Think twice about private student loans — they can hold you down for years
Valisha Cooks assumed the college education she financed with debt — about half of it in expensive private student loans — would pay off handsomely.
Cooks, like so many others, assumed wrong.
“When I took out private student loans, I had no idea that I was condemning myself to a lifetime of ruined credit, harassment by collection agencies, and the hopelessness of endless debt,’’ Cooks recently told a House subcommittee that had convened to discuss a measure that would allow borrowers to shed private student loans by filing for bankruptcy protection.
Many people are indeed better off financially with a college degree. But for too many others, they unwisely accumulate too much debt in pursuit of a degree, and then an illness, not enough pay, or poor decisions make it difficult to handle the crushing loans.
A single mother from Los Angeles, Cooks graduated with about $41,000 in federal loans and $36,000 in private loans. The principal on the private loans had increased to $53,000 over three years. Her total education loan payments were $1,150 a month, $750 for the private loans. Cooks testified that her loan payments were more than half of her net monthly pay.
She filed for bankruptcy protection. But it was a futile move.
“This was not a decision I made lightly,’’ Cooks said. “Filing for bankruptcy was expensive and, most of all, humiliating. I was raised to work hard, pay my bills, and be responsible.’’
About $10,000 in other debt was erased. But not her loans.
“Even though I have a good job, I can’t afford to pay all my bills in any one month,’’ Cooks told the subcommittee. “I go to food banks to feed my son, and I will never be able to afford a house.’’
Like child support and tax debt, student loans are nearly impossible to eliminate in bankruptcy. You have to prove “undue hardship’’ — a high hurdle.
In 2005, during a major overhaul of the bankruptcy code, private student loans were given an elevated status. This didn’t make sense. If we are going to have a fair bankruptcy system, private education loans should be treated the same as other private consumer debt. That’s the risk lenders take, similar to those providing loans for cars, mortgages, or other consumer purchases.
Lenders argue that people will get an education and immediately run to bankruptcy court to shed the obligation before they make big money.
Perhaps with Congress eyeing major legislative changes, the time is right to correct something that should have never been done in the first place.
“I think part of the reason why my lender refuses to help me in any way is that they know I am stuck with the loan, no matter what,’’ Cooks said.
This time, her assumption is right on the money.
Michelle Singletary is a columnist for The Washington Post. 
