I Have an Idea, Said Someone, Let’s Sue Our Students

Perkins Loans are “low-interest loans to help needy students finance the costs of postsecondary education.” They are serviced by colleges. One really cool thing that’s happening right now is that some colleges are suing students who are in default on their Perkins loans, because they need them to pay that loan back so that they can lend out that money to more students who let’s face it they may then … sue to get them to pay that loan back.

Here’s a quote from a disgusting person interviewed for the article:

“Students who take these loans have an obligation to pay them back, said Neal McCluskey an associate director at the Cato Institute in Washington. ‘You could take a job at Subway or wherever to pay the bills and that’s something you need to do if you have agreed in taking a loan to pay it back,’ McCluskey said. ‘It seems like basic responsibility to me.’”

The Cato Institute was founded by Charles Koch, FYI, and has, according to the New York Times, “successfully injected its views into Washington policy and political debates, and given them mainstream respectability.” OH GREAT.

So, counterpoint for a second. Here’s one reason why a person might not be falling over himself to pay back a relatively small ($5,000! Relatively small!) low-interest loan:

“Graff, 30, said he hasn’t been able to find a full-time job. He earns $800 a month from teaching high-school equivalency courses and restores basements for extra money. He said he is trying to pay off other student loans first because they were co-signed by his parents.”

Why would he want to do that? Oh, just maybe because if those go into default and his parents own a house they might lose that house?

Sarcasm is among the lowest forms of comedy and also outrage, but I’m hitting my head against this desk and have nothing more for you right now. Goodbye.

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29 Comments / Post A Comment

EvanDeSimone (#2,101)

I suppose these schools do have the right to collect on these debts. However it certainly makes a very troubling statement about their priorities and their commitment to their alums post-graduation. Especially given that the debts involved are so small and these are universities with tremendous endowments who could certainly afford to be lenient.

highjump (#39)

@EvanDeSimone Not all institutions that offer Perkins are loaded (my college certainly wasn’t) but then I clicked through to the article and holy crap – Yale, Penn, and GW?!

EvanDeSimone (#2,101)

@highjump that was my thought as well. I’m surprised the only schools named in the article and large, prestigious, and well capitalized. Usually those are the kind of institutions that would be especially secretive about this sort of action

E$ (#1,636)

Because as we all know, most recent college graduates are LOADED.

josefinastrummer (#1,850)

Well, Neal McCluskey, employed person who has obviously never worked in food service and has no idea how little the people working at Subway are paid, it seems like basic responsibility to me that school loans are given out with the belief that the student will get a job that pays enough so he or she can pay back that loan. Where are these jobs? Is the Cato Institute hiring?

CubeRootOfPi (#1,098)

And all the while those colleges will be asking for alumni donations!

Anyway, McClusky also does not seem to understand the concept of rent and food. Or the idea that PEOPLE MAY NOT BE ABLE TO FIND JOBS (yes, “even those at Subway”) AND THEREFORE CAN’T PAY THOSE LOANS OFF.

nogreeneggs (#154)

@CubeRootOfPi Oh my god right? The second I graduated my school started calling me about donating to the alumni association. I just kept telling them I had negative money.

“The Cato Institute: When you need someone to voice ‘the other side’ of an issue, we’ll be there no matter how repellent it makes us sound.”

cloudy (#680)

So, a few things…
It is really vital that schools get their Perkins funds back as Perkins is a revolving fund and, without it, a lot of other students need those funds to afford their tuition (which is a whole different issue). From what I’ve seen and what the article says, most schools do everything possible to get in touch with the delinquent student and work out a rehab program for the loan. Also, collections agencies, at least when it comes to loans, are usually willing to work out a plan with the student, rather than waste their time pursuing a lump sum that isn’t going to get paid. So, how are these situations different from when someone has their property repossessed because of non-payment?

As a note, it doesn’t make a lot of sense to scoff at a loan being described as “relatively small,” and then turn around and imply that schools shouldn’t be interested in getting that money paid back.

josefinastrummer (#1,850)

@cloudy The problem is that people don’t have the money to pay back the loans! We aren’t talking about people making decent salaries who refuse to pay up; we are talking about people who can’t find jobs that pay well enough so they can pay back the loan and eat. If I had one of these loans, I would not be able to afford to pay it back and pay all my other bills, because my job pays so little. And I have a “real” job that pays little because my employer knows that young people are desperate enough to work for next to nothing and he takes advantage of that. People are being exploited but yet we still blame them for everything.

The whole point of going to college these days is to get a job. It’s not about growth or self improvement or anything like that. We are told in high school that if you don’t go to college, you won’t get a job that pays the bills. So we all went to college, took out the loans offered, and now the jobs aren’t here. Where do the Neal McCluskys of the world think this money is going to come from?

cloudy (#680)

@josefinastrummer Rehab programs for loans are designed around the student’s income level. Perkins Loans do have a minimum repayment of $40/month, but generally rehab programs are about that amount for 6-9 months to get the loan out of default.

