Friday, January 10, 2014

Such hypocrisy! The Obama administration urges private college-loan lenders to play nice with student borrowers

Obama administration officials summoned the leading private student-loan creditors to a meeting at the Treasury Department yesterday to urge them to do more to help student-loan borrowers who are in danger of default.

Who attended this meeting?  Arne Duncan, Secretary of Education, and Richard Cordray, chief of the Consumer Financial Protection Bureau, represented the government.

And these are some of the banks that attended: Sallie Mae, Wells Fargo, JP Morgan Chase, RBS Citizens Financial, PNC Financial Services, SunTrust Banks, and Discover Financial Services.

The Obamacrats delivered their usual blather about easing the plight of overburdened student-loan borrowers.  This is how a government  spokeswoman described the meeting.
Participants discussed strategies to assist borrowers in successfully managing their private student loans, including servicing best practices and approaches to private student loan modifications and refinancing.
Yak, yak, yak.  The only way to get the private banks to behave decently toward indebted college students is to force them out of the student-loan business altogether.  And this could be done so easily.

In 2005, Congress amended the Bankruptcy Code to make private student loans nondischargeable in bankruptcy absent "undue hardship"--the same standard that applies to federal student loans. Consequently, private student loans--like federal student loans--are almost impossible to discharge in a bankruptcy court.

All Congress needs to do to reform the private student-loan industry is repeal the 2005 law and allow insolvent debtors with private student loans to discharge those loans in bankruptcy. I guarantee you, this single legislative change would dry up the private student-loan industry overnight.

But Congress won't do the straightforward thing.  No--it will tinker with all kinds of cosmetic fixes and allow the private banks to continue exploiting colleges students.  

Hands down, Sallie Mae is the chief offender. According to a 2012 news story, Albert Lord, Sallie Mae's CEO, made $225 million between 1999 and 2004 and was building his own private golf course.  What do you think his total compensation is today?

Democrats seem to think they can establish their liberal credentials simply by expressing sympathetic platitudes. Arne Duncan talks about helping student borrowers but hasn't done a damn thing to alleviate the student loan crisis.  And Senator Elizabeth Warren, a self-proclaimed consumer's  advocate, is all bark and and no bite.

Thanks, Arne,ever so much!
Why doesn't Congress act more aggressively to give college students some relief? Maybe because the private lenders and private-college industry hire well-paid lobbyists to protect their interests and make strategic campaign contributions to powerful politicians.

Personally, I won't start believing the so-called liberal Democrats who express concern about the student-loan crisis until some of them throw their support behind some straightforward and simple reforms.  First and foremost, insolvent students who took out private loans to finance their education should have access to bankruptcy.  

References

U.S. Urges Private Lenders and services to Help Borrowers. Inside Higher Education, January 20, 2014. Accessible at: http://www.insidehighered.com/quicktakes/2014/01/10/us-urges-private-lenders-and-servicers-help-borrowers

Sophia Zamen. "Education is Worth It": Students Take on Sallie Mae CEO Albert Lord at Shareholder Meeting.  Alternet.org, May 21,2012. Accessible at: http://www.alternet.org/newsandviews/article/932971/%22education_is_worth_it%22%3A_students_take_on_sallie_mae_ceo_albert_lord_at_shareholder_meeting

Note: My description of the meeting at the Treasury Department comes from the Inside Higher Education story.  My references to Sallie Mae are taken from Sophia Zamen's essay for Alternet.org


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