The American Dream– Deferred

May 23, 2009

Mr. President Barack Obama
Attn: Mr. Roberto Rodriguez, Special Assistant to President Obama for Education
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Re: The Student Loan Crisis
Dear Mr. President :

I have great news; I just graduated from law school! And I saved a bunch of money on my car insurance. But seriously; all congratulations aside, I have an important story to tell you.

I grew up in a working class family. We lived in a small town, in a mobile home trailer. My sister and I shared a bed until I was 12 years old. My father is illiterate and my mother never got beyond her freshman year of high school. Needless to say, none of my family had gone to college. Very few of my peers from where I grew up graduated high school and went on to college. I was the exception. I studied hard and graduated high school, then I went to college. I studied hard there too and after receiving my bachelor’s degree I was accepted to a nationally ranked “tier I” law school. After 3 years of the hardest educational program imaginable aside from perhaps medical school, I graduated. I now have a J.D. And the people from my small home town call my achievements miraculous, because they are. I am a statistical anomaly in that sense. But I represent a common statistic in another sense: as a graduate student from a non-wealthy family, I have accumulated around $200,000 in student loans and interest despite receiving numerous grants, scholarships and participating in work-study programs. I had no choice if I wanted to achieve my educational goals because it was impossible for me to save up the hundred-thousand dollars that college and law school costs, and my family was unable to provide financial help to me during my college education.

When we are little kids, they tell us about the American dream. They tell us that if we study hard in school and go to college to get a good degree that we can lift ourselves out of poverty and provide a better life for our children than the one we had. They tell us that if we work and study hard, we will be financially stable. But that is a fabrication that is not possible for working-class American kids. And the result of that fabrication is that today’s “middle class” and lower-caste students celebrate college graduation with this congratulatory message:

“You did it. You beat the odds. Now we are pleased to inform you that you will have to beat even greater odds and find a job in a depressed economy that can facilitate not only your rent and living expenses, but can also facilitate monthly loan payments of more than $3,000. Oh, and by the way, that $150,000 you borrowed? It will be closer to one million dollars by the time you pay it off, if you can ever pay it off. Happy graduation, Graduate!”

Predatory lending by private and FFELP student loan lenders are suffocating the American dream.

The price of higher education has created a bottomless pit that students from middle and working class families will tumble down for most of the rest of their lives. The government has a safeguard to help Americans out when crisis occurs, such as when they suffer from medical condition that generates colossal medical bills, when their employment is terminated and they are unable to find a replacement job, or when a natural disaster destroys most of their possessions. That safeguard is bankruptcy, but currently no form of student loan is dischargeable without extreme undue hardship (a nearly impossible standard meaning that the student is disabled to the extent that she will definitively never be able to work again, such as if she is comatose and not expected to regain consciousness). This is particularly pertinent to private student loans, which employ the same– if not worse– tactics as the predatory mortgage lenders that caused the mortgage-bubble and Great Recession. These private student loan lenders often violate federal and state laws in order to convince students in financial distress to borrow money, and then when that money comes due, they violate those laws even more egregiously. But due to the protections given to all types of “student loans”, little can be done to remedy these abuses.

Perhaps in 2005 when the economy was still somewhat strong, this was not such a major issue. But now the economy has fallen into disrepair. And the bankruptcy code needs to reflect that.

In 2006 when I entered law school, post-graduation employment rates for my school 6 months after graduation (when loan payments become due) were more than 98%. This year upon my graduation the forecast employment rate is embarrassing. I know of literally only a handful of students who have jobs to look forward to after taking the summer bar exam; this situation is unprecedented. I would be surprised if the employment rates 6-months-out reach 50%. What student can make a student loan payment of over $3,000 per month with no income?

Exacerbated interest accumulation and outrageous student loan payments harm the country as a whole when these students can’t pay their rent, and can’t pay for necessities for their children and other dependents. PBS presented a special report that follows a woman and her young daughter who lost their home due to student loan payments in the current economy. The sad thing is, this “special” report isn’t that special; it is not a rare story– it is a story that is happening to hundreds of thousands of us across our great country.

Under changes made to the bankruptcy code in 2005, private student loans were given the same preferred treatment as government-based student loans. Currently, both government-based loans and private student loans are not dischargeable except under very extreme circumstances. Even when borrowers die, private lenders may continue to seek payment from the borrower’s estate and the co-signers.

Private student loans are the fastest growing and most profitable sector of the student loan industry. Since 2001 the market for private student loans has grown at an annual rate of 27% to $17.3 billion in 2006 – roughly 20% of total student borrowing. Ten years ago, only 5% of total education loan volume was in private loans. The interest rates and fees on private loans are often more onerous than credit cards and adjustable-rate-mortgages. Private loans often carry interest rates of at least 15%, and higher rates are not unheard of. One of my loans has an interest rate of 18%, despite my co-signer grandmother’s perfect credit score. Unlike federal student loans, there is no government regulation over the terms and cost of these loans. When students need money to continue attending school, we have no choice but to take these outrageous loans or drop out of school and forfeit our goals (but even then the debt still looms ominously over the former student).

Previously, only government issued or guaranteed student loans were protected during bankruptcy– meaning that only federal or state loans were not dischargeable. This protection that had been in place since 1978 was intended to safeguard federal investments in higher education. Under the 2005 changes, a provision was added that extended the same bankruptcy protections to private lenders participating in the student loan industry.

Ideally, the bankruptcy law, as it pertains to private student loans, needs to be restored to the language that was in place prior to 2005, so that privately issued student loans will once again be dischargeable in bankruptcy, placing student loan companies in the same position as virtually all other creditors.

The goal of student loan reform is to relieve pressure on the middle and lower classes and increase our spending power, to deepen our national commitment to an educated public, and to expand the equality of opportunity. We want to buy houses, have children and start families, but we just can’t afford it with these humongous private student loan payments. Student loan reform is a key step in recovering our ill economy. In the absence of a bankruptcy code change, or prior to such a change taking effect, we need emergency legislation that will help us.

The cost of education has outpaced earnings and potential employment. Remember that trailer I grew up in? My parents and grandparents co-signed for many of my student loans and as a result, my parents may lose their sole, small abode if I encounter some economic hardship and default on my student loans. My grandparents may lose their home too. The result? America will have 5 new homeless persons including two elderly couples, with grandfather being a war veteran who survived Pearl Harbor. Our parents and grandparents have often co-signed on these loans, because they too believed the American Dream that a good education will save us all. And the lenders begin to go after the parents and grandparents immediately when students can’t pay. Those who still have houses left after the foreclosure crisis may not have them for very much longer. When a person files for bankruptcy, their home is usually “safe” as a homestead exemption. But since private student loans are non-dischargeable, homes are not always “safe” from predatory private lenders.

Langston Hughes once wrote: “What happens to a dream deferred? Does it dry up like a raisin in the sun? Or fester like a sore– And then run? Does it stink like rotten meat? Or crust and sugar over–like a syrupy sweet? Maybe it just sags like a heavy load. Or does it explode?”

Please don’t let us find out what happens to the American Dream Deferred.

My peers and I need your help. America needs your help. Don’t let the private student loan lenders do to this country what the mortgage industry and banks did to it. Please work to give us American-educated students some legislation that helps us protect our families, our homes, and ourselves in this economic crisis. Otherwise, the American Dream may dry up and crust over during my generation… and it may even explode.

The American Dream, Deferred.
(Originally written in May 2009)

Comity of Arrears invites you to leave your student loan stories in the comments to this post.