It’s not really the schools’ fault or responsibility for their students’ fates after graduation. It’s a consumer choice as to which school students go to. If you cannot afford that particular school, then students need to have a real discussion with their parents and financial aid staff as to whether or not that is the best option.

I’ve said it before in comments on this site, but in my office (financial aid), every staff member has said that they are going to support a state school for their children.

Safari (#3,209)

@cloudy It is NOT a “consumer choice” when college degrees are mandatory for any kind of white-collar employment. People like you always appeal to the mythical Cheaper School as if everyone has access to a school that’s easily affordable to them. Do you not understand that even state schools (which are massively more expensive than they were even five years ago) are vastly outside the price range of low-income students? What would you have them do, forgo college entirely and remain in minimum wage service jobs forever, perpetuating the cycle of poverty? Or do you have more magical thinking in store for us, about how millions of poor students should just become entrepreneurs or delay college until they save up tens of thousands of dollars working those very same service jobs. Even community college is too expensive for many to pay out of pocket, and as more students opt to take their preliminary classes there, tuition costs are rising and Universities are weaseling out ways to refuse those transfer credits anyway.

Also, yes, yes it IS the school’s fault and responsibility if they are selling (remember you’re the one who wants to think of everything as a business transaction here) degrees as a gateway to jobs that don’t exist at prices those jobs couldn’t pay back even if they did exist. You’re shaming people for making the “choice” between guaranteed permanent poverty and short-term poverty with the hope of eventual not-poverty. How dare they.

sunflowernut (#1,638)

@Safari WORD.

TARDIStime (#1,633)

@Safari “making the “choice” between guaranteed permanent poverty and short-term poverty with the hope of eventual not-poverty”

You’re missing the part where that hope of eventual not-poverty is balanced out by a risk of crushing debt and that same poverty-line income to pay it off and eat. Anyone who is smart enough to get to college should be able to reach this conclusion after googling properly and asking some basic questions, or doing a quick search on any career website.
It’s really not that hard.
I know that sounds really hard-arse of me, but as a poverty-line person, myself, I’ve made sacrifices, waited 3 years, and saved loads of money to have a cushion of security in order to borrow responsibly for my university tuition. Was it fair that I had to do that? No. But life isn’t fair, and those on the poverty line have to make hard choices every day.
If you want to break a cycle of poverty and study while borrowing responsibly, it is possible. No-one said anything about it being fair.

ghechr (#596)

So I know that I’m an asshole, but I don’t understand what’s so contemptible about someone trying to recover money owed to them? Maybe there are better/more generous ways of going about it, but I’d hardly call it disgusting behavior.

@ghechr In this case, I think it’s because it’s universities doing it, and specifically wealthy Ivy League universities (and GW, haw), which attaches its own politics. For instance, the fact that universities like Yale, which has a $16.7 billion endowment (Penn’s is about $2 billion, GW’s is about $1.4 billion), are suing people like a farmer’s son who makes $800 a month. Even if they won a judgement, they would be unlikely to see much of the money, and are effectively ruining their alumnus’s life.

To put it further in perspective, the people most likely to have good-paying jobs (or generous parents) that allow them to pay off their loans after attending such an institution are the ones who were relatively wealthier and more connected when they went in. So this policy is more likely to hit marginal students — exactly the sort that other Ivies are trying hard to recruit (I believe Harvard is free for anyone whose family makes under $60k).

And in other areas of life, when you can’t pay off your loans, you simply go bankrupt. This is a risk that lenders factor in, and has been uncontroversial since the middle of the 19th century — in fact, three U.S. presidents went bankrupt during the 19th century (including Lincoln.) The lack of this option is a fundamental part of why many people feel student loans are unjust. If I borrow money to finance a house, a car, or a cocaine addiction, and then find I can’t pay it back, I can go in front of a judge and have the slate wiped clean. It’s not painless, and is not meant to be, but it is an important feature of our economy that allows people to take risks.

The ultimate point, however, is not that nobody should try to collect on these loans, but that the structure of the program puts universities in the awkward position of being the ones who have to do the collecting.

Mike Dang (#2)

@ghechr I probably wouldn’t have used the term “disgusting”, but it seems strange to me that someone like McCluskey, who must have a very solid and considerate understanding of the student loan debt crisis if he’s commenting about it, would say something like “Go get a job at Subway.” As @highjump says below, Perkins loans can be more difficult for borrowers to manage and is not eligible for Income-Based Repayment, which is designed specifically to make it easier for students to manage their loan payments.

Sincerely, Jane (#1,588)

@stuffisthings But isn’t the fact that these loans are bankruptcy-proof the reason that these higher-risk student borrowers were able to borrow in the first place?

And with a car or a home, there is a physical asset that can be repo’d to recoup costs during bankruptcy. For student debt, you can repo… the diploma? It would be so easy to declare bankruptcy as a new grad with no assets anyway that no one would ever pay for college, and therefore no one would ever give college loans. (…and therefore colleges would have to become cost competitive so that loans weren’t necessary for the majority of students?)

