And let's remember this: That 16 percent penalty is not 16 percent on the amount borrowed; its 16 percent on the unpaid balance plus accumulated interest. Millions of debtors have their student loans in forbearance or deferment for years while their debt grows due to accruing interest. Thus, when they default, they may owe double, triple, or even quadruple what they borrowed. The 16 percent penalty is calculated by the total debt--not just the original loan amount.
And the lenders apply that penalty even when debtors immediately start the process of bringing their loans back into good standing. That stinks.
Secretary of Education DeVos made a big mistake when she caved in to the student-loan industry at the expense of struggling student debtors. I can think of only two explanations. Either she doesn't know what she's doing or she's in the pocket of student loan guaranty agencies and their collection agents.
But it doesn't really matter why she did it. After all, Fredo Corleone didn't know what he was doing when he betrayed his brother Michael in Godfather II. But Michael didn't cut Fredo any slack. Remember what Michael said? "I know it was you, Fredo – you broke my heart – you broke my heart!"
As the Times noted in its editorial, 3,000 people a day in the government's direct lending program defaulted on their student loans last year--about a million people. That's a lot of people having penalties slapped on their loan balances--that's a lot of suffering that Betsy DeVos could have stopped.
It is now clear: student debtors can't look to the Trump administration for assistance. The bankruptcy courts are their only hope.
|I know it was you, Betsy--you broke my hear, you broke my heart!
Editorial. The Wrong Move on Student Loans. New York Times, April 6, 2017.