Student Loan Horror Stories: Borrowed: $79,000. Paid: $190,000. Now Owes? $236,000

At 59, Chris pleaded for a renegotiation. "My life expectancy is 15 more years. At this rate, you're