Tuesday, October 5, 2010

Co-signers Suffer too: How many Mr. Reachs are out there?

I wonder how many mothers and fathers, grandmothers and granfathers are facing something similar to this fellow who lost his home after co-signing on loans for his four kids. I'll never forget Rep. Cohen's question wherein he wondered out loud about the actual number of co-signers on private student loans at a hearing over a year ago in D.C. He seemed overwhelmed by the question itself. It was, conveniently, at the end of the hearing (one that came at a very pointless time, and really had no bearing on anything  for student loan debtors. That's to say, nothing was done).

I bet that $850 billion record of federal and private loans is a conservative estimate, if you think about all the Mr. Reachs out there who co-signed on student loans for their kids or grand-kids.


Klaire said...

I have never hated myself more than I do now as a result of my grandmother co-signing two private loans for me. One is in default because they would NEVER accept a repayment I could afford. Now the collectors threaten my grandmother daily and I believe she will be sued and get a lien on her house, all because of me. What a worthless POS I must be! I try sending them small payments , they say no. I'd rather go to jail (I'm already a prisoner anyway, financially)! I've been outcasted from my family and I know I do deserve that. I hate myself for what I have done to my family.

C. Cryn Johannsen said...

Klaire - you are not a worthless POS. Did you have any idea that this would happen to your grandmother after she co-signed for you? I bet you will tell me the answer is no. You shouldn't beat yourself up for something that is much bigger than you. This is a systemic crisis, and that's why it must be changed.

Klaire said...

Trying...it's hard when you get told these things from your own family, though I don't blame them for being angry. I wonder if people know the truth about private loans, which is lenders actually want you to default because if you default they automatically get paid by Uncle Sam and can collect a crapload from you in principal, interest, and collection costs THAT SHOULD BE A CRIME!!! It's double-dipping, these are not federal loans, these banks need to stop raping the taxpayers! Didn't a lot of them already get a tax-funded bailout???

Ken said...

Hey Klaire, A federal Stafford loan is guaranteed by the Government, so if the borrower defaults, the government pays the loan off. Private loans are unsecured debts. The government does not pay back the lender if the student defaults. That being said, there is an hypocrisy when financial institutions get a bail out, but you are stuck paying back a loan no matter what.

Klaire said...

I'm trying to find the info, but I do recall hearing somewhere credible that private lenders do get government help as well. I will post when I find it.

C. Cryn Johannsen said...

Let me jump in here. Private lenders aren't backed by the federal government. However, they received a 'little gift' from the U.S. government in 2005, and that's been an awful nice help to their business as loan sharks.

warwick555 said...

I think it is a defacto backing by the Federal Government, because they are allowed to garnish your wages and freeze your bank accounts directly so that you have to pay. They were granted the same authority as the government to take your money for taxes, so how is it different for us? I live in fear that my bank account will be frozen.

C. Cryn Johannsen said...

@warwick555 - that's a good point, but it's important to technically define these points.

Klaire said...

I think I was mistaken and heard that the guarantors of Federal loans want you to default cause they get more money that way. If I find anything else today I will re-post sorry for my error.

Anonymous said...

Bank Accounts are for shmucks. I wonder if I spelled that correctly, and if not...does that make me one? Keeping money in the bank when you are subject to garnishment is goofy. They can only take a certain amount of your pay. They can freeze your whole bank account. Keep your money in a safe deposit box. I usually spend it on groceries, but to each their own.

Anonymous said...

Klaire I am really sorry to hear your story.

I have come to believe that the Student Loan business is very complicated, and very insidious and sinister, if not downright evil with possibly the most Eil man that has ever lived--Al Lord--leading the way.

Default is a way to tack on more interest, penalties and fees, which is instantly collected by the banks as instant money and profits from taxpayer funds or dollars.

In the decades long meantime, the Student Loan debtor has to live under a very soul, confidence, and family destroying horrible black cloud of ever growing debt for the rest of their natural lives.

I dare anyone out here to dispute this.

Life, libety, and the pursuit of happiness have all been taken away by Lord and Co.

What cunning. What Evil.

My life now is complete shit because of student loans.

I am thinking now that I will write to the Government of China, or some other country, and beg for asylum and/or protection or permission to defect as a persecuted, US political lifetime debtor with absolutely no bankruptcy protections.

How has the USA become such a horrible place to live in, in such a short period of time?

All I wanted was an education....

Dear President Obama, let's get through these elections and make some changes.

If Hannity and friends win, than I fear for the lives of several hundred thousand lifetime debtors at least.

