Ep 5: Sallie Mae is Not Your Friend

How much are we talking? Probably close to like 200,000. 200,000 and loans, you're 24 years old. How long do you think it'll take to pay those off? Probably like 10, 12 years. You can do it in 10 years? Yeah, like 20 grand a year? Yeah. Plus interest? Yeah, later on. When's later? It's probably like in the next five years. It's probably when I'll start like being able to really pay it off. So we're talking 17 years from now? Yeah, for a long time. You're going to be an old man by then. Yeah, probably. How long do you think it'll take you to pay off your student loan? I've been doing it for probably almost 15 to 20 years. Oh, my goodness. You've been paying it down your student loans for 20 years now. Yeah, that you want to see it gone? I would love that. I would love it. How about you? When will I pay them off? Yeah, but when I die. That's comforting. So you're like, I'm going to pay off my student loan. It'll take forever? Yeah, I'll just like pass it on to my kids. How about you? You guys student loans? As a freelance artist, I think I'll keep paying it until you get to a certain age and then at that point, it just disappears. So you're going to rely on the government to hopefully just pay these off eventually? Hopefully, yeah. Good luck. From Ramsey Network, I'm George Campbell, and this is Barrowed Future. A podcast series exploring the $1.6 trillion student loan debt crisis, and the impact it's having on real people. In this episode, we'll talk about how we got into the student loan debt crisis in the first place, and the predatory practices that keep borrowers in debt. Anthony O'Neill, author of the bestselling book debt free degree, describes how we got here. Back in the 1960s, banks were not even considering giving students loans because they were a high-risk borrowers. Clearly, they were. They were 17, 18, 19 years old, and so it was hard for young people to get money to go to college. But then in 1965, the government, you and I, taxpayers, guaranteed the student loans. So this means that if you want to go to this expensive school, as long as you get accepted into the school, you will get the money to pay for school. When the federal government came in guaranteed loans, the cost of college started rising a little bit. We seen the first spike as early as in the 1980s because it was like, hey, this is free money. Let's get it. We could charge these kids whatever because the federal government's going to guarantee the loans. Does it make me upset that a 19-year-old who does not have a job, who doesn't even know how to budget, who's never even worked a job for at least a good solid year? They can just go in there and sign for $150,000 in student loans. They sign for something equivalent to a house. They sign for something equivalent to two, three, four cars depending on what type of car you get. Does it make me upset that a young person can do that? Absolutely. What really makes me upset is that they can do that without even knowing what they're actually doing and what's the consequence for that. I didn't realize what I did at the age of 19 years old. But I quickly learned when I became homeless, I quickly learned when I had to pay it back. I borrowed $10,000. I paid back $17,000 because I did not know. So it doesn't make me upset that anyone can just walk in, especially 18, 19-year-old and just borrow money it does because they don't even really know what they're doing. So frustrated. To help us understand how to fix this mess, we've got to look at how we got here in the first place. Let me explain. After the Soviet Union launched a beach ball-sized satellite called Sputnik in 1957, America got a little insecure and decided our students needed more higher education to keep up with these Russian rocket scientists. So President Eisenhower established a low-interest student loan program through the National Defense Education Act in 1958 to make it easier for middle-class families to send their kids off to college. This money came directly from the government. Sounds great, doesn't it? Fast-forward a few years to 1965. President Johnson wanted to make loans and grants more accessible to poor students, so he signed the Higher Education Act. Now it was even easier to go to college, but it also changed the way these loans were funded. The money would now come from banks instead of the government. The banks loved it because student loans were now a low-risk investment. If students defaulted and couldn't pay back the loan, the government guaranteed that it would foot the bill. Things really went off the rails when President Nixon created the Student Loan Marketing Association in 1972, or SLMA for short. A better nickname, Sally May. Not the most creative name, but it stuck. This was essentially a company created by the government to help college students borrow more money in the form of student loans. They did that by helping Sally May buy loans from the banks, which meant banks now had more money freed up to lend to students. The best part? The government guaranteed all of that money, which really just shifted the majority of the risk to taxpayers. Not cool, guys. Things went completely bonkers when the government decided to let Sally May transition to a private company from 1997 to 2004, while still guaranteeing their loans. This meant Sally May could focus on generating massive profits, which they used to up their