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Tereza Coraggio

Third Paradigm is an out-of-the-box thinktank on community sovereignty and regenerative economics.

We look at how to take back our cities, farmland and water; our money, production and trade; our media, education and culture, our religion and even our God.

We present a people's history of the Bible and a parent's view on how to raise giving kids in a taking world.

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Past Shows


The Student Loan Mafia

October 30, 2009

3P-049 Show Information (includes MP3 download link)

Welcome to the 49th episode of Third Paradigm. Our title this week is The Student Loan Mafia. Our focus will be on a book by Alan Michael Collinge called The Student Loan Scam. He's the founder of the political action group I first discovered them on In the run-up to the Presidential election, had a contest where users submitted ideas for policies that Obama should implement. The three ideas that received the top number of votes would be presented to Obama.

I threw into the virtual hat some ideas about foreign policy and tax relocalization. But they were eclipsed by the overwhelming crush of people wanting absolution for student loans. At first, this annoyed me. After all, they signed up for them. We all had student loans. Stop sniveling and get to work! But then, I started reading some of the stories. I found hard-working, responsible people who'd been ensnared in a web of debt they could never escape. I read about the draconian collection methods they'd been subjected to, and I thought – that can't be legal. But at, I found it was not only legal but subsidized by our taxes and enforced by our laws.

The proof is in the data, so I ordered The Student Loan Scam to get the details. It starts off with the author's story. To graduate with three degrees in aerospace engineering, he acquired about $38,000 in debt. By the time he graduated, this had become $50,000. He became a research scientist at Caltech earning 35K, with 20% of his salary repaying his loan. By the summer of 2001, to make ends meet, he decided to find a more lucrative job in the defense industry. He made the mistake of resigning from Caltech first, when the unforeseen event of 911 put a chill on hiring, and he was left without a job. He applied for an economic hardship forbearance, which Sallie Mae denied. They put his loan into default the next day, demanding the immediate payment of $60,000.

Without work in his field, he took restaurant and cooking jobs, working 92-hours a week at less than minimum wage. By 2002, the collection agency was demanding $80,000 as immediate payment in full. The next two years, he worked for a nonprofit at 36K while his debt ballooned to $103,000. Collection calls added verbal assaults, intimidation, and humiliation. If only to prove their claims wrong, he worked obsessively, weekends and holidays, at no extra pay.

SLM Corp. (SLM) 1/3/1995 – 1/3/2005;range=19950103,20050101;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
Source: Yahoo Finance

In 2004, something snapped and he started doing research. He found that Sallie Mae stock rose 1700% in the decade of 1995-2005. A major reason was the lobbying campaign that had stripped away the most basic consumer protections, including bankruptcy, repayment ceilings, truth in lending, and the right to refinance. They were given the power to garnish wages, Social Security, and disability benefits without even a court order. They could suspend professional licenses, and terminate public employment. Because of subsidies, they made more from defaulted loans than loans in good standing.

Executives had amassed fortunes that enabled Sallie Mae's CEO to bid $480 million to buy a baseball team. The Department of Education's Office of Federal Student Aid was run by ex-executives of student loan companies, with stock gifts and kickbacks greasing the skids at every level.

Armed with this information, Alan started a website telling his own story, and coaxed a few others to tell theirs. Like Rick, a laborer from California, who went to borrow $1500 for automotive school. When they tried to get him to sign two promissory notes for the same loan, he got suspicious and cancelled the loan. Five years later, his tax return was garnished for a loan balance of $3500.

Or Petra, a Harvard grad, who left law school with 40K in loans in '86. After a prolonged unemployment she filed for bankruptcy, where a debt settlement was struck. But when the law changed in '98, and disallowed bankruptcy for student loans, creditors revived the dead loan and started hounding her for a whopping $152,000. Her husband ended up divorcing her because of the harassment and the threat to his own assets.

These stories aren't flukes, but are part of a calculated strategy. One of the collection companies proudly displays a shark tank in their lobby to illustrate their corporate culture. But this shouldn't shock us – getting rich is the American dream the educational system promotes. What should outrage us, however, is that Congress has been bought by the loan sharks. But before we raise our blood pressure, let's hear the poets, philosophers, and mystics remind us what college should be about. This is Hafiz, Epictetus, and Bokonon.

All The Hemispheres

Leave the familiar for a while.
Let your senses and bodies stretch out

Like a welcomed season
Onto the meadows and shores and hills.

Open up to the Roof.
Make a new water-mark on your excitement
And love.

Like a blooming night flower,
Bestow your vital fragrance of happiness
And giving
Upon our intimate assembly.

Change rooms in your mind for a day.

All the hemispheres in existence
Lie beside an equator
In your heart.

Greet Yourself
In your thousand other forms
As you mount the hidden tide and travel
Back home.

