The student loan guarantee program is one of the most complex and corrupted systems in the entire United States government with dirty secrets that extend into a myriad of areas, including usurious finance, US Treasury fraud and theft, bankruptcy injustice, Constitutional Rights destruction, debt class discrimination, and abuse of students at the hands of greedy and incompetent educators from the Ivy League to the Community League and more. One of the most shocking policies is with respect to the Department of Education’s guarantor system and its largely incestuous relationship with “for profit” organizations, each scratching the other’s back in a calculated effort designed to defraud taxpayers and the US treasury.
Many of the nation’s largest student loan guarantors, which are operated as “nonprofits” designated as surrogates for the Department of Education, have a basic conflict of interest that the federal government overlooks to the extreme detriment of taxpayers and student loan borrowers.
Guarantors typically work with at least one closely affiliated student loan servicer, which is typically a “for profit” organization. The guarantor’s real role is to act as a safety net for the “for profits” (albeit their declared role is very different—they claim to be protecting taxpayers, which is a complete falsehood in most cases). The guarantor’s primary role is to keep as many “bad loans” alive as possible and ensure they are returned to the “for profits” where the loans can generate more interests, fees and penalties until loan maturity is achieved.
Lenders and guarantors are never concerned whether or not the student debtor can pay—their goal is to fleece US taxpayers with an inflated bill (defaulted loan).
Many guarantors have personnel and providers who are closely associated with, or founded by, the “for profit” organizations that they serve. Hence a built-in conflict of interests exists. Guarantors typically see their role not as guardians of the student loan guarantee system, but instead as guardians of the “for profit” masters they serve. That is Reality 101.
Take a bankrupt student loan case as a simple, yet all too common example of how guarantors defraud taxpayers.
Ms Jones files for bankruptcy relief and for student loan discharge relief using what is known as an adversary proceeding. The guarantor steps in to block her discharge, regardless of the merits. Ms Jones personal circumstances are of no concern to the guarantor—their primary concern is to ensure that the student loan is not discharge in bankruptcy but is instead passed through unaffected. Once the adversary proceeding is over and Ms. Jones typically loses her case (as most do), her student loans will be returned to the lender where they will begin accruing interests, penalties, and more for the remaining life of the loan.
At some point, Ms Jones’ student loan will have accrued the maximum amount of penalties and interests possible and the lender will then submit a claim to the Department of Ed for payment in near full. The lender will be paid. Next, the guarantor will begin collection actions on Ms Jones, which will typically run for the remainder of Ms Jones’ life–even if she reaches the age of 100-years old.
The scam in play is that taxpayers, who would have and should have discharged Ms Jones student loans based on the merits of her case in the bankruptcy court (at a hypothetical cost of $30,000) will then be forced to pay $60,000 or more instead—all because the guarantor helped the “for profit” to defraud the US Treasury for profit taking purposes. One or two cases like this might be nothing much to worry about but it is estimated that taxpayers are losing billions of dollars per year to this and other related scams.
Meanwhile, such lender-perpetrated tax dollar theft has destroyed Ms. Jones credit, self-worth and esteem, and virtually her entire life. She cannot rent a home, buy a car, have a bank account with money in it because the government will steal it without notice. Ms Jones is to be treated by the federal government as a complete criminal of sort—a scourge on society—she was an idiot—she fell into the government’s nefarious trap and tried to better her life by going to college and using a student loan to help her achieve her goals. She failed. Ergo, she is, by defacto US policy based on the actions of the government and its guarantor system, a bad citizen that must be punished for the remainder of her life.
The moral of this story is simple. Go to college but never take out a student loan to do it–don’t fall into the federal government’s nefarious and diabolical trap! And taxpayers need to pressure lawmakers to dismantle the entire student loan guarantor system and its build-in conflicts of interest.