John Sandman

Student loans can take on a life of their own; they can hunt you down and seem to live forever. 

 

By John Sandman 

Nov 4, 2014 5:47 AM EST

 

NEW YORK (MainStreet) — Student loans can take on a life of their own. They can grow wild, like ivy on the side of a college dorm. Except for home mortgages, they are the biggest consumer loans most people are likely to have. Spouses or partners can come and go, kids move away and jobs change, but student loans can outlast them all. Once borrowers struggle to make their payments the debt collectors, like cockroaches in the next apartment, start to move in, even if they're never more than a voice on the phone.

 

Bonnie Nicholls knows that sound. A quality control manager at a manufacturing plant, she and her husband used student loans to send their daughter, Deanna, to college 15 years ago.

 

"She wanted to get out of town," said Nicholls of Nevada City, Calif., population 3,100, which was settled during the 1849 northern California gold rush. "It was too small for her here."

 

Deanna went to California Baptist University in Riverside, formerly California Baptist College, aligned with the Southern California Baptist convention. According to U.S. News & World Report, applicants are admitted on a rolling basis with an acceptance rate of 78.8%. While information on costs were not available for the years Deanna attended, tuition plus room and board for the 2014-15 academic year was $37,312, not including books and other expenses. A BA would cost about $150,000, but U.S. New & World Report states that only 41% of the students at California Baptist leave with a degree in four years.

 

When Deanna enrolled, she took out two Sallie Mae loans and her mother co-signed four others. Those loans were disbursed between September 2000 and September 2003 with a total balance of $50,195.11 and interest rates between 10.25% and 10.50%, nearly twice the rates for federal student loans. Sallie Mae's student loan servicing arm now calls itself Navient.

 

The 50-something Nicholls doesn't recall why her daughter took out private loans rather than cheaper federal loans which come with more liberal re-payment options, but she remembers that her daughter encountered a smooth-talking college employee who convinced her that re-paying these loans would be easy.

 

Deanna dropped out in 2005, leaving with her husband, also a former student she met at the school. Less than a year later, Bonnie Nicholls's own husband became disabled. While Nicholls wouldn't go into details except to say that the ailment was physical, he hasn't worked since.

 

The Debt That Won't Die

 

Consumer advocates argue that lenders and loan servicers—Sallie Mae is both—are quick to push borrowers into forbearance and slow to identify solutions that would be better for their customers.

 

"We consistently see examples of Sallie Mae and other [loan] servicers pushing borrowers into the quickest options, such as forbearance, rather than explaining and assisting borrowers to obtain more favorable long-term solutions," wrote attorney Deanne Loonin in the National Consumer Law Center's 2014 report, The Sallie Mae Saga. "Forbearances can be costly for borrowers because interest accrues during forbearance periods and because they must be renewed more frequently than other options."

 

According to a February 2012 10-K filing with the Securities and Exchange Commission (SEC), Sallie Mae stated that 20% of its borrowers defaulted after entering forbearance between 2009-2012 and 11.4% defaulted after leaving forbearance while trying to keep up with their payments.

 

"My daughter put her (two) loans into forbearance six months after she left school," Nicholls recalls, where they remained for another six months. "Things came to a head in 2008 when she found it difficult to find work. I had to come up with the money because my daughter could not."

 

Eventually Nicholls and her husband filed for bankruptcy in 2008. Nicholls claims they did it to get straight with Sallie Mae.

 

"We wanted to resolve our own debts before we tried to pay off the student loans," she said.

 

But getting caught up became an unexpected struggle, and she sought near-term relief from forbearance, when payments would be temporarily suspended. On June 18, 2008, Nicholls received a letter from Sallie Mae with news that the four loans she co-signed were being allowed into forbearance. The balances were alarming. They increased from $50,195.11 when Deanna left school to $75,503.53 by the date of Sallie Mae's letter. Once in forbearance, the balances would continue to go up.

 

From Bad to Worse

 

In its letter, which has a Wilkes-Barre, Pa. post office box as the return address, Sallie Mae spelled out what a bad deal this is for the borrower—and what a good deal it is for Sallie Mae.

 

"Interest that accrues during forbearance remains your responsibility," the letter stated. "If this is a non-payment forbearance, unpaid interest will continue to accrue and may be capitalized (added to the principal of your loan) at the end of the forbearance period. Keep in mind that capitalized interest increases the loan amount and must be paid back, and may result in a higher payment amount after forbearance ends. Also, if your Sallie Mae-owned loans have a borrower benefit that involves any on-time payment requirement, using forbearance will prevent your loans from retaining eligibility for that borrower benefit."

