Rolling Jubilee: A Wolf in Sheep’s Clothing?
authored by Alan Collinge of the Student Loan Justice Organization, a grass roots group seeking the swift return of standard bankruptcy protections and other consumer protections to all student loans in the U.S.
“We started by going after Sallie Mae debt because Sallie Mae is for my generation sort of the Voldemort, this cosmic level of evil out there,” Gokey said. But after suggesting that Sallie Mae typically sells those debts for 15 cents on the dollar, St. Peters abruptly changed course and refused to deal with Gokey and Debt Collective, he said. (St. Peters did not return a call seeking comment.) Think Progress, “Debt Activists Just Canceled $4 Million In Student Debt. For Their Next Trick, They Need Your Help”
In recent weeks, much media attention has been focused on a project dubbed the “Rolling Jubilee”- an action whereby people’s defaulted student loans are purchased for “pennies on the dollar” with donated money, and the debt is extinguished. To date, the Jubilee claims to have forgiven some $4 million in defaulted student loan debt at a cost of about $100,000.
Sounds like a great idea, right? After all, who would not want their student loan debt to be paid off for them? Looking at the board members for the Rolling Jubilee (which includes Occupy Wall Street pioneer David Graeber), one could only assume this would be a slam dunk for the 99%. Further evidence that they may be onto something: Sallie Mae’s Douglas St. Peters has criticized the project, and the concept of loan forgiveness generally (if the banks oppose it, its got to be good, right?). Surprisingly however, it turns out that this project is, I am sorry to report a terrible idea with troubling implications. Consider the following and see if you don’t agree:
Putting aside the obvious criticisms- that the project only applies to private loans and does nothing to address the rising cost of college, skyrocketing debt loads, or the uniquely predatory nature of the debt due to the removal of fundamental consumer protections (like bankruptcy) that exist for all other loans, the most troubling aspect of this project lies in the systemic effect of the project- who it helps, and who it really doesn’t. Upon examination from this perspective, the project reveals itself to be, frankly, suspicious.
Think about it. The RJ, by purchasing defaulted debt, only “feeds the beast”, and in fact makes defaulted debt more valuable on the market. This rewards the horribly predatory behaviors that the absence of bankruptcy protections and other factors have enabled in the private student loan industry. Since, after exhausting all existing opportunities for collection of these loans, the debt holders know there is a buyer for the “worst of the worst”, this only encourages the lenders and loan holders to inflate this debt as much as possible, with the knowledge that there is a willing buyer for even the worst performing loans! So that is quite a red flag,
Being a long time Zucotti Park resident myself, I’d almost be willing to overlook this distasteful aspect of the project, and instead focus on the suffering that this transaction eased…but there again, we get an unpleasant shock: The loans that the project buys are almost certainly at or past their statutes of limitations(private student loans still have these), and/or were likely never paid on by the borrower much if at all. So while it is impressive to hear of the large amounts of debt being forgiven, the fact is that the people who are finding their debts erased more than likely won’t care much because they are either no longer under any legal obligation to pay the note and have long since forgotten about it, or never intended to pay the note in the first place, and never would! So these borrowers won’t likely be gushing with praise and thanks, and frankly won’t be helped much if at all by the repurchase of the debt. I suspect that people learning of their debt being purchased and erased were, instead of relieved and grateful, were more perplexed as to why anyone would go to the trouble of clearing up debt that they themselves had forgotten about long ago! By far, the happiest participant in these transactions, are the banks/collection companies who are thrilled to get anything for the loans! People with cosigners for their loans (about 90% of private loan borrowers), and people who have been paying at least something for their debts should not hold their breath if they are hoping to one of the lucky few to get their loans absolved- it simply won’t happen.
