Debt Collectors Cashing In on Student Loan Roundup | Hacker News Reader

Debt Collectors Cashing In on Student Loan Roundup

nytimes.com

47 pointsjseliger56 comments

“It’s the closest thing to debtor prison that there is on this earth,” he said.

One of the sadder parts of a credit crisis like we're having is that privileged players, mostly the government and some Credit Card companies, are angling for more "aggressive" collection abilities.

Let's be honest, if you get yourself 50-100K in debt with a student loan and you're not making that much, you are in prison. You'll never receive a tax refund, you won't be able to own property, you can't have brokerage accounts even with a 2-3K in them for a rainy day, and so on.

There's an equal or greater number of folks who are just as screwed with various taxes. The government is now talking about preventing people with back taxes from travelling overseas. Look for folks to start talking about stuff like this for the students as well.

This is very dark stuff. Even considering all of our freedoms that are getting trampled by the TSA and other agencies, this idea that we are allowing people to be indebted for life without any recourse simply because they have some sort of "special" debt is a terrible new thing for the U.S. I actually think it's worse than the horrific civil liberties problem we have. People will get used to having no anonymity and being tracked like a wild animal on a nature show (sadly), but they'll never get used to being an indentured servant.

When the United States was formed we made a conscious decision that you didn't punish people for life for poor money choices they made. We didn't have debtor's prisons. What the the hell are we doing to ourselves?

I hadn't heard about a travel ban on those who owe back taxes. The articles I read after looking this up aren't as bad as it appears. The idea was to ban people who owe more than $50,000 in back taxes from traveling overseas. But that's how it works, right? One small step at a time. Pick a number that most people can shrug off because they don't owe this much and then tighten the screws.

My answer to your last question is slowly marching toward feudalism. It's distressing to see how things have gotten worse over the last 30 years. I remember in the 90s that protest leaders were arrested preemptively before an international meeting in Washington D. C. No one had committed a crime but the powers that be could not suffer the complaints of the people. In the last decade protest leaders were preemptively on faux terrorism charges.

When being slowly boiled it is hard to recognize when the point of no return had occurred.

Yep, as you point out these violations of principle always seem to happen with things that are emotionally outraging to folks and always at some extreme numbers.

Once the new principle has been established, however, then the system can slowly clamp down until more and more people are involved -- all without any political input at all. So that's how we end up in a security state and there really isn't anybody accountable for how we got here. Lots of little changes around the edges.

We've ended up in a spot where, if you ask a constitutional scholar, they can explain to you how it all works and makes sense. But if you ask the average guy on the street, he'll tell you the system is spinning out of control. There's a serious structural problem when the system has become so byzantine that it requires 6 years of study to understand it all. And most of those guys don't believe that it is fair or correct. We seem to have been overwhelmed by edge cases.

A common theme I saw across the examples, AND A CAR PAYMENT. If you're in debt, then the last thing you should be acquiring is another depreciating asset that costs money. Not only do you have car payments and insurance, but you also have maintenance, and everything else that goes along with a car.

Also, how many of these same people have tv's with cable? Cell phones with data plans? Go out for diners, drinks with friends, and so on?

When I graduated I spent 3-4 years paying down my debt as quickly as possible. I believe I got my first car, and it was for under $1000, when I was in my late 20's. I just couldn't afford one.

I also noticed at least one example of someone also buying a home with a $100,000+ debt. That to me is just a bad financial decision. Anything happens and your in trouble.

Also I did notice a lot of the examples showed degrees where getting a job would be tougher, or that it wouldn't pay that well compared to the cost of the debt. I hate to say this, but not all degrees are created equal, and in today's world you need to evaluate the cost to benefit. Unfortunately for some degrees, you can only really acquire them if you have disposable income because there's no way you can make a profit.

In any case, the most common theme I noticed was that they couldn't afford the debt with their other expenses. But the author rarely discussed what they were. For me a car is a luxury. Tv is a luxury. Anything beyond the most basic $20/mth cell is a luxury. Going out for drinks and suppers is a luxury. Just saying... ;)

When you're $100k in debt, a TV or going out for drinks might be a luxury, but forgoing those things is also unlikely to make any real difference on the bottom line.

