Student Debt

The kids are told all the time that education is the only way to success. And it used to be true. Not so much these days, however, with Rushpubliscum legislation still rewarding American firms for offshoring jobs. The “deferral” tax rule has all by itself driven countless American manufacturing, services, and even R&D sites overseas. So what we’re winding up with are well-educated people who would have been better off if they’d skipped the education and gone to work at Burger King. And in a lot of cases, their PARENTS, many of who preached the education gospel, would also have been much better off.

How long are we going to continue to ignore this ticking time bomb?

 

The early-morning calls from debt collectors continued even after her massive stroke, waking Bella Logan to daily reminders that she owed $75,000 in student loans. Logan is 94.

The federal government garnisheed $200 a month from Robert Austin’s Social Security checks for years for student-loan debt, leaving Austin without money he needed for medications. He is 83.

After Ray Stockman’s wife died, he wanted to move but was turned down three times for apartments because a student-loan debt had sunk his credit rating. He is 78.

Each of their names is attached to student loans for their children’s college educations — loans that the children didn’t repay and that scarred the parents’ financial lives.

“We paid our dues; we worked all our life and tried to do right by our kids,” said Stockman, of Kent, in northeastern Ohio. “But these loans can come back and haunt you in ways you would never think about.”

As tuition costs have skyrocketed and access to credit has tightened, more students are turning to their parents and grandparents for help. If the elders don’t have the cash, they have limited options. Among them: sign a federal parent PLUS loan or co-sign on a private student loan from a bank.

There is no way to know how many parents and grandparents are saddled with their children’s student-loan debts, but the number of borrowers older than 60 has tripled since 2005, statistics from the Federal Reserve Bank of New York show. The number of those who have fallen behind on payments also has tripled, from 63,000 to 198,000.

Those borrowers are heading into retirement and the fixed-income years carrying an average balance of nearly $20,000, about $6,000 less than the average debt load of a new graduate with a bachelor’s degree.

And the demand for parents to help shoulder the burden of debt is likely to continue. Last year, about 90 percent of borrowers who took out a private student loan had a co-signer, compared with 55 percent in 2005.

Federal loans do not require co-signers but can be made directly to parents, tying them solely to the debt.

Both methods of borrowing carry significant risks, advocates say. And both are largely exempt from a discharge in bankruptcy court.

The federal Consumer Financial Protection Bureau has received more than 2,000 complaints about student loans; dozens involve the plight of parents and co-signers.

One borrower complained that his private student loans fell into default solely because his co-signers — his parents — had filed for bankruptcy. Although the man was making timely payments, the parents’ bankruptcy triggered a clause in the fine print making the entire balance due at once. “I am now in a situation where I can’t afford the terms,” he wrote.

Another borrower complained that her parents couldn’t refinance their home because the student loans for which they had co-signed made their debt-to-income ratio too high.

Another borrower regretted his decision to borrow $100,000 for art school. He can’t afford the payments, but worse, he said, is that his grandfather, who lives on Social Security, co-signed on the loans, and debt collectors now pursue him, too.

“Complaints are an early warning” of trouble, said Rohit Chopra, the student-loan ombudsman for the consumer-watchdog agency in Washington.

The system is particularly unbending for co-signers and parents who borrowed from the federal government because there are even fewer options for help.

“You can’t refinance … you can’t take your business elsewhere. When you can’t refinance, you’r e captured,” Chopra said.

Federal parent loans lock borrowers into a 7.9 percent interest rate, more than twice the national average for a rate on a 30-year mortgage. Parents can’t consolidate loans into one payment, and they are ineligible for the government’s income-based repayment plan.

 

Squeezing honest people til they bleed, while lavishing tax breaks and bailouts on criminals. I thought about changing the name of this blog from Plutocrap, but the name makes more sense to me now than it ever did. This is indeed a crappy Plutocracy, and things have got to change.

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