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A Questionable Target
With the government facing annual budget deficits exceeding one trillion dollars a year, federal officials appear to be cracking down on borrowers who have defaulted on their federal student loans.
According to The National Law Journal, the U.S. Department of Justice this month unleashed lawyers and prosecutors under the authority of U.S. Attorney Patrick Fitzgerald (yes, that Patrick Fitzgerald) to pursue student loan defaulters. The Department is expected to file "as many as 20 lawsuits a week for the next several months against individuals who defaulted on loans they took out as long ago as the 1980's," the article states. Borrowers are being pursued with unpaid balances, according to an example provided by the newspaper, accruing costs of $1.13 per day. Evidently every dollar counts.
At Higher Ed Watch, we do not condone those who willfully shirk their responsibility to pay back their student loans. The government is well within its rights to pursue borrowers who took out federal loans without having any intention of repaying them.
At the same time, we recognize that many, if not most, borrowers who go into default are not looking for a free ride, but simply don't have the money to repay their loans. Going after borrowers who are truly financially distressed, because they are unemployed or suffer debilitating illnesses, seems especially cruel in this economy. Besides, how much money is the government really going to be able to recover from those who don't have any to spare?
If the government wants to recover money it has lost in the federal student loan programs, it should turn its sights to funds illegally obtained by a select group of lenders in the 9.5% guaranteed student loan scandal. Up to a billion dollars could be recovered by the Justice Department either by reviving its own still-open cases against lenders like Nelnet, or exercising the authority Congress granted the agency last year, as part of the Higher Education Act legislation, to review any settlements made by the Education Secretary that exceeded $1 million.
We hope the Obama Administration notes that some of the lenders in question have now been audited and may be ready to settle. The Missouri Higher Education Loan Authority (MOHELA), for instance, has offered to return hundreds of thousands of dollars it says it inadvertently overcharged the government on 9.5 loans. The agency blamed the overpayments on the Pennsylvania Higher Education Assistance Agency (PHEAA), which as a third-party servicer prepared the Missouri agency's claims to the Department of Education. This may be the case with other lenders that relied on PHEAA and Nelnet to make 9.5 claims on their behalf.
The new leadership at the Justice Department is telling Congress it wants to pursue cases where financial institutions have been taking advantage of taxpayers. Recovery of 9.5 illegal claims is a perfect fit with that objective. As a start, department officials should make sure that MOHELA makes good on its offer of restitution.
Too often, the previous administration put the needs of lenders before those of students and student loan borrowers. It may be unreasonable to expect that eight years of momentum can be redirected immediately, but we hope the turnaround is soon coming, not only at the Department of Education but at the Justice Department as well.
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Alien Defaulters
In sampling that I did years ago on unresolved defaulters, who were mainly skips, a significant share were resident aliens when they took out the loans.
As they remained unlocated skips after extensive diligence, it is likely that many repatriated.
In such cases, perhaps DOE should petition Congress to authorize debiting foreign aid to the debtors' home countries and effectively sell those bad loans to those countries for collection.
Deferments
If you can't pay, get in touch with your lender and set up a deferment!
A Very Small Step Back to Reason...
Although I certainly don't see any merit in going after defaulted loans that are decades old, especially if the default was due to unemployment/illness, etc., it is certainly preferable to have licensed, professional lawyers litigating in a court of law as opposed to abusive, law-breaking collection agents and their enablers in ED.
When an abusive, law-breaking collection agency working a default engages in illegal behavior like: ANI ("Annie") caller ID spoofing; calling friends, neighbors, and co-workers; misrepresenting that they are ED employees; claiming that the debtor will be thrown in jail; making statements like debtors shouldn't have children they can't afford, and; refusing to provide any substantive validation of the debt such as copies of promissory notes or a statement of account, everyone loses.
In such a situation, the debtor, faced with an unreasonable demand, makes no payments and his debt continues to grow exponentially. ED has a liability on its books, contributing to the 25% lifetime default rate. The useless state guarantee agency, of course, could care less. They already got their end for doing nothing except shuffling a few papers and probably losing the original promissory notes.
Even if a PCA (Private Collection Agency) is reprimanded by ED, which to my knowledge has never happened, the owners and collectors can emerge at another business entity at another exurban office park somewhere. If a lawyer engages in any of the behavior detailed above, they can be disbarred.
In the absence of normal consumer protections for student debt, including refinancing rights, the right to bankruptcy protection (enjoyed by Veterans Administration and Small Business Administration borrowers), and statutes of limitations, it is preferable to have licensed, professional attorneys who are bound, under penalty of losing their livelihood, to standards of professional conduct and to the law.
Jason Paskowitz
New Jersey State Lead
StudentLoanJustice.org
Government loans that are dischargeable
Jason...you rightly pointed out that Veterans Administration and Small Business Administration debts are dischargeable.
You can also add federal income tax debt to the list of government debts that are allowed to be discharged in bankruptcy.
THIS IS NOT THE WILL OF THE PEOPLE
The Student Loan Program is a debacle that has led to our children being unable to afford college at this point. Yet, even in an economic depression they will go to college anyway because they naturally have no prospects just out of high school. Tuition is so high, they can't work and pay it, like in the 1980s. Yet, the federal government cheated and reneged on its own contracts (retroactivity) because it refused to get creative and come up with a workable alternative to a lifetime of debt. And that's what has ruined this country--our attitude about debt. Debt and education should NOT go together.
Instead, our irresponsible government sits around with toxic student loan debt while beating down the hopes and dreams of brilliant Americans. Paxil becomes the drug of choice. After that, suicide become the hot recreational activity because depressed people depress each other.
Look ahead, America! This is the future of your children: smothered in debt, can't get out of your parents' houses, 30-35 years old, still paying the federal government because of your low stagnant wages and increased costs, taxed to death at every opportunity, while the government is asking you why you aren't contributing more to help boost the economy. Oh, wait, you don't have to look ahead. That's what's happening NOW! Stop the madness. Simply restore consumer protections so our children can have a future and we don't have to warn them not to go to college. After all, they do plan to marry and have children.
We hope the Obama
We hope the Obama Administration notes that some of the lenders in question have now been audited and may be ready to settle.