They can add up. I've known people who spend more than $1000/month on these types of things. That's easily your payment. I strongly recommend anyone to watch at least a few epsiodes of Til Debt Do Us Part: http://www.slice.ca/shows/showspage.aspx?title_id=93097 Many people don't realize just how much they are spending on luxuries. It can add up much more quickly than you think.

I know people who don't spend $1000/mo on those type of things. Anecdotes cancel.

The reason that there are TV shows about that kind of thing is because the occurrences are far enough out on the bell curve that people can get the entertainment from "watching the stupid people", combined with the frisson of moral-superiority-combined-with-just-enough-fear-for-their-own-situations.

If it was typical, the TV show wouldn't exist.

I disagree completely. It's the same thing too with many people who are overweight due to lack of exercise and bad eating habits. Are you saying those shows are outside of the norm or that it's more fun to just watch rather than do it ourselves? How many of us can say we eat properly and get the right amount of exercise on a monthly basis? Yet these types of shows are very popular. And I can guarantee you that the average person is nowhere close to living a healthy lifestyle!!

Are you saying a car is a luxury for everyone? If so, you must have never lived outside a large city. At least in many suburbs across the US, and in rural areas, having a car is most definitely not a luxury if you have a job outside the home, or if you have kids that have to go to school. I've lived in metropolitan areas in which I didn't have to have a car. I loved it. I hate the maintenance and care that a car requires. But a car is absolutely necessary if you live in the country or in many suburbs, where the nearest public transportation is many, many miles away.

There are cars that don't require monthly payments. They don't look as nice, but they still get you from point A to point B.

You're making an assumption that a person has a base level of net worth with which they can buy a car outright. Someone who is "in debt" by definition has a negative net worth, so even a very cheap car ($500 or so?) would be difficult to pay for with cash. Additionally, cars that cheap usually end up costing way more when you account for hidden maintenance costs, etc., so a decent car is probably going to run you $1500 at least.

I know of many families that live off of one car that costs no more than $3000-$5000 that are many years old. Notice the author never once mentioned what kind of car, so it's definitely possible to live off of a very cheap car.

Btw, living in the country and working in the city is a luxury. And in terms of the suburbs to save money, you can usually find employment that's closer or find a decent solution that can simplify communiting. People do it everyday ;)

Why do they even need a $20/mo cellphone? They can just get basic metered service on a landline for $7-8/mo from the local telco.

Of course, having a phone number is a luxury, too. There's certainly no mandate to have one, but let's say that $7-8/mo is allowable. They're in debt. They can get an answering machine from somewhere and take the calls at home.

With that $12 they save, and directly applied as payments to principal, they should be able to save half a payment off a 20 year student loan.

Not bad.

It's really a perfect storm of destruction, driven by greed and exploitation.

1. If you are a young person and aspire to "middle class" employment, in 90% of cases you need a 4-year degree. The reason this is true is simply because potential employers will prefer an applicant vetted by a college admissions council versus a not-vetted candidate. It's a basic signalling arms race.

2. Many professions such as law and medicine legally require purchase of the appropriate degree. There is no option for apprenticing or self-study and sitting the licensing exams without the degree. If you want the profession, you are required by state law to buy in. And the degree-supplying institutions have no qualms about "finessing" employment/income statistics (if they even pretend to collect them) and the like to give the impression entrance in such professions is like winning the lottery.

So you have two sources of basically inelastic demand for these little sheets of paper from young people anxious to find a seat in society. If you are a supplier of such sheets of paper, how do you exploit this situation for maximum profit? After all, 18 year olds don't have the cash in their pockets to be defrauded of. The solution, of course, is the federal government.

Make a deal with the federal government that in exchange for risk-free blank checks from the federal taxpayer, you, the degree-supplier, will graciously grant these poor 18 year old saps with seals of approval from your fine academic institution. Once you have have this deal arranged, blow tuition through the roof, say 500%+ in the past 10 years, with precisely 0 correlation to actual costs or say competition in some sort of "free market" where firms are actually exposed to "risk" etc. Congratulations sir, you are now wealthy. You won America!

Oh, it's not fair to indenture teenagers with mortgage-equivalent debts at usurious interest rates for a service most first world nations provide for free or limited expense? Doesn't matter: 'merica.

