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Student Loan Debt Slaves In Perpetuity - A True Story Of "Bankruptcy Hell"

The numeric implications as well as the magnitude of the student loan bubble have been discussed extensively before. Yet just like most people's eyes gloss over when they hear billions, trillions or quadrillions, so seeing the exponential chart of Federal Student debt merely brings up memories of a math lesson from high school, or at best, makes one think of statistics. And as we all know statistics are faceless, nameless and can never apply to anyone else. It is the individual case studies that have the most impact. Which is why we would like to introduce you to Devin and Sarah Stang - student loan debt slaves in perpetuity.
First, for those who are still unfamiliar with the brush strokes, here is the big picture, courtesy of AP:
The Federal Reserve Bank of New York estimates 37 million Americans have student loan debt, totaling $870 billion. The average balance is around $23,000 (though that partly reflects a relatively small number of very large balances; the median is $12,800). Only 39 percent are paying down balances. An estimated 5.4 million borrowers have at least one student loan account past due.
Roughly 85 percent of outstanding student loan debt is owed to the federal government. The remaining 15 percent that's counted as private student debt is owed to various non-federal lenders, ranging from banks to loan companies like Sallie Mae Corp. to non-profits and state-affiliated agencies (under the Durbin bill, loans from any government-funded entity still wouldn't be dischargeable, only those from truly private lenders).
Generally, it's these private loans that bring borrowers to the door of bankruptcy lawyers like Barrett. Private student loans often lack the protections of federal ones, and have rates that typically start higher and can shoot up. A recent survey of bankruptcy attorneys found 81 percent reporting more clients with student debt in recent years, and roughly half reporting a significant increase.
And, also by way of background to those unfamiliar, student debt has a very peculiar feature:
Virtually any other kind of debt — including medical bills, mortgage, credit cards and car loans, even gambling losses— can be discharged in bankruptcy, allowing the "honest but unlucky" a chance to restore their footing through an arduous restructuring overseen by a court.
But under a 2005 law passed by Congress to protect lenders, private student loans fall under the same nearly-impossible-to-clear category as child support payments and criminal fines.
"It's a huge part of why the younger generations are here now," said the Stangs' bankruptcy lawyer, Matthew Barrett, whose busy office in Amherst, west of Cleveland, belies stories about the improving economy. He estimates half his clients have problems with student debt.
It is very ironic is that despite all the rhetoric, the president has said absolutely nothing about mitigating this particular provision of bankruptcy law: the one which makes student debt the most expensive form of payment: one which is literally like the proverbial gift that keeps on giving. Or in this case taking.
To advocates for student borrowers, the law is infuriating, counter-productive and — if intended to ensure lenders would be willing to make loans to students— demonstrably unnecessary. They see changing it as among the most effective, and least costly, ways to help those most seriously burdened by student debt, without giving a break to those for whom it's manageable.
Yet despite a voluble national conversation on student debt, the issue has gotten comparatively little attention.
At stops in three swing states this week, President Barack Obama is calling on Congress to head off a scheduled doubling in federal Stafford loan rates, from 3.4 percent to 6.8 percent. Changing that law could save more than 7 million new borrowers on average $1,000 a year, according to the White House. But this across-the-board benefit for current college students would do nothing for older borrowers already in trouble.
Acting without Congress, the Obama administration has implemented a series of protections for those pressed to pay back federal loans, such as income-based repayment and a public-service loan forgiveness program — steps lauded by advocates for borrowers.
However, the president appears never to have directly addressed a proposal by Sen. Richard Durbin, D-Illinois, to overturn the 2005 law on private loans. Treasury Secretary Timothy Geithner recently told Durbin the dischargeability proposal had "some merit" and that the administration wanted to work with him to expand the protections it has implemented for federal student loans into the private market. Regardless, the bill has little chance of passing the divided Congress in an election year.
Which brings us to the topic at hand: case study A.
The misfortunes that brought schoolteachers Devin and Sarah Stang and their four young children to bankruptcy — and the loss of their house and a car in the process — were their own unique story.
They bought the house at just the wrong time. There were heavy medical expenses when, at five months pregnant, she delivered stillborn twins. And their money woes go back further: When Sarah's college softball team pressured her to drop classes she wanted to take, she quit, lost her scholarship and had to make up the difference with loans. Devin, too, borrowed to get a master's degree. Then they struggled amid school layoffs near their Sandusky, Ohio, home.
Now, the Stangs just want a truly clean slate, financially. But even the ordeal of bankruptcy won't give it to them, and the reason is a common one: Much of their debt comes from private student loans.
...Which as noted above, will virtually never go away. So who is the biggest winner? Why bankruptcy lawyers of course, who as it so happens all the time, do nothing but provide false hope...
