Friday, July 29, 2016

Student Loans: The Debt That Keeps On Giving

Student loans are the debt that will drag America under for the next recession, which is likely to hit in just a few years, as low taxes are associated with boom-and-bust economies and the current market valuation is almost identical to the markets in 1999 and 2008.

But if there were any thoughts that perhaps, just perhaps, student loans might be treated like (most) other debt and that sanity would again reign in the higher-education arena, those thoughts have been dashed by the latest exemption provided student loan creditors: they now don't (really) need to comply with the Telephone Consumer Protection Act.

The TCPA, a law of extremely dubious utility to most debtors and yet somehow a hindrance to most businesses, has become a terrible mishmash of rules and exemptions and loopholes and overlitigation. The November 2015 changes to that law did not help: In November 2015 as part of a budget bill, Congress amended the TCPA to exempt calls that are "solely" for the purpose of collecting debt owed to or guaranteed by the US government.

That 99.9% of the people who will be affected by this law are student debtors seems obvious; that creditors and collectors will rush to take advantage of this loophole is less apparent but understood by all.

In Workman v. Navient Solutions, (SD IN 16 CV 457), the plaintiff alleged that beginning in November 2015, Navient called her "often several [times] per day," and that she had her lawyer write a cease-and-desist letter. Which should be called a "cease letter" but let's not get distracted.

In either case, Navient moved for judgment on the pleadings, citing the November 2015 amendments to the TCPA.

Workman asked the federal court to stay the case, arguing that the FCC was given rulemaking authority to implement the law, and that it was not clear whether or how the FCC would limit the carte blanche Congress handed student loan collectors.  The federal court denied the stay on July 27, 2016, likely meaning Workman's claim will be dismissed.

The FCC was supposed to issue new regulations by August, although the Workman court noted that one FCC commissioner felt the rules would not be completed by then.  It appears that the FCC will limit the authority at least a bit, as the proposed rules would limit the frequency and number of calls, as well as the people who might receive calls.

The bottom line, though, is that if you are a student loan debtor, your debts cannot be discharged in bankruptcy, you can be garnished without a court hearing, there is no statute of limitations applicable to most of the student loans, and now student loan collectors are exempted from a law meant to protect debtors from harassment.

Debtors who owe gambling debts, credit card debts, and loans for risky business ventures are treated better than debtors who borrowed money to go to school, only to have their decision not pay off in the way they hoped -- meaning they ended up in a job that earns less than they had expected (or they were unable to finish school.)

The decision to treat student loans differently has zero to do with smart economic policy or support for lower-income students (the original purpose behind federal student loans.)  70% of all students graduate owing student loans, with the average amount owed being about $29,000.  Student loan debt is growing at twice the rate of inflation.  20% of all student debt is made up of 'private' student loans-- lenders who are not governed by many regulations, but have their debts guaranteed by the US Government and thus are exempted from most consumer protection laws.

Whose decision was it to allow lenders to make loans without considering ability to pay or financial solvency, then to guarantee those debts, and then to exempt those debts from bankruptcy and consumer protections? Probably not your decision.

Student loan companies have spent $44,000,000 or so lobbying the government for changes in the laws in the past 10 years, and contribute about 90% of their campaign money to Republicans. 

Whose decision was it to allow lenders to make loans that have zero risk to the lender, and yet tie debtors down for decades? It was the lenders' decision.

Will anything be done about it? Doubtful. While a senator, Hillary! voted to make student loans harder to discharge in bankruptcy, and she promoted Navient (then Sallie Mae) as a good source of jobs back in 2001. (Hillary! in 1999 had gotten Bill to veto similar bankruptcy-loan legislation but apparently her position shifted once she was a Senator from New York and palling around with the owners of Navient. Imagine.)(I used to be against campaign finance reform but now I am in favor of not allowing any contributions whatsoever, and requiring public funding of all campaigns.) Hillary!'s best plan would only save borrowers on average $2000 a year. Not peanuts but not very much help. I imagine if I gave you $150 more per month you'd be okay with it but it wouldn't solve very many problems for you.

Trump's "plan" (?) meanwhile is to create more jobs so people can pay their loans. Presumably those jobs will be building the wall, and thus Mexico will be helping our future students pay their debts to Hillary!'s lunch buddies.


Andrew Leon said...

NPR did a series of stories about student debt recently. It was kind of horrifying.

Briane Pagel said...

It's really bad out there for people.

Liz A. said...

I have nothing pithy to say.