Oh, it's not constitutional to disallow discharge of these exploitation debts in bankruptcy? Doesn't matter: 'merica.

I think basically the question is: why aren't we fucking over young people more? I think if they want a college/professional degree we should make them sign contracts like "In exchange for this most valuable degree, any money I ever earn over $30,000 annually for the rest of my life goes straight to Uncle Sam, and/or the appropriate collections agency".

>2. Many professions such as law and medicine legally require purchase of the appropriate degree.

And in many states, if the licensing board should learn that you are in default on student loans, then they'll revoke your license to practice.

> 1. If you are a young person and aspire to "middle class" employment, in 90% of cases you need a 4-year degree. The reason this is true is simply...

A while back, someone on HN replied to a comment about college degrees being almost de rigueur with a link to a lawsuit I never heard of.

http://en.wikipedia.org/wiki/Griggs_v._Duke_Power_Company

As it turns out, this is the real reason why 4-year degrees have the power that they do in the world of white-collar employment.

And that is the beauty of HN, you can learn the facts when sometimes most people just do conjecture

It would be 'interesting' if someone could prove in court that degrees were racially biased. Then companies wouldn't be able to ask about them.

> Many professions such as law and medicine legally require purchase of the appropriate degree. There is no option for apprenticing or self-study and sitting the licensing exams without the degree.

This is an interesting point that ties back into #1. In at least one state (California), you don't need any degree to practice law in the state. You can apprentice then take the bar. Beyond that, many people at good schools could get a full-ride to a low-ranked school, because of the importance of the LSAT to the rankings process. Yet, these folks are basically unhireable. It doesn't matter if you take a full ride at NCCU despite getting into Duke. Firms will treat you the same way as any other NCCU grad--they want nothing to do with you.

God, this is depressing.

Young people putting themselves into crippling debt because college has been sold as the only way to get good, "real" employment in this country. And you know what? It's probably true in most of industries and for the vast majority of people. We've been taught that without college, you'll be stuck in a fast food job forever. Everyone has to go - high schools have replaced all of their "technical" classes with "college prep" classes; everything rides on that SAT score, kids having complete breakdowns over not getting the scholarship they wanted...

All for colleges that gobble up money for degrees that seem to never correspond to actual intelligence or skill in a field like they're intended to.

Ugh.

Those are the problems of giving free money, they will give money to people that can't pay it back and will inflationate the cost of services for all, because demand has been artificially expanded.

The law of unintended consequences. You make something to "help" and you destroy society in the process.

I can't understand that someone who is $55.000 in debt has a SUV, like the woman in the article. I prefer to live poor but free, in fact I had to in the past.

In Spain something similar happened with real state. In the bubble I saw banks giving 300.000 euros to a 18year old with a yet to pay Mercedes at the door. Those people will pay refinancing their debt. This made houses prices to skyrocket. Now this banks needs to be "saved".

Living poor but free summarises my ideals. Ironically, this attitude was brought on by having to pay back student loan in the UK. You don't get debt collection here, but they take 9% of your income until you've paid it off.

One of the key factors driving the student debt bubble is "for profit" colleges. Many of these schools are scams to begin with, and prey on students who are desperate for a degree, but probably not qualified to attend college in the first place.

They max out the debt load of their students, and really don't care if they graduate or get a job. Congress recently tried to crack down on these education scammers, but the for profit school lobby blocked any reform.

The sad thing is, degrees from these schools are worse than worthless. When I see University of Phoenix on a resume, it's pretty much guaranteed to wind up in the trash. It makes it quite obvious that the holder of this "degree" is too dumb to get into a real academic program.

> When I see University of Phoenix on a resume... the holder of this "degree" is too dumb to get into a real academic program.

Perhaps, or just as likely, she/he had a family situation which prevented a traditional full-time academic path. Let's not equate personal or economic circumstances with intelligence.

In most areas, you can work through up to your junior year of college by attending evening community college classes and transfer to a state school to finish. There's never a good reason to attending one of these for-profit schools, except that you bought into their marketing hype and didn't do your own research.

Articles like this make me think that there is going to be a big cultural shift in America with regards to how people see debt. I'm guessing that when these young people get older and have kids of their own, that generation may have a far less cavalier attitude about taking on debt (for housing, college, etc) than generations before.

