A Student Loan Story, and a Solution?

You just got prequalified to buy a home for four hundred thousand dollars. You and your spouse have worked hard and have two kids and one on the way. You can get a house, but not in an area that has great schools. It’s an expensive area—not quite Los Angeles, but getting there. Your banker gives you a call. He tells you that there is this government program called “Making Homes Affordable Again” that you and your spouse qualify for.

Here are the terms. Under this program, you qualify for a two-million-dollar home. The program is also income contingent, so while you would sign and agree to pay all two million dollars, your mortgage and the taxes are income-based. Under your current income, your total monthly payment, including tax and insurance, would be $1100 monthly.

“Now, wait,” he tells you. “It gets better.” If you agree to this contract, the house will become yours in 20 years and the rest of the loan is written off.

Would you take it?

You agree, and you get a house for 1.2 million in a safe community with great public schools. You are now part of that American Dream, and though you needed a bit of help to get there, as we all do, both of you have given to the greater good with your careers. You think, “My kids are set.”

After a couple of years, you get a letter.

“Because you paid your mortgage two weeks early, you no longer qualify for the loan forgiveness after 20 years.”

You are shocked! It turns out that your banker did not lie to you at all, but the government program, and those running it, lied to you. Now, you are paying for the rest of your life.

Then it’s political season, and some politicians get wind of this program and decide to make it an issue of unworthy people getting to move into worthy communities. You are called a freeloader, a criminal who should be locked up, and you are cheating honest, hardworking Americans, those who pay for their houses. The politicians sue, and the plan is blocked and faces elimination. Your $1100 payment now goes up to $7,000 per month. The way the loan is written, it turns out that you will not only pay $7,000 for 20 years, but you will have to pay it for the rest of your life.

It gets worse.

You cannot file bankruptcy on the debt, nor can you sell the house. Even if the house is taken, you still owe the full amount. You cannot get any debt relief but one program. Under this program, you will pay $4,500 per month, but that will break both of you in less than a year. You cannot afford it. You have no protection from the bank. You MUST pay. They can take your social security, garnish your wages, and leave you and your kids out on the street to die, but even in that situation, the loan will follow you. There is no way out but a merciful forbearance or deferment at the control of the bank. And the interest keeps growing and growing.

You know you were foolish. Everyone encouraged you to take the program. You didn’t think there was anything wrong because even though you were living beyond your means, beyond what you could afford, the government program was going to cover it. Besides, credit cards and loans encourage all of us to live beyond our means.

It still seems very wrong to you. With any other debt, even unsecured debt, one can go bankrupt. Companies do this all the time. Their CEOs, even their boards and investors, still walk away with millions or billions, but you cannot do that with this program. Like other debtors, you can often get a settlement.

Your friend got sick and had his car repossessed. After the auction, he still owed $13,000 on the car. To his amazement and surprise, the bank offered him a settlement. He agreed to pay $60.00 a month and his debt will be forgiven in two years. The bank is writing off about $10,000 in debt, not charging interest or late fees! This is a bank we are talking about! He took the offer, and though he is “paying less than agreed” and such will show on his credit report, he still settled and negotiated with his creditor. He can still build his credit. He does not have to pay $660 per month for seven years, only $60 for two years.

Why is this debt so different? Why is he and his family so severely punished to the point of unimaginable cruelty?  Things happen to people, sometimes bad things. Sometimes we do things we shouldn’t, but over these past months, he and his family have suffered. The stress was too much, they filed for divorce, and he is now saddled with the house debt alone.

Even if this program was wrong, the courts should allow those who started paying under it to continue with the program. That is fair and just, he thinks. Why just pull one’s life out from under them because you can?

No, he thinks, either the program should continue for those already in the program or they should be allowed to have a settlement or at least to go bankrupt. This would be the human thing to do for not only him but the millions of others who bought into the program.

Now, it’s a real possibility that he will be homeless at 65, and homelessness is illegal. So, he will get locked up. Here he will have a million in debt, and be locked up because he cannot pay the debt. Then locking him up costs the state $80,000 per year just for him. That, the taxpayers will also have to pay. Life makes no sense to him at all. He thinks of ending it all. It’s the only solution, but he just cannot leave his dog and the cat to the creditors. He is stuck. All he has left is hope.

But lawmakers don’t seem to care about debt after all. They certainly don’t seem to care about people. The country has nearly $36 trillion in debt that it will never pay off. The nation is like him! The U.S. will have to pray for a settlement.

No, it’s not about that. It’s about something else. It seems like some kind of sick game.  All he can do now is cry for help, and hope that some judge, somewhere, whether liberal or conservative, will throw him a lifeline.

He has been justly punished for his crime … wanting a decent life for himself and his family.