marketing and crush the competition. They paid colleges to drop the government loan program and sign up with them instead, sponsored cruises and trips for financial aid officers, and sneakily put Sally May employees in university call centers to talk to students who thought they were talking to college loan officers. Does this sound like a company you want to do business with? Sally May put the cherry on top in 2005 when they convinced Congress to add private student loans to the list of debts that can't be forgiven, making it nearly impossible to wipe away through bankruptcy. That means if you can't pay, you go to the grave with Sally May. Skip to 2010, when President Obama decided to do away with the federal guarantee loan program, which led private lenders offer student loans at low interest rates. He thought this would save money by cutting out the middleman and taking away the government burden to guarantee private loans. But it didn't save money at all. In fact, the Congressional Budget Office just increased its 10-year forecast for the loan programs cost by 30%, which amounts to an extra $27 billion. So over the last 60 years, the government, with the help of banks and lenders, made student loan debt more accessible and easier to get, mission accomplished. So if you're still tracking with me, we're left with a giant dumpster fire that no one can seem to fix. Back in February 2019, the Wall Street Journal interviewed economist Alice Rivlin, who led the task force during the Johnson administration that created the system of federally guaranteed loans. When asked what she thought about the system after five decades, her response was, "We unleashed a monster." This timeline of events laid the groundwork for an entire nation to be duped into taking out student loans. Here's Dave Ramsey, financial expert and host of the Dave Ramsey show. He's seen the tides change drastically over time when it comes to higher education and student loans. The culture in the last three to four decades has dramatically shifted. We went from saying education is a good idea, that it's good to have some academic prowess. It's good to do those to where it was completely, totally necessary. Then it went to, not only is it necessary, but it's like a guarantee, no matter how ridiculous your degree field is, that your guarantee to be more successful. So you have to have this. It was permission to play. You couldn't even participate in the economy if you didn't go, which was a ridiculous set of assumptions. So it went from the idea that we value education and we value academia all the way to, it's just permission to play and you can get a degree in anything and you automatically are okay, thus we have ridiculous student loans associated with it. There's a lot of blame going around when it comes to this crisis, but a huge piece of this terrible puzzle is the mindset that college is necessary to become a successful adult. But as it turns out, 18-year-olds with unlimited access to money is a surefire way to avoid ever achieving that success. Anthony O'Neill unpack some myths that have led us into this mess. There are two main things that have caused the student loan crisis. The very first one is our sleeping society. You see as a society, we bought into some powerful myths about college. We've not only bought in, but we keep teaching this to our young people. Everyone needs a college degree. A degree is worth whatever you have to pay for it. College is always a good investment. Student loans are good debt. The more prestigious schools you go to, then the better off you'll be, the better jobs you'll secure. These myths fuel the demand for a college education at all costs. So that's our sleeping society, but here's the big part. The government, I said in, since 1978, college tuition has increased by over 1,000%. See because we have this guarantee money from the federal government, colleges can jack up their prices every year. If we could take away the guarantee money if we can end student loans, this forces colleges to bring down their prices. And then it also forces our young people, our parents, to not get creative with how they're going to pay for college, which is working, scholarships, or grants. But it starts with ending student loans so our colleges will be forced to bring down their prices. If we really want our young people to take control of their future, it's time for them to stop taking the kids approach and start making an adult decision. Because an adult decision is thinking about their 40, 50, 60, 70-year-olds self. An adult decision is thinking about their future wife, their future husband, their future kids, their future family, their future legacy. But a kids approach is all about today, how do I feel today? I'm going to the coolest school, I'm going to this real nice school, I'm going to get a good job. So an adult makes an adult decision that is best for their adult future. It's time for our young people to grow up, it's time for our parents to help our young people grow up and make better decisions because the caliber of their future will be determined by the decision, the choice they make right now. The student loan debt crisis is a complex issue and the worst part is the negative impact it's having on people. Seth Fropman has seen the struggle people face in his work as the executive director at the Student Bar War Protection Center. America absolutely has a student