Saturday, May 14, 2011

Sallie Mae

What is the definition of predatory Lending?

Any of a number of fraudulent, deceptive, discriminatory, or unfavorable lending practices. Many of these practices are illegal, while others are legal but not in the best interest of the borrowers.

Sallie Mae is by definition a company with a number of unfavorable lending practices. At this point, let's disregard the fact that a student loan can never be discharged in a bankruptcy. First and foremost, the company makes it impossible to pay down your principal. It is only possible to pay down your principal if you make a payment that is at least double your required payment and it must then be accompanied by a letter stating that you want the excess to apply to the principal. Without meeting this criteria, any overpayment is instead a pre-payment of complete future payments beginning with interest and fees not even incurred. In contrast, the government regulates that an overpayment of a credit card payment MUST go towards principal. (FDIC 226.53) Why on earth is the same rule not in place for Student Loans?

My student loan was consolidated into a 30 year debt. I have made significant over-payments to my student loan over the last 10 years. I recently spoke to Sallie Mae to determine why my balance is not lower. My expected date to have the loan paid off has not budged, even though I have sent in payments that meet the stringent requirements of paying the principal. The extra payments have only pre-paid my debt. Meaning, I have already paid the future interest. At this point, I will still have the loan after my son finishes college. In addition, the company will not answer my questions when I inquire regarding a payment history.

It is now legal for the Student Loan companies to garnish your social security payments if you default on your student loan. With the expected rate of rising tuition rates where they are, it is also possible that if my my seven year old goes to college he will still be paying back his loans when he is eligible for social security. Let alone, if he has a financial hardship, this loan will never go away.

It is alarming. Everything that Sallie Mae does is legal and is not at all in the best interest of the consumer. By definition, this is predatory lending.

Other articles
New York Times

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