#generation debt

Tens of thousands of people who took out private loans to pay for college but have not been able to keep up payments may get their debts wiped away because critical paperwork is missing. The troubled loans, which total at least $5 billion, are at the center of a protracted legal dispute between the student borrowers and a group of creditors who have aggressively pursued them in court after they fell behind on payments. Judges have already dismissed dozens of lawsuits against former students, essentially wiping out their debt, because documents proving who owns the loans are missing. A review of court records by The New York Times shows that many other collection cases are deeply flawed, with incomplete ownership records and mass-produced documentation. Some of the problems playing out now in the $108 billion private student loan market are reminiscent of those that arose from the subprime mortgage crisis a decade ago, when billions of dollars in subprime mortgage loans were ruled uncollectible by courts because of missing or fake documentation. And like those troubled mortgages, private student loans — which come with higher interest rates and fewer consumer protections than federal loans — are often targeted at the most vulnerable borrowers, like those attending for-profit schools. At the center of the storm is one of the nation’s largest owners of private student loans, the National Collegiate Student Loan Trusts. It is struggling to prove in court that it has the legal paperwork showing ownership of its loans, which were originally made by banks and then sold to investors. National Collegiate’s lawyers warned in a recent legal filing, “As news of the servicing issues and the trusts’ inability to produce the documents needed to foreclose on loans spreads, the likelihood of more defaults rises.” National Collegiate is an umbrella name for 15 trusts that hold 800,000 private student loans, totaling $12 billion. More than $5 billion of that debt is in default, according to court filings. The trusts aggressively pursue borrowers who fall behind on their bills. Across the country, they have brought at least four new collection cases each day, on average — more than 800 so far this year — and tens of thousands of lawsuits in the past five years.

The average profile of a payday borrower is a single mother with young children earning approximately $40,000 who lives an economically precarious life in which an additional expense — such as an illness, divorce, or seasonal financial pressures (think back-to-school supplies or Christmas expenses) — is too much. For those struggling to get by, the industry is ready to lend, at a cost. The dependence of the poor on this privately created money (aka “credit”) is neither natural nor inevitable. It is a social reality manufactured by neoliberal policies. In particular, payday lending has been facilitated by an important yet largely neglected component of neoliberal governance: the debtfare state. Alongside other components of neoliberalism such as workfarism (replacing welfare provisioning with work) and prisonfare (criminalizing poverty), debtfarism aims to regulate social insecurity by expanding the credit system: payday loans, student loans, credit card debt.

These student loan debts, racked up before beginning one’s work life, are devastating. It means that the young postpone saving. They will accumulate far less for their retirements — even as they are expected to save more due to the collapse of pensions. Demos, a research institution, created a model to estimate the losses. Their study found that for a young couple with B.A. degrees from four-year colleges, with median incomes and college debts for their education level, they would lose an average of $208,000 over the course of a lifetime, in comparison to a couple without college debts. Two thirds of the losses would come from retirement savings — since they would be unable to save as much while paying down their debts. One-third comes from loss of home equity, since they would either purchase a home later or be able to afford less of a down payment.

According to statistics from the Federal Reserve, one in seven Americans is being pursued by a debt collector, up from one in 12 just ten years ago. And substantial numbers of these Americans report being hounded for debts they do not owe. A new report from the Consumer Financial Protection Bureau logged tens of thousands of complaints claiming just this—that the debt in question is simply not theirs. Can the debt collection industry be so careless as to continually harass the wrong individuals? The more you learn about how debt collection works, the more you’re surprised that they ever find the right target in the first place.

An Open Letter to the Baby Boomer in My Check-Out Line Today

Let's all pay for our student loan debt with the money we would pay for pap smears (or at least the half of us who get pap smears): Yesterday (Friday the 27th), the House voted on a hastily introduced bill: “Interest Rate Reduction Act”, H.R. 4628, which would extend the Stafford loan interest rate reduction for one year. The bill passed, 215-195. Only 30 Republicans voted against the measure. They were joined in their opposition by a large majority of House Democrats. Why did they oppose the bill? The legislation would pay for the extension by shutting down the Prevention and Public Health Fund, a key tool for maintaining women’s health, created by the 2010 health-care law. Now the president will likely veto the bill, and student loans will become a political football between now and July 1.

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