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THE U.S. STUDENT LOAN DEBT BUBBLE

A THREAT TO AMERICA'S FUTURE


"Consumers now owe more on their student loans than their credit cards. 

Student loans outstanding today — both federal and private — total some $1.2 trillion



Exemption from bankruptcy protection for debtors

While student loan debt was dischargeable in bankruptcy prior to 1978, the US Bankruptcy Code of 1978 made an exception for bankruptcy discharge of education loans  This law which was strengthened as recently as 2005 with the Bankruptcy Abuse Protection Act.(3)   The fact that these loans are not dischargeable through bankruptcy is a uniquely harsh measure that even gambling and credit card debt is not subject to.

How did this industry affect national law?

What started as an attempt at helping more lower-income students go to college eventually became a giant $85 billion-a-year industry, one which now wields enormous political power in Washington, DC. Sallie Mae alone has spent millions of dollars lobbying various political figures throughout the last few decades to support federal student loan subsidies.(7)

Corruption and scandals in student loan business

In 2007, Sallie Mae agreed to pay $2 million to settle an investigation into its loan practices, an investigation which revealed that Sallie Mae and other lenders like EduCap and Student Loan Xpress had been routinely providing "kickbacks" in the form of exotic vacations and cash payments of tens of thousands of dollars to financial aid officers in universities around the country for their cooperation in pushing high-interest loans to needy students. These students were often not made aware that they had other borrowing options, and instead borrowed the maximum amount under what universities described as "preferred lenders". (6) In one specific incident, Ellen Frishberg, former director of student financial services at Johns Hopkins University, received over $65,000 in consulting fees and tuition payments from Student Loan Xpress. (9)

Fairy tale assumptions about the value of student debt and a college education

In 2002, the US Census Bureau released a report, later endorsed by the Department of Education, that stated, "Over a work-life, individuals who have a bachelor’s degree would earn on average $2.1 million — about one third more than workers who did not finish college, and nearly twice as much as workers with only a high school diploma." (10) This number eventually was averaged down to what would become a staple of the American Dream; if one worked hard enough and went to college, over the course of their lifetime they would earn a million dollars more than those who did not. This number, cited by high school and college guidance counselors across the country, became the driving justification for agreeing to taking on massive student loan debt. The math seemed simple; after all, didn't $40,000 in loans pale in comparison to a million extra dollars in income? This seemingly simple equation was complicated in 2008, when Charles Miller, former U.S. secretary of education Margaret Spellings's Commission on the Future of Higher Education, publically contested the $1 million number with his own analysis, which utilized a more accurate estimate of inflation, loan debt, and the effects of economic downturns. His research indicated that the real number income difference in lifetime earnings for those who attained their bachelor degree to be only $279,893; roughly a quarter of what was previously advertised. (11) 


Student Loan Debt Links
The Wall Street Journal: Student Loans "Outrageous"
The Wall Street Journal - Student Loan Debt Exceeds Credit Card Debt (1)
Center for Research on Globalization: The Student Loan Bubble
USA Today - Student Loan Debt Exceeds Credit Card Debt
USA Today - Feds Chase More Student Loan Defaults
Annuity Think Tank - Next Debt Bubble (2)
FinAid.org - Bankruptcy Questions (3)
White House Briefing Room - President Obama's Remarks on Education (8)
Wikipedia - 1965 Higher Education Act (4)
Wikipedia - SLM Corporation (5)
Democratic Policy Committee - Health Care and Education Reconciliation Act (pdf file)
OpenSecrets - Sallie Mae Finds Friends in Congress (7)
US Census Bureau - The Big Payoff: Education Attainment and Synthetic Estimates for Lifetime Earnings (pfd file) (10)
American Enterprise Institute - How Much Is That Bachelor's Degree Really Worth? (11)

The Role of Immoral and Illegal Business Practices
New York Attorney General Andrew Cuomo: School Loan Corruption Widespread
Washington Post - Sallie Mae Settles in Conflict of Interest Probe (6)
Ralph Nader: Sallie Mae and the Student Loan Swindle
Bloomberg: Sallie Mae to pay $2 million to Settle Lending Probe
Alternet: Stopping the Student Loan Cash Cow
Times Higher Education - Fury over Kickback Allegations
Consumer Affairs - Johns Hopkins Settles Student Loan Probe (9)


Resources for Student Loan Borrowers
You are not alone. The following links can help you better understand your rights, find peers in the same situation as yourself, and help make your voice heard.

Government Regulators and Law Concerning Student Loans
Consumer Financial Protection Bureau
Federal Deposit Insurance Corporation
Federal Trade Commission
Federal Student Loan Ombudsman
Dodd-Frank Wall Street Reform and Consumer Protection Act
Consumer Action - Financial Reform Quick Fact Sheet (pdf file)

Advocacy Groups
Student Loan Borrower Assistance
Student Loan Justice
Consumer Affairs - Student Loan Section
New America Foundation - Student Loan Section
Student Loan Bubble

Legal Assistance
Free Advice - Collections
Find Law

Facebook Groups
Fight Back Against Sallie Mae
Default: The Student Loan Documentary