The human toll of the nation's shaky loan industry has yet to be measured, but social workers and family counseling experts say family financial problems are leading to divorce, spousal and child abuse, even suicide.

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The pastor of a tiny Iowa church admits to having thought about suicide over his debts.  According to an NPR interview, he’ll be paying on his student loan until 2029.  And, he’s not alone.

The human toll of the nation’s shaky loan industry has yet to be measured, but social workers and family counseling experts say family financial problems are leading to divorce, spousal and child abuse, even suicide.  Over a single month period this year, the federal government filed at least 25 lawsuits against students who had allegedly defaulted on their student loans.   This does not include the farm foreclosures, or federal lawsuits over defaulted home mortgages in various federally subsidized home mortgage programs.

Today’s young adults often begin their college careers with a crippling amount of debt. Take for example, the below mentioned student who is carrying more debt as a teenage student than many long-time married, financially stable married couples of a generation ago:

Tom Dillon, 19, a pre-pharmacy major at the University of Connecticut, is carrying $52,000 in student loans. And he's just getting started. When he gets his pharmacy doctorate in four years, he expects his debt to exceed $150,000. (USA TODAY 2-22-06)

 

Thousands of students are burdened by onerous student loans before they receive their degree and cash their first paycheck.  The situation has created an entire after market of debt consolidators, counselors and refinancing services, but the trickle down effect of the national economic crisis puts many of these companies at risk as well.   Referring to the stock slide of one such company, the Houston Chronicle says the situation is more critical than people think:

First Marblehead Corp.'s stock sank Monday after a Friedman Billings Ramsey analyst downgraded the student finance company, saying there may not be as much cash committed to covering unpaid student loans as people think (HOUSTON CHRONICLE 11-26-07)

 

The loan servicing industry is taking a massive hit.  The companies, which repackage loans and sell them to other financial institutions and investors, now find themselves selling risky debt which investors are becoming increasingly reluctant to buy.

The nation’s financial industry is beginning to see a domino affect, which includes banks, loan companies, and agencies that provide loan servicing.  Many of the nation’s institutions are already carrying portfolios of now-risky mortgage debt and they are leery of assuming more high-risk loan portfolios.

The loan industry itself is undergoing massive downsizing, as the weight of defaulted loan products drives companies to restructure and slash payrolls nationwide. The industry is bleeding like a stuck pig and the resultant loss of tens of thousands of jobs adds to the national consumer debt burden. 

The hundreds of thousands of people who have been laid off in the auto, mortgage and retail industry are now at risk of defaulting on their home mortgages, credit card bills and student loans.  And, unlike times past, walking away from student loan debt is not that easy.  Financial pressures have wrecked marriages, destroyed mental health and have driven many to suicide.

 

Danilo Linarte was in trouble.  His loan situation and financial problems were putting a massive amount of stress on his family.  “The financial hardship was overburdening my family to the point of separation and divorce,” said Linarte.  Linarte contacted a tax and debt consolidation company after being hit with one 15% wage garnishment on a defaulted student loan, while still paying on another education loan.

According to a JK Harris press release:

Linarte was already making payments on another student loan and his budget did not afford him the ability to make a down payment and the monthly payments the collection agency was demanding from him for the defaulted loan. Facing financial hardship, JK Harris set to work with Linarte’s creditors to negotiate a repayment plan.

One loan servicing company has turned defaulted student loans into a revenue stream for student loan consolidation companies.  According to the Florida-based company’s press release:

Eventually, unpaid defaulted student loans can have long-term consequences beyond just the loan directly. For example, the students' credit report will take a hit. Once the loan has been forwarded for collection the student’s wages can be garnished and their federal income tax refunds can be withheld. You also lose your eligibility for other types of federal loans including student loan consolidation.  Given the size of most student loans, it's usually impossible to repay a defaulted student loan in the single payment that loan collectors may request. There are mechanisms for repaying defaulted student loans and for both regaining your eligibility for more student loans and improving their credit score. (Student Financial Advisors, press release)

The political backlash against student loan defaults began in the Nineteen Eighties.  According to the New York Times:

[A congressional] plan call[ed] for new regulations that, starting in 1990, would deny aid to students in schools where previous borrowers had a default rate of 20 percent or more. If that policy were in effect today, the plan would affect nearly one-third of the 7,300 post-secondary institutions participating in the Guaranteed Student Loan program. Most of those affected would be proprietary vocational schools, community colleges, private black colleges and other institutions serving low-income students. (NYT, 12-2-87)

Today, those regulations are making educational institutions toe the line. One university shut its football program down because the high student loan default rate of its football players put the entire university in jeopardy of losing federal financial aid funds.  Once an institution’s student default rate reaches that magic 20%, the federal government kicks them out of the student loan program. In order to avoid that dire consequence, universities have slashed non-performing programs, which attract students who have a high risk of defaulting on their loans.

Job loss, medical bills, and unforeseen debt is driving hundreds of thousands into foreclosure, particularly in regions with high real estate prices, such as Florida, New York and California.   In order to get out from under debt, many families are losing hundreds of thousands of dollars in emergency real estate sales, such as this Florida couple:

Scott and her husband Joseph, 27, were served with a notice of default in September and put their house on Tea Rose Court up for sale in late October for $400,000. They bought the home in March 2006 for $515,000 and, because of a job change, now can't afford monthly payments. (Contra Costa Times, 11-26-07)

The inability to pay these massive loans is having an adverse affect on the mental health of hundreds of thousands of Americans, many of whom are carrying triple debt loads: student loans, credit card bills and mortgages. Massive loans, combined with the uncertain economy have put millions of homeowners and loan recipients at risk of a variety of stress-related illnesses.

According to a student loan blog, debtors are finding new and creative ways to outrun debt, and yes, suicide is among them.

StudentLoanJustice.Org has received thousands of stories from citizens whose lives have been shattered by their student loans. These stories are from decent citizens who have been forced to live "off the grid;" postpone marriage and children; leave the country and even commit suicide.

 The situation has created what one magazine is calling the Debt Industrial Complex. (DIB).

Debt is the new four-letter word. As the credit-fueled housing bubble comes ever closer to bursting, Democrats in Congress and on the stump are denouncing predatory lenders and their "Wild West" ways. The potential industry blowback extends far beyond NINJA (no income, no job, no assets) mortgages and "liar loans." A whole new debt-industrial complex -- high-interest payday loans, deceptive credit card practices, creditor-friendly bankruptcy laws, and an oversubsidized  (sic) student loan business -- is undermining Americans' economic security. (The American Prospect, 9-17-07)

Authors Website: http://www.lulu.com/davis4000_2000

Authors Bio:

Wanna be member of the anti-word police, author, columnist, activist and muckraker extraordinaire. Author of:

Land, Legacy and Lynching: Building the Future for Black America

Urban Asylum: Politics, Lunatics and the Refrigerator Woman

Contributing editor: (works in progress)

Red, Black, Brown & Green: Ethnic People and the Move to Economic Self-Suficiency

Screaming Doors (novel)

Screaming Doors