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For Immediate Release October 23, 2015  

Department of Education Administers the Federal Student Loan Program in Bad Faith, Must be Investigated.

In April of this year, the U.S. Department of Education admitted that an astonishing 57% of student loan borrowers who were accepted into the Income-Based Repayment program had been disqualified from the program for failing to adequately verify their income.  Earlier this week, the Department continued its battle against borrowers seeking bankruptcy relief for their student loans, expressing to a judge that treating student loan borrowers the same as borrowers of every other type of loan  in bankruptcy court would imperil the the solvency student lending system.  The Department expresses these sentiments despite unimpeachable evidence showing that when student loans were treated the same as all other loans in bankruptcy proceedings, far less than 1% were discharged this way.

Make no mistake: This is the same Department of Education that books more than $40 Billion in profits from the student lending system every year.  Further, this is the same Department of Education that can and does work closely with the IRS in order to seize income tax return income from citizens.  The Department could easily arrange to verify income for the vast majority of borrowers through the IRS, but conveniently chooses not to.  

At StudentLoanJustice.Org, we have been predicting for years that the Department would act to kick as many borrowers out of the Income-Based Repayment program, rather than have to make good on the loan forgiveness that the programs promise.  Now there is compelling evidence demonstrating that this is indeed the case.

Importantly, this is the very same Department of Education that has been making, not losing, money on defaulted student loans for many years.  This is a defining characteristic of a predatory lending scheme.  The  Education Department is not only not  practicing any kind of meaningful oversight to end it; Instead, the Department is actually enabling, participating in, profiting from, and protecting this predatory lending system.

This predatory lending system has also enabled the rampant inflation in the price of college that has greatly surpassed housing inflation, healthcare prices, and has led to the infliction of an outrageous $1.5 Trillion in predatory debt upon 44 million of our best and brightest citizens- approximately 27 million of whom are currently unable to make timely payments on the debt.  Most importantly, however: this system has been destroying lives, families, and communities for many years.  

Perverted and corrupted  fiscal incentives lies at the core of the problem,  and are a direct result of the removal of bankruptcy rights, statutes of limitations, Truth in Lending laws, Fair Debt Collection Practices, and other bedrock consumer protections that exist for every other type of loan in this country.  The financial damage to millions of citizens and their families far outweighs any financial benefit gained by the Department of Education and its contractors.

This is intolerable, indefensible, and certainly in violation of the Spirit, and likely the Letter of the U.S. Constitution.  The Founding Fathers listed the creation of a uniform system of bankruptcies ahead of the power to declare war, raise an army, and coin currency when enumerating the powers of Congress.  There was a good reason for this then, and there is a good reason for it now, as the predatory student lending system demonstrates clearly.

Based upon these facts, and a plethora of other evidence that similarly demonstrates that the Department of Education is both a predatory lender and a captured agency.  We request that Congress initiate investigations at once, and legislate remedies to ensure that this sort of abandonment and corruption of the Department's public benefit purpose can never happen again. These remedies would begin with the repeal of  11 USC 523(a)(8), the code that embodies the unprecedented, unique exemption of student loans from coverage under standard bankruptcy laws.  Only with standard bankruptcy protections restored to student loans will the good faith of the lending contract be restored.

If Congress continues to allow this predatory lending scourge to be inflicted upon the people by the Department of Education, the legitimacy of the entire lending system will evaporate.  The public will absolutely cease paying, and they will be absolutely justified in doing so. This won't just imperil the lending system, it will end it.

Contact:  Alan Collinge
Phone:  (202) 594-1120