 

The letter is signed Sallie Mae Customer Service—no name.

 

The Customer Service Rigmarole

 

If Nicholls couldn't remember whether there were borrower benefits in these loans that were forfeited and if other details that eluded her, the lack of assistance she got from the lender and servicer added to the confusion. What she can document is that the older the loans got, the more money she owed. If Nicholls wasn't a paragon of efficiency, Sallie Mae seemed to make the loan payoff more difficult, not less.

 

"The loans were all in different departments of Sallie Mae," she said. "One never seemed to know what the other was doing."

 

Nicholls was put on a $400 per month payment program in 2009.

 

"We were on that until 2011, but I had to re-up every few months," she said. "There was no guarantee that we'd be able to stay in the program. They wouldn't give us anything in writing then, they wouldn't commit to anything."

 

Compounding the problem, Nicholls said, was having to work with multiple calls centers.

 

"You'd call with a question and get an answer from somebody who you'll never talk to again," she said. "You have no way of proving anything you said because they won't put anything in writing and you're always talking to somebody different. People usually identify themselves by their last name only. But then sometimes they'd give their first name only. In 2009 I got a letter saying I was in arrears—after I thought we made an agreement that would keep us current. I called and said, 'Wait a minute, this lady named April offered me this deal.' They talked to her and told me, `April says she doesn't remember you, so we can do that deal.' Things like that happened frequently."

 

Although the calls came during east coast business hours, they were made from different time zones. Nicholls added, "Each new person knew nothing about my loans or what their status was after the last time I called and I'd have to start from scratch."

 

Sallie Mae's call centers are indeed far flung. There are at least ten, with locations in Gilbert, Ariz.; Newark, Del.; Indianapolis and Muncie, Ind.; Mount Laurel, NJ.; Wilkes-Barre, Pa.; Killeen, Texas; Whitewater, Wis. and Baguio, the Philippines and Cavite, also in the Philippines. Customers may talk to call center reps who are not native speakers of English—and not very fluent. In 2009, Sallie Mae moved its call center operations in Pune and Bangalore, India back to the states.

 

These are typically high-stress, low-wage gigs, where staff churns even in a bad job market. Many job boards feature open positions at Navient call centers. During the week of October 6, 2014, multiple openings were listed in Newark, Del. and Wilkes-Barre, Pa. LinkedIn listed an opening for a director of call center forecasting, also in Newark, and Indeed.com had numerous openings for Navient customer service specialists. Ohiocallcenterjobs.com had multiple Navient openings.

 

According to the Global Call Center Report, produced by the Cornell University School of Industrial Labor Relations, 20% of U.S. hires are college graduates, compared to 60% in India. About 80% of U.S. call centers are in-house operations and the majority of calls made are outbound, rather than those made to the call center by customers. The best-known call center troll is probably the imaginary Michael Scott, a regional branch manager of the Dunder Mifflin Paper Company who, in Season Four of The Office, moonlights at a Scranton call center which is portrayed as a job from hell—and Scott seems to be on the marketing side of the industry, not the collection side.

 

Call Center Hell

 

"Workforce stability is a significant problem for call center managers who can often find themselves in a perpetual search for additional workers," the Cornell report found. "The research record is clear that high turnover rates lead to high costs of recruitment, screening and training." Cornell found that 30% of U.S. call center workers had been on the job less than a year.

 

Nevertheless, there is money to be made, staff churn or not, and the call center is at any collection operation's cutting edge. Mark Russell, a director at Rockville, Md.-based Kaulkin Ginsberg, an advisor to the accounts receivable management industry, said in a 2011 blogpost on Inside ARM, "Student loans are the ARM industry's new oil well."

 

If call center reps are riding student loan borrowers like donkeys on their way to the glue factory, they themselves are under the gun and tightly monitored. The Cornell report stated that for the people working call center phones, "High performance monitoring is associated with high levels of anxiety, depression, emotional exhaustion and lower levels of job satisfaction."

 

Which won't help Bonnie Nicholls. The Consumer Financial Protection Bureau has begun to take on the private student loan originators and sanctioned some of the more notorious for-profit colleges, such as Corinthian Colleges and ITT Tech. A four-year college like California Baptist University may not hit their radar—but it is expensive and, given its low four-year graduation rate, profiles like a for-profit college that will leave students with large amounts of debt.

