WSJ: The $555,000 Student-Loan Burden

Discussion in 'Bankruptcy' started by kuacou, Feb 16, 2010.

  1. kuacou

    kuacou Guest

    The Wall Street Journal
    February 13, 2010

    The $555,000 Student-Loan Burden
    As Default Rates on Borrowing for Higher Education Rise, Some
    Borrowers See No Way Out; 'This Is Just Outrageous Now'


    When Michelle Bisutti, a 41-year-old family practitioner in Columbus,
    Ohio, finished medical school in 2003, her student-loan debt amounted
    to roughly $250,000. Since then, it has ballooned to $555,000.

    It is the result of her deferring loan payments while she completed
    her residency, default charges and relentlessly compounding interest
    rates. Among the charges: a single $53,870 fee for when her loan was
    turned over to a collection agency.

    "Maybe half of it was my fault because I didn't look at the fine
    print," Dr. Bisutti says. "But this is just outrageous now."

    To be sure, Dr. Bisutti's case is extreme, and lenders say student-
    loan terms are clear and that they try to work with borrowers who get
    in trouble.

    But as tuitions rise, many people are borrowing heavily to pay their
    bills. Some no doubt view it as "good debt," because an education can
    lead to a higher salary. But in practice, student loans are one of the
    most toxic debts, requiring extreme consumer caution and, as Dr.
    Bisutti learned, responsibility.

    Unlike other kinds of debt, student loans can be particularly hard to
    wriggle out of. Homeowners who can't make their mortgage payments can
    hand over the keys to their house to their lender. Credit-card and
    even gambling debts can be discharged in bankruptcy. But ditching a
    student loan is virtually impossible, especially once a collection
    agency gets involved. Although lenders may trim payments, getting fees
    or principals waived seldom happens.

    Yet many former students are trying. There is an estimated $730
    billion in outstanding federal and private student-loan debt, says
    Mark Kantrowitz of, a Web site that tracks financial-aid
    issues—and only 40% of that debt is actively being repaid. The rest is
    in default, or in deferment, which means that payments and interest
    are halted, or in "forbearance," which means payments are halted while
    interest accrues.

    Although Dr. Bisutti's debt load is unusual, her experience having
    problems repaying isn't. Emmanuel Tellez's mother is a laid-off
    factory worker, and $120 from her $300 unemployment checks is
    garnished to pay the federal PLUS student loan she took out for her

    By the time Mr. Tellez graduated in 2008, he had $50,000 of his own
    debt in loans issued by SLM Corp., known as Sallie Mae, the largest
    private student lender. In December, he was laid off from his $29,000-
    a-year job in Boston and defaulted. Mr. Tellez says that when he
    signed up, the loan wasn't explained to him well, though he concedes
    he missed the fine print.

    Loan terms, including interest rates, are disclosed "multiple times
    and in multiple ways," says Martha Holler, a spokeswoman for Sallie
    Mae, who says the company can't comment on individual accounts.
    Repayment tools and account information are accessible on Sallie Mae's
    Web site as well, she says.

    Many borrowers say they are experiencing difficulties working out
    repayment and modification terms on their loans. Ms. Holler says that
    Sallie Mae works with borrowers individually to revamp loans. Although
    the U.S. Department of Education has expanded programs like income-
    based repayment, which effectively caps repayments for some borrowers,
    others might not qualify.

    Heather Ehmke of Oakland, Calif., renegotiated the terms of her
    subprime mortgage after her home was foreclosed. But even after filing
    for bankruptcy, she says she couldn't get Sallie Mae, one of her
    lenders, to adjust the terms on her student loan. After 14 years with
    patches of deferment and forbearance, the loan has increased from
    $28,000 to more than $90,000. Her monthly payments jumped from $230 to
    $816. Last month, her petition for undue hardship on the loans was

    Sallie Mae supports reforms that would allow student loans to be
    dischargeable in bankruptcy for those who have made a good-faith
    effort to repay them, says Ms. Holler.

    Dr. Bisutti says she loves her work, but regrets taking out so many
    student loans. She admits that she made mistakes in missing payments,
    deferring her loans and not being completely thorough with some of the
    paperwork, but was surprised at how quickly the debt spiraled.

    She says she knew when she started medical school in 1999 that she
    would have to borrow heavily. But she reasoned that her future income
    as a doctor would make paying off the loans easy. While in school, her
    loans racked up interest with variable rates ranging from 3% to 11%.

    She maxed out on federal loans, borrowing $152,000 over four years,
    and sought private loans from Sallie Mae to help make up the
    difference. She also took out two loans from Wells Fargo & Co. for
    $20,000 each. Each had a $2,000 origination fee. The total amount she
    borrowed at the time: $250,000.

    In 2005, the bill for the Wells Fargo loans came due. Representatives
    from the bank called her father, Michael Bisutti, every day for two
    months demanding payment. Mr. Bisutti, who had co-signed on the loans,
    finally decided to cover the $550 monthly payments for a year.

    Wells Fargo says it will stop calling consumers if they request it,
    says senior vice president Glen Herrick, who adds that the bank no
    longer imposes origination fees on its private loans.

    Sallie Mae, meanwhile, called Mr. Bisutti's neighbor. The neighbor
    told Mr. Bisutti about the call. "Now they know [my dad's] daughter
    the doctor defaulted on her loans," Dr. Bisutti says.

    Ms. Holler, the Sallie Mae spokeswoman, says that the company may
    contact a neighbor to verify an individual's address. But in those
    cases, she says, the details of the debt obligation aren't discussed.

    Dr. Bisutti declined to authorize Sallie Mae to comment specifically
    on her case. "The overwhelming majority of medical-school graduates
    successfully repay their student loans," Ms. Holler says.

    After completing her fellowship in 2007, Dr. Bisutti juggled other
    debts, including her credit-card balance, and was having trouble
    making her $1,000-a-month student-loan payments. That year, she
    defaulted on both her federal and private loans. That is when the
    "collection cost" fee of $53,870 was added on to her private loan.

    Meanwhile, the variable interest rates continue to compound on her
    balance and fees. She recently applied for income-based repayment, but
    she still isn't sure if she will qualify. She makes $550-a-month
    payments to Wells Fargo for the two loans she hasn't defaulted on. By
    the time she is done, she will have paid the bank $128,000—over three
    times the $36,000 she received.

    She recently entered a rehabilitation agreement on her defaulted
    federal loans, which now carry an additional $31,942 collection cost.
    She makes monthly payments on those loans—now $209,399--for $990 a
    month, with only $100 of it going toward her original balance. The
    entire balance of her federal loans will be paid off in 351 months.
    Dr. Bisutti will be 70 years old.

    The debt load keeps her up at night. Her damaged credit has prevented
    her from buying a home or a new car. She says she and her boyfriend of
    three years have put off marriage and having children because of the

    Dr. Bisutti told her 17-year-old niece the story of her debt as a
    cautionary tale "so the next generation of kids who want to get a
    higher education knows what they're getting into," she says. "I will
    likely have to deal with this debt for the rest of my life."
    kuacou, Feb 16, 2010
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  2. kuacou


    Jan 19, 2011
    Likes Received:
    When Michelle Bisutti, a 41-year-old family practitioner in Columbus,
    jajjie123, Jan 19, 2011
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  3. kuacou


    Jun 22, 2011
    Likes Received:
    Maybe she should consider bankruptcy
    gtalbott, Jun 22, 2011
  4. kuacou


    Aug 25, 2011
    Likes Received:
    bleed them dry
    megneton, Aug 25, 2011
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