Naked Capitalism had an article up in the “Links” assortment of other articles taken from various sites. The Common Dreams article touched upon one of the topics I write about and have done so over the last decade – Student Loans and Alan Collinge’s Student Loan Justice Org.
In my public discussions with Alan and his followers on Facebook, I have pointed out the $1.6 trillion or the $1.8 trillion as stated in this article are important numbers to remember. What most people do not understand, this number takes into account the principal and the interest-on-the-principal if all things are going according to plan.
But, the $1.6 trillion+ owed also includes penalties for being late, the interest associated with the penalties, rehabilitation of a loan in default, interest on the fees to rehabilitate, forbearance interest, etc. I am guessing here, and as I pointed out to Alan, these addition costs are forgotten in the total calculation of actual debt owed. These additional costs are not taken into consideration when discussing total student loan debt. Much of the application of these penalties and fees do not exist in regulated consumer loans. A couple of mis-application examples:
– IBR or Income Based Repayment and REPAYEE plans allow a person who does not have enough income to forgo loan payment. If they are unable to pay back due to a lack of income over an ~ 25- year period, the loan is forgiven although it may appear as income. During this time period, interest is applied to the loan. If a person is declared to have enough income to begin to pay back a student loan as determined from submission of an income tax return (automatic today), payment will begin and the payments are applied to interest first and no principal is paid.
– A person has borrowed $40,000 in federal student loans, at a 7 percent interest rate and has a 25-year repayment period. If the person made four years of on-time payments, but then fell into default, interest would accrue at a rate of around $230 a month during her nonpayment.
If the borrower went through rehabilitation to take the loan out of default, a collection fee of 16 percent would be added to the new loan, increasing the debt to around $50,000.
In other words, even after the four years of on-time payments, the debt would still be $10,000 more than first borrowed.
Also, more than 40 percent of borrowers who go through rehabilitation will fall back into default within three years. (For some, student loan debt is doubling, tripling, and even quadrupling – CNBC).
Much of the additional fees, penalties, interest on the penalties should have never been applied.
It is another usurious form of interest applied to a loan disguised as penalties and maintenance. I estimate this to be 30-40% of the amount owed in student loans and not taken into account by “any” administration or political party.
As I pointed out to Alan, these penalties should not be considered as debt owed by those holding student loans as they are just another form of usury and students are being held to a higher standard than our last president and multiples of others who could afford to pay back the money they owed rather than going into bankruptcy (some multiples of times).
I would suggest the additional interest and penalties should be set aside and forgiven as there was no money allocated for these fees in the original loan. Also the practice of paying interest before paying principal should be disallowed as it does not occur in other instances of loans.
Bankruptcy has been denied to those holding student loans by sanctimonious politicians amongst which Joe Biden resides. President Biden has been one of the instigators of holding students to a higher standard of bankruptcy since the seventies. He needs to fix the disaster he has helped to create over the years and fix it now..
‘We Can Cancel All $1.8 Trillion,’ Say Activists as Cardona Announces Full Debt Relief for Scammed Students Common Dreams, March 19, 2021