 

Maura Dundon, senior policy analyst at the Center for Responsible Lending, has said that colleges aren't doing enough to help their students to borrow smart. An April 20, 2014 policy statement from the Federal Deposit Insurance Corporation encouraged private lenders to work constructively with borrowers, which it said was "in the long-term interest of both financial institutions and borrowers."

 

Sallie Mae announced in a May 9, 2014 filing with the Securities and Exchange Commission that it was setting aside $70 million to settle a raft of charges by the Consumer Financial Protection Bureau, the Department of Justice and the Federal Deposit Insurance Corporation that it broke consumer protection laws and engaged in fee gouging military borrowers. It also faced sanctions for discriminatory lending practices and the wrongful processing of borrowers' monthly payments—the kind of behavior that Nichols describes.

 

This was precedent setting if only because it was the first time a price was linked the harm Sallie Mae had done its customers. But as winter turned to spring, the Department of Education, in a move that outraged many consumer activists, handed a lucrative, four-year contract to Sallie Mae to service and collect payments on federal student loans. In a sop to consumers, Sallie Mae was allotted the fewest new federal loans of any of the four servicers for 2014 after it finished last in borrower surveys.

 

Debtor Pain, Sallie Mae's Gain

 

Despite having customers who have struggled with their loans, Sallie Mae has thrived throughout the financial crisis. According Salle Mae's earnings releases, available at www.salliemae.com, net income rose from $530 million in 2010 to $1.4 billion in 2013, a nearly three-fold increase in just four years.

 

When the Sallie Mae loans Nicholls co-signed left forbearance in 2009, she recalls a deal she struck with the lender that required her to phone in a payment each month—a deal she lost two months after it was made because the lender said she failed to call on time one month, something Nicholls disputes. A Sallie Mae spokesperson would not comment on individual borrowers.

 

Then Sallie Mae had a new offer. "'If you let us take $400 out of your account every month,' they said, 'that'll at least keep you out of collection,'" Nichollas remembers. "So from 2009 to August 2011, we paid that, until I got laid off in 2011."

 

The financial crisis was still present then and millions of Americans were out of work. "I called them right away and told them I got laid off my job and can't authorize payments," Nicholls said. "They said, `Well, what do you intend on doing?' I said, 'Right now I have to figure out how we're going to eat.'"

 

Nicholls said she heard nothing from Sallie Mae for six months. When she got another job in February 2012, she asked to be put on a new payment plan.

 

Sallie Mae wanted an up-front payment but Nichols still had cash-flow problems. According to Nichols, the deal she got went like this: "The call center service rep said, `Well, you're going to go to collection if you don't do something quick. Now, I see here that you own your home. Can you take out another mortgage?'" Nicholls said she didn't think she could get one.

 

The call center rep continued. "I see you have an IRA with $5,000. If you can get $3,500 from that, then we'll start taking out $200 a month and we'll accept that."

 

"So I liquidated the only money we had, paying tax on most of it," Nicholls said. "They started taking out $200 a month out of my checking account."

 

But then Nicholls said that by June Sallie Mae inexplicably stopped withdrawing payments. "So I called them and asked why," she said. "The call center guy said, 'Oh, I don't know what happened—but you're in trouble. Will you authorize a one-time payment of $400?' He said he recorded the conversation and I made it clear that it was a one-time $400 payment with the $200 monthly deduction resuming at the end of July. I gave him my debit card number and I thought we were done."

 

"The next day, some other guy calls and tells my husband that the payment didn't go through, that he needs his ATM card and $400 right now or else we're in big trouble. This guy was one of the meanest and most threatening that ever called us—the guy told my husband he was a moron and that he was tired of talking to morons with student loans. While he had him on the phone, my husband looked at our bank account online and said that payment I made was pending. The guy said he didn't care, he wanted the money immediately or we're out of the new repayment program."

 

"So, my husband gives it to him and the next day both payments went through," Nicholls continued. "Now we want to stop that second payment because we're at risk of bouncing checks. My husband gets through to this same guy who was extremely rude. The same guy called back and said you're right, I made a mistake." In their years of dealing with Sallie Mae, Nicholls said, that was a first. The call center rep didn't apologize, however.

 

Despite what she calls a good faith, if flawed, effort to pay off these loans, the balances were nearing $90,000 by 2014.

 

"This is the student loan debt trap," she said. "The deal we have now will keep them off our backs but with paying $200 a month, I can barely cover the interest."

 

What is her expectation for when these loans will be paid off? "I have no expectation that they will be paid off," she said. "I will die paying these loans off."