loan crisis and the folks who I think argue that we don't have a crisis aren't being nefarious. I think we have a problem now where everyone thinks the only way we have a significant issue or a crisis in consumer markets is if it looks exactly like the world looked in the late 2000s and what I always try to argue is we could have a crisis even if investment bankers aren't walking out of their offices with the context of their desks in a box. The threshold for crisis and action can't be does this look like the entire mortgage market melting down. If the only way America reacts is if we call something a crisis and it has to rise to the systemic risk levels of mortgage back securities we're in a lot of trouble because in the student loan market we absolutely have a crisis so there are now more than 8 million student loan borrowers in default. We had a million student loan borrowers default last year, a year before that, a year before that, a year before that. So if you do the math that means every 28 seconds another student loan borrower defaults on his loan. On top of that we have 3 million more borrowers who are behind with no plan to figure out how to help them. So that's over 10 million people or one out of four student loan borrowers who are having their financial lives ruined as they can't make their payments. But I think where this really becomes a crisis is the definition of who struggling is a lot broader than people who aren't just paying their bills and there are millions of people who faithfully pay their student loan bill every month where that debt is having an enormous implication on their lives and their communities. So we see student debt now impact things like the ability to buy a house, save for retirement. Whether or not you're going to go to grad school, what career you choose even if you're going to start a family, but then I think where this gets really scary are the larger implications like the student loan crisis is bigger than just the monthly bill that people get. So we're seeing student loan debt drive income inequality, there was a study documenting how student debt is driving out migration from rural counties because people just can't afford to like live in a rural area with a $400 a month student loan bill. And I think where you see momentum and optimism is like the people who are in charge of running states and cities kind of get this. So we've seen some of the most conservative politicians in the country fight for things like student loan repayment plans arguing that student debt is an existential crisis in rural communities. And I think when we've reached that level we could confidently say we are in a crisis now. So what's interesting is I've talked to thousands of people in my career talking about student debt. They're frustrated that policy makers are engaged in a massive game of finger pointing, right? Is it states not investing in higher education? Is it academic bloat? Is it the free flow of credit in the form of student debt? And what I hear is like we don't have time to wait to figure out which is the most or the number one culprit they're like I just need help now because I think people understand at a basic level you don't have a $1.6 trillion market with one villain with one culprit. What you generally hear is almost from policymakers like what's the silver bullet or here's a policy proposal that could give some relief to some people but it doesn't help anyone is it worthwhile. And my response is you can't solve a nearly $2 trillion problem with a single policy intervention. It is the culprit of many and we will need many solutions to solve it and I think people are just don't have the luxury of having these big academic debates and like having this battle royale of who's the policy winner. They're just like I can't buy a house for my family or I can't put anything away for retirement or you know I desperately need to go back to school and I'm petrified because I have so much debt already. That is I think where more of the focus needs to be which is people are struggling and they just need help. Millions are struggling to keep up with their student loan payments and it's affecting their lives and the farther you fall behind the harder it is to get caught up which leads to bad places like default, forbearance, deferment and even bankruptcy. To help explain some of these concepts I talk to Beverly Wheelahan. We heard from her last episode she's an attorney in Michigan who focuses on student loan law to help borrowers who are in bad situations here's more of her story. So I knew I wanted to be a lawyer from a young age and the only way you get to be a lawyer is to go to law school so in order to go to law school I needed to have money. Law school that I went to was a private law school and it cost close to 30,000 a year to go so I took out student loans. Everybody took them out that's what I was told a financial aid officer said don't worry about it. Of course you don't know how much you take it out. I signed and signed and at the end I walked out a law school with 80,000 and then I had a few private loans which was not all that much to cover the cost that the federal loans didn't and I can tell you right now I'm over six figures and I've been paying on my student loans for 13 years. So has it grown in time? Yes. Instead of going down? Yes it grows because of interest and if you're not on the 10 year repayment