So this project does very little for the borrowers it affects, and nothing but encourage and exacerbate the predatory underpinnings of the lending system by rewarding instead of resisting it (Resistance being an oft-repeated theme by the folks running this program, and its affiliated organization, dubbed Strike Debt). There is no resistance, here, only paying into a predatory lending system for almost no real benefit. I wouldn’t go so far as to call bullshit on this project, but it is really, extremely tempting to.
Unless there were grand plans to somehow buy off ALL student loans in the country- and I’ve been told that there isn’t, there is almost nothing good to say about this project, and a lot of troubling questions that cry out for answering.
It is surprising to me that the well regarded people (David Graeber, Andrew Ross, and Astra Taylor) who sit on the board for this project would let their names be attached to it upon reflection.
Notes and References:
– Debt Activists Just Canceled $4 Million In Student Debt. For Their Next Trick, They Need Your Help Alan Pyke, “Think Progress”
– “The Argument” Alan Collinge, Student Loan Justice Org.
– Strike Debt is a nationwide movement of debt resisters fighting for economic justice and democratic freedom. You are not a loan.
“the fact is that the people who are finding their debts erased more than likely won’t care much because they are either no longer under any legal obligation to pay the note and have long since forgotten about it, or never intended to pay the note in the first place, and never would!”
Debts that can’t be paid won’t be paid.
I suspect that there are very few people who actively attempt to get an education and then default. All indications are that there are many more people who simply do not receive an education worth the list price, or who for various reasons never prosper to the extent that a naively rational assessment might predict.
In either case, the debt was not worth face value from the day it was signed, and needs to be purged from the system. Holding on to ridiculous mistakes just to punish people is not a productive activity.
I actually agree with you all points. The few “deadbeats” that are out there, however (assuming there are some) would be among the first to have their debts purchased by this program.
I get your sensitivity to my highlighting these types of borrowers, however, it is a commonly used device by the bank people who use it frequently to characterize borrowers generally. My purpose, however was not to do this. Rather, the intention was to point out that this project is by design guaranteed to benefit the few borrowers who might fit this description- which gives the banks ammunition and premise to point and say “do you see? These progressives are all about rewarding the ne’er do wells”.
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I thought the whole point of the changes to bankruptcy on student loans was to make it nearly impossible to gain bankruptcy for them. Is there really a “statute of limitations” time for them? I had thought not.
This is true for federal loans. Private loans, however, still are bound by SOL’s.
Just another progresses failure. Not insist on correcting the real problem. Which is bankruptcy’s law.
I’ll just bet that most people suffering under their part of the Trillion dollar burden — the burden everyone thinks can dog then all their lives — have no idea how easy it is to slip out from under. Private loan — as in the article — the usual state statutes of limitations apply. (Wow; I had no idea!) Public loan (90%) — something called Income Based Repayments applies. Owe $40,000 — only earn $20,000 a year = pay less than $35 a month. After 25 years, debt retired (but under current law the IRS will count the forgiven portion as income for that year — hopefully that will change).
https://studentaid.ed.gov/repay-loans/understand/plans/income-driven
Dennis:
You are kidding on how easy it is, right?
Waiting seven years for your credit to be clear after defaulting on a private is a hellavalot — infinitely — better than spending the rest of your life with no credit — which is what most people think true. See Noni Mausa above. Ten years after my back injury my FICO reached 774 — time goes by.
I have a very dim view of the opportunity for jobs that allow payback — from my end of America.
Ditto for Income Based Replacement for government loans. Almost nobody — I think virtually nobody — has ever heard anything about this. All the scuttlebutt for either type loan seems to shout: abandon hope all ye!
PS.
Germany scraps tuition fees for all universities
http://www.dazeddigital.com/artsandculture/article/22027/1/germany-scraps-tuition-fees-for-all-universities
The repayment programs are sick, sick tricks based on everything I have seen. The Department of Education clearly has no desire or intention to forgive loans under this plan, and have a myriad of ways to kick people out of the program. Don’t kid yourselves (in the absence of standard bankruptcy protections) that they won’t seize every opportunity to do do that, which will leave people far, far worse off than when they entered the programs, I suspect.
