With graduation, millions of American students are beginning to awaken to the burden of student loans that have climbed to a total $1.3 trillion.
Staggering. Luckily for them, there are many businesses anxious to help them negotiate easy repayment plans. They’ll hardly feel the pain.
Until, that is, they cannot stop a monthly draw on their bank account or find themselves paying fees to companies that have done nothing to help them that they could not have done for themselves with a little more help.
The MO of these “student debt relief companies” closely resembles that of the mortgage debt relief companies that preyed on homeowners unable to keep up with their mortgages during the Great Recession of a few years ago. Many of those borrowers had lost their jobs and seen the value of their homes plunge and monthly payments soar as balloons kicked in and rate adjustments made recovery all but impossible.
Desperate for relief, they turned to companies like Apply2Save of Coeur d’Alene, which said it could renegotiate loan terms with their banks and save their homes. Apply2Save imploded under regulatory scrutiny when it could not deliver on its promises.
Graduates may not have a job or equity in anything, but they do have the certainty that student loans underwritten by the federal government cannot be expunged, even by bankruptcy.
There are programs that can help students, like those that offer relief by pegging monthly student loan repayments to a reasonable share of wages, with forgiveness of unpaid balances after 20 years.
Some students at for-profit schools that have closed may get immediate relief. This week, the U.S. Department of Education announced it will appoint a special master to review claims by students who allege they were the victims of fraud and other violations of consumer protection laws by institutions like Corinthian Colleges Inc., which operated six Washington campuses under its Everest Colleges brand.
Many for-profit schools encouraged students to borrow all the money they could, regardless of ability to repay even if they obtained degrees, which many did not. Reputable schools comply with requirements that they offer entrance and exit counseling on student loan obligations.
Many students do not seek that help, or ignore or cannot process the information they get. When they fail Debt 101, the scammers offer to regrade their papers.
The Department of Education says it will seek better tools to fight the fraudsters. Washington Attorney General Bob Ferguson in April sued StudentLoanProcessing.US for allegedly charging illegal fees. The department and the states are also heading off the problem by shutting down schools that are nothing more than loan mills.
Millions of Americans know they need an education to advance in life but do not have the means to pay for it. They are vulnerable, and so are taxpayers, who stand to pick up responsibility for defaulted loans.
Clearing out the debt relief folks will help assure payments go where they should.
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