It's happening already. For example I'm totally opposed to taking on any substantial debt. The only debt I accept in my life is temporary 30-day credit card debt which is of course payed off in full every month.

I find the massive debt associated with "owning" a home to be ridiculous. It's like you're renting the home from the bank for 30 years. In exchange for paying rent every month you get to maintain the home and pay for repairs, potentially deal with idiotic HOAs, pay property tax which in some cases is equivalent to renting an apartment for a year and endure the burden of cleaning the giant thing.

I realize there are circumstances where the above downsides of "owning" a home are acceptable. For example when one has a family and/or the home is purchased very early in the housing price bubble cycle. However I'm already planning alternatives for my family.

There is a difference between mortgage debt and credit card debt or student loans. You can't just "cash out" your student loan debt by selling the asset. You can usually do it with a house. Moreover, unlike a car, TV, etc, a house is typically an appreciating asset not a depreciating one.

In a way, mortgaging a house is like renting the home from the bank, but there is a key difference: you own any appreciation in the value of the home, not your landlord. Your mortgage payment is the same every year (and in real terms goes down over time because more of each payment becomes principal and because of inflation). Your apartment, meanwhile, gets more expensive every year. My rent in downtown Chicago has gone up 11% in three years.

Moreover, the mortgage interest and property tax deductions are among the only tax deductions available to higher-earning singles and couples. Your $2000 rent payment is not deductible, but $1500 of a new $2000 mortgage payment is deductible. Also, the portion of your rent payment that goes to paying property taxes is not deductible, but your property taxes are deductible. Depending on your tax bracket, this can be a lot of money.

Finally, buying a house is one of the only leveraged investments available to most people. Say you buy a $500k house with $100k down, at a low mortgage rate of 4.5% per year (mortgage rates are as low as 3.5% today). Say you're in a high tax bracket (= 33%). If your house appreciates 10% after two years, then after paying your interest your total return is 29% on your original $100k investment.

Now all of the math depends on the specifics of your situation. E.g. in Chicago property is pretty cheap relative to rent, so buying makes sense for more people than in places where rents are cheap relative to buying. The tax deductions are also much more valuable for people in higher tax brackets, particularly people who get hit with the AMT.

As an aside, it's inaccurate to say that all housing is characterized by a "bubble cycle." Housing prices in major metro areas increase in the long run because the amount of developable space in these areas remains fixed while population grows. This is unlike most commodities. The price or gold may fluctuate based on the discovery of deposits, but nobody is going to discover more land on Manhattan. This is not a rigid law of nature, of course... housing prices in Detroit collapsed when the city entered a death spiral of shrinkage, but something like that happens once a century. Even in this current housing bubble, most people in established metro areas are still up from where they were in 2000. The people who are underwater on their mortgages are mostly people who bought right before the bubble popped, people who refinanced, or people who bought in unestablished areas.

In my own case, I found the idea of locking in my monthly rent for 30 years to be an attractive proposition.

Why is why I "settled" for a house whose monthly payment (after my downpayment, which I realize I am handwaving away) was very close to my apartment's rent (which itself wasn't the most expensive apt. people in my situation were renting). We specifically avoided HOA houses since the HOA payment is an unbounded future liability.

I think it makes sense to buy a house if the monthly payment is close to rent.

I'm curious about your alternatives. Good luck!

For the last four years I've spent most of my disposable income making sure my kids ended college without debt ... Not only is it a better way to start their working life, but it also demonstrates an important life lesson. Sometimes it's worth sacrificing for something important.

Unfortunately, I'm no longer convinced that a college degree is worth the cost and my hope that they'll recoup the money spent during their working years is diminishing.

As a current college student, I'm kind of curious about this. Did your children work part-time? What sort of factors led your decision?

In 1980 when I started UCB, my part-time work allowed me to pay for my college fees and expenses (my parents picked up the apartment cost the first 2 years). When I got out I had no debt. The cost of UCB for 1 year was less than $1000. That cost is 20x, at least, now. Given the costs we're talking about, working while going to school won't make a dent in the overall indebtedness, so I'm guessing students today just don't do it for that reason. There's no point. For me, it was a clear decision.

My son is now a senior and he's had a part-time job since high school. He is responsible for paying for his books, transportation and food. I pay for his tuition and fees which amounts to around $20K per year.

