student loan shell game

The Student Loan Shell Game

Michael Lux Blog, Student Loans 0 Comments

The shell game dates back to Ancient Greece.  The concept is simple.  Three cups, one ball.  If your eye is as quick as the hand, you win.  Pick the wrong cup and you lose…

Like the shell game, management of student debt requires following a perpetually moving target.

The federal government changes loan servicers at will.  The company you are expected to pay this month could be entirely different next month.  Making matters worse, repayment plan options have been in flux for years.  A stroke of the President’s pen and a new plan is created, or an old plan is destroyed.

Things get even worse dealing with private student loans.  Loans are bought and sold without warning and customers are powerless to stop it.

Unfortunately, the shell game is not on the up and up.  The con artist uses sleight of hand to make the ball disappear and reappear as needed…

Clauses buried deep in student loan agreements cause borrowers who have never missed a payment to automatically default.

Borrowers who never miss a payment for years review their student loan documents to learn that a tiny fraction of their payments actually go towards the principal balance.  Some even see their balance go up despite never missing a payment.  Instead of reducing the principal balance, the payment disappears as interest, generating huge profits for lenders and the Department of Education

The key to the shell game is the shill.  This shill appears to be a “bystander” who steps up, plays, and wins.  What the mark doesn’t know is that this “bystander” was in on it from the beginning, just another part of the con.

Politicians from both parties share their grand plans for fixing student debt issues.  What they don’t share is how the banks, lenders, and corporations profiting off of student loans line their campaign war chests.  What they don’t talk about is how Congress spent decades eroding basic consumer protections from the realm of student loans.  If you get in over your head on a mortgage or credit card debt, bankruptcy offers a path to debt freedom.  Over the years Congress first eliminated the bankruptcy option from federal loans and then did the same for private loans.  Today bankruptcy relief from student debt is more illusion than reality for the average struggling borrower.

The student loan shell game has more than just one shill.  A generation ago college was far more affordable and student loan debt was almost always a good bet.  The idea that college is the best and surest path to success has been pounded into a generation of millennials.  For-profit schools prey upon this mentality, bringing in huge profits and offering little value.  The cost benefit analysis for college has taken a dramatic turn for the worse, yet we still point to outdated outcomes a generation old.

The Sad Reality…

It isn’t fair to compare student loans to a shell game.

In a shell game, the mark loses out on some cash and goes home embarrassed.

Borrowers who wage their financial future on the student loan shell game lose out on far more.