John Boehner’s Student Loan Legacy
Guess Post by Alan Collinge, Founder of The Student Loan Justice Organization
When I first started researching the student loan issue over a decade ago, it quickly became obvious that there was one congressman the student lending industry loved more than anyone else: John Boehner.
Sallie Mae (the nation’s largest student loan company), through its PAC, gave Rep. Boehner (R-Ohio) more money than anyone else. Boehner enjoyed trips to Boca Raton and other vacation spots aboard Sallie Mae’s private jet. At a meeting of the Consumer Bankers Association, Boehner told the student loan industry crowd;
“Know that I hold you in my trusted hands. I’ve got enough rabbits up my sleeve…”
Boehner even got one of his family members a job at a student loan collection company over a game of golf!
Looking at legislation passed while Boehner was chairman of the House Committee on Education and the Workforce, it becomes clear why the student loan companies were so generous to him. He was instrumental in killing the ability of borrowers to refinance their loans with competitors of Sallie Mae at lower interest rates. He fought hard to preserve hugely generous subsidies to lenders who assumed zero risk for the loans they made to students.
Most significantly, however, Boehner was instrumental in removing bankruptcy protections from private student loans in 2005. This shocking move was couched in promises from the banks that removing bankruptcy protections would allow them to lend to more needy students and at better rates. After Boehner and friends successfully pushed this through Congress, the banks not only broke these promises, they actually began demanding cosigners (with assets to come after) for over 90 percent of the private loans they made. This crushed many people financially and tore apart untold thousands (probably hundreds of thousands) of families.
Whatever Boehner’s motivations for destroying long-standing, fundamental, free-market protections for student loans, the facts are very clear: When Boehner took leadership of the House education committee, the nation owed about $100 billion in student loans. When he passed the baton in 2006, the amount had risen to over $400 billion. Boehner will be leaving office with the nation owing close to $1.5 trillion in student loan debt. Those numbers speak for themselves.
Wittingly or unwittingly, Boehner leaves behind a Department of Education that is just about the worst, big-government monstrosity one can imagine. It is immune to the bankruptcy protections for which every other public or private lender must contend. There are no statutes of limitations on its entire portfolio. It has a completely captive market of more than 44 million citizens, more than half of whom are currently unable to pay on their debt. It actually makes a healthy profit on defaulted loans. This should make all economists, all conservatives, and all citizens very, very worried.
Boehner says he is not concerned with his legacy; but, millions of citizens of all stripes have suffered by his handiwork and millions more are queued up for decades of financial misery at the hands of both government and banks. At a minimum, the standard bankruptcy should never have been removed from any lending instrument involved with student loans.
Boehner says he’s not worried about his legacy. But on this issue, he should be.
Reference: John Boehner’s Student Loan Legacy Alan Collinge, The Hill, October 14, 2015
I’m sort of wondering why this wasn’t mentioned by Democrats, say, last November, when control of the Senate and House were being decided in the, um, election.
Okay, actually I know why. The geniuses who were plotting campaign strategy thought it would be a bad thing for the Dems to nationalize the election. Much better to talk instead incessantly about some stupid abortion or other culture-wars comment that the Republican Senate candidate in this or that state made.
The Democrats are the ones who should be nationalizing Senate and House races, mainly around financial issues such as this one. They’ve just been too stupid to do that.
PS: I hope the Sanders campaign sees this post, run.
Just for the sake of argument assume student loan debts were discharable in Bk. Given that in the early stage of life folks have few real assets and typically don’t own homes, strategic bankruptcy would become very common. The question becomes would the downside of BK for a job search be big enough to slow this down? If not student loans would become unavailable rapidly, as no sane lender would make them. (Government excepted but then the government is not necessarily a sane lender). What happens if student loans become unavailable?
It is my contention that just like a dodge that used to work on taxes where after grad school you income averaged on your first job to keep the rates down (until it went away in the 1980) The idea would be touted in all grad schools, and most would know it.
Lyle:
No such issue existed for student loans pre-2005. This was not the problem in 2005 or the same as what existed for mortgage, car, and other installment loans and far from it. As far back as the seventies, the government could garnish your wages and social security to take back their money and you would be ineligible for any government programs. Student loans are more profitable in default. 85% of all student loans are by the Government.