My daughter is a national merit scholar and received a scholarship that covered tuition, her room and paid her a stipend. Since she's also farther from home, I pay for her car, airfare and to feed her plus some miscellaneous expenses. I think I'll spend between $7500 and $10K per year for her education.

Both kids went to a private high school, so we (to some degree) got used to paying tuition before they headed off to college. We've been fortunate to be able to afford their educations, but we've certainly sacrificed to do it (I drive a 20 year-old car).

I worry about the kids who graduate (or don't) from college with large amounts of debt. Not only have we burdened them with a payment plan, but we've taught them that you should just borrow money for anything that comes along. If there are two things I'd like my kids to see patterned by their mom and I it's to save for what you want to buy (instead of financing it) and that it's okay to not have everything (at least right now).

The mistakes my wife and I made when she graduated from college and we became DINKs (Dual-Income, No kids) was that we didn't realize how much disposable income we really had (we should have saved a lot more) and we thought we could afford everything our parents had accumulated through-out their life-times.

This is probably a longer answer than you want to hear, but our decision to help them was born out of our experience. My parents paid for my college but my wife's did not (I actually paid for her last year of her undergrad and we took out a student loan for her master's degree). We've warned our kids about the risks of easy credit and showed them how to save for things they want/need ... it wouldn't seem right to also throw them into student loans if there was any way to avoid it.

As a final note I should also state that I think their work-ethics are stronger because of their up-bringing. They're going to make pretty good employees if someone gives them a chance.

A few questions for you:

a) Where are you going to school? b) What are you majoring in? c) Are you passionate about the jobs you'll be qualified for? d) What percentage of your future income will be required to service your debt?

I have to admit I'm a bit intrigued by students who frequent HN and have their curiousities intact. Ciao.

Interesting! If you don't mind me asking, what kind of paths are they pursuing (ie lib arts v. pre-law/pre-med v. engineering)?

As for me:

I'm attending the College of William and Mary in Virginia (small public school, primarily liberal arts) and double majoring in CS and Business (ironically, I came to the College as a prospective English major -- I only switched less than two years ago, and haven't looked back.)

I had the opportunity this summer to intern for Big Tech and it was literally the best three months of my life, so I'm confident that programming is the way to go for me. At the same time, I feel as though I've had a tremendous advantage by being 'the computer guy' in most of my b-school classes, and I definitely don't share the stereotypical disdain of managers/business folk.

In terms of debt, I'm going to be graduating with only barely four-figures, thankfully in part to a) Pell Grants (state-granted need scholarships), b) merit scholarships, and c) working 20 hrs/week since freshman year. Another commenter mentioned that it's pointless to work during college because it barely puts a dent in tuition, but I've found:

- Working minimum wage at the rec center might not give you that much money, but I was able -- as a 16-year-old college freshman -- to make at least $20/hr (much more at this point) through tutoring and basic (talking Wordpress and CSS here) web design. $20/hr * 20 hrs/wk * ~15 weeks/semester = $6000/semester. - Despite the amount of 'get an internship! get a nice resume!' advice thrown at college kids, very few of them actually follow through. I've interviewed with more industries than most other undergrads, and found that universally having two-three solid experiences (ie. not lifeguarding) is a huge differentiator.

My son studying "Media Effects" and will also get a minor in IST. My daughter is pre-med with an emphasis on medical research (as opposed to eventually having a practice).

It sounds like you're in pretty good shape financially as well as being in a field you love. I suspect you'll gradually learn to share the "distain" of management and business folk (I've been both) because you'll have plenty of "Dilbert moments". The good news is that there are plenty of good managers and business folk too, but they don't create funny comments. Just reserve your distain for people that earn it, keep that distain to yourself and you'll do fine.

I'm the biggest America lover out there but I hate to say the answer may simply be to leave the US. Simply start over somewhere else. There are plenty of nice places that would love to have you.

Perhaps the answer is not to take the debt on in the first place.

Where's the informed consent in regards to any type of student loans?

It would be simple to have bullet points that say things like:

  1. You cannot get rid of student debt by bankrupcy.
  2. The Govt can garnish wages, social security, and other monies if you dont make regular payments.
  3. etc....

