Students struggle to overcome loan debt

The cost of attending a four-year college has gone up by 54 percent in the last seven years, according the Federal Reserve Bank of St. Louis. Even at schools like Eastern Michigan University, which is more affordable than most, the cost of going to college has gone up three times the Consumer Price Index. Despite the costs, a college degree has never been more needed than it is today. The problem is paying for it.

The amount of debt American college graduates owe has gone from half a trillion dollars in 2007 to over a trillion in just seven years. The median debt as of 2012 was $14,100. Now that the amount of debt America owes in student loan debt exceeds both its mortgage debt and auto loan debt, the word “bankruptcy” comes to mind.

While no one ever wants to declare bankruptcy, for the 37.5 million American college graduates still paying off student loan debt, bankruptcy may sound like a tempting way out. It is not an option however, as student loan debt cannot be discharged in federal bankruptcy court.

Amy Balzer-Pemberton, an EMU alumni who graduated in 1996, started a jewelry making business and worked at Snow Health Center to pay for her education. She had to take out loans when her parents moved out of state.

“Part of it was that I came from a family that was great with money, but they didn’t talk about it and teach me how to deal with it,” Balzer-Pemberton said.

Balzer-Pemberton’s husband, Bill Pemberton, worked at a call center for the first few years of his time at Central Michigan University. He left with unpaid loans and no degree. Pemberton worked full time, like many students, taking only a few classes at a time. After losing his job, he took out loans and registered for heavy course loads at EMU to get his degree in 2006.

It took Balzer-Pemberton eleven years to pay off her debt and they are still working at paying her husband’s debt off.

“If someone’s paying for your school at a community college, work,” Pemberton said. “Bank that money, and save it for a future college.”

Not everyone is as lucky as Balzer-Pemberton and her husband.

37.5 million Americans are struggling under a moon-sized amount of college debt, and there appears to be nowhere to turn.

Congress, fearful of what a massive trend of defaults on college debt would do to the nation’s economy, will not let them file for bankruptcy. In light of this, a whole industry of collection agencies has sprung up.

“I think kids just need to work [to pay for college],” Balzer-Pemberton said. “There’s a lot of value to earning money and learning that at a young age.”

Ellie DeMattia, a senior double majoring in psychology and sociology, is going to college with the help of her parents and is avoiding debt that way.

“I’m fortunate enough to have my parents helping me pay for college,” DeMattia said. “They’ve managed my college fund for the duration of my experience thus far, and prior to college I had no real idea of how much I had saved, so I tried to go to the cheapest school I could find.”

Eastern does not use collection agencies. EMU, through working with the U.S. Department of Education, receives the loan money from the government, and uses it to pay for students' bills. The left over funds are given to the student, who uses it as he or she pleases. This puts the student in debt with the federal government.

Companies like Aspire Resources Inc., CornerStone, ESA/Edfinancial, Fed Loan Servicing, Granite State, Great Lakes Educational Loan Services Inc., MOHELA, Nelnet, OSLA Servicing, Sallie Mae and VSAC Federal Loans are just some of the agencies used to collect debt from alumni with missed payments or defaulted loans. It appears there is little, if any oversight of these collection companies. According to a report by the Government Accountability Office, the Department of Education employed lax oversight over collections agencies with “unreliable performance” and resulted in months of delays in loan rehabilitation programs.

In 2009, Francisco J. Espinosa filed for Chapter 13 bankruptcy reorganization. Cornell Law School’s Legal Information Institute reported that Espinosa promised to repay the collection agency, United Student Aid Funds, $13,250.

Despite United Student Aid Funds’ claim that Espinosa owed it over $4,000 more, the company didn’t object to the plan he proposed to the U.S. Bankruptcy Court of Arizona. But Espinosa didn’t file his plan correctly nor did the judge adequately find that Espinosa’s debt would amount to “undue hardship.” After Espinosa had repaid what he thought he owed, United Student Aid Funds still intercepted Espinosa’s income tax refunds to reimburse itself. The case was appealed to the Supreme Court, which ruled that United Student Aid Funds had waited too long to appeal the decision.

Justice Clarence Thomas of the Supreme Court warned this did not “open the floodgates” for students to get out of their debt. This was a narrow ruling with few applications. All the case proves is that the only way of reducing the amount owed would be getting the collection agency to agree that “undue hardship” would result in paying off the debt.

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