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America's Student Loan Racket: Stiffer Debt Bondage Coming
by Stephen Lendman
Email: lendmanstephen (nospam) sbcglobal.net
10 Jun 2013
America's Student Loan Racket: Stiffer Debt Bondage Coming
by Stephen Lendman
For growing numbers of American youths, higher education is increasingly out of reach. High tuition and fees make it unaffordable. So does a disturbing government/corporate partnership.
Millions of students need financial aid. They're exploited for profit. Providers are enriched. Higher education involves debt entrapment.
Students graduate tens of thousands of dollars in debt. Some post-graduates face burdens up to $100,000. If unpaid after 30 years, it's multiples higher. If default or declare bankruptcy, it's unforgiven. Bondage is permanent until repaid.
Loan providers thrive from defaults. Wages can be garnished. So can unemployment benefits, disability payments, tax refunds, as well as Social Security and other retirement benefits.
A conspiratorial alliance of lenders, guarantors, servicers, and collection companies derive income from debt service and inflated collection fees. College marketing officers, state and federal legislators, and administration officials are complicit with them.
Principle, accrued interest, late payment and collection agency penalties create enormous burdens to repay. Private lenders are exempt from federal fair debt collection requirements. Federal loans have minimal safety net protection.
Lenders operate virtually risk-free. The system is rigged against borrowers. Loans are easy to get. They're tough to service. They're not forgiven. Burdensome debt escalates higher. A vicious circle entraps graduates and dropouts. For many it's permanent.
Once entrapped, escape is impossible. Unless repaid, future lives and careers are impaired. Today's economic crisis exacerbates conditions. Job opportunities are scarce. High-pay/good benefit ones are fast disappearing.
A lost generation threatens. At issue is exploiting ordinary people for profit, transferring maximum wealth to corporate favorites and super-rich elites, as well as thirdworldizing America. A race to the bottom defines it.
What began decades earlier, Obama accelerated. He's beholden to monied interests. He spurns populist ones. He's done so throughout his tenure.
He's waging class war. He's in lockstep with Republicans and most Democrats. He's gutting America's social contract en route to eliminating it altogether.
For millions of higher education aspirants, affordability puts it increasingly out of reach. Others attaining it face onerous debt repayment burdens.
From 1971 - 1989, Robert Stafford was Republican Senator from Vermont. He was considered moderate compared to bipartisan extremists now running things.
In 1988, Congress renamed the Federal Guaranteed Loan program in his name. It did so for his work on higher education. Eligible students in accredited US institutions may apply for Stafford Loan help.
They're federally guaranteed. Lower interest rates are offered. As explained above, repayment is mandatory. Debt bondage on all student loans remains until repaid.
If default or declare bankruptcy, it's unforgiven. It's the only loan obligation mandated this way.
PLUS Loans are offered to parents. They're committed to repay. They're for students enrolled at least half time.
They must be in eligible undergraduate or post-graduate institutions. Currently, fixed 7.9% interest rates are charged. They're from initial disbursement until final loan repayment.
On July 1, Stafford rates will double. PLUS Loan rates will increase. They'll do so unless Congress intervenes. Republicans, most Democrats and Obama agree in principle.
In 2012, bipartisan agreement was reached. It was for one year only. Subsidized Stafford Loan rates remained 3.4%.
At issue now is what follows. The fate of million of students hangs in the balance. Both parties claim they want rates kept from doubling. Rhetoric differs from policy. Republicans control the House.
On May 23, they passed HR 1911: Smarter Solutions for Students Act. Smarter for whom wasn't explained. Not for students for sure. Passage reflects greater debt bondage.
Obama and most Democrats rhetorically distanced themselves from Republicans. Doing so differs from what they support. Both parties largely agree.
Republicans want interest rates tied to 10-year Treasury note yields + 2.5% and 4.5% for Stafford Loans and PLUS loans respectively. They'd be capped at 8.5% and 10.5%.
In December 2008, the Fed cut its overnight federal funds rate to a range of zero - 0.25%. Banks can borrow short-term for virtually nothing.
They can keep doing so by borrowing to repay what's owed. At the same time, the Fed pays interest on required reserve balances. It does so for amounts held at Reserve Banks.
The Fed is privately owned and controlled. Major Wall Street banks do so. Reserve Banks issue stock shares to members. It's conditional of being part of the system.
They can't be sold, traded or pledged for loans. Why bother in today's near-zero rate environment? Banks alone benefit. Dividends are guaranteed. By law, they're 6% annually. It's sure money. It accrues to bottom line profits.
Borrowing for virtually nothing helps maintain them. Republicans wants student loan rates up to 10.5%. Democrats aren't much better. Obama's plan may be worse.
It offers short-term relief only. He's comfortable with much higher long-term costs. Republicans want rates capped.
Obama excludes doing so. He wants market forces setting them. He wants them based on when loans were issued. Eventually rates will rise. From past experience, they could be well into double digits at some point.
With no cap, the sky's the limit. In 1979, the fed funds rate averaged 11.2%. In June 1981, it peaked at 20%. Savers were well compensated. Today they're cheated.
Borrowers were severely penalized. They still are via credit cards, other consumer rates, and student loans. Bipartisan complicity wants them more made more onerous.
Debt entrapment already is policy. It's long-term or permanent. Obligations can't be erased. Raising interest rates exacerbates today's burden.
Regardless of inflation changes, tuition and fees rise annually. Future costs become less affordable. Greater burdens are created. For many students, higher education's out of reach entirely.
Worse still is how few good jobs await graduates. Desired careers become unattainable. Low-pay employment makes debt service and loan repayments harder.
For many, permanent debt bondage is certain. There's no escape. Around 38 million borrowers face loan repayment burdens. About 10% default within two years. Many more do thereafter. Doing so means added penalties.
Last March, student debt topped $1 trillion. Currently it's over $1.1 trillion. It increases by about $3,000 per second. Only home mortgage debt exceeds it. Some economists call it a dangerous bubble. Bursting would impact economic conditions significantly.
The student loan crisis grows increasingly worse. Relief is badly needed. Nothing ahead appears promising. America's ownership society is heartless. Popular interests don't matter. What's ahead looks grim.
Stephen Lendman lives in Chicago. He can be reached at lendmanstephen (at) sbcglobal.net.
His new book is titled "Banker Occupation: Waging Financial War on Humanity."
Visit his blog site at sjlendman.blogspot.com.
Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network.
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