Student Loan Service Center web site about what to do if the Federal Student Loan Service Center's own collection agency wasn't working with you. I had to find it and dig it up on my own just to get the loans out of delinquency. There is no real help to this day on the website for people with loans in delinquency.

Furthermore, there was no apology or explanation of what happened to the money that was sent to Pioneer. I am sure they got a portion of what I paid - there would be no other reason for them to insist that I pay them 73% of my net income otherwise.

So, today I have student loans that I can only make interest payments on. Of the approximately $120,000 in total debt - $107,000 is principal - the rest is penalties and interest. And unless my income takes a significant jump in the near future I can only see paying on these for the rest of my life. And given the current economy and the pickle I am in - I don't see a foreseeable jump in income coming.

Student Borrowers are Worthy of Help!

I want to add something to the last post entitled Student Loans and Bankruptcy: The Hard Truth. There is this stigma out there that if you mismanage your finances then you must be unworthy of help. That social stigma just isn’t fair.

Just because someone got themselves over their head in debt doesn’t necessarily make them unworthy of assistance. It certainly makes them bad at finances and quite possibly a bad risk for future financial investment, but not necessarily hopeless.

The oddity with student loans then is that the loans can be discharged under two other circumstances that I did not touch on in the last post. These circumstances include full, permanent disability and death.

Unfortunately, I have come across circumstances wherein borrowers have committed suicide to escape student loan debt. In my mind, these tragedies could have been avoided if the borrowers had been presented with other options to manage their debt.

In losing these people to suicide I can see several negative outcomes of all this. The first is obvious, the families of these poor people had to deal with the tragic nature of their deaths and the knowledge that their deaths were preventable. Second, their deaths created a situation wherein the discharge of the loans was forced. As a result, no moneys will ever be repaid and the lending institution will now lose the entire sum of each loan. Third, these people will never become taxpayers and add to the general welfare of this country. We have in effect lost the entire financial return on the educational investments made in these people. Lastly, the accomplishments of these particular human beings, given the benefit of their educations, will never be known. Who knows what accomplishments awaited each of them.

All of this is the direct result of the Draconian laws now being applied to student loans. To my knowledge all other forms of personal debt can be discharged through some form of bankruptcy. If there are bankruptcy lawyers reading this please correct me if I’m wrong on this point. My point is - where were our regulators in making sure that these people weren’t being unduly burdened by hawkish lending and repayment practices?

Aside from simply forgiving student debt there are other interesting ways to help students and graduates deal with debt. For example, borrowers that have obviously gotten in way over their heads could also be offered interest free repayment on loan amounts that are too high, for example that exceed one’s income. In this way the borrowers can pay off principal and get ahead of it and therefore still retain some hope for their own future. They can also go on to have families and become successful, contributing members of society.

If you haven't read my story so far please go back and read my first posts. I am one of these people who were sucked into the dream of an education, and who, for whatever reason soon found myself drowning in debt. When I speak about other people I am speaking for myself as well. Student loan borrowers deserve help - just like the banking industry, the auto industry, and defaulting homeowners. Unfortunately, our plight goes unheard and unseen because of the shame we are made to feel for wanting an education.

For some other insight and interesting reading please visit Studentloanjustice.org and read the selected stories they have there. This is where I unfortunately came upon stories of people committing suicide to be free of their student loans.

Bankruptcy and Student Loans: The Hard Truth

I recently sought legal advice about student loans and bankruptcy in an informal setting. I use the term informal because while I did not retain the services of a lawyer for the purpose of filing bankruptcy I did consult with a lawyer on the topic and compensated this lawyer for his nonbinding opinion.

So here is the skinny on that communication.

While it is generally true that one cannot claim one’s student loans under a bankruptcy filing it is possible to do so in special circumstances. This special circumstance is known as undue hardship.

According to this lawyer, for a person to succeed on a claim of undue hardship they must satisfy the test for undue hardship as laid out in the case of Brunner v. NY State Dept. of Education. In this case, the district court adopted a standard for "undue hardship" that required a three-part test. First, the debtor must show that he or she cannot maintain, based on current income and expenses, a "minimal" standard of living for themselves and their dependents if forced to repay the loans. Second, the debtor must show that additional circumstances exist which indicate that the current hardship is likely to persist for a significant portion of the repayment period of the student loans. Third, the debtor must show that they have made good faith efforts to repay the loans. The first part of this test has been applied frequently as the minimum necessary to establish "undue hardship."

Other cases that the lawyer cited as support for the use of this test include Bryant v. Pennsylvania Higher Educ. Assistance Agency (In re Bryant), 72 B.R. 913, 915 (Bankr.E.D.Pa.1987); North Dakota State Bd. of Higher Educ. v. Frech (In re Frech), 62 B.R. 235 (Bankr.D.Minn.1986); Marion v. Pennsylvania Higher Educ. Assistance Agency (In re Marion), 61 B.R. 815 (Bankr.W.D.Pa.1986).

Now, if there are some lawyers out there specializing in bankruptcy and you have experience with these loans please comment here and let us know what you have seen. We would all appreciate it.

In addition, if you are a borrower that sought to have your loans dismissed with the undue hardship test please let us know about your experience. Any and all other related comments are also welcome.

My next blog entry will be on Monday, September 21st, 2009. However, I will be still checking in on the blog over the weekend for your comments so please feel free to jump in.

May you all have a great weekend!