Conservative financial adviser Dave Ramsey seems to go out of his way to ridicule and denigrate student loan borrowers. Having looked very closely at this problem for many years, it is obvious to me that Mr. Ramsey is woefully uninformed about the uniquely vicious and predatory nature of these loans. He also, apparently, has no idea about the government’s complicity and involvement. I suspect that if he did learn the truth about this, he would join other conservatives in calling out the lending system, rather than bashing the “snowflake” borrowers.
One of the dirtiest tricks ever played on the American people by Congress was the removal of standard consumer protections from student loans over the past 40 years. Under pressure from quasi-governmental entities like Sallie Mae, Congress removed bankruptcy rights, statutes of limitations, Truth in Lending laws, and other consumer protections from student loans.
The Founders called for uniform bankruptcy laws ahead of the power to declare war and raise an army in the Constitution. Obviously, bankruptcy rights were very important to these men. Indeed, men like Thomas Jefferson and George Washington were abused badly by British Banks and Merchants. James Wilson even spent time in debtors prison. Today, however, this has been violated- uniquely- by the student loan exception.
These loans have become astonishingly profitable to the government in the absence of these protections. The Department of Education was profiting $50 Billion per year on the lending program in 2012, when the total student loan balance was “only” $1 Trillion. Today, that has certainly risen to something like $75 Billion per year. What is more disturbing: Years of White House Budget data confirms that the government is actually profiting on defaulted student loans, something that no other lender for any other type of loan can claim. These perverted fiscal incentives have given the Department of Education every reason to lend as much money as possible to the students, and the colleges the green light to raise their prices almost at will.
Dave Ramsey should be interested to know that these profits are used to subsidize Obamacare.
This is the reason that college prices and student borrowing have skyrocketed in the past twenty years. It has nothing to do with the responsibility or irresponsibility of the students. They haven’t changed. The lending system has.
The students have absolutely no idea about these loans. They are never told explicitly that bankruptcy is essentially impossible for these loans prior to signing for them. They are never told that there are no statutes of limitations. These loans are sold to the kids as basically benign- and necessary evils.
They are also told that there are friendly forgiveness programs in place that will cancel their debt after 20 years of income-based payments (or ten years of public service), but the truth is that only a tiny fraction of the people trying for these programs are actually getting the forgiveness promised. The overwhelming majority are being disqualified, for one reason or another, by the Department of Education, which has no desire or intention of forgiving anyone’s loans.
It is worth noting, here, that unelected bureaucrats and lawyers in and around the Department of Education fight tooth-and-nail behind the scenes to keep bankruptcy rights gone from student loans.
Here is a submission I received from Crystal, one of Dave’s devoted listeners:
I have a Masters Degree and graduated at the height of the economic crash a few years ago. Needless to say, I could never get a job that pays what the job was supposed to pay. On top of this, I ended up with cancer and it took years to dig out of the debt I got into that comes with having health issues in this country.
Now that I have a job, though it pays nowhere near what my parents made, I have followed the Dave Ramsey courses and paid everything off, except the student loans. I have no car payments, no credit cards, etc. But I have two student loans that are managed by Mohela. I was lied to years ago that teaching and working non-profits would forgive my loan. I went through the application process, never missed a payment etc. Now that I was so close to the end, they said that I no longer qualified. Though the job never changed. Now that I am trying to pay off the loans, I cannot get the principal balance to go down. No matter how much I pay, they are calculating future interest and have fine line rules about paying over the amount due….unlike any other loan out there.
The student loan has tripled due to the interest and there is nothing I can do about it. Because of student loan rules, I can’t even get help from a lawyer, I can’t take a loan out to pay it, there is nothing I can do to get out from under the daily accruing interest on the student loan. They are making a killing off of me. Had I known all of this, I would never have gone to school in the first place. I tell all kids to consider a free local tech school and learn a trade versus going to a rip-off college.
Dave Ramsey knows something about bankruptcy, given that he has filed in the past. I believe he is a decent guy. I just hope that he will read this, and change his tune on student loans.
What’s your take on what you just read? Comment below or write a response and submit to us your own point of view or reaction here at the red box, below, which links to our submissions portal.
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