Stafford Loan Justice

Delinquency Report Doesn’t Say Enough

Another uninformed report on student loan borrowing.

From Institute on Higher Education Policy (March, 2011), Delinquency: The Untold Story of Student Loan Borrowing doesn’t dig deep to ask the critical questions concerning capitalization. I can’t fault authors Alisa F. Cunningham and Gregory S. Kienzl – they most likely aren’t aware of the real hardship capitalization adds to student borrowing and hence the questions regarding power (Who receives cap money from student loans? Banks? Private corporations? If not, where is cap money funneled in the federal budget? What body has the authority to create cap policies?) that must be asked of high ed loan capitalization policies. Few folks in the policy world – or borrowers for that matter – see capitalization for what it truly is: usury.

From the report, blah blah & blah, we know already…all Stafford borrowers live this – we just don’t understand why:

If the payments are not large enough to cover the interest that accumulates on the loans, the unpaid amount will be capitalized (added to the loan principal) once a year. However, capitalization will not exceed 10 percent of the original amount owed when the borrower entered repayment. Interest will continue to accumulate but will no longer be capitalized. The maximum repayment period is 25 years. If
the loan has not been fully repaid after 25 years (time spent in deferment or forbearance does not count), the unpaid portion will be discharged, although borrowers may have to pay taxes on the amount discharged. (p.35) **

Here are the real questions Congress, the GAO, and every Stafford borrower should be asking the Department of Education NOW:

  • Are students falling delinquent or defaulting on their loans due to excess capitalization? Is there a link?
  • Who benefits from capitalization? The lenders (e.g., banks, corporations, Department of Education, what body)?
  • Where does capitalization money go in terms of the U.S. deficit and overall U.S. budget?
  • What sub-department within the U.S. Department of Education assesses capitalization fees and what are their methods? Who does this sub-department report to?
  • Why aren’t student borrowers and their parents fully informed on capitalization by financial aid offices at their potential schools?
  • Why isn’t the Senate Committee on Health, Education, Labor, and Pensions, the House Committee on Education and the Workforce, the GAO, or the Department of Education’s own IG (Inspector General) investigating capitalization regulations and policies? Not only the direct impact on borrowers but tracing the path of a student loan cradle to grave (especially in light of the bank “bailout”)? Congress and GAO have conducted investigations into consumer debt protection and credit card interest, so why not student loans?!

Nonprofit policy “think” tanks – hire me. I’ll tell it the way it is.


** Income Contingent Repayment (Direct Loans Only); also note Income Driven Plans that “under current Internal Revenue Service (IRS) rules, you may be required to pay income tax on any amount that is forgiven if you still have a remaining balance at the end of your repayment period for an income-driven repayment plan.”


Written by S.

April 5, 2011 at 7:55 pm