Private Bank Loans are a bankruptcy hell with far fewer protections of similar government loans such as several years o economic deferral without interest, deferral with interest, lower payments during hardship, relief of debt from public service, disability, death, etc. Banks wanted into this as they were able to limit these sanctions and at the same time loan larger amounts.
There is no reason other than in commercial banking dreams the number of bankruptcies would increase if students could discharge in it. The option for such never existed since the seventies. Any claim to such is needless clamoring and subsequently silly.
Just to set the record straight, this part:
“Wittingly or unwittingly, Boehner leaves behind a Department of Education that is just about the worst, big-government monstrosity one can imagine. It is immune to the bankruptcy protections for which every other public or private lender must contend. There are no statutes of limitations on its entire portfolio. It has a completely captive market of more than 44 million citizens, more than half of whom are currently unable to pay on their debt. It actually makes a healthy profit on defaulted loans. This should make all economists, all conservatives, and all citizens very, very worried.”
… cannot be laid on Boehner. That was part of the “Health Care and Education Reconciliation Act of 2010”, which passed without a single repubican vote.
https://www.congress.gov/bill/111th-congress/house-bill/4872/actions
Lyle, that was exactly the situation prior to 2005. So people didn’t get student loans for Art History because no-one would give them one. But without bankruptcy protection, lenders were happy to lend to idiots getting worthless degrees. Of course they started demanding cosigners — they knew those degrees would not allow kids to earn enough to pay back the loans.
And the flood of money just encouraged the colleges to jack up their tuition! Gee, thanks.
Warren:
Federal Direct Loans could not be discharged in bankruptcy pre-2005 and since 1977. Federal Direct Loans were the bulk of the loans (85%) being made to students. Commercial banks wanted into the fray as they saw money could be made from this and they could make loans without having the same limitations as the government loans. It was in 2005, that Congress granted the same exemption to bankruptcy for loans made by the Sallie Maes and commercial banks of the world. The Jason Delisles, Matt Chinagos, Beth Akers clamor for more commercial loans which are extremely profitable for commercial banks with far less risk than a loan to a company or a person. Where else can you make more money in default?
On Federal Loans no one was checking to see what degree or how you were progressing. Where you came up with this, I do not know. They did not care as collection of those loans is more profitable in default than in payment. There was not need for commercial bank loans as Federal Direct Loans could handle it all. Boehner got them into the business of loans as it was profitable.
As someone with an MFA attained with student loans back in the 1980s, I assure you, no one ever asked me what my course of study was. And…for the record, I make a good living at my profession. I am not alone. The arts and its related industries brings in over 4% of annual GDP. Go to the movies, watch tv, visit websites, buy clothing, own a piece of furniture, drive a car, live in a house..? More than likely, someone with a degree in the arts had a hand in realizing those products.
I was speaking of private loans, Run, not government loans.
In that vein, government-issued loans should have the same restrictions and conditions as private loans.
ALL such loans should be dischargeable in bankruptcy.
Warren:
Glad you said such.
In many respects gov loans are a far safer bet for students than commercial loans. The interest rates are lower and restricted. The amounts loaned to a student at particular levels (Freshman, Sophomore, etc.) of education are restricted also where as in commercial loans they are not. The issue is whether we burden them for 25 years or life with loans which can not be repaid and cause them to be unproductive in the economy. There is enough evidence out there which shows this is happening with many of our 25 and 30 year-olds having student loans when compared to those without. It is time to draw the line at less than 25 years.
Even than they will still have a stigma of not paying off a loan.
It is not the loans that cause them to be unproductive, but their getting degrees that do nothing to enhance their productivity.
It we do not expect that these kids will be able to pay off their loans, we should not be making the loans.
It’s important to note that when student loans were treated the same as all other loans in bankruptcy court, far less than 1% were discharged that way. There was never a bankruptcy crisis for student loans. In the words of a Congressman in office at the time, it was a “crisis only in the imagination”.
Today, there are various Income based repayment programs that offer far more attractive options for newly minted graduates than bankruptcy, so the banker’s fear mongering rhetoric just doesn’t wash.
If John Boehner has an ounce of guilt about the big-government monstrosity that his work helped create, and wishes to ride off into the sunset with a clear conscience, he would fight to return the free-market mechanisms that he helped to dismantle.
Politicians don’t have consciences.