Occupy’s $4M Shot Across the Bow of Student Lenders

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Occupy’s Debt Resistance Movement

Occupy’s Debt Resistance Movement

If you were counting the Occupy Wall Street movement out of the game of tackling America’s moneyed interests, there are 2,671 people today who can tell you otherwise.

That’s the number of people whose higher education debt just disappeared, thanks to a program by an Occupy offshoot called Rolling Jubilee. The group bought up nearly $3.8 million in defaulted student loans from creditors.

Instead of trying to recover the money, Rolling Jubilee just forgave the debts and announced it to coincide with the third anniversary of the Occupy movement.

The amount Rolling Jubilee abolished is dwarfed by the $1.2 trillion in outstanding student loans, but it’s a symbolic gesture in keeping with the Occupy movement’s tenets of fighting the system. And it’s designed to shed light on what could be yet another economic bubble waiting to burst.

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The incredible availability of loans guaranteed by the federal government allows colleges to continually increase tuition at a rate significantly higher than inflation. Mix this with the increasing necessity of a college degree to earn a living wage, and you have a pretty volatile brew.

It’s not the first kind of debt Rolling Jubilee has tackled. Last year, it targeted medical debt and wiped out about $15 million of it. Rolling Jubilee is a project of the Occupy movement’s Strike Debt offshoot.

When dealing with medical debt, the Rolling Jubilee was able to take advantage of the shadowy world of secondary debt markets and buy large amounts for pennies on the dollar.

Here’s how the system normally works: the original lenders sell off debt owed to them. The buyers pay for it at a discounted rate based on how likely the debt is to be paid back. The new owners then try to collect the full amount.

Pennies to Freedom

Ordinary debt collectors profit when they collect more than they paid for the debt. But Rolling Jubilee looks at the low cost of the debt as an opportunity to annul millions on the cheap.

Student debt, however, is a different story. Most of it is guaranteed by the federal government and therefore not available on the secondary market. So instead, the Rolling Jubilee bought debts owed to for-profit colleges.

In this case, it was the debt of students at Everest College, part of Corinthian Colleges, Inc.

The company, which runs a nationwide network of for-profit colleges, is facing a host of investigations from state and federal authorities, as well as lawsuits. The allegations include, among other things, the use of deceptive marketing tactics to bait unemployed and poor people to enroll and sign up for the maximum amount of federal student loans.

What’s the catch? There is very little thought given to how such students will be able to pay their loans back.

Recruiting Debtors

Alarmed by predatory trends in for-profit colleges, Senator Tom Harkin led an investigation on Corinthian Colleges and others. His report states that at Corinthian Colleges, “recruiters are trained to discourage and deflect questions about cost from students.”

Here’s part of a recruiter’s script excerpted in the report:

“John, the cost of the program will vary depending on several factors. Is your question really how much is it going to cost you in out-of-pocket dollars? (Response). In order for me to answer the question, first we would have to determine the right program for you. Second, we would have to determine what time-frame you expect to complete the program (only true if credit hour charging is used); and finally, the Student Finance office would determine the types of financial assistance you may be eligible for. Could you tell me why you are asking about the cost?” (Proceed with phone script).”

Would you be surprised to know that Corinthian Colleges, Inc.’s student default rates are significantly above the national average?

college

Senator Tom Harkin’s report

Students at Everest College have an even higher rate. In 2008, the default rate was an astronomical 54.5 percent.

Everest College’s extreme example highlights a problem that is plaguing the American higher education system overall. Colleges charge exorbitant tuitions knowing that the students have access to large amounts of credit. The schools get paid, but the students are left in debt, and the government is saddled with the burden of collection.

An equation like this means that tuition increases are unlikely to slow down anytime soon.

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Although there is now federal and state scrutiny into the problem, the one Congressional bill that could ease some of the burden got blocked for a second time this year. Republican Sen. John Cornyn stopped The Bank on Students Emergency Loan Refinancing Act from coming to a vote. If passed, the bill would allow more than 25 million people to refinance their student loans at lower interest rates.

There is a bigger systemic problem, though.

U.S. universities have access to detailed records of their student’s financial situation in the form of the federal financial aid forms, and can easily see when students will have to take on excessive amounts of debt. Yet there is no incentive for the financial aid offices to turn away potential money, since the costs of debt and default are not felt on their end.

