Advice on Taking Student loan

The Secret Agenda Behind The Student Loan Scam

Published on 09. Nov, 2011 by Thomas Herold in Government

Student loans are an educational help tool that the government created back in the 1970′s to help finance the high and rising cost of education for the baby boomers and subsequent generations that followed them. What originally began as a benevolent aid to help put you through college has morphed into a monster that has only grown astronomically with time.
Today, the sum total of all student loan debt in the United States is more than a trillion dollars. Even though other forms of lending to consumers have declined significantly since the financial crisis of 2007 to date began, Moody’s Analytics July of 2011 report demonstrated that the balances of student loans have actually risen in this time frame at an incredible rate of greater than ten percent each year.
In the paragraphs that follow, you will learn what the problem is with the student loan industry, why these loans have become a scam, who Sallie Mae is in the scheme of this sneaky industry, and the reason that nothing is being done to put a stop to these despicable and predatory lending industry practices today.

What is Sallie Mae?

Sallie Mae is the friendly sounding moniker for the Student Loan Marketing Association. The government granted this group a special charter to be a GSE, or government sponsored entity, back in 1972. The entire purpose of the company originally lay in its mandate to ease the access of students to higher level education. They were to do this by acting as a secondary market maker in the student loan business. As such, Sallie Mae was intended to become a warehouse organization for private lenders who made student loans.
This GSE succeeded at this early endeavor in its first twenty-five years, and it managed to make money while it helped students to afford college with loans that you could reasonably hope to re-pay within five to ten years after you graduated from college and started to work a steady job. The problem arose when Congress enacted the SLMA Privatization Act in 1996.
Sallie Mae quickly recognized an opportunity to reorganize their operations under a larger holding company. This new entity possessed both the traditional GSE subsidiary companies as well as non-GSE regulated subsidiaries. The government sponsored entity operations began to dwindle in both size and importance to Sallie Mae, who finally abolished them completely on December 29th of 2004.
What had happened to the originator and warehouser of student loans? It took less than ten years for Sallie Mae to realize that they could make far more money if they made private student loans directly to the students under less scrupulous standards that were not effectively monitored any longer by the Department of Education. They also began to buy out student loan servicing companies. In short, Sallie Mae had become an evil empire that no longer held the best interests of its student borrowers at heart.

What Happened to the Once Benevolent Student Loans?

As the largest student loan guarantor transformed into a monstrous largest direct student loan lender, some terrible changes began to manifest in the once benevolent student loan programs. These loans that had begun as a product to encourage students to afford college or university hideously changed into a product that became more devious and sinister than even the scariest types of credit card debts.
How did this occur? The roots of the decline of the noble student loan date back to 1978. At this point, the government modified the bankruptcy laws so that you could no longer discharge under bankruptcy protection laws the government guaranteed and issued loans, along with some of the private student loans.
The student loan industry continued to lobby congress for more and more of these bankruptcy exemptions until by 1998, practically every kind of education loan, private or federal, had lost its bankruptcy protection discharge status. Congress even carried this practice a step further in 2005 when they enacted new legislation that expanded the boundaries of no discharge loan types to cover any money that might be utilized for education purposes of any kind by either a family or a student.
These predatory practices and laws continued to grow in popularity in the 1990′s. The Truth in lending Act, along with most state usury laws that prevented lenders from charging exorbitant interest rates, were taken out of student loan legislation. Penalties for student loan default increased legally to as high as 25% at this time.
The Department of Education only made matters far worse when they started to sign deals with private collection companies to help them collect on late federal student loans in 1996. The Department of Education began to allow even 25% collection bonuses to companies that could collect on their student loans that had defaulted. Besides this, many of these collection agencies lied to the borrowers about their rights and sent them into programs that made their own collection agency firms more money at the expense of the stricken student borrowers.
The government also allowed those student loans that became delinquent, or unpaid for nine consecutive months, to be treated by stringent collection practices. A court order was not required for them to garnish as much as 15% of wages, a borrower or even co-signer’s tax refund, and also social security and other government benefit payments. Now there was no place to hide if you owed student loans that you could not repay.
A final death blow to those students who graduated and found that they could not re-pay their student loans came in the form of statues that 19 different states set up. These permitted defaulted student borrowers to have your professional licenses revoked or even to lose your job if you work in the public sector. Such borrowers are likely already suffering from employment problems since they can not make payments on their student loans in the first place.
The insult to injury from the government on student loans pertains to student loan refinancing options. Federal student loans may only be refinanced a single time. After this, you have no recourse to lower your interest rate on the loans that you took out, even if interest rates decline substantially.

How Does Sallie Mae Make More Money On Student Loans if You Default?

It is not bad enough that Sallie Mae began to make unscrupulous loans to students directly in a grasping effort to increase their profits. Once the group reorganized, it quickly learned that it could make enormous amounts of money on student loans when it bought out the biggest student loan collection firms in the nation.
Now Sallie Mae could make greater sums of money off of student loans that went into default than they could on those loans that were paid off as per their original terms. This led to the de facto encouragement of Sallie Mae’s student loan service companies to perform a terrible job with their loan administration work. They knew that the worse they were in their customer service endeavors, the greater the chance was that their student borrowers would enter default. Defaulted loans meant high penalties and higher interest rates.

How Are These Predatory Practices Permitted to Continue?

There are a variety of reasons that such predatory lending practices endure to this day. Even though you have seen a public outcry arise on the subject of student loans, especially as part of the Occupy Wall Street movement, there has been no improvement in the oversight and rules that surround the student lending industry.
This is partly the result of a deadly effective lobbying effort on the part of the executives, insurers, and lenders of Sallie Mae, who have witnessed their own company profits and then bonuses skyrocket as they have pushed more student borrowers off of the cliff.
Educators at major and well regarded private and public universities alike have also been bribed and received kickback money from the likes of Sallie Mae. There are also serious allegations that graft and corruption riddle the Department of Education and prevent the employees and appointees from defending the borrowers.
In light of what you now know about the student loan industry, can you think of a smarter, better way to help pay for your college education than student loans?