plan really you're not hitting the principal and every year they will capitalize and so it's a snowball for sure but not the good snowball. So what were your minimum payments coming out of school? $1,200 just on my federal loans. A month. Wow. So when you were hit with that bill and you had to start paying off those loans how did it feel? Devastating. It was devastating because I went to school with absolutely no debt, no credit card, nothing and so now you're looking at $1,200 and you're like well how do I ever buy a house? How do I even get a car to get to the job I'm supposed to have and how am I going to feed a family if I have a family and all of those things. I mean $1,200 is a lot of money. What was the terms of that? How many years? So $1,200 for 10 years. Unfortunately when you lose a job and you can't find a job then there's these things you can on your federal loans get different payment options. So oftentimes you'll hear income-based repayment as some buzzwords to firm it forbearance. So when I lost my job while I was looking for another job I did put my loans into a forbearance which means they don't have to make the payments but the interest goes up and up and up and up and up and just keeps going and that's where that snowball started. I knew just from the math that I was in trouble but it was too late at that point. And so what I realized is that if I'm smart and smart as I thought I was, if I'm in this kind of trouble there's probably a lot of other people in the same kind of boat. That's how I kind of became a student all my lawyer. So talk to me what exactly is forbearance and what do they tell you about it? Well forbearance is when you are under certain circumstances allowed not to make a monthly payment because maybe it's an economic downturn for you or unemployment forbearance is another forbearance. So they halts your monthly payments but your interest continues to accrue. In depending on the type of loan there's different options for you. Usually these are only options on federal loans. Private loans rarely have a forbearance. Unfortunately the number of people who can't make their student loan payments keeps growing and growing. According to the Wall Street Journal, journal nearly 1 in 4 borrowers are now behind or in default on their student loan repayments. And if they dropped out of college, their chances of defaulting increased to 40% according to the National Center for Education Statistics. That's not good. So what's involved with going into default? Let me explain. There are millions that are saddled with debt so badly they can't even make their payments. And that can lead to something called default. Delinquency is the first step, missing that first payment. And when you miss full payments on your student loans for nine months or more, you move into default on your loans. At this point, a collection agency is coming after you to get their money. They'll take money out of your paycheck without your permission, your tax refund can be withheld, and to add insult to injury, your lender can take you to court. Sounds like a party, right? Defaulting on student loans is now an epidemic. So a default on a federal student loan takes 271 days. So what it means is you've missed a payment and you didn't put it in for a variance or a deferment or any other type of halting on the process. So they'll send you letters that say, "Call us, call us, call us, let's work something out." On day 272, you've technically defaulted on your federal student loans. A private student loan is a contract, and so the first missed payment technically you are in default, it just depends on the person that has loaned you the money, what steps they will take next. This is all fun stuff here. Oh, it's wonderful fun. I deal with it every day. This is a really huge, huge impact on people in every regard of their life. I talked to Teresa, who while seeking help with her payments, was unaware of how interest rates would increase her balance and keep her stuck on the treadmill of debt. Why did you take out student loans? Why did you feel like that was the right option for you? Okay, so in 2006, I took out a loan from my oldest son for him to go to college. I borrowed $11,000 so he could go to a junior college in Illinois. And then the very next year, my second son, 2007, also graduated high school and was about to go to college. And so I borrowed money for him as well, $12,000. The first year that each of them was in school, the loan was a parent plus loan. So if you fast forward those two loans that started out in 2006 and 2007, I've made some payments over the years, a few here and there. However, if you can't pay, it takes 10 seconds for them to simply tell you that you can do forbearance, they read you a disclaimer. It literally takes less than 10 seconds and you're on your merry way and you don't have to pay again for the next six to eight months. So if you fast forward to today, that loan is 400% bigger than it was when I borrowed it. The first one is now $28,000 and the second one is now $39,000. Default forbearance and deferment are dangerous words. But there's one word when it comes to student loans that doesn't seem to scare off many parents. That word is co-signing. When you co-sign a loan, your name is attached to the debt, which means you essentially just took on that debt yourself. If your student can't make their payments, you are 100% responsible