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The Private Student Loan Tragedy

What follows is my submission to the Consumer Financial Protection Bureau (CFPB) regarding the current state of private student loans in America.

As an student of debt history I am very familiar with many periods in the past where people or groups of people have been subject to financial servitude as a result of some agreement they made. A good example would be early coal mining towns where workers were limited to purchase goods and housing from the company and then were forced to work to pay off those obligations at marginal income.

Today there is still a legalized mechanism that locks entire generations of consumers into financial slavery and it’s through private student loans.

Student loans are perceived as a tool to allow people to receive education and higher learning in an effort to further themselves. many think about it as good debt.

Schools that accept disbursements from private student loans get the benefit of selling students into seats and earning income from the disbursements of the private student loans, regardless if the student eventually receives a degree.

There is also insufficient counseling of students if their career field is even capable of supporting the resulting financial obligations generated by the school.

Because private student loans have minimal solutions for dealing with the resulting debt, unlike government backed student loans, the end result for a growing segment of the population is nearly lifelong debt that may never be paid off in the debtors entire remaining working life.

Today we see more and more people coming to us for free help and advice at GetOutOfDebt.org that have been repaying on their private student loans for decades and have higher balances than when they first graduated. There is almost no escape for people with unmanageable private student loan debt. No reasonable intervention options exist to allow people to adjust the balance they owe or obtain an affordable payment.

If you find yourself owing more than life allows you to repay through no fault of your own, you can’t discharge the debt in bankruptcy, a large collection penalty can be added to the balance due, fees and penalties continue to be added, interest accrues, and a wage garnishment can be placed against you without the lender going to court.

In 2012 in the United States, private student loans place well intentioned people seeking a better life through education into a potential life of financial slavery.

There needs to be real options for people who owe private student loans that allow someone to reduce the balance they owe on an income contingent plan or give people a realistic way to deal with their unmanageable private student loan debt other than the two ways we hear about more and more; suicide and leave the country, forever.

Even the United States Constitution provided that citizens would have the right to seek protection under bankruptcy, but when it comes to the massive balances that can be generated by private student loans there is no legally supported way of dealing with that debt. It seems contrary to the wishes and rights this country was founded on.

The absence of realistic affordable repayment options is an issue the CFPB should tackle on behalf of shackled citizens.

The Private Student Loan Tragedy
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Student123

    I am a High School Student taking an elective on finances in the Singapore American School (SAS) and I truly found this blog to be an eye-opener! Why I was particularly interested in this topic is that I’m a Senior who’s about to go off to a private university for my undergraduate years, which is in North Carolina. Now I have to say that, despite being a private university, the place I’m going to has a relatively low cost (combining tuition, room and board, books-the whole package) than most other private universities, and my parents are quite wealthy and have no trouble paying for the full education; plus, I’m in line for a possible scholarship, so I’m not a student who would necessarily need to take loans. However, what truly interests me is that this topic is highly ubiquitous for many students, including those who attend my school. Most attempt to go to Canada or their own state-universities (to minimize their costs), but for those who want to attend private places, a good number of them have to take out loans. 

    Moving aside from the basics, I consider this blog to be an essential read for all students wishing to attend college because they’ll know that loans aren’t necessarily the best way to attain higher education as loans can increase with interest, creating a locked financial prison for the students. Furthermore, there are also students who spend money to go to college, and then end up getting majors in topics such as history, arts, and music, which result in very low levels of employment, making things difficult to payback the debt. 

    Hence, I truly enjoyed reading this blog as it truly opened out my mind to the hardships that students have when taking loans.  

  • Jade V

    It’s absolutely appalling to me that they have no regard for certain circumstances that people are going through. in my case I was in my senior year and suffered a massive illness that left me disabled. However, it also left me with a student loan debt of 120k+ that was immediately opened for payments. How am I supposed to pay off that loan when I can’t even walk? 

    • http://GetOutOfDebt.org Steve Rhode

      I know.

      Private student loans are a horrible prison for debtors.

      Are you doing better now?

  • Jade V

    It’s absolutely appalling to me that they have no regard for certain circumstances that people are going through. in my case I was in my senior year and suffered a massive illness that left me disabled. However, it also left me with a student loan debt of 120k+ that was immediately opened for payments. How am I supposed to pay off that loan when I can’t even walk? 

  • http://www.consumerrecoverynetwork.com/ Michael

    Not to minimize the seriousness of the issue you raise with a glib comment, but – TRUE DAT!

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