Generally, it's these private loans that bring borrowers to the door of bankruptcy lawyers like Barrett. Private student loans often lack the protections of federal ones, and have rates that typically start higher and can shoot up. A recent survey of bankruptcy attorneys found 81 percent reporting more clients with student debt in recent years, and roughly half reporting a significant increase.
Barrett says he's seeing more recent college graduates who couldn't get a job after graduation or who, if they did, faced garnishment of entry-level wages.
Before the 2005 law passed, lenders would "try to work with (borrowers) on a payment plan," Barrett says. "They had the threat, if we don't make it so this person can afford to live and eat and get to work and dress for work, then they're going to file for a bankruptcy plan and we're going to get hit.
"Now, they'll hit you with a garnishment — and if you can't make ends meet, tough."
Private lenders haven't always enjoyed a spot at the front of the line of bankruptcy creditors.
It wasn't always like that:
Private lenders haven't always enjoyed a spot at the front of the line of bankruptcy creditors.
Until 1976, all education loans were dischargeable in bankruptcy. That year Congress began requiring borrowers to wait at least five years before they could discharge federal student loans. Since 1998, borrowers have been unable ever to discharge federal student loans, and in 2005 the then-Republican-controlled Congress made private loans almost impossible to discharge. Essentially, borrowers must prove they can't repay and will never be able to, but the standard is vague. And litigating in bankruptcy court may be impossible financially for someone in those circumstances.
With federal loans, the concern was that making it too easy to walk away from debts would put taxpayer dollars at risk.
With private loans, the lender protections were justified by fears that otherwise lenders wouldn't extend students the capital they needed to cover tuition bills. Student loans offer no security or collateral. Lenders are betting on a borrower's education to produce future earnings. Put differently, a bank can repossess your car but not your brain.
Changing the law "would force our members to raise borrower rates or elevate their already strict underwriting standards and essentially make it harder to make the loans," said a spokeswoman for the Education Finance Council, which represents nonprofit and state-based providers of non-federal loans, in a statement issued on behalf of president Vince Sampson. A Moody's report also suggested younger student borrowers might be especially tempted by an easier bankruptcy filing, not appreciating the long-term credit damage.
But such arguments swim upstream against a lot of historical data.
Before 1976, when student loans were dischargeable in bankruptcy, there's little evidence borrowers abused the practice. A federal study from that time estimated less than 1 percent of all matured student loans were discharged in bankruptcy.
Of course, before 1976 there was not 30 years of excessive easing resulting in unprecedented dislocation from fair value for all asset prices, driven purely by nothing but cheap money, and people access to it.
Which brings us back to the Stangs:
"I wasn't raised to say, 'I'll go file bankruptcy,'" said Devin Stang, who is 41. The family's student debt totals $25,000 in federal loans and about $37,000 in private ones, much of it from taking required continuing education credits to keep up their teaching licenses and job prospects at a time of widespread layoffs.
Surrendering one of their two cars in bankruptcy will limit the Stangs' work options, Barrett says. And digging out will be even harder because, even after their other debts are clear, the private student lenders could garnishee up to 25 percent of wages.
If they could discharge their private loans in the same manner as credit card debts, "away we'd go on our lives," Stang said.
There's also little evidence that changing the law would affect the availability of private student loans. In fact, private student lending was expanding rapidly before 2005, when the loans were dischargeable. Then Congress awarded lenders stronger collection powers — but private student lending fell by two-thirds in just a few years, coinciding with the broader credit crunch.
A leading financial aid expert, Mark Kantrowitz of the website Finaid.org, doesn't buy the lenders' argument. He says changing the law might slightly increase fees, but lenders make their decisions based on credit scores and macro-economic factors.
Of course, one can say that one has to live the consequences of one's actions, and it is not like the Stangs did not make a mistake. But then the argument would also migrate to the consequences of pervasive bank failures and the fact that unlike the Stangs, banks did get preferential terms for all their losses and shortfalls. And of course that would be true.
And at the end of the day, America has always been about second chances. Perhaps the Stangs, and all those others who took a bet on their biggest asset: themselves, and failed the first time around, deserve a second chance?
Even if changing the law did make private loans disappear, some advocates think that wouldn't be so bad.
In fact, new lending has already fallen sharply recently, and it hasn't kept people out of college; enrollment is way up. Students who might have gotten private loans five years ago, but can't now, are apparently choosing less expensive schools or borrowing more of what they need from the federal government, which accounts for more than 90 percent of new loan volume now.
