This is the first of many deceptions baked into coverage of one of the more misunderstood and misreported issues of our time. Student loans matter to older people, too. In fact, that’s the problem. They matter far too much, to too many older people.
“People that are 45 years and older, that's where the student loan problem is a real issue,” says “Chris,” who took out his first loan in 1981. “Because those are the people that normally would have the highest balances.”
Now 59, Chris asks to tell his story under a pseudonym, to protect the service industry career he’s built in part with the hope of someday escaping his student debt.
It’s often argued that forgiving student debt would unfairly punish other groups, particularly those who “did the right thing” and paid off their loans. In truth, political changes have already punished plenty of student loan holders. Chris is a prime example.
He grew up in the Midwest, and began studying philosophy and political science at Southwest Missouri State (now called Missouri State) in 1980. He began paying for his undergrad studies upfront, a decision that would have fateful consequences. He entered school just as Americans were electing Ronald Reagan, who wanted to dramatically re-order federal spending priorities. Among his first acts: raising the interest rates for some federally-guaranteed student loans from 7% to 9%.
“What’s really ironic,” Chris says, “is that if I hadn't paid cash the first year and a half that I was in college, my loans would have gotten locked in at a much lower rate.”
Paying the Reagan rate instead of the pre-Reagan rate was Chris’s first political misfortune. The second kicked in years later, in the mid-eighties, by which time he’d transferred to the University of Missouri-Columbia, graduated with a B.A., entered and completed a grad program there, and moved on to Joe Biden’s Alma Mater at Syracuse law. He left graduate school owing $14,000, and left law school with a total balance of $79,000.
He thought he’d be graduating with a law degree, and expected to be able to make his payments. Part of his calculation involved the fact that student loan interest was once tax-deductible, much like mortgage interest. But the Tax Reform Act of 1986 began a see-sawing journey for the student loan deduction, essentially eliminating it as a personal deduction for a time.
“I looked at education as a capital expenditure,” Chris says. “Part of my strategy was, is that the interest would always be tax-deductible. So that would at least give me a little bit of a [cushion] in making my payments, because, I would have that tax deduction.”
After they changed the law, “It was like, ‘Wow, this is going to be difficult, this is going to be interesting.’” (...)
In 2002, Chris got a middle-level job with one of the world’s larger service-industry companies. His first position paid him $28,000 a year, but he didn’t see much of that money. In 2004, his wages began to be garnished. A single federal lender can garnish up to 15% of “disposable” pay, i.e. what’s left over after mandatory withholdings. If there is more than one lender, they may garnish a maximum of 25% of wages.
Chris’s pay was garnished at 15% from 2004-2011, and at 25% from 2011 on. He paid, but didn’t gain ground, thanks to another painful quirk of the system, involving the order of obligation.
“They apply your penalties first, then your interest, then your principal,” he says. “So really they're guaranteeing that you're never going to pay down your loans.”
Into his second decade of garnishment, Chris was paying pure penalties, fees, and interest, not touching a dollar of principal. Although the government had since re-introduced some student loan interest deductions, these were capped at $2500 per year. “At the height of my garnishment, I was paying $900 every two weeks,” he says.
by Matt Taibbi, TK News | Read more:
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