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America's Student Loan Racket: Soaring Default Rates

Article by Stephen Lendman.
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Many students, whether or not they graduate, have debt burdens approaching or exceeding $100,000. If repaid over 30 years, it’s a $500,000 obligation, and if default, much more because debts aren’t forgiven. As a result, once entrapped, escape is impossible. Bondage is permanent, and future lives and careers are impaired or ruined.

Congress ended bankruptcy protections, refinancing rights, statutes of limitations, truth in lending requirements, fair debt collection ones, and state usury laws when applied to federally guaranteed student loans. As a result, lenders may freely garnish wages, income tax refunds, earned income tax credits, as well as Social Security and disability income to assure defaulted loan payments. In addition, defaulting may cause loss of professional licenses, making repayment even harder or impossible.

Moreover, under a congressionally established default loan fee system, holders may keep 20% of all payments before any portion is applied to principle and interest due. A borrower’s only recourse is to request an onerous and expensive “loan rehabilitation” procedure, requiring extended payments (not applied to principle or interest), then arrange a new loan for which additional fees are incurred.

As a result, for many, permanent debt bondage is assured. In addition, no appeals process allows determinations of default challenges under a process letting lenders rip off borrowers, many in perpetuity.

At issue is a conspiratorial alliance of lenders, guarantors, servicers, and collection companies enriching themselves hugely at borrowers’ expense, thriving from extortionist fees and related schemes. It’s a congressionally sanctioned racket, scamming millions of indebted victims.

Moreover, lenders thrive on bad debts, deriving income from inflated service charges and collection fees. They’re more than ever today as default rates soar, lifetime rates now nearly one-third of undergraduate loans, higher than for subprime mortgages. In fact, they’re higher than for any other lending instrument and rising.

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