But yet, we are sold a bill of goods called "Public University" that has routinely jacked up rates much higher than inflation. Where's the public funding making costs cheap? Or, why are private, for-profit colleges protected from bankruptcy as well?

My mom (in her late 50's), tells me when she was going to university, she would only have to work during summer a job or 2 to pay for schooling for fall and spring. If she picked up a job on campus, she'd have spending money for luxuries and such. That's what public funding did for her. Not so much for this day and age.

You go to a room and are given a two page contract, written in fifth grade English.

Which, in my case, allowed for bankruptcy. Until I hit financial hard times a few years later. By that time, they had (in 2005) retroactively removed my ability to declare bankruptcy on private student loan dept.

(And for the record, I don't expect you to debate every point or be an expert on the matter. I'm just saying that it's not a cut and dry issue, in my mind.)

> Where's the public funding making costs cheap?

Why would more dollars competing for the same exclusive good (enrollment in a particular college) drive the price down?

Hint: government money can come with strings attached. Also, public schools are written with public assistance (local, state, national) as part of the core fund.

All it takes are a dedicated group of politicians to give a collective shit.

> Where's the informed consent...?

Actually, it exists nowadays. Students (in the US) receiving loans are required to complete a loan counseling session, which covers the pros, cons and responsibilities of student debt.

However, this is a relatively recent development that probably wasn't around for the people in the article.

I was in school from 2004 - 2009 and took out modest student loans, about $11k total, and never experienced any of this.

In my case, my loan "counseling session" was an online form I had to complete to unlock access to certain features of my online college account software. You do not get a sit down with someone to tell you about what you are getting into before you start. Even if you can get a person to talk to, we are seeing that lots of hand waiving and outright dishonesty is being used to propagate loan profits.

In most fields, you're at a real disadvantage without a good degree on your resume. In fields like law, consulting, or finance, people who love you after an interview still won't hire you if you don't have one of the dozen or so acceptable schools on your resume. Other fields are less credential driven, but a name-brand degree still matters. My dad does a lot of hiring as part of his job, and he has told me that it's not so much that he is prejudiced against people with good schools on their resume, but rather that those people don't stand out in a stack with resumes that have Harvard, Yale, etc, on them.

Sounds like an answer from an affluent, white male college student to me!

I dropped out.

I understand the problem, and I feel for these people who have the crushing student loan debt. I left college with a lot of student loan but debt, too. I struggled but managed to pay it off in less than 5 years. This required sacrifice, hard work and lot of luck getting jobs.

I made some bad decisions in my 20s and early 30s and ended up with $40K in credit card debt. I met my wife, got married and had a kid - and in the course of four years paid off all that debt, saved $50K, bought a house and continue to save.

It was hard, and required a lot of hard work, coupon clipping and clearance sales.

Paying off your debts can be done.

Couldn't imagine getting married having any substantial debt at all, sounds quite irresponsible.

Giving out loans to people who shouldn't get them because they can't repay them? Sounds familiar

My college tuition was $1800/year, and it was completely covered by the scholarships that I received. I just checked, and the funny thing is that those same scholarships are still at around $2000/yr, but tuition is around $15k/yr.

If I ever have kids, when they decide to go the college, we will do a simple cost-benefit analysis to see if it's actually worth it. I would never imagine that my kids would not go to college, but based on how quickly costs are rising, and how crazy student debt has become, instead of being laden in debt until they are 45, it might be better to simply take the $250k (the costs 20 years from now) and try to create a business instead.

Check if your income makes you eligible for Income-Based repayment: http://studentaid.ed.gov/repay-loans/understand/plans/income...

I keep thinking about this quote:

"That’s how you’re paying for school? Student loan scams?"

"Student loans are already a scam. Impossible interest rates, exponential debt, easy access. It’s a bubble; I’m in it 'till it pops."

— Weeds, S07E07

An important fact that many young people may not realize is that federal student loans cannot be removed by declaring bankruptcy. Most other loan debt can, but not these loans. These loans will be with you and are your responsibility to repay for the rest of your life or until they are re-paid in full.

This a lesser-known way in which the education system is broken. When education is based on the quality of your education compared to other young job seekers, educational inflation will certainly not benefit the average student who can pay to play the game.

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