to pay it back. According to consumer reports, about 93% of private student loans taken out in the past year required a co-signer. For most federal loans, you don't need a co-signer. But when you do need a co-signer on a federal loan, it's called a parent plus loan. And that means the parent is the primary borrower. Beverly describes how these work and why they're so terrible. When we're talking about parents, a lot of parents want to help their kids out with parent plus loans. How do they work? So parent-planned loans are the devil for a parent that ever hopes to retire. So don't do them. You're not helping your kid by going into any more debt for them. And what I have heard now is that oftentimes the student loan office or the financial aid office will push parents into these student loan parent plus loans by saying to them, "Oh, don't worry about it. When your child graduates, they can just consolidate that parent plus loan into their loan so you don't even have to worry about it and pay it." So absent hurting yourself financially by taking on debt when you may want to retire, you're hurting them in the long run because if your goal is to just put it on them, how are you really helping them? You're not. How does co-signing work? And if someone dies, does that get passed on to the co-signer? Okay, so co-signing in most, and I say that in general, most federal loans you do not need a co-signer. There are certain federal loans that require it to depend on its grad school. It's that it's different loans, okay? So a co-signer oftentimes will only come into place on a private student loan. What that is is that the student themselves don't have the credit or the income to support loaning them. So the bank needs that co-signer. So what happens is when the student defaults, that co-signer is now on the hook. And so they'll then go to the co-signer for payment. So what often times will happen is that you're sitting around Thanksgiving dinner and you found out that somebody wasn't paying because the conversation comes up that somebody either filed bankruptcy or, "Oh, I missed a payment." So that's why mom, you're going to get that collection lottery pretty soon and really sorry they started to call. It makes birthdays and Christmas a little icky for a while. Have you seen that affect relationships? Yes. I've had parents, and I've had grandparents call me and say, "I want to sue my nephew or I want to sue my son or my daughter because they promised me they would pay me back. Can I sue them?" The short answer is sure. The long answer is, "Are you going to ever celebrate Christmas again?" Yeah, lawyers can sue people for just about anything if you're creative enough. So certainly, yes, you can sue your son because he promised to pay that loan you took out, but are you really going to? Some people say yes. I don't do those lawsuits though, but I mean, yeah. They sound like a blast, if you ever want to do it. Maybe I should. Maybe that's what I need to do is do those lawsuits. So you're talking to these parents, they're still paying on their student loans now with this newer generation coming out. So what stories are you seeing from baby boomers who are still paying on their student loans? Really the story is just like, "How did I get here? I should be retiring. How do I get rid of this student loan?" That's really what they're asking. How do I get rid of it and the answer is you've got to pay it, so you're not retiring. You're not retiring anytime soon. Are you seeing their social security being garnished from that? Yes. If they're in a payment plan, no, but the reality is that if they're in a payment plan, they can't retire right because they're paying that debt, they need the income from the job. Co-signing may sound like a kind gesture for families to help students pursue education, but lenders have done some crazy things to get people on the hook. Remember Josiah, who was shocked by the interest rate math in our first episode? He's back with a co-signing horror story. Why did you feel the student loans were the only option for you? My brother had him, well, it's in a big deal. My sister had him mainly through federal money, but to me it wasn't a big deal. My step brother had him, my step sister had him, 90% of people in college had him. So it's just normal? Yeah, it's just normal. It's not this big thing that I have to worry about because, hey, you know, it's normal to have student loans because if not everyone has, you know, $20,000 sitting ready to go. So I just said, it's normal, it doesn't matter, I'm 18, who cares, and I'm going to do it. My brother had my uncle signed for his loans. So when it came time to actually co-sign for loans, my mom decided that, no, okay, I can do it this time, you know, I'm remarried, I got good credit score, I got all these things that I'm just ready to do. So she said, I can help you out. So awesome, I'll take the money where I can get it. And then we got approved. Awesome, okay? I mean, it's the money that I needed to go to school. It's not just as simple as that. The interest rate for that loan is at 13%. That's just a mind-bending number, like how is that even possible? To me being 18, that didn't mean anything. It's just a number, it's 13%, whatever, I don't know what that really even means. So my mom, no, that was shocking, that was, she couldn't believe what was going on. But we went to go do it again, no, a year or so