So the question is: are students to be blamed for taking on enormous loans when college looks like their best chance at decent employment?

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8 responses to “Occupy’s $4M Shot Across the Bow of Student Lenders”

  1. Benjamin Titshaw says:

    You want a real debt jubilee? Then end the Federal Reserve.

  2. michael says:

    What would happen if student loan debt bubble did burst?

  3. tomherzog says:

    Why not come right out and proclaim unambiguously what is
    happening in this country: Debt peonage (onerous debts for which there
    is no reasonable, realistic prospect for settling fully) has been
    brought back–and I must importantly add–very intentionally,
    INTENTIONALLY to this country, the United States by the financial elite
    who have bought and payed for your federal Congress.

    Thanks to
    changes in Federal Bankruptcy Law some 10 or so years ago, the changes
    of which were overseen by than Congressman Joe “I’m just one of the
    good, old boys” Biden at the behest of his banker backers, many types of
    indebtedness that people of modest means get themselves involved with
    in an attempt to pull themselves up into the Middle-Class (now that jobs
    generally no longer provide a Middle-Class living) like student loan
    debt and some credit card debt can no longer be relieved through the
    bankruptcy process.

    Make no mistake about it, this is not just
    some oversight by Congress or the bankers in crafting laws. This is a
    modern form of enslavement. These new bankruptcy laws were crafted by
    filthy rich bankers to squeeze every bloody penny from the poor and
    impecunious that the greedy, filthy banker bastards can get their
    god-damned hands on.

    Modern Bankruptcy law was (and should still
    be) about giving poor, indebted workers (what used to be known as in
    the language of bankruptcy) a “Fresh Start”. That is to say, poor people
    who had no reasonable prospects for repaying an onerous debt, were
    allowed by the courts to “discharge” most or all of that debt and
    financially begin over again. An underlying premise of that law was
    that creditors had the responsibility THE RESPONSIBILITY to not issue
    loans unless they could be reasonably certain the potential debtor would
    have reasonable means to repay them.

    A second underlying premise
    of the “Fresh Start” principle was that neither the indebted,
    impecunious individual nor society at large benefited from keeping
    people mired in onerous debt that could never reasonably be repaid.
    Although the incautious creditor would have to suffer a “hair-cut”, in
    the long run society would be the better for it.

    This was a
    time–many young people probably can’t remember–when only the
    well-to-do were offered credit cards. Notice how, since many debts no
    longer became dischargable with changes in the laws, credit card
    companies throw credit cards at people they know, THEY KNOW will not be
    able to repay them. They then hound those people throughout their lives
    for “fees” and “penalties” on top of the interest and principle, thus
    generating an endless income stream from the poor to the already filthy
    rich.

    This is not justice or fairness; it is fraud, theft, and
    enslavement of the poor and powerless by the rich, criminally corrupt,
    and powerful.

    Isn’t it past time for the heads of the criminal class of financial elites in this country, to roll?

  4. Harry Skip Robinson says:

    Interesting. They enter into loan agreements to obtain higher education at extremely low rates, and then as a rebellion against the moneyed interest, they think they should renege on these loans. Once again, as I have witnessed before with the Wall Streeters, the are rebelling against the wrong interests. Yes. abolish the Federal Reserve Bank, the Income Tax and deficit spending. Do you really want to destroy/harm the system that will provide loans to current and future students? The money those students should be paying would go to future loans. This reminds me of the scumbags that buy tax liens of properties of the poor and foreclose on them if they are unable to pay the taxes. Then they end up needing public assistance which requires greater taxes.

    • Ric says:

      No where in your spewage did I see any mention of a solution outside a crony capitalistic view. Why not instead save your hot air for heating your house.

    • Harry Skip Robinson says:

      Ric, You wouldn’t be able to understand it. Try reading The Law by Bastiat and The Voluntary City by the Independence Institute. Once you get up to speed then we will be able to communicate better and you will have a better understanding of what I really believe in.

    • nam says:

      so basically you didn’t read this article, just playing damage control for the rich?

  5. brandall715 says:

    “The incredible availability of loans guaranteed by the federal government allows colleges to continually increase tuition at a rate significantly higher than inflation. Mix this with the increasing necessity of a college degree to earn a living wage, and you have a pretty volatile brew. ”

    Very well said.