The Dirty, Rotten, Crooked, Broken, Student Loan System and the Immoral Bankers, Brokers, Collectors, and Corrupt Politicians Who Make Billions Off of it While the Courts Garnish Wages and Destroy Lives
The Age of Darkness, Greed, and Gnashing of Teeth
“It was lip-smacking,” wrote an employee of the student debt collection industry after witnessing a student loan debt protest where students wrote across their shirts the huge amounts of debt they owed.
Lip-smacking. These are the people from the loan “servicing” companies, the other end of the phone calls, the other end of the letters and emails, the other end of human decency. It’s as if by taking out a student loan, you unknowingly sold your soul to the devil.
One in four borrowers will be forced into default, or approximately one million every year, but that will increase. The dollar amount of defaulted loans is more than the tuition for all public colleges. Since the federal government can seize tax returns, garnish wages, and garnish social security payments, the agencies contracted to recover the defaults are doing very well. Very, very well.
The New (and improved) Mortgage Crisis Instrument: SLABS
Student Loan Asset-Backed Securities (SLABS). Do you understand what these are and how they make you a lot of money? No? That’s because you’re not supposed to. There is much more detailed, complex information on how these “financial instruments” work but here’s the major points you need to understand – let the scales fall from your eyes.
The top three student loan collection agencies also lead with the most issuance of SLABS are Navient, Pennsylvania Higher Education Assistance Agency (PHEAA) and Nelnet (all are being sued for a variety of illegal operations). They work in collaboration with help from our buddies at Goldman Sachs, JP Morgan, Wells Fargo, et al. These are the same firms and people that brought you the 2007-2010 residential mortgage-backed securities (RMBS) crisis that foreclosed on over a million homes, who were then bailed out by the U.S. tax payer in the neighborhood of $30 trillion. Goldman Sachs awarded record bonuses that same year to the very people who caused the collapse. This group of bottom dwellers sell your student loans to investors (over $1.5 trillion in SLABS currently outstanding). These investors receive monthly loan payment and interest. Navient, PHEAA and Nelnet receive the cash, fees and commissions, which allows them to continue making more loans, while the risk is pushed to the investor.
The Higher Education Act and SLABS: A Marriage Made in Hell
Now here’s where you can see the scum rise to the surface. In 1992, federal policy from the Securities and Exchange Commission allowed student loan companies to avoid regulatory oversight. This is the same time period that student loans jumped $10 billion in two years with many changes to the HEA reauthorizations allowing more money to more people regardless of income, credit history or ability to repay. The most SLABS were sold between 2005 and 2007, with 2005 being the same year that all student loan debt was exempted from bankruptcy.
Because the market corrector of bankruptcy was stripped away from these citizens’ rights, they are on the hook for life, so SLABS are insured by the federal government which means if a loan goes into default they will garnish wages, tax returns, and social security benefits. A defaulting student borrower now owes more due to interest and fines and with the help of the federal government the investor now makes more money. Defaulting is good business for those unique people who have no interest in humanity or our country. It incentivizes the lenders to continue to make risky loans while the government protects them and the investors – everyone but the student borrowers who are then consumed, bones and all.
Over the last 10 years those “servicing” agencies have made record profits, as have those brokerage houses from these financial instruments selling your debt and profiting even more when a loan goes into default and the interest begins to substantially increase the amount owed. These institutions know that since there is no bankruptcy option available, those borrowers are forced to pay for life – debtors’ prison. “Sure, go into default and we’ll take your tax returns and garnish whatever wages you make.” Brilliant in the most diabolical way.
Borers Maggots of Our Political System
Borer maggots from beetles and moths tunnel and feed under a trees bark, in the darkness unseen by the light of day as they destroy the water and sap tissues in the tree. This causes girdling or strangulation which weakens the structure and causes the branches to dieback to the eventual death of the tree. Millions of acres are destroyed every year. Political lobbyists are the borer maggots of our political system. It’s not about presenting a viewpoint or idea. It’s about buying influence, and they spend a lot of money doing it. Where your vote ends, which is immediately after the election, lobbyists step in to ensure that they get the legislation they want to happen, not what is best for you or the country but for them and who pays their salaries.
Source of Funds are PACs, Super PACs, Individuals – an average would be 60 percent to Republican candidates and 40 percent to Democratic candidates. Both parties get to be in on the take.
The student loan industry has their maggots deep in the House, Senate, Executive Branch and the Department of Education and the damage they’ve created cannot be hidden any longer.
About $90.92 million has been spent lobbying since 1998 (the Center for Responsive Politics based on data from the Senate Office of Public Records).
Student loan companies spent $11,072,047 (the Center for Responsive Politics based on data from the Senate Office of Public Records) on campaign contributions to Congress over last 9 election cycles (2002 – 2018). For 2019, Navient alone spent $1,000,000 dollars lobbying congress, the Department of Education and the Office of the Vice President.
“I went back to school in 40’s to get a better job. I got an Associate, Bachelors and a Masters. Almost 9 years later I don’t have a better job but I have almost $80,000 of debt. No matter how much I pay the balance doesn’t go down. I am at my wits end. I don’t know what to do. I barely have gas money to get to work to pay this bill,” said LaDean Mitchell.
