College Students and Loan Payback: Lending Agencies Make Profits Preying on Students and Parents


Student lending organizations and collection agencies make money various ways. One of the most profitable is to convince graduates, who have already borrowed to pay tuition and fees for four years, to take out further loans for advanced degrees.

The agencies defer interest payments on the original loans until the student graduates with his or her new degree. Then they add the amount of the interest deferred on the original loans with the interest deferred on the graduate school loans to the principle on both the first four years and the advanced degree to arrive at a massive amount of money owed by the graduate.

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Jorge Was Such a Student

I sometimes write about a wonderful young man whose name was Jorge. He was the first of his family to attend college. To do so Jorge had to take out student loans. He could not get a job after his four years so a representative from a collection agency suggested he earn an advanced degree. Although the lending agency deferred his original loans, they accrued interest and, along with his new loans for graduate school, came to an extraordinary amount (over $150,000).

Jorge, as with most students, could not get a professional entry-level position after he earned his graduate degree. The pressure from collection agencies was so great that he felt he had no choice but to take his own life. (I continually counsel graduates in this situation that suicide is never an acceptable alternative.)

Student Loan Organizations Make Lots of Money Off These Unfortunate Students

Many students still cannot get jobs after graduate school, and neither the banks who loaned the students their money, nor the collection agencies are sympathetic to this situation. Quite frankly, this is a successful gambit of the student loan industry: Lend students lots of money, defer these loans for many years during which they earn lots of interest, and charge huge late fees and collection agency charges when the graduates cannot pay them back.

Parents Often Use Their Own Savings to Pay the Loans

If the student does not commit suicide (many lending agencies can collect insurance on the loan) the lending agency (including the Department of Education) passes the loan on to collection agencies who will put an excruciating amount of pressure on these hapless graduates. The unemployed graduates often have no choice but to appeal to their parents to help them out of their predicament. The parents, who are now preparing for their own retirement, are now forced to take out a mortgage or home equity loan. Then the student loan (in many cases in excess of $100,000) is now paid.

Think of what has just happened here. The lending companies and collection agencies have extended exorbitant amounts of debt to students who never had any chance of paying their loan back. When mom and dad pay back the debt with their own retirement savings and home equity loans, the agency makes huge profits on the current interest, deferred interest, collection fees, late fees and various other charges.

Politicians Also Make Money Off Student Loans

No wonder the lending agencies dole out so much PAC money to politicians. They need to keep bankruptcy, as an alternative, out of the picture. If the government passed a law that gave graduates the same right to declare bankruptcy as other citizens, a major form of revenue for the lending industry and politicians would be destroyed.

My point is that there is no excuse to refuse bankruptcy to any graduate who reaches such a point of destitution. When graduates take their own lives or parents lose their life assets and life savings to help their children out of this mountain of debt we must change the laws.


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