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Documentary Looks At Risky Student Loan Industry

by Christopher Carter | University of Washington

F Posted in: College P Posted on: September 23, 2011
loans Image courtesy of Flickr, user cheesecurls62.

Knowing the ins and outs of bank loans, forbearance and bankruptcy used to be the studying fodder of accounting majors. Now it could mean the difference between minimal or no debt and a six-figure mistake for students with loans.

Whether in college or having already graduated, student debt is leaving some of America’s students feeling hopeless, tormented and tired. That’s also the attitude and driving force behind Default: The Student Loan Documentary, a film from Italian writer and director Aurora Meneghello and producer Serge Bakalian. NextGen Journal was given a chance to screen the film ahead of its nationwide airing on PBS later this fall. The film has already been screened at campuses in several states.

In a sobering 27 minutes, Default paints a dreary financial reality and features loan reform activists and industry experts weighing in on an issue that has brought degree-carrying Americans to their knees. At its core though, it’s the former students themselves talking about the struggle to pay back staggering amounts on their private student loans that carries the most weight. Identified by first name only, they explain just how much their decisions to take out private loans is costing them, some of them paying three or four times as much as the original amount they borrowed. Many have fallen victim to fees and forbearance (a way for students to put off repaying loans at the risk of high interest rates).

Private loans are notorious for costly, unregulated fees and little to no consumer protection. At one point in the film, a former student from New York University’s film school explains he now owes what he estimates to be about $200,000. Another student who borrowed $35,000 and has already paid back $26,000, says she still owes $57,000 because of forbearance.

New reports and data recently released suggests some students, like those profiled in Default, are finding that it’s all just too much to cope with.

According to the U.S. Department of Education, the number of students defaulting, or failing to pay back their loans, is rising.

Data released September 12 shows the number of students who defaulted on their loans jumped to 8.8 percent for 2009. More than 300,000 students defaulted according to a news release. However, the number of borrowers defaulting overall is likely much higher. The data available only reflects students who defaulted within two years of their repayment period.

“We need to ensure that all students are able to access and enroll in quality programs that prepare them for well-paying jobs so they can enter the workforce and compete in our global marketplace,” said U.S. Secretary of Education Arne Duncan in a statement.

The problem for most graduates however, is finding those well-paying jobs — or, any job at all — so that debts can be repaid.

A report by the Institute for Financial Literacy released this month found that a growing number of college degree-holding Americans are not able to keep up with the bills and are filing for bankruptcy.

Among the findings in the report: a sharper rise in filing among those with graduate and bachelor’s degrees versus those with an associate degree or no degree at all. Those with bachelor’s degrees made up more than 13 percent of total fillers, according to the report.

In continuing down the student loan rabbit hole, Default clears the air about bankruptcy: it won’t solve your student loan problems.

Beginning with changes to the federal bankruptcy code in 1978 and then again in subsequent years, discharging student loans has become increasingly difficult. Now, a filer must prove “undue hardships” to a court — something rarely done.

Although private loans are normally far riskier and costly if left unpaid, federal loans can put students in a hole as well. A Senate subcommittee Tuesday approved the budget for the Education Department which keeps funding for Pell Grants at their current level, but at a cost to students with federal loans. No longer will the government subsidize undergraduate loans for the first six months after a student graduates, according to an article from Inside Higher Education. The full committee met Wednesday to vote on the budget but the text of the bill was unavailable at press time.

Default doesn’t seem to champion any sort of concrete solution to the problem (outside asking students to write letters to Congress), but it does explore what reform activists have come up with so far. The most radical? Asking the government to forgive everyone regarding their student loan debts. Robert Applebaum, a New York attorney, is behind the movement Forgive Student Loan Debt. Applebaum is featured in Default as both a victim of the loan system and a champion of student loan reform. He is also working with Rep. Hansen Clarke (D-Mich) who sponsored a resolution introduced in July which asks congress to forgive student loan debt as a way to help boost the economy.

While Applebaum said he would like to see a complete overhaul of the loan system, he knows it’s unlikely — at least now. But, he contends, starting a conversation is what leads to change.

“I know I am shooting for the moon by asking for total, across-the-board student loan forgiveness,” he said in a phone interview.

Applebaum said it all started with his knee-jerk essay response to national conversation on the economy days after President Barack Obama was inaugurated. He published the essay on Facebook where it received an overwhelmingly positive reaction. Now, the effort has turned into a petition boasting more than 352,000 signatures which Applebaum hopes will get the attention of lawmakers.

“We are on a trajectory that is unsustainable,” he said, adding the entire loan system has become anti-student. “The government has stacked the deck in favor of the loaners and against the students.”

Applebaum likens the loan issue to the sub prime mortgage crisis that led to problems with the housing market.

“I am trying to raise the issue before the bubble bursts so maybe we can do something proactive for a change instead of reactive.”

Christopher Carter Christopher Carter Christopher Carter is a NGJ Staff Writer and a student at the University of Washington. Christopher is a English major and a Russian Language and Slavic Literature Minor. Prior to retuning to school last winter, Christopher worked in various newsrooms for the last four years covering everything from school administrators, education, business and government.

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