A Love Letter from Your Student Loan Bill Collector

As I wandered around the crowd of NYU students at their rally protesting student debt at the end of February, I couldn’t believe the accumulated wealth they represented – for our industry.

It was lip-smacking.

At my right, to graphically display how she was debt-burdened, was a girl wearing a t-shirt emblazoned with the fine sum of $90,000, another with $65,000, a third with $20,000 and over there a really attractive $120,000 was printed on another shirt.  Guys were shouldering their share, with t-shirts of $20,000, $15,000, $27,000, $33,000 and $75,000.

Although not every NYU student debtor was there – past or current – to participate, it’s been projected that some $659,000,000 in NYU Student Debt is hanging out there.  Yes, $659 MILLION!  This is the largest student debt of any non-profit university in the country.  If non-profits can rack up these numbers, you can imagine the dollars owed, collectively, by for-profit schools.

Actually, we don’t have to guess about a thing.  Last summer, it was announced that student debt achieved the distinction of being greater than that of credit card holders and even the victims of subprime mortgages.

Not that this is an altogether bad thing for those generating this debt upstream from us.  Shares of the University of Phoenix parent Apollo Group, the largest for-profit college chain by enrollment ($4.9BB – yes, that’s billion), soared when GW Bush’s administration eased regulation to get things in motion a few years back.

A much smaller group, Capella, with an enrollment of 38,000, got 78 percent of its $335 million in revenue from government loans and grants in 2009.

Why are for-profit schools important for us?  These colleges received $26.5 billion in U.S. loans and grants in 2009.  Even though they educate less than 10 percent of all college students, they get 25 percent of all Pell grants and make up 44 percent of federal student loan defaults.

Stephen Burd, the editor of the New America Foundation’s Higher Ed Watch blog, has written (that) Sallie Mae has often allied itself with for-profit colleges—not all of them reputable—thereby helping fund private student loans “with interest rates and fees totaling more than 20 percent per year, to financially needy students who normally wouldn’t qualify for them because of their subprime credit scores.”

Putting aside some of the less savory aspects of loan origination, we can consider this, “good news in the pipeline.”  As bill collectors and debt buyers only work on what is termed bad debt, which is guaranteed under these circumstances and in today’s economic environment – we are in for lifetime employment!

But, let’s go back to this modest NYU student “Casualties of Debt” gathering.  It might cause us some concern.

The rally instigators were Charlie Eisenhood (t-shirt $20,000) and former NYU student and “MTV Darling” Andrew Jenks (t-shirt $20,000).   Charlie is local and still in school, but Jenks has graduated and has an impressive platform from which to complain – MTV – which makes him capable of engaging students and activists at a larger and national level.

Known for his college speaking tours and MTV documentaries, Jenks didn’t have to look far for subject matter according to an article in the NYULocal student newspaper: Tisch Film graduate, Jonah Pettigrew.  Pettigrew’s respected NYU diploma was able to land worthwhile jobs, including a stint as a DP for Jenk’s MTV show, but he owes $200,000 to various collection agencies.

“It’s like no matter how much you make, you’re barely scraping by.  I’m paying for my food with nickels and dimes,” he was quoted saying.

Will Students Begin Dusting off the Pitchforks?

Alan Collinge of StudenLoanJustice.org is one of the aggrieved that is leading a backlash.  His research has shown that the Department of Education makes more on its defaulted loans than it does on its paying portfolio.  As Alan states wryly, “This is exactly what the first President Bush meant when he declared his intention “to run government like a business.”

As he colorfully states in a blog at his Facebook page:

Another militant is Chase Cryn Johannsen, Managing Editor at EduLender and blogger at HuffingtonPost.com.  She has railed against the debt collection/loan predator industry for years.  Some of her blog titles:  “‘Til Death do us Part, Unless We’re Talking About Your Student Loans,” and “Dying for an Education” about the relationship between suicide and student loan debt.

She has a friend in “Nando” of “Third Tier Reality” (a graduate of a Tier Three Law School not much pleased by third-tier employment offers).  His purpose, among many, is to inform potential law school students and applicants of the ugly realities and expense of attending law school.  (Are these Sharks-in-Training serving as Chum for lawyers in the lending industry?  Wow.)

What if these kids start finding each other and pulling together?  Naaaaaah.

Although, Alan did declare this:  “It’s funny to me how we (students abused by lenders) are so badly underestimated by those who think they can wipe their feet on us as if we were a carpet…when in fact we are the very ground on which they stand…”

I allow that it is a bit of a bummer to consider the very real but incalculable cost to America and Americans in the damage done to those who intended to use their education to better themselves and their communities.

These people were to be our future nurses, engineers, lawyers, salespeople – taxpayers!  As many employers now pull credit reports on job applicants, our defaulting student loan applicant is almost automatically assured a “No, thank you” no matter how otherwise qualified they might be.

This is just one way in which those who went to expensive private schools to earn a more prestigious degree are denied the gainful employment sufficient to even pay back the loans!  These are the people who are now marginally employed, living either on the welfare of their family…or the state…and are poster children examples of the products of Predatory Lending and heated pursuit.

“Student-loan debt collectors have power that would make a mobster envious.”

This was told a reporter in a WS Journal interview last year with Elizabeth Warren, a Harvard Law School professor and bankruptcy specialist and now Director of the new Consumer Financial Protection Bureau.  (Another source to thank. Republicans are campaigning to cut this department’s funding in half).

As reported by Mother Jones, the new Consumer Protection Bureau – created to crack down on shady real estate loans and predatory lenders – was not given that same authority to deal with student loans described as by (the then) New York Attorney General Andrew Cuomo as the ‘Wild West’ of lending.

“Private student loans are exactly the kind of dangerously under-regulated financial product that the Consumer Financial Protection Bureau needs to oversee,” Pauline Abernathy, vice president of the Institute for College Access and Success, said. “Failing to give the new bureau full authority over all private student loans would leave young people and other vulnerable consumers, and our economy, at the mercy of unscrupulous lenders.”  And collectors, I might add.

A potential problem for us: student see no difference between loan predators and varmints

As fortunately positioned as we find ourselves, let me ask my brothers and sisters in the world of collections this question.  If you knew that powerful predators were out to maim and eat your young, wouldn’t you get out the bait and traps and destroy these vermin with no compunction?

There isn’t much in the way of pitchforks and torches (or steel traps) in sight, yet. But, if I were a debt collector chasing after these unfortunate souls who inevitably will find themselves in my Queue, I’d be concerned.

The traps are being oiled as we speak.  You may well have to be prepared to gnaw off a leg!

For more on student loans in the ARM industry, visit insideARM.com’s Student Loan Issue.