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No Bailout for Predatory Lenders

One of my friends wrote a letter to Treasury Secretary Paulson regarding how to spend, or rather how not to spend, the bailout money. It's very much win and copied here in its entirety with her permission.

The Honorable Henry M. Paulson
Secretary of the Treasury
1500 Pennsylvania Ave., N.W.
Washington, DC 20220

Re: No on Student Loan Bailout.

Dear Secretary Paulson:

As an individual who currently owes over $45,000 in private student loans, I am writing to urge you to reconsider the plan you announced last week to allocate funds from the $700 billion economic rescue package to private student loan providers.

I graduated with a professional degree over four years ago, but in the time since then, despite making timely payments each month for as much as I could muster (and always at least the minimum amount owed), I have barely made a dent in my loan balance. This is not due to lack of diligence on my part, but due to unwavering greed on the part of these lenders.

When I graduated from college in 2001, I was debt-free. I was the first person in my family to graduate from college, and my parents were extremely proud. I'd been a fortunate scholarship recipient and had not needed to apply for undergraduate student loans. While this is at least a positive contribution to my overall debt, I believe my lack of familiarity with student loans as I entered graduate school has hurt me in the long run.

My goal, upon graduation from college, was to attend law school, and I was accepted to a number of schools. I chose Vanderbilt; they had offered me a scholarship and the school would be close to my hometown, meaning I was more familiar with the area and knew more about the school's reputation. I knew that law school would not be cheap, but I also felt certain that it would pay for itself in no time. Who ever heard of a lawyer being unable to pay off student debt?

What I was never told is just how common this problem actually is -- how easy it is to get in over your head. I should have been wiser about my borrowing decisions while in law school, and I fully accept that personal responsibility. But what choice did I really have? I needed the money to finish school, so I borrowed. Federal loans, subsidized, unsubsidized, Perkins loans, and even private loans. I vaguely understood the difference then, but what difference did it make what the interest rates or the payment terms or the consolidation options were going to be on these loans. I was going to be an attorney with a great job, so surely I'd be able to make a healthy paycheck and pay down these loans before the interest rates even became an issue. Right?


I worked while I was in school to the extent that I could without interfering with my school work. First year students are actually forbidden, by ABA standards, from working while in an accredited law school program. And after that first year, my summers were often spent doing internships and research work that did not pay money but, rather, gave educational credit. In fact, I had to borrow more money one summer to pay the "tuition" for the educational credits I received as part of a judicial internship. I thought these opportunities would only help me in the long run, though -- I'd get a much better job if I had a well-rounded experience that included working for professors and courts, right?

Yet still, those were months that I'd thought I'd be making a paycheck that I could put toward my student loans that were, instead, spent putting living expenses on credit cards. So not only did I rack up student loan debt, but for the first time in my life I had credit card debt, too.

For most new law school graduates, the first few months out of law school are typically spent studying for the state bar exam. Some people are fortunate enough to find excellent jobs with prestigious law firms who allow the new attorneys to work while they study for the bar. Some firms even pay the bar exam fees and the tuition for the pricey bar preparation courses. I wasn't so fortunate, so another few thousand dollars of student loan debt went into my portfolio so that I could pay for my bar exam and Bar/BRI courses.

I passed the bar the first time, thankfully, but like many of my classmates, I still had no legal job. The job market for fresh, young attorneys in Nashville was flooded, competition was fierce, and wages were much lower than those we'd envisioned at law school orientation. Most jobs were starting from $30 to $45k for "average" graduates, with the $50 to $55k positions going to those students who were top of the class law review editors.

For my first year out of law school I had to request forbearance/deferments on my private loans because I still couldn't find a job that paid enough to support me and my student loans. I consolidated my federal loans immediately, locking them in at a safe, affordable interest rate, but my private loans were still floating around out there, eventually demanding three separate checks per month in addition to the federal loan payment. There was $14,000 with Citibank, there was $35,000 with CIT/Student Loan Express. There was the $45,000 with Access Group/KHELSC. All told, today I owe over $120,000 in total public and private student loans, interest, and origination fees. I effectively have a mortgage on my education.

This means that I pay almost $1,200 per month in loan payments, and because my private loans are not locked in at fixed rates, the payments on these loans are much more likely to rise before they decrease. Each fiscal quarter for my first four years of payments I received notification that my interest rate had been adjusted upward and, thus, that my payments would rise to reflect this change in interest rates. However, it's funny that interest rate decreases never seem to happen quite as promptly.

But what's $1,000 a month to an attorney? It's a lot when most young associates in your area start out at $45,000 per year pre-tax. Almost fifty percent of my monthly income goes to pay student loan bills. Yes, fifty percent. One of the two hard-earned paychecks I receive each month goes to pay for the education I had to have in order to get the job I have now. It really puts a damper on your opinion of your education when you realize that you've essentially studied and worked for 7 extra years to make, after student loan payments and taxes, the same amount of money you could have made working at a retail store with no advanced degree.

Thanks to the "opportunity" that these private loans have given me, I couldn't qualify for a standard mortgage without a co-signer because my debt-to-income ratio was so high. I'm certainly not contributing to any form of retirement fund or engaging in "life luxuries" such as donating to charity or starting a family. I'm living a tightly budgeted life, and I'm doing so with the understanding that as my loans are currently structured, I may be doing so for the next twenty years.

I borrowed the money. I received the education. I owe the debt. And I'm paying it back. It's a struggle, and there's rarely a day that goes by that I don't regret the debt I have and feel that it all wasn't worth it. If I had it to do over again, I'd have stopped after my undergraduate education, and I'd be living a better life than I am right now. I'd be debt free and able to make choices that I can't make for myself now.

So if I have to struggle for my choices, why should my taxpayer dollars go to bail out the same lenders who have been so inflexible with me? I have made extensive efforts to restructure my private student loan debt at the currently affordable interest rates, but these same lenders who allowed me to borrow the money without question at 21 years of age and no employment call me a "high credit risk" now that I'm 28, have a 700+ credit score, and am gainfully employed. They won't allow me to refinance the debt that I already have with them -- because I have too much debt. They're receiving half my annual salary, yet I'm supposed to want to give them my taxpayer dollars, too, to help them out when they're in need?

If their business models fail, it will be because of greed. If they hadn't charged just out of school students variable interest rates of as much as fourteen percent -- when even their credit cards were only charging seven to nine percent -- then perhaps more of these people would have been able to fulfill their debt burdens and remained out of default. Private student loan lenders already receive special treatment by having their debts unable to be discharged in bankruptcy, so even in a poor economy they have security that housing and automobile lenders do not.

I don't want my tax dollars used to prop up the market for these loans, effectively rewarding companies for making predatory, usurious loans to vulnerable students. The economic rescue package should be spent on responsible programs that are vital to our economy and good for both consumers and financial institutions. Private student loans do not meet these criteria.

If you do choose to bail out these lenders, then you must force them to bring their loans to federal student loan standards. Force them to offer consolidation programs to students with high student loan debt burdens, to honor the currently available lower interest rates, and to give their borrowers the same fair lending treatment that other loan providers must. It is patently unfair for these lenders to receive government aid but still be permitted to scalp their borrowers -- often young students desperate to continue their educations -- without recourse.

I'm paying for my decisions, and willingly so. Let them pay for theirs.

Holly Kristine Jones

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