the Voice of
The Communist League of Revolutionary Workers–Internationalist
“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx
Mar 14, 2022
In January, prosecutors from 39 states and the student loan company Navient, formerly known as Sallie Mae, agreed to a settlement over accusations of fraudulent practices by the company. They made a big pronouncement saying the settlement was a win-win for both sides and that Navient had agreed to forgive 1.7 billion dollars in student debt. There’s more to the picture than meets the eye, however.
In 1998, Congress instituted a requirement that private, for-profit colleges obtain at least 10% of their student loans from private sources. That meant, in turn, they could receive up to 90% as federally guaranteed student loans.
Starting in the early 2000s, Navient and other lenders took advantage of this policy by providing both private loans and federally guaranteed loans. They knew full well that many of the students would never be able to repay the loans, but they were guaranteed to receive federal funds for 90% in cases where the students couldn’t pay.
Pennsylvania’s attorney general pointed to one type of loan that at its peak had an 87% default rate, and found that Navient increased the number of that type of loan it granted from 706 in 2000 to 54,000 in 2006. That’s in Pennsylvania alone! A document filed in court showed Navient’s former CEO Thomas Fitzpatrick said in a 2007 meeting, "If the borrower can create condensation on a mirror, they need to get a loan this year."
The prime beneficiaries of all these student loans were fly-by-night colleges, many of which wound up going bankrupt or closing their schools. The largest of the companies behind the for-profit colleges were Corinthian Colleges, ITT Technical Institute, Education Corporation of America, Education Management Corporation and the University of Phoenix. Collectively, these companies saddled hundreds of thousands of students with over a billion dollars in debt. Many of their students were never able to complete their degrees and many who did found their degrees to be useless in helping them to find employment that would allow them to repay their student loans.
Though Navient supposedly forgave 1.7 billion dollars in student debts in their recent settlement, they knew they would never receive that money when they made the loans. The company told its investors the true value of the forgiven debt was really only about 50 million dollars, or under 3% of what they and the state prosecutors said publicly.
The real kicker in the settlement, however, is that former students who have faithfully made their payments on their loans were not eligible to have their loans forgiven. Many of these students will continue to be saddled with tens of thousands of dollars in debts they cannot afford to pay.
In the end, under the guise of providing an education to students, both the lenders and schools carried out one giant rip-off of federal money and the taxpayers responsible for it, and left students holding the bag as well.