All the hemispheres in heaven
Are sitting around a fire

While stitching themselves together
Into the Great Circle inside of

~ Hafiz ~
From The Subject Tonight is Love - versions of Hafiz by Daniel Ladinsky

* * * * * * *

Caretake This Moment

Caretake this moment.
Immerse yourself in its particulars.
Respond to this person, this challenge, this deed.

Quit the evasions.
Stop giving yourself needless trouble.
It is time to really live; to fully inhabit the situation you happen to be in now.
You are not some disinterested bystander.
Exert yourself.

Respect your partnership with providence.
Ask yourself often, How may I perform this particular deed
such that it would be consistent with and acceptable to the divine will?
Heed the answer and get to work.

When your doors are shut and your room is dark you are not alone.
The will of nature is within you as your natural genius is within.
Listen to its importunings.
Follow its directives.

As concerns the art of living, the material is your own life.
No great thing is created suddenly.
There must be time.

Give your best and always be kind.

~ Epictetus ~
From Epictetus: The Art of Living — a New Interpretation by Sharon Lebell

* * * * * * *

life is

life is a garden
not a road

we enter and exit
through the same gate

where we go matters less
than what we notice

~ Bokonon ~
Kurt Vonnegut
From The Lost Book

"All the Hemispheres" is by Hafiz, the 14th century Persian poet. "Caretake this Moment" is by Epictetus, a Stoic philosopher born as a Roman slave in 55 CE from what's now called Turkey. He taught that events are beyond our control, but we're responsible for our actions, and that humans have a duty of care to all fellow humans. Suffering comes from trying to control the uncontrollable or from neglecting what's within our power. Brutus, of "et tu" infamy was also a Stoic, which I learned from my daughter when we watched Julius Caesar at Shakespeare Santa Cruz. I've developed new sympathy for Brutus and for Julius Caesar, two sides of a worthy coin.

The last quote is by Bokonon, a fictional character in Kurt Vonnegut's novel, Cat's Cradle. The religion he starts, called Bokononism, says that all religions are formed entirely of lies; but if you adhere to a useful set of lies, you'll live a good life. He coins several unique terms: a group of people who unknowingly work together to do God's will is called a karrass. The purpose they serve together is called their wampeter. When a person dies they find out what their wampeter was and all the many ways they served it, and who was in their karrass. A granfalloon, however, is a karrass without a wampeter: a group of people who imagine they have a connection that doesn't really exist. Some examples are the Hoosiers and the Daughters of the American Revolution, plus all nations, everywhere. "Busy busy busy" is what the Bokononists whisper whenever they're struck by the interconnectedness of life.

Before we return to the topic of student loans, I'd like to examine the concept of Daylight Saving Time and ask whether it really saves time or steals it.

When I wake up my kids up for school these days in the pitch dark, I tell them that October is the cruelest month. Elsewhere, Daylight Saving Time is called Summer Time. How has summer come to include all of October and start in mid-March, getting up an hour earlier for seven and a half months? It gives a new meaning to March madness.

Let's look at its history from a site called Although Benjamin Franklin conceived of the idea, it was a London builder named William Willett who spent his fortune trying to force his own early morning enjoyment on other people. As a wealthy financier, he spent mornings riding through the woods, not going to work. When asked why he didn't just get up an hour earlier, he gave the astute response, "What?" His campaign was met by ridicule and opposition during his lifetime, especially by farmers. Perhaps they felt for their kids, who were finally getting some light to do their farm chores by before they went to school.

During WWI, Parliament passed a law that clocks would be set back for five months beginning April 30th. When it was adopted in the US in 1918, however, it had grown to seven months. But it proved so unpopular that it was repealed in 1919 with a Congressional override of President Wilson's veto. During WWII, Roosevelt instituted War Time and turned the clocks back year-round, but it was voted out again in ‘45. In ‘47 Robertson Davies noted, "I object to being told that I am saving daylight when my reason tells me that I am doing nothing of the kind. I even object to the implication that I am wasting something valuable if I stay in bed after the sun has risen. As an admirer of moonlight I resent the bossy insistence of those who want to reduce my time for enjoying it. At the back of the Daylight Saving scheme I detect the bony, blue-fingered hand of Puritanism, eager to push people into bed earlier, and get them up earlier, to make them healthy, wealthy and wise in spite of themselves."

The Shrinking Standard

By 1966, Congress signed the Uniform Time Act to get us all up earlier six months of the year, but the states could still keep standard time if they chose. In '74 and '75, Nixon upped the ante to 10 months of the year. Three decades later, in 2007, The Energy Policy Act extended Daylight Saving Time from March until November, although Congress retained the right to revert should the change prove unpopular or if energy savings are not significant.

Let's look at this. In Indiana, until it was legislated statewide, only 16% of counties observed it. Indiana then ended up spending $8.6 million more for energy, due to air-conditioners and TV's. Another claim has been that it decreases evening traffic accidents. But pedestrian fatalities soar at 6 pm in the weeks following the change back to standard time. Instead of a gradual adjustment, drivers are thrown suddenly into an early dusk, the most dangerous of driving times.