A study by the Project on Student Debt, a foundation-supported research group, found that half of students who took out private loans in 2007-2008 failed to borrow their maximum eligibility in federal Stafford loans. Those students could have — and almost certainly should have — borrowed more from Washington first (undergraduates can cumulatively borrow up to $31,000 in federal Stafford loans, and in some cases, as much as $57,500). Now, they're doing so.
Yet nothing will happen. Why? Because that ultimate enabler of the status quo - America's higher learning system itself, is dependent on perpetuating the status quo. Because if loans are harder to come by, college tuitions would tumble, and the very fabric holding the lie that is modern socio-economic surreality, would implode:
Finally, if the spigot of private loans cut off, it might temper college cost increases. Colleges would find it harder to get away with charging more than what students can borrow from the government.
Indeed one can dream... Or return to reality, where unfortunately nothing changes, and millions and millions of Americans are converted each year into that most sublime form of debt slave: the one that can't just pick up and walk away from it all. The very definition of slavery.
"There's a special circle of bankruptcy hell for these kinds of debts," said Rich Williams, higher education advocate with the group US PIRG, which lobbies on student loan issues. "It's not that students are asking for extra protections. We're asking for the same protections entitled to every other form of consumer debt."
And so it continues in the once great USA, where countless people are converted not only into perpetual debt slaves but have to brave the various circles of debt hell simply to comply with a self-image imposed on them by a superficial society that demands one buys stuff one doesn't need, with money one doesn't have to impress people one doesn't like.
Truly the American dream, pardon nightmare, lives on.
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15000 that is.
Dow 13000
Well, I thought that the breaking of the family unit was a regular song sung by US citizens...
Awful sidetracking by the way. It will not be about family bounds, a family could be well bound but without no excess capital at the end of the day.
It is going to be about being well born or not.
Family unity wont matter, only accredited wealth.
.
The familiar song? Name that tune in few notes, because it is Chinese citizenism song of forced abortions and female newborn infanticide.
Yes, very prideful patriotic song of Chinese citizenism.
It is already being been in Chinese citizenism about being male born or not.
Make you laugh? So laugh at disgusting Chinese citizenism shame.
AnAnonymous said:
Ah, ah, easy now for Chinese citizenism trained monkey citizen sayings is? Knowing times is the yesterdays discernment capacity for Mongolian in Mongolia and Tibetans in Tibet livings affording can, or not?
Question rendering as moot being now, with of citizens Mongolia and Tibet must now workings as servitude indenturations to Chinese citizenism blobbing up takeover. Not a pretty sight is?
Made me laugh hardly. Chinese citizenism blobbing up to Tibet, Mongolia, bringing to backwardation people lights you thinkings? Is not so, as inspirational purposing of Chinese citizenism is pushing to exteriors that which now is inadvisable in Chinese citizenism public parks number two. Seeing views here:
http://pics.livejournal.com/hannahcharlene/pic/000b84sg
Traditional understanding now many generations Chinese citizenism that, as for excretion of the peasant comparing with excretion of the wealthy, both squat down on the roadside and the perception is framed well.
Ah, back to the previous play.
That story of supporting and advocating for US citizenism, that was too weak...
Better to keep to the idea that one has to be a Chinese to question US citizenism, that something like Chinese citizenism exists etc...
It is funny how US citizens live in relativism when it suits them.
.
Ah, keep repeation as if to make believe it is not true. Your transparency is clearly seen through.
You advocate US citizenism when it is profitable to you, and then turn around and denounce US citizenism in order to save face.
Very Chinese citizenish...
It is funny how Chinese citizenism citizens embrace US citizenism when it profits them, while at the same time blaming US citizenism for their problems in order for all important Chinese citizenism face saving.
Very two faced hypocricy.
Very two faced saving hypocricy.
Made me laugh.
Chinese citizenism water clean not as in even US citizenism. Require Number 2 sudden urgent frequent Chinese citizenism advantage facilities available utilize parks and other areas in wise manner. So no lawns in Chinese citizenism unlike oppressive US citizenism.
Four kids and massive debts? Hardly conducive to a sustainable, happy lifestyle. Perhaps someone should tell the Stangs kids cannot be used as collateral.
However, given their irrationalism and inability to jointly pay off $62k in c. 20 years I doubt it would resonate. Fuckin' 'ell.
You guys should come and study in Europe. The degrees are worth the same, we have plenty of good universities as well, and here in Belgium tuition is a measly 500 euro's per year, for any university-level degree (bachelor/masters). Plus our beer is better ;)
And it's all "free," right? LOL But I do like chimay
[...] There are a lot of articles about "the education bubble", and education is a topic of huge significance, that we will talk about in future posts. But, if you really want to understand how "the education bubble" was created, all you have to do is think of education like an investment (yes, I know that education should help you develop "critical thinking", "moral values" and all that stuff, but why on earth would the ruling class want you to develop that? They only "moral values" they want you to learn are obedience to your masters, market values, like "everything is for sale" and all that stuff, and of course the necessary technical knowledge to make you more productive in your area of expertise).
