Tuesday, May 8, 2012

How Billions of Taxpayer Dollars Are Legally Stolen

Recently, Alan Collinge, founder of StudentLoanJustice.org, was interviewed on the radio program, "Coast to Coast." Alan is a fervent political activist working to increase awareness of and convince congress to remedy a corrupt federal student loan debt system. During the program he brought to light a number of deceptive practices that lenders routinely use to pad their wallets with outrageous profits while borrowers find themselves saddled with outstanding student loan debt totaling many times more than the original amount owed. Unlike traditional consumer debt, banks want borrowers to default. Lax restrictions and an irresponsible lack of consumer protections all play an integral role in making this possible and it needs to stop.
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As I listened I heard about a $900 a month loan payment going into default as a result of a drop in income and marital trouble. Upon applying for an income based repayment plan the borrower's student loan debt payment jumped to $1600 per month. How is that possible? Someone unable to make the current payment is now expected to pay nearly double? Interestingly, that wasn't even the shocker of this scam. Federal student loans are guaranteed by the government. So when a borrower defaults on the debt, the lender has the right to collect 100% of the outstanding balance from the government. However thanks to a nearly restrictionless market, as a result of congressional loop holes, the bank can instead sell the loan at one hundred cents on the dollar to a collection agency, which is often owned by the original lender. Not only are they taking money from their right pocket and moving it to the left.  They are also asking the government to fill their back pockets. The agency then tacks on outrageous penalties and fees to the outstanding student loan balance. All legally and now also guaranteed to be paid by the United States government.
By moving a defaulted loan to another division, lenders have now manufactured a guaranteed profit by manipulating fees and collections costs. Pull this maneuver for a few years then cash that loan in and the lender can triple their investment, all the while knowing the borrower will never be able to pay that debt. In fact, this is what these lenders count on because no payments from the borrower spells guaranteed payment from Uncle Sam.

Debt Consolidation Offering No Relief

The bottom line here is that the student loan program is nothing shy of legalized fraud. Honest hard working American's who have paid their student debt off or are current on payments may think that forgiving the debt of those that cannot afford it is unfair and a drain on taxpayers, but the cold truth is not forgiving it costs far more and big banks will be the ones cashing in. If a borrower can't afford to pay their debt at the original amount owed, the taxpayers can expect to pay double, triple, or more of the original tab. All of which is a sum of fabricated fees allowed by law.
Alan and his organization are actively advocating for the same consumer protections that are enjoyed by all other consumer debt. The same rights someone who maxes out his credit cards purchasing meaningless desires already is awarded. The only difference here is that borrowers of this money were led to believe they were doing the only thing that would guarantee them a prosperous future. Instead they were thrown into the pool of legalized loan sharks.
With some $1 trillion in outstanding student loan debt and a stagnant jobs market, taxpayers cannot afford to financially support this Mob economy anymore. It's time our elected representatives begin standing up for the citizens that entrusted them and hold banks accountable for making good on their investments. Help Alan and his organization take the burden off hard working Americans and their tax dollars. Check them out at StudentLoanJustice.org and join in the fight.
As taxpayers we need to take a stand and let our elected officials know that we have had enough. Alan's organization is fighting this fight but they need all of our help to get the message out. Check them out at http://www.studentloanjustice.org.

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