Severe car accidents can be devastating. When such an event includes a passenger who owes private student loans, the financial trauma makes it downright ruinous. Just ask Deborah Schutz. In December of 2008, Schutz’s daughter was in a car accident, and is also — what I call — an indentured educated citizen.
Her daughter’s injuries were more than just severe.
“She broke her jaw, sternum, ribs, pelvis (on both sides) and both her ankles, shattering the left one. But the worst was to her cervical spine, which left her a quadriplegic. She has made some progress in her recovery and is medically doing well, but her bills have left us in financial ruin,” Schutz says.
The medical bills are not the Schutzs’ only problem. They are being haunted by a private loan. Schutz’s daughter took out a loan from a major financial institution to pursue a degree at New York University.
“My daughter graduated in 2006, was 24 years old, and working at the time. Her loans are now a total of $80,000, and we have been paying on them since 2002,” says Schutz. “The federal loans are consolidated and deferred, but it is her private loans that are in default right now.”
Schutz’s daughter had several choices for potential schools, but ultimately chose NYU.
“My daughter is extremely bright and had a scholarship [there] that paid for half of her tuition. She had been accepted into numerous colleges and the University of California school system. She received a full-ride offer at University of California at Santa Barbara,” says Schutz. “However, NYU appealed to her and told her that they had a deal [with a financial institution] for low-interest loans to pay for the rest of her tuition and living expenses.”
That institution has been unwilling to negotiate with the Schutzs, and their daughter can no longer work.
“We don’t know what to do…I have written a letter explaining the situation and sent copies of her medical records [to them],” says Schutz. “They call us two to three times a week. Recently I heard my husband crying to them on the phone.”
An all too common scenario
Unfortunately, Schutz’s story is all too common. Private lenders have a reputation for being ruthless when borrowers seek relief. But when an individual suffers from a disability or severe illness after they have borrowed from the federal government, is it much better?
In general terms, financial advisers such as Mark Kantrowitz assert that federal loans are always a better choice than private loans. Even some private lenders agree. Wells Fargo suggests on its website that borrowers “always consider [the] lowest-cost options first, including grants, scholarships, and federal student loans (emphasis added).” Furthermore, federal loans have more flexibility when it comes to the terms of repayment, and oftentimes have fixed interest rates that help borrowers manage their student loan debt. When it comes to borrowers who develop severe disabilities or experience an unexpected illness, federal loans are regarded as much more favorable because of their forgiveness plans.
So just how does the federal government respond to similar situations of an individual who is beset with a permanent disability or terminal illness, making him or her unable to repay or manage a student loan debt efficiently? The findings do not reflect positively for the Department of Education and its purported relief programs for such borrowers.
Unlike Schutz’s daughter, Jessica Cowin neither had a car accident nor took out private student loans. She is, however, also an indentured educated citizen, and her story bears similar resemblance to Schutz’s daughter. Cowin’s story illustrates the frustrating aspects of being burdened with federal student loan debt and suffering from illness after illness.
Cowin was born with a serious heart condition, and at the age of 16 she had a heart transplant. Her health problems did not stop there. After Cowin and her sister, Amy, graduated from DePaul University, Cowin learned that she needed a kidney transplant. A year and half ago, Cowin had her second organ transplant — her sister was the donor. Even though Cowin’s sister successfully raised $31,000 on Give Forward to pay for her kidney transplant, the two struggle to make ends meet.
“My health is always a question and though I am in relatively ‘good health,’ all things considered, I still have the random three-day stays at the hospital, very expensive medication that without insurance would cost $3,500 a month and a job that pays me $12 an hour,” says Cowin.
“I just recently got over a cold. For most people this is not too much of a concern. For me, on the other hand, I almost had to go to the ER. I still had to miss a day of work, and that adds up,” says Cowin, adding that she has run out of sick days — any other missed days will be taken out of her paycheck.
“Hospital co-pays and bills are a huge factor for why I cannot pay my loans. In addition, it has taken the past year and a half for the hospital to finally figure out which insurance was paying for what procedures and the transplant,” says Cowin. “I have bills that I need to pay — the last one I received from the hospital was a $700 bill for tests. I get at least two [tests] like this roughly every month or so. This last transplant made things even more difficult to pay my student loans.”
“It has really been hell,” she says.
A growing problem
There are a growing number of cases, like Cowin’s, which demonstrate that there is little difference between federal loans and private loans, at least when it comes to relief plans for borrowers with serious disabilities or illnesses. Although federal loans can be discharged or forgiven if the borrower develops disabilities under federal law, a recent study by ProPublica and the Center for Public Integrity reveals a system that is inefficient and broken. Based upon these findings, one might surmise that its inefficiency could be costing taxpayers.
The report asserts that disabled borrowers “confront a byzantine system that has resulted in many applicants’ being rejected for unclear reasons, and has led many others to simply give up. Despite demands for improvement from Congress, the courts, and its own internal watchdog, the [department] has repeatedly failed to heed basic recommendations for fixing the process.”
Cowin has found it nearly impossible to deal with the department.
“I have called so many times explaining the medical issue — and my continued medical issues — and no one is willing to help,” she says. “They tell us to fill out paperwork and then they will see what they can do. We have done so. This has happened at least three times. I have no idea where the paperwork [goes].”
If private lenders send these types of borrowers to the proverbial default hell, and the department’s labyrinthine system prevents them from achieving any sort of relief, what can be done to solve two separate, but similar problems?
First, the department could take immediate steps to help bring relief to borrowers with disabilities and debilitating health problems. In fact, the Secretary has enough power that lobbying Congress would not be necessary. If streamlining the government is intended to make it more efficient in a way that is beneficial to citizens, here is another place that needs to be cleaned up. Although the department has made efforts to aid borrowers in these situations, there appears to be neither tangible nor positive results for distressed borrowers.
President Obama spoke about reducing the deficit and improving government in his last State of the Union Address: “We shouldn’t just give our people a government that’s more affordable. We should give them a government that’s more competent and efficient.” Here is an instance in which the department could clean up its inefficiencies to aid distressed, disabled and ill borrowers. Private lenders’ ruthless behavior could be curtailed if proper legislation were implemented that guaranteed the private lending sector would negotiate with borrowers like Schutz’s daughter.
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