later. Same thing comes back and then we realize that the credit bureau that we use for the student loans, thinks my mom, who's my co-signer, is dead, that's a bit of a problem. I mean the fact that my mom is not dead and that she was co-signing my loans and yet the loan agency was giving me the money anyways. So I was getting $20,000 with no income, with a dead co-signer and they said, "Yeah, what's the worst that can happen?" And they gave me the money anyways. So that's when it was really a mind-blowing thing and I realized that not everyone has your best interest you know at heart that they're gonna they're gonna do what they got to do to put money in their pockets. - So Sally May allows a co-signer who they think is dead to sign off on this loan. What was their reaction when you called them and you said, "Hey, my mom isn't dead." - When they told us that my mom was talking to the lady and she's like, "Oh, the reason why the interest rates are so high is because your co-signer has shown that she is deceased." And I think my mom just lost it, saying like, "How is this even possible? How could you do this? Why would you even approve us for the loan?" When you think I'm dead, granted I'm not, I'm right here, but it was all because of when my father passed away, my mom and him had a credit card together and it showed that the owner was deceased while they were both the owners. So she got marked as deceased. We didn't really know what to do. We just kind of knew that she couldn't be the co-signer anymore. So I had my step-dead co-sign from there on out in the interest rate went from 13-11% with my mom to about 4% with my step-dead. - Even when your co-signer is alive and well, borrowers can't always make their payments, which means their co-signers are on the hook. Anthony doesn't want parents or students to be on the hook when it comes to their future. - So I was sitting down talking with one of my mentees who are mentor throughout the year and he said, Anthony, how, I'm just gonna take us to the homes. I just cannot do it. And I looked at him and I said, you know what, man, you're going to easy route. Stop being lazy. Set a vision, take action and just go after it. You have to accept your responsibilities. If you're gonna be a grown man and/or a grown woman, stop waiting for everyone to help you out and to give you something. Stop going to easy route because I'm telling you right now in the future, you're going to regret the easier route. Take action right now and be willing to endure some pain so you can gain so much momentum and freedom after you graduate college. You have to take action right now. And the best way to do that is to step back, assess your situation, look at your major, look at an affordable school. Identify going to college is even for you. Maybe it's trade school, maybe it's a military process, maybe it's taking a gap year, you have to identify what's the best route for you that will impact you perfectly in the future. - Every parent wants to believe that their kid is going to be able to afford their student loan payments. One of those parents is Mark. He co-signed on his son's student loan to help him pursue his dream of a career in film. - Why did you want to avoid debt so badly? - Well, I just saw it happening around me, people carrying it for years afterwards and not being able to get their life in order. And I actually have one of my six children. He has $2,000 a month in student debt from going to St. John's University and just putting forward it, got the loans and he ended up now paying for it over and over and over again for 22 years he has to pay it. - So knowing your story and now hearing about his was there a conversation between you guys where you said, hey, I think this is a bad idea and he went, I don't care, Dad. - Exactly, that's exactly the story. Two babies, they have their four month old and they pay more in student debt than they do for their rent. - That's wild. So how much did he end up taking out total? - I don't know the exact amount, but somewhere in the $200,000 range, it cost him $250,000. - And what kind of degree costs $200,000? - He went for film and television and he's now selling computers for Dell. So it really did not pay off the way he had expected it to pay off. - So does he regret getting the degree? - I think he loved the experience. He went to Europe for a year. They had a campus at the Vatican, but I think looking back he would have gotten a different degree or not had the student loan. - Wow, so how have you seen it affect his life having a $2,200 a month student loan payment? - It affects my life more than it affects his life because we pay for most of it 'cause he just can't afford it, especially with babies. So he's not able to do anything extra that he would like to do, other than work and basically stay home. - Was there a reality that you considered when he took out these loans that, "Hey, I might be foot in the bill for this guy?" - At that time, no, 'cause everything was gonna work out perfect. You know, it just was the right thing to do and the loan was gonna be cheap and literally you know that it should become well interest the first six, seven, eight years, paid none of the principal and then find out you still owe $250,000 after paying for eight years. I think the government's done a horrible job but the independent banks have done a worst job. They take advantage of kids trying to