Stafford Loans are Personal: Part 1
After consolidating my student loans with the William D. Ford Direct Loan program in 2004, I quizzed Dept. of Ed (outsourced) support staff for ways to stop the “interest clock” on the unsubsidized portion of Stafford. The answer is always the same: either return to school or declare forbearance/deferment/income contingent/economic hardship status.
I don’t see these suggestions as viable options to significantly reducing one’s student loan debt as only the interest on the subsidized portion of the loan freezes when one returns to school (and it is often financially necessary to apply for student loans to continue one’s education), or enters the various limbo state of forbearance/deferment/income contingent/severe economic hardship status. In other words, the interest on unsubsidized loans continues to accrue, which adds to one’s cumulative student loan debt.
Like many Stafford borrowers, I am frustrated with not only the issue of the interest clock, but the mysterious practice of capitalization. Hence, several years out from graduation with a doctorate in my chosen area of study, one half of my student loan debt results from capitalized interest charges. This situation is financially untenable, and leaves no chance of successfully paying down enormous accrued loan interest in order to get to the heart of the matter – paying off the loan principal. I am not alone in this situation; millions of graduates are affected by this policy. “Truth in lending” exists in obtaining a mortgage and in credit transactions, so why not with Stafford student loans? ***
I have repeatedly asked a few of my Congress people – including a staffer, who was himself a Stafford loans borrower*** – to assist me in obtaining Department of Education’s policies, including formulas used in assessing capitalization. I have repeatedly called the Wm. D. Ford “helpline” who don’t have an inkling as to Dept. of Ed policies as well as the Dept. of Ed. Ombudsman, who while sympathetic, also didn’t know how to obtain capitalization policies.
Don’t borrowers have a right to understand how their loans work?
I find the most fitting comparison for the Stafford student loan capitalization policy is to the unregulated credit card industry of the s – roughly to the present, wherein high interest charges prohibited making any real dent in paying off the loan principal. While student loan borrowers often don’t have a high interest rate attached to their Stafford loans, they remain in a grisly situation due to the capitalization charges. Stated in a different way, even though students may place (subsidized and unsubsidized) loan repayment “on hold” while in school, post-ed while jobhunting, and in economic downturns, unsubsidized interest continues to accrue – and adds up. I believe this situation might be characterized as usury. In a nutshell, there is no justifiable reason this information is being kept secret by the Department of Education.
As my Congress people were unable – indeed unwilling – to assist me in obtaining the policies and formulas, I filed a Freedom of Information Act (FOIA) request in May, 2009. In the FOIA request, I requested the name of the sub-dept. within the Department of Education that is responsible for assessing and applying capitalization to Stafford loans.
After not receiving a reply from the Dept. of Ed specific to my request regarding capitalization policies and formulas, (see the National Security Archive’s FOIA audit of federal agencies which reveals much on the time lags vis-à-vis agency response time to FOIA requests), I contacted Dept. of Ed in December 2009, and again March 2010 to inquire on my FOIA. I finally received a reply in late March 2010.
To be continued.
***It was suggested by this particular staffer that I didn’t want to repay my loans b/c I was asking questions about capitalization policies.
***The Code of Federal Regulations (Title , Chapter VI) states:
In the case of a Federal Stafford or Federal SLS loan, the disclosures required by this paragraph must be made not less than days nor more than days before the first payment on the loan is due from the borrower (page ).
I never received any information regarding capitalization or its assessment.