@Sincerely, Jane That’s an argument some people make, but I haven’t seen any compelling empirical or theoretical basis for U.S. policy towards the treatment of student loans in bankruptcy.

Speaking anecdotally, low income people are often able to attain debt burdens (even unsecured burdens) similar to those taken on by typical student loan borrowers, so the possibility of bankruptcy does not seem to have overly constrained other kinds of credit to low-income people.

ETA: Yes, people routinely take on unsecured debt, such as credit cards. According to your theory, we would expect most people to max out their first credit card and then declare bankruptcy, but this doesn’t usually happen, and people are still able to get credit cards.

ImASadGiraffe (#982)

I remember my Perkins loan having the lowest interest rates out of all my other federal student loans, so I didn’t consolidate it, and then realized it made sense to just pay it off as fast as I could so I didn’t have that extra monthly payment hanging over my head. But I was lucky I had a decent paying ($30k/year job in 2006) to do so.

highjump (#39)

This is somewhat tangential but it should be pointed out that the Perkins Loan program can be especially hard for borrowers to manage. They are often not able to be consolidated with other loans and deferments are harder to obtain. They bill quarterly which pushes them to the back of the minds of borrowers (at least for me! I am always shocked to see that $120 payment get auto-debited every three months). And I don’t know if this is all Perkins loans, but mine is serviced by stupid ACS, which is by far my least favorite of the five different student loan servicers I’ve worked with.

Some public service loan forgiveness programs like those for teachers, put borrowers with both Perkins and Direct loans in a catch 22, encouraging them to forgo a smaller subsidy on their Perkins loan for a larger TEACH grant. However, if they don’t complete the necessary years of service in a high-needs district then they lose their TEACH grant but don’t become re-eligible for help with the Perkins loans either. There are some other programs that do this because Perkins is a smaller loan program than Direct and is often not taken into consideration when creating incentive programs.

So basically, Perkins loans take more time for the borrower to manage than the amount of the loan often warrants. I’m not surprised they have high-ish default rates. I’m sure a place like Penn or GW have the resources to make paying the loans back easier for borrowers instead of moving straight to litigation.

jmdj (#2,994)

When I was applying for college & the associated loans (including a perkins), I had a discussion with my parents regarding the following: choosing a major and its market-ability and using this information in choosing a school and the debt load the related career would afford me to handle. In my 18 year old head it seemed terribly unfair. But I think more people need to be having this discussion. Opting for an expensive education for the sake of the institution’s reputation, then blaming the institution for your not being able to pay for services received seems a little wrong-headed to me.

josefinastrummer (#1,850)

@jmdj I agree it’s something we need to be talking about, but what if you don’t have parents like yours to have this discussion with? I went to a great high school with guidance counselors who only helped you with college. If you needed other guidance, you were out of luck because there were 650 seniors applying to college! But a friend went to a Catholic school and they had no help applying to college and there was no talk about loans. His parents were not borrowers so they had no idea about loans. What happens to those kids?
Also, making an 18 year old decide what he or she wants to do for a career at 18 is just a really bad idea. God forbid they get to 22 and change their minds!

WaityKatie (#1,696)

@josefinastrummer Exactly. My parents gave me no guidance on where to go to college other than “you can only go to a state school.” When I told them about scholarships and financial aid at private schools, they said I could consider private schools. My guidance counselor didn’t do anything at all, I saw the guy maybe one time my freshman year, when he lecturing me about trying to make friends (I was new in the school) and after that…I had one conversation junior year where I told him I was interested in law and he laughed at the idea. So no, he wasn’t helping me figure out how to finance my educational goals in a cost effective manner, ha.

selenana (#673)

@WaityKatie My high school guidance counselor told my good friend to drop out of school. Said friend has just become a professor at a university. Quality of guidance counselors varies widely.

TARDIStime (#1,633)

@josefinastrummer I also had no guidance from parents re: choosing a career/study major.
I did a LOT of extensive googling about the career I wanted, asked people in those careers how they got where they are and where they studied/what they studied. I did even more extensive research about the FEE-HELP loan program in Australia and what it all could cost, as well as which degrees I needed to to what I wanted to do.
I was not pressured by my parents to go to uni at 18 and am so grateful because it gave me 3 years to breathe a bit and really figure out what I wanted.

grog (#2,222)

Related to student loans, but slightly off topic:is anyone out there able to make principal-only payments on consolidated federal Stafford Direct Loans?

Every extra payment I make, even if I write ‘Principal Only’ on my check, goes to interest first, then principal (and the extra payments don’t extend my due date). The promissory notes indicate that “All payments are applied in the following order: charges and collection costs first, outstanding interest second, and outstanding principal last.”

Does anyone know a way around this? It’s such a crock of shit!

(BTW, I took out the loans from 1997-2001 and consolidated them in 2002. My interest rate is 3.375%, so refinancing doesn’t seem like an option)

CubeRootOfPi (#1,098)

@grog Do you have ACS? Anyway, you have to time your payments so it’s either on the same day or the day after you make your monthly payments.

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