No Justice for Student Borrowers

If you’re one of the many Americans facing overwhelming student loan debt, outrageous penalty fees and draconian collection practices by lenders, you may think that help is on the way. Unfortunately, it probably isn’t.

While recently passed legislation offers up the promise of a better student loan lending system, critics say the bills don’t go nearly far enough to truly help borrowers.

On July 20, in a 78 to 18 vote, the Senate passed H.R. 2669, otherwise known as the College Cost Reduction Act of 2007, and last week, the Senate took action again by passing the Higher Education Act. The legislation seeks to lower the cost of higher education for students by reducing lender subsidies, increasing grant amounts and cutting interest rates on student loans.

The bills are Washington’s way of dealing with a slew of media coverage in recent months regarding a generation of student borrowers paralyzed by overwhelming student loan debt. For months, newspapers, national magazines and television magazines harped on the financial distress new graduates experienced at the hands of loan lenders. At the heart of many of those stories was the almost mobster-like business tactics lenders imposed on their borrowers, specifically outrageous penalty fees and fines on late or defaulted loans.

The media blitz went into overdrive in the spring, when the New York Attorney General announced that Sallie Mae, the nation’s largest lender of student loans, agreed to a settlement regarding questionable conflicts of interest between the Virginia-based company and several colleges and universities. Conflicts that included steering students toward certain lenders and making payments to colleges in order to be placed on their preferred lender lists.

Elected officials reacted by offering up bills in both the House and Senate including the two bills that passed in July.

In true Washington-style, supporters of the recent legislation quickly released statements and press releases to the media lauding their passage.

"The nation’s college students will have significant new resources for financial aid under two bill approved by the Senate," reads Virginia Senator Jim Webb’s July 24 press release regarding the bills. "The bills jointly simplify the federal aid process…and provides $17 billion in additional aid to students – the largest increase since the G.I. bill."

The bills also increase the maximum Pell Grant aid students are eligible to receive to $5,100 by 2008 and to $5,400 by 2011. In addition, the bills require that lenders provide students with a specific set of written disclosures prior to making a loan such as information on interest rates and repayment options.

While politicians high-five each other for coming to the aid of a generation of graduates-to-be, there’s a very vocal group of consumers who aren’t impressed.

"This is all really just window dressing," said Alan Collinge, founder and executive director of Student Loan Justice, a grassroots organization of student borrowers working to reform the federal student loan system.

Collinge says the bills completely avoid what is the main concern regarding the issue of student loan borrowing—the lack of consumer protections. In order for student borrowers to enjoy the same rights home, car and other borrowers have, the student loan industry would have to experience a major overhaul, and that’s something Congress has failed to move on, he added.

Collinge concedes that the bills do slightly lower interest rates on student loans.

"But that’s not such a big deal," he says. "The interest rates were never really that bad anyway."

What is offensive, says Collinge, are the tactics in which student loan lenders can pursue borrowers and impose outrageous penalty fees for delinquent payments. Sallie Mae’s collection measures include wage garnishment, tax garnishment, withholding of professional certification and termination of employment. Penalty fees can be explosive, as much as 33 percent in some cases, causing original loan amounts to quickly double, triple or quadruple.

Even more frustrating to student borrowers is the fact that they can’t refinance a loan for a better interest rate, reduce debt amount or in drastic situations, file for bankruptcy protection, all options available to other kinds of borrowers.

Collinge is even skeptical about the bills’ increase in available Pell Grant moneys.

"This gives colleges and universities the green light to continue to increase tuition at the same (or greater) rates as before," he says.

Collinge and his Political Action Committee set out to change the student loan system more than a year ago. Collinge is himself a student loan victim. When he lost his job as an aerospace engineer after September 11 and failed to meet his loan payments, the engineer-turned-activist saw his loan debt practically quadruple due to interest, fees and penalties.

When Collinge suspected his loans would be a financial drag that could last his lifetime, he started to speak out about unfair practices on the part of student loan lenders, namely Sallie Mae.

For awhile anyway, it appeared as though folks were listening. The press jumped on the story Collinge and his volunteers were willing to tell. Collinge found himself interviewed by newspapers across the country, including a story in this magazine dated March 6. 60 Minutes even ran a segment about him and the antics of Sallie Mae.

After a nationwide bus tour in which he touched base with nearly every member of the House and Senate Education Committee, Collinge thought Washington was listening, too.

Hillary Clinton introduced S.511, the Student Borrower Bill of Rights earlier this year, which Collinge said would have given student borrowers the consumer protections for which he’s fighting. But the bill’s language was watered down to the degree that it’s unlikely to help student borrowers even if it’s ever brought to vote. Other bills that offered up real concessions to student borrowers have been dropped as well, he added.

Student borrowers, says Collinge, are as vulnerable today as they’ve ever been.

Despite his disappointment in the current legislation, and lawmakers’ failure to address the real problem, Collinge isn’t giving up. He has a book deal in the works about his experiences, and he says even the small strides the College Costs Education Act and the Higher Education Act have made are positive ones.

"These bills would never have been passed by the previous Congress," he said.

In a bizarre, almost movie-like twist, volunteers with Student Loan Justice caught the ear, and apparently the heart, of the executive director of one of the nation’s largest student loan guarantors, the Illinois Student Assistance Commission. In May, executive director Andrew Davis asked his staff to explore whether the agency could forgive the interest and fees tacked on to student loan balances in cases where the borrowers are declared bankrupt.

Collinge says that he and other volunteers with Student Loan Justice are still trying to catch the attention of the media and legislators in the hopes of making a difference and fixing a very broken system.

"It’s obvious that this is going to take more time," he said. •