Think of these payment programs like credit card teasers, which promise some benefit for a year’s ontime payments, or something similar. These programs, ultimately, only have to give whatever benefit they are promising to about 15% of the people who attempt to get them. The rest get disqualified for one reason or another along the way.
This is how the Department of Education rolls. They consider the lenders to be their “financial partners”. (google this)
The students, meanwhile are essentially piñatas…there to be bashed, and emptied of their wealth.
Alan,
I Googled Income Based Repayments disqualified “financial partners” and didn’t come up with anything helpful. Since your name (Alan) links to — http://www.studentloanjustice.org/ — maybe you’d like to present some more specific examples. Sounds like a massive revelation if it holds water.
Actually searching “financial partners”, ” department of education” is a better search. The Department, in fact, renamed its oversight office to “Office of Financial Partners”…
As an aside… in 2007, it was discovered that the head of this office, Matteo Fontana, was holding a large chunk of stock in one of the student loan companies the office was charged with overseeing (stock given to him as a gift). The office also essentially greenlighted a clearly fraudulent billing scheme being run on the Department by multiple student loan companies (guarantors mainly) The total overbilling was in the billions. A whistleblower literally had to sue to get the Department to pursue the matter.
Alan,
You have me confused. I thought we were talking about the Income Based Repayment system for government loans. Your comment just above seems to concern private bank loans.
Here is a link to your Daily Kos screed. I didn’t completely read most of it but you seem mostly obsessed about the lack of bankruptcy protection from government loans — nothing much explaining or even mentioning the supposed 85% denial rate for IBR.
http://www.dailykos.com/story/2014/03/31/1288736/-The-Center-for-American-Progress-has-Been-Corrupted-Badly-I-am-Sorry-to-Report#
This is an economics blog — you are going to put out the specific goods here or everybody will carve you up.
Dennis:
Alan is explaining what goes on with Student Loans which are little more than a roach motel allowing you to check-in with a signature and never letting you check-out. This one is pretty good: https://www.insidehighered.com/news/2012/10/23/despite-student-debt-concern-income-based-repayment-lags I am sure Alan can fill in the gaps.
What is not being made clear is that a significant portion of outstanding student loan debt, especially the debt that is most likely to default, was originated by Fly-By-Night U. and its various subsidiaries across the country. Those are private for profit universities(?) that sell the dream of a college degree to many poor and often unprepared students. They get the loans, take a term or two of classes and then drop out for lack of progress. I don’t have the details, but had been in the national media as a national scandal a year or two ago and seems to have slipped under the rug. It may not be all of the problem, but it had been described as a big part of the problem.
They are disgusting, and about half or more should have been kicked out of the lending program and closed years ago.
The non-profits, however, are really not great either, though. I think a good number of these also need to be shut out of the lending program.
An increasingly believable study by the Inspector General in 2003 predicted lifetime default rates for 4-year, 2-year, and for-profit colleges of 25%, 35%, and 45% respectively. The lending pundits declared that these estimates were hugely exaggerated at the time, but it looks like they may have been a bit conservative in hindsight.
What is important here is that even ignoring the for-profits completely, we have a default rate of something like 30% on average…which is higher significantly than the subprime home mortgage default rate, I believe.
So its not a white hat black hat story, here that narrative, while often used by journalists, really does not do the real situation much justice.
One of four interesting points from Yves Smith left in her comment to the Naked Capitalism blog post:
1. RJ said they would inform credit bureaus of their debt “forgiveness”. That actually HURTS the borrower by”restarting” an adverse credit notice (if it has expired) or updating it, extending how long it stays on a credit report. In the US, credit reports are often used by employers in screening prospective hires. And RJ’s average size of debt purchased (as in amount forgiven per individual) was small. So someone gets at best a small benefit, only to have their odds of getting a job impaired?