go to the school, have the experience, do the experience, live in campus, travel, all this kind of cool stuff and not really explain to kids that, "Hey, if you sign this bottom line, this is what you're gonna owe coming down the pike." - So who do you think is to blame for this whole student loan crisis, $1.6 trillion in outstanding debt? - Me. It was my decision to do it and let him do it. So at the end of the day, you know, I was the person that signed the bottom line, he was the person that signed the bottom line. Can't blame the government for things that you signed. Is there a shoulder be a better way, absolutely, but it's something that I think consumers are not well educated before they sign the bottom line. It's an emotional decision because your child wants to go to college and of course you want to go to college. - What kind of conversation should parents be having with their kids when it comes to college? - I think number one, just decide really what you wanna do down the line. We never had that conversation. It was, college was the next thing you had to do. Just have to do it. And you really don't have to do it. You don't have to go four years with top school. Go to community college, figure out what you want, get through your classes, don't spend all the money, come and adult a little bit. You go from being a high schooler to being on your own. I think it's a conversation and understanding what you're signing, understanding the financing. And the repercussions that you may have down the line. - There are lots of consequences when it comes to getting behind on your student loan payments. And when those payments can't be made because of life circumstances, some people look to the ultimate last-dig effort for some relief. Bankruptcy. According to a recent LEND EDU study, 32% of consumers filing for chapter seven bankruptcy carry student loan debt. Of that group, student loan debt took up 49% of their total debt on average. If you're doing the math at home, that means one out of three people who filed for chapter seven bankruptcy had student loans taking up half of their debt load. I asked Beverly Will a hand of declaring bankruptcy can actually make someone's student loans disappear. - Let's talk about bankruptcy. Can you just say, well, I'll just file for bankruptcy and the student loans will disappear. - Absolutely not. And again, there's different rules for the federal and for private. So federal student loans are non-desurgable debts. The private student loans under, and I love the name of this law, under the Bankruptcy Consumer Protection Act and bankruptcy, the private student loan bank lobbyists were successful in getting private student loans considered in the bankruptcy code is a non-desurgable, unsecured debt unless a new hardship is proven. And I have a really great case to illustrate how hard it is to prove a new hardship. So in the Sixth Circuit, which is where Michigan is, there was a man who was working paying off his student loans. He was diabetic. He was blind and one eye, prosthetic eye in the other. So that's a glass eye. He was on kidney dialysis and needed a liver transplant and was in the hospital. He filed bankruptcy too. Of course, discharges student loan debt. And the student loan trustee in the bankruptcy court, the judge basically said, ah, you know what, you could get better and pay this off. So I'm not going to discharge it because you haven't shown a new hardship. So technically, student loans can be discharged to bankruptcy but the threshold in which you have to prove a new hardship is pretty high in most circuit courts, federal courts. So there are some circuits that are a little bit more lenient and are trying to push towards allowing some release because it's the whole point of bankruptcy, right? To get relief, but I haven't seen a lot of movement in the last couple years on that. In most cases, you can't wipe away student loans through bankruptcy and lenders are relentless when it comes to getting their money back. Here's Seth Frappman, with a few situations he's seen people get stuck in. It is very hard to declare bankruptcy is the accurate way to say it. Like, you people can. So we're just like really careful because I think some people who could meet the pretty extraordinary test aren't doing it because they just hear like you can. It is very hard to do. So we've seen groups like, you know, AARP become more involved in this issue because tens of thousands of people are missing out on the like promise and protections of social security because they have a defaulted student loan. For example, of some of the horrific stuff we worked on at the Bureau. So we had borrowers with private student loans which nearly everyone now requires a co-signer where they would be paying their loan on time faithfully making all of their payments and their like parent or grandparent who co-signed their loans died. And instantly, despite the fact they were paying they're like, now you're in default, give us all our money. So we actually sued a student loan company who was engaged in this practice because it was like so unclear that they were able to do this. There's been some policies now to try to push back against this, but just to show you like there is no depth that some of these companies would go. So, I think there are real questions about why so many people are defaulting on their student loans. And I think this is the