I cannot keep up with all the lawsuits filed in the last several years against the student loan industry including the (self) servicing agencies, Department of Education, Secretary of Education, Betsy Devos, the Consumer Financial Protection Bureau and their new leader Kathy Kraninger. What I want you to understand is that system is completely and utterly broken and in complete chaos driven by unprecedented greed and corruption. Below is by no means a complete list.
The Consumer Financial Protection Bureau filed against Navient in 2017 (when Seth Frothman was still there fighting for American consumers) for “systematically and illegally failed borrowers at every stage of the repayment by”;
- Steering borrowers toward more expensive forbearance instead of affordable repayment plans;
- Misleading borrowers about the options available;
- Processing payments incorrectly.
Attorneys General of California, Illinois, Mississippi, Pennsylvania, New Mexico, Arkansas, Arizona, Connecticut, Idaho, Iowa, Kentucky, Missouri, Nebraska, North Carolina, Oregon, Pennsylvania and Washington as well as the Securities Exchange Commission and the Consumer Financial Protection Bureau have launched investigations and/or filed lawsuits against this industry for fraud and unfair practices.
New York state sued the Pennsylvania Higher Education Assistance Agency (PHEAA), aka American Education Services. New York Attorney General Letitia James said they “failed miserably” in their servicing of the Public Service Loan Forgiveness Program.
I previously mentioned Seth Frothman, who resigned from the Consumer Financial Protection Bureau as its chief ombudsman over student loans. In his resignation letter to the than acting director Mick Mulvaney, Frothman stated the administration “has turned its back on young people and their financial futures…unfortunately, under your leadership, the Bureau has abandoned the very consumers it is tasked by Congress with protecting…instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America.”
The Celebration of Corruption
By the Department of Education accrediting (recognizing the validity and affirming the quality) any institution of higher education, they have done so on behalf of the students that are or would be attending. What has occurred is that for-profit institutions were accredited because of the money paid by these institutions to lobbyists and politicians – not because they were quality programs that would give the graduates the career promised them. Then they go out of business and those students who took out loans to attend are still on the hook for all the money those institutions took from them, or rather, have a barbed hook inserted through their spine by the federal government.
The National Student Legal Defense Network filed a lawsuit in U.S. District Court for the District of Columbia alleging that the Department of Education’s practices “caused students at the schools to borrow money and waste months of their lives in pursuit of an education they did not know was unaccredited.” In 2017, Dream Center Education Holdings purchased around 100 for-profit schools from Education Management Corporation. A few months later, some of these schools lost accreditation but students were still required to pay for the fraud perpetrated on them.
Recently, Harvard University’s Project on Predatory Student Lending filed a lawsuit again Betsy Devos on behalf of former students that were enrolled in for-profit schools operated by Corinthian Colleges that are now out of business.
Another lawsuit was filed by a non-profit student loan advocate group Student Debt Crisis, against DeVos and the Department of Education as well as against the Consumer Financial Protection Bureau and its Director, Kathy Kraninger. This lawsuit alleges that because of mismanagement, over 40 million student loan borrowers ($1 trillion) are at risk of being cheated by the companies that administer their loans.
Kraninger, who is the head of an agency originally established to look after the interest of consumers including student loan borrowers, hired former Pennsylvania Higher Education Assistance Agency (now being sued by Attorney General of New York) executive Robert G. Cameron as the agency’s student loan ombudsman. The shepherd has hired the wolf to oversee the flock. Why? Because the shepherd’s real job is keeping the fraudulent money flowing back to her masters in the higher ed student loan industry, not the sheep. Among many other destructive moves, Kraninger has also proposed a debt collection rule that would allow debt collectors to send unlimited texts and electronic communications to consumer as well as appointing Rebecca Steele, a former mortgage banker who was called the “new face of the housing crisis” to serve on the Consumer Advisory Board.
“In October 2013, The New York Times Referred To Rebecca Steele, Then Rebecca Mairone, As The “New Face Of The Housing Crisis” Due To Her Role In “Saddl[ing] The Housing Giants Fannie Mae And Freddie Mac With Bad Mortgages That Resulted In Over $1 Billion In Losses.” “More than five years after the housing bust, the roll call of banking executives who have been blamed by the public for the crisis has grown ever longer. But when it comes to top managers who have been hit with a jury verdict for pushing dubious mortgages, the list is small indeed. The new name added this week was Rebecca S. Mairone, a midlevel executive at Bank of America’s Countrywide mortgage unit, who was held liable by a federal jury in Manhattan for having saddled the housing giants Fannie Mae and Freddie Mac with bad mortgages that resulted in over $1 billion in losses,” said Landon Thomas Jr.
I’m sure she’ll be of great help to the financial industry.
There are also numerous class action lawsuits ongoing about the loan industry’s deceptive practices and dirty dealings filed by unions, coalitions and individuals.
This is the second installment of a five-part series by Alan Yeck reflecting on the student loan system, its challenges, and the far-reaching effects it can have. For a full works cited list, please view the last installment in the series (scheduled to be published April 1st, 2020).
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