Anonymous said...

Hi Cryn:

Just little tune to say that we are so sorry to Uncle Albert Lord (the bastard) with hands across the water, and waiting until you can return to your home land from student loan Exile.

Goddam, I have had at least one ancestor that has fought in the American Revolution.

And another ancestor that has fought for the Union in the Civil war.

WWII vets and vietnam vets in the family.

Until Al Lord took away my life.

But we are all so sorry, Uncle Albert.

Mr. Lord....


Anonymous said...

Cosigners don't exist in the world of federal student lending. Private loans are different from federal loans, yet non-federal ("private") entities issued most of the federal loans prior to July. People get confused in that they forget that federal lending is not just Direct Loan. From 1966 until 2010, a variety of non-federal lenders, including banks, nonprofits and state governments, issued loans that are guaranteed by guaranty agencies and reinsured by the federal government itself. This is the so-called guaranteed student loan program, or FFELP. Hundreds of billions of dollars of these loans are still outstanding, despite the fact that no new ones can be issued starting 7/1/10.

Federal student loans don't allow cosigners. Federal parent loans ("PLUS") allow ENDORSERS, which are slightly different. Unlike federal student loans, where there is no credit check permitted, there is a minimal credit check prior to originating federal parent loans. Occasionally a child will even endorse a parent loan, although this of course wasn't the original purpose of endorsing.

Cosigners are sometimes required for non-federal educational loans ("alternative loans"), particularly for undergraduates. In many cases, particularly for undergraduates, parents will have to cosign those. Such was the situation in the case of the parents reported in many newspapers that co-signed on an alternative loan and later found that the fine print of the promissory note allowed the loan holder to maintain the debt actively even after the child had died.

The loans where they can administratively garnish your wages and seize your federal income tax refunds are the federally guaranteed student loans. For alternative loans, the loan holder has no more power to garnish your wages than the ordinary holder of a car loan, a mortgage, a personal debt, or a credit card debt. It depends on the state laws.

It is also extremely misleading when lenders say that alternative loans are not guaranteed. While the loans are not guaranteed by the federal government, they are guaranteed through an elaborate system of private guarantors. However, it is possible that as defaults occur, a lender may find that its private guaranty insurance rates will increase. I don't see how a lender can legitimately complain about this (the free market in action), but they sometimes use this line of reasoning when looking for a federal government bailout, as one lender tried to do when a large chain of technical schools folded several years ago.

Nando said...

These banksters are allowed to garnish wages and SSI, including disability checks. Cryn, many of your readers have probably read "The Student Loan Scam." Towards the end of Chapter 4, author Alan Collinge documents suicides that were the result of MONSTROUS student loan debt levels. Klaire, you are NOT "worthless," in any way.

In fact, I submit to you that it is pigs like Sallie Mae's Albert Lord and Richard Matasar, i.e. president and dean of New York Law School and chair of AccessGroup that are morally bankrupt. And I don't care if my comment is moderated. These men are swine. They want more victims so that they can make million$ more in compensation. They simply do not give a damn about the fact that an entire generation of young people will become debt slaves.

And the gutless wonders in Congress do not even care that this directly affects the consumer-driven U.S. economy. They are beholden to the banks. As much as I cannot stand either major political party, I recognize that if John Boehner takes over Congress, this situation will get MUCH worse.

C. Cryn Johannsen said...

@Anonymous Oct 5 8:45 PM - for the record, I am fully aware that co-signers are not allowed on federal loans. I do, however, appreciate you providing details on various types of federal loans.

Anonymous said...

Any bankruptcy attorneys out there?

Isn't there a simple solution: take out a bunch of credit cards and/or private loans and use them to pay off student loans?

What would happen if you did this and then filed for bankruptcy protection (after 90 days or so)? Would the debt be discharged or somehow considered a fraudulent transaction or preferential transfer?

C. Cryn Johannsen said...

@Anonymous Oct. 6 1:12 AM - it's funny that you suggest that as a possibility. There are so many people who have told me they've thought about doing that.

Anonymous said...

Anonymous 1:12 here again

I'm certainly not suggesting that strategy for anyone because it reeks of fraud (e.g., taking out the new debt with no intention of repaying it). Rather, I'm just posing the question to see if anyone has experience with it or can provide insight into how a bankruptcy court would react. The question may be worthy of a separate blog.

Anna said...

I heard recently that any tuition charged to your credit cards are not allowed to be dicharged through bankruptcy. They would obviously notice if tuition was added recently.