intersection between so much debt and illegal practices, right? Because there are protections and benefits that should be helping the millions of people who are defaulting. So, there are things that allow a student loan borrower to make a payment not based on how much you owe, but how much you earn. These are, like, should be really powerful tools to prevent delinquencies, people falling behind or in default. But there's an enormous mismatch between what borrowers are promised and what's happening on the ground and in between our student loan companies, many of which you get hundreds of millions of taxpayer dollars to try to help those borrowers. And we've just seen those companies fail at every stage. So, while I was at the Consumer Financial Protection Bureau, we sued one of the largest players in this space for this exact issue, which is borrowers are coming to you to get help. And instead of actually giving them the advice that would really help their financial lives, you're more interested in getting those call reps off the phone because it saves you money. And so, we sued this company in court and one of their top legal arguments were, "Judge, you should dismiss this case because we have no actual responsibility to help borrowers." And I think that is, like, a general sentiment that we hear frequently, which is, "We love getting the money to be involved in the student loan system, but when it actually comes to doing the work to help borrowers to avoid the defaults, how dare you accuse us of being part of the problem." But I think that is the question, which is, "How do we ensure that these borrowers are getting the help we have because we're not moving the needle. We have a million people defaulting every year we have data despite these protections that should help them." If you think the government or student loan companies have your back, you're wrong. It's clear by now that the people who got us into this mess are not going to get us out. That's up to you. You're probably thinking right now, "Hey, Anthony, I gotta go to college. I think a student loan is nothing. I'm the first person in my family to go to college. I'm in the hood. I'm in the city. I don't have a lot of resources, financial resources. I do not know how else I can go to college without taking out student loans." But let me say this right now, you can. Taking out student loans is not the only way. To be honest with you, it's not the way at all. You can go to college 100% debt-free. It will take hard work. It will take you being disciplined. It will take you having to feel like you're alone or feel like you cannot do a lot of things because the truth will be you will not be able to do a lot of things. But you have to go after it like it is all that you have. You're going to feel alone. Your friends are going to look at you weird, but that's cool. You are weird because you're going about something that's totally different from the norm, which is you're avoiding debt. You're avoiding student loans. You're going to have to get a job. You're going to have to work 20 hours a week. You're going to have to come home and look up grants and scholarships every single day when some of your peers may go out to something fun. You may have to come home and do some things that's going to progress your future, not keep you in your present and hold you into your present while you're trying to walk forward. I get it. It's not going to be fun. It's not going to be nice, but it will be worth it. Your future 40-year-old self, 30-year-old self, is around their friends and everyone else is in debt. But you, your 40-year-old self is going to say, thank you 20-year-old. Thank you for working hard. Thank you for the loan nights. Thank you for saying no so that today we could say yes. Thank you for saying no to that student loan so that today I can say yes to my wife and take her on this trip so I can say yes to starting this business so I can say yes to opening up a $5.29 or ESA for my future kids who are going to college. Thank you 20-year-old for saying no so that I can say yes. We've covered a lot of ground. From the origins of the student loan industry and how we got here to the predatory practices that keep borrowers in debt, terms like default, forbearance, deferment, and co-signing don't need to be a part of your story. Most of people are trying to find relief for borrowers and figured out a solution to this crisis, including the government. In the next episode we'll talk about the current student loan forgiveness program and what the future of the student loan debt crisis looks like if nothing changes. If it's so bad that we need to forgive the loans, why are we continuing to make them? Congress needs to stop the federally insured student loan program now. Find me. You've been listening to Barrowed Future. If you like what you've heard, do us a favor and rate and review us on Apple podcasts. It helps. You can find more information about this and other Ramsey Network podcasts at BarrowedFuture.com or on your favorite podcast app. Tell us about your student loan experience by emailing [email protected]. Our show is produced by Chris Wright, Eric Chesslevich, Eva Daniel, and Kevin Weimer. Music has been curated by James Chiles. Will Rutter is our engineer. Our editor is Tim Hull. Blake Thompson is our executive producer. I'm George Campbell and remember, only you can prevent student loan dumpster fires.