The candy lobby pushed for November instead of an October end date, on the self-serving grounds that daylight would be safer for kids to trick-or-treat. But it backfired because kids still waited until dark. Well, duh! But daylight also encourages people to shop or eat out instead of staying home. And then there's the extra work by salaried employees, who come in early and still work until dark. I think we've been snookered out of our sleep. If we have to get up early, it should be for only half of the year, not two-thirds. Let's answer the bony finger of Puritanism with a finger of our own. Take back the night.

Let's break for a song by Modest Mouse called Missed the Boat.

[Modest Mouse – Missed the Boat]

That was Modest Mouse with Missed the Boat from their CD, We Were Dead Before the Ship Even Sank. It makes me wonder if Modest Mouse had student loans. Let's examine how it got to this. In 1972, Nixon established the Student Loan Marketing Association, or Sallie Mae, as a government-sponsored agency. He increased loans and grant aid to students while defunding higher education. In the '90's, however, an ambitious CEO named Albert Lord privatized Sallie Mae but kept the subsidies. He gave kickbacks to universities if they made Sallie Mae their preferred lender. He gave perks to financial aid officials, like trips to exotic places, golf outings, parties, and even stock. Family members were given jobs. Federal Direct Loans, which were cheaper for the taxpayer, were strangled while Sallie Mae received enhanced subsidies. They started buying up all parts of the process – collection agencies and guarantors, who are supposed to oversee the process.

Usury and the Universal Lender

By 2006, they were four times the size of their closest competitor, Citibank. Their private student loans could charge interest rates approaching 30%. Using their clout in Congress, legislation allowed for massive penalties and fees for delinquent debt, which made it more profitable when students defaulted than when they paid. Student loans became the only type of debt to be nondischargeable in bankruptcy, no matter what hardship was proven, which was expanded to include private loans at exorbitant interest. All statutes of limitations were eliminated, so old loans from the '70's and '80's became new collectible debt. They were exempt from state usury laws, and the Truth in Lending Act. Guarantors could ignore the Fair Debt Collection and Practices Act when pursuing defaulted borrowers.

It became impossible to tell where the university ended and the student loan companies began. Lenders gave hundreds of thousands in university donations, and then ran call centers staffed with their own employees masquerading as the college's financial aid department. University nonprofits held hundreds of thousands of lender stock shares, which would gain or lose value depending on whose loans they promoted. Federal Direct Loans disappeared from these colleges' options. Financial aid directors were given lucrative fees for "consulting" with lenders. One section of the book, called Larry Loves Tequila, outlines other methods.

But perhaps the deepest cut of all was legislation that required a lender to consolidate their loans with the original lender and never leave, even if other lenders offered better terms. For a short time, a loophole was found called the Super Two-Step, and borrowers rushed to refinance their debt. But the head of the House Education Committee, John Boehner, then received the largest amount of student loan PAC money and his daughter got a job with a subsidiary of Sallie Mae. And so the loophole was closed.

Making the Mafia Blush

There are reasons they didn't want students to pay off their loans. Legislation provided for collection rates of up to 25% to be added to the debt as soon as it went into default.
Congress provided the loan guarantors and collection companies with "powers that would make a mobster envious," according to Harvard professor Elizabeth Warren.
They included wage, Social Security, and disability garnishment, tax seizure, suspension of state-issued professional licenses, and termination of public employment. Full, permanent disability was the only circumstance under which the loan could be absolved, but it then showed up as taxable income, fully burdened with fees and interest, so the tax payment was more than the original loan.

So where are we now? There are more than five million defaulted student loans on record with the US Dept of Education, totaling $40 billion. Millions of more graduates have bought their way out of penalties and fees, to be just barely out of default. The stories range from those resentful of not being able to refinance, to those who decided that life wasn't worth living under this insurmountable weight. Increasing numbers are coming forward who've been driven out of the country, while an untold number have gone off-grid, working under the radar.

The Student Loan Scam does end on a hopeful note. The grassroots movement it started instigated the Student Borrower Bill of Rights. Alan Collinge outlines solutions and where they are in process. He also gives practical advice that's worth the $23 as a graduation present for any high school senior. But the key underlying problem is reducing the price tag for college. In the following episodes, I'll be exploring a paradigm shift: moving from degree-driven education to a decentralized credentialing system based on the model of Wikipedia. Stay posted.

This has been Tereza Coraggio with Third Paradigm. Thanks to Skidmark Bob for production, music, and editing, and to Mike Scirocco for enhancing the transcript with graphics, videos, and links. Last week's episode now has a video from alJazeera on Changing Channels, and one called White Gold on child labor in Uzbekistan cotton. Check it out.

Our last song is by Jason Mraz. It's called Details in the Fabric, and it's dedicated to all those who can't see a way out. Keep the faith.

[Jason Mraz – Details in the Fabric]

Thank you for listening.