A Big Burden

Are student-loan creditors sucking the blood of freshly minted college grads?

It's not easy maintaining a good reputation when you're Sallie Mae.

Web searches for "Sallie Mae sucks" and "fuck Sallie Mae" produce a wide range of disparaging results. A blog maintained by 34-year-old Matt Haughey, in which he called the student-loan behemoth "a demon succubus that feasts on the blood of poor students," was near the top of the list.

"Part of it was probably some dissatisfaction with my parents for not having any money when it comes time for college," Haughey, who lives just outside Portland, Ore., said. "So I funded it myself, worked two jobs and got my environmental science degree. When it was done, I think I had $20,000 in debt. It was just such a bummer to be locked into this: When college was over, I needed a job--as high-paying a job as I could get--immediately, so I could begin making payments."

That $20,000, with interest, came out to about $35,000 over a decade, Haughey said.

"It just hits the middle class," he said. "People without parents who can afford college really get hit the most."

It's small wonder, then, that some students in Tucson are trying to get people talking about student loans. That doesn't make it easy to get people to actually lend their ears, however.

"For some reason, people just don't get passionate about it," said University of Arizona political science freshman Geoff Esposito. "I don't think they realize how badly it's affecting most of our friends and classmates."

Esposito, 18, lamented that student-loan companies--particularly Sallie Mae, the country's largest financier of student loans--have a "monopoly" on lending and employ a formidable lobbying machine in Washington, D.C.

"Right now, students are being crushed by the increasing interest rates, and we're getting ripped off," said Esposito's associate in the student-loan fight, 21-year-old UA student Dustin Cox.

Esposito pointed to the Higher Education Act, which, among other things, sets federal government standards for student financial aid.

The act has to be reauthorized every six years; Congress has done so piecemeal since 2005, when full-blown reauthorization was introduced in the House by John Boehner, a Republican from Ohio, but not passed. Democrats recently delivered possible relief for graduates, with the House pushing through a bill that would gradually reduce the interest rate on some federal Stafford loans from 6.8 percent to 3.4 percent by 2012. That bill awaits action in the Senate before moving on to President George W. Bush.

But before Democrats took control of Congress in January, the student-loan industry, with Sallie Mae at the helm, gave heavily to Boehner and his political action committee (more than $200,000 since 2003). Many people criticized the proposed reauthorization and the other updates as handing the industry everything it wanted.

Influencing legislation is important to the student-loan companies. In fiscal year 2006, about $60 billion in loans will be dispersed to some 8 million borrowers, according to the U.S. Department of Education. At the University of Arizona alone, some 44 percent of undergrads and 45 percent of graduate students take out student loans, according to John Nametz, director of student financial aid.

Sallie Mae's profits have soared over the years, handling over $120 billion in student loans.

It's not just raw numbers of loans that make this a cushy business; the rules of the game also favor creditors. The federal government guarantees a minimum return for student loans that's higher than those for commercial loans.

And taxpayers foot the bill if a student defaults. Sallie Mae, which owns many of the largest collection agencies in the United States, then goes after the student to make even more money. It's a win-win situation, critics allege.

Adding insult to injury, Congress in 2005 made it so that private student loans can't easily be dismissed by declaring bankruptcy. That brought renewed attention to the issue, according to Katie Porter, a professor of law at the University of Iowa. She said the only recourse for those who want loans dismissed is proving the "undue-hardship standard" in court.

"It's considered to be very, very strict," Porter said.

Meeting that standard means bankruptcy petitioners have to prove they can't even achieve a minimal standard of living for a long period of time, following good-faith efforts to repay their student loans.

"'Minimal' is important, because that's not generally what we require of bankruptcy debtors," Porter said. "We generally require them to be reasonable in their expenses: They can't have a $6,000 mortgage or something. The idea is you've got to really, really, really be eating the soup and living in a small apartment and working a second job, if necessary, so that if you had to repay, you couldn't even achieve a minimal standard of living."

Not surprisingly, the number of debtors who apply to meet that standard is small, Porter said. "The typical advice that people get if they're contemplating bankruptcy from their attorney is, 'Hey, bankruptcy can help take care of some of your credit-card debt. There are ways maybe we can adjust your car loan. We can do some other kinds of things to help you with your other debts. By doing that, we can free up some of your future income to help you service your student loans.'"

Originally, only government loans had similar protections from bankruptcy in court. The logic behind that was that the solvency of federal student-loan programs needed to be shielded from a rash of bankruptcy filings.

But private student loans, by their very nature, don't threaten that solvency, and some say giving companies like Sallie Mae protections afforded the government for potentially valid policy reasons is, in effect, giving creditors more student blood to feast upon.

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