Anyway, as I was saying, all you have to do is think of education like an investment: You invest time and money in order to "weaponize" yourself with "marketable skills" and be ready to face the competition when you finally enter the labor market "arena". Capitalism in its purest form forces the workers to compete against each other - and "only the strong survive". In today's global labor market, the Asian workers are simply..."destroying the competition". As for the western workers, only a few are "good enough" - the rest are simply redundant. Their "blind faith that the investment would be worth it", and that "all we needed to do was get this education and get the good job" was misplaced (at best).
Capitalism is based on faith and speculation - these students and their families speculated that getting a college degree was a good investment, because for many years now, it had been the key to securing a good job. So, it was OK to get a student loan, because they speculated that they would be able to repay it + live a comfortable life in the future.
But the returns on their investment were not as great as they thought. There are other competitors, especially in Asia, that can (generally) do the same things as them, maybe even more, and they are also willing to worker longer hours for less money. Not to mention the fact that some western education systems are crappy (we shall discuss this in greater detail the future). So, not a lot of western students will be able to get a job and repay their debts. Of course, the western businessmen are quite happy to go along with this, because they get to increase their profits, due to the lower labor costs. But the workers will suffer - debt slavery, unemployment and poverty is their future, and on top of it all, they were caught completely off-guard and are not ready to fight back, as most of them were under the illusion that "all we needed to do was get this education and get the good job"...
[...]
More: http://whataboutmarx.blogspot.com/2012/04/education-as-market-and-collap...
Student loans should come with the most intense truth in lending information in bold caps. Has turned into one of the most questionable economic decisions ever.
Yeah, as of about 5-7 years ago.
Bankrupt the parents, starve their kids, reelect George W Fuckup.
Mission accomplished.
For profit colleges for profit debt straight out of Goldfuck Sacklickers.
No one saw it coming.
Kill the banker fraud manufacturing cartel.
You guys are all thinking that we are saddling this generations youth with all this debt. SS debt, Fed deficit debt, etc. You are acting like they will actually pay some of it. Well, as you can see the kids are very good at getting into debt and then whining about it when the payments become due. And this is debt that they themselves signed for and was for their exclusive use.
So what do you think they're going to do when it comes time to pay for all the bills the Gov'ts have made/are making now? They're going to say we ain't paying. And if that means covering grandma's head with a pillow until she stops breathing then so be it. We are a "it's not my fault" society. And that is what we've taught our children be allowing things like this (yes we let this happen) to get out of control like they have. And we will pay for it down the road. Pay dearly. Because these kids aren't going to shoulder any responsibility whatsoever for the debts we made if they won't even pay for their own shit. So stop talking about "borrowing from future generations". Because there is no way in hell that they'll be repaying those debts. Even if they could.
This is why I continue to work when I could retire. I am literally scared shitless about the future. And looking at what we're doing to our own kids -- college should not cost this much -- I cannot blame them if one day they look around and say "fuck this" and just drop out. And when that happens, who's gonna pay for my pension and health care?
I wonder what would have happened to Michelangelo if he had been in massive debt servitude to banks for prior student loans. Seems it may have curbed the creative genius in him as it is doing today.
At Vatican: Click and "drag":
http://www.vatican.va/various/cappelle/sistina_vr/index.html
Since loan money is created from nothing, these loans should absolutely be dischargeable in bankruptcy.
Remember that bankruptcy proceedings are not arbitrary. They are overseen by a judge. It's not like YOU get to choose which debts you don't pay. That is decided in court.
It is the height of ridiculousness that banks can create money from nothing because of government laws; and then require us to pay that "money" back with hard work, no matter what befalls us, also because of government laws.
This is NOT government for the people. This is government for the BANKS.
I would be glad to insist on repayment of ALL debts, under ALL circumstances, if those debts were made with REAL money that was EARNED by someone -- in other words, if we insist on full-reserve banking. Guess what that would also mean? It would mean the interest rate on my checking account would be about 10%. And it would mean far fewer people would borrow to buy things they don't really need -- like ANOTHER MASTERS DEGREE.
Student loan debt is a very significant factor for numerous young adults leaving college. Now, bankruptcy attorneys are confirming what many college students had anecdotally reported - that these student loan debts are a serious factor in filing for bankruptcy. I found it here: Student loans becoming a major contributing factor to bankruptcy
For a good read related to the above story:
http://www.nytimes.com/2012/05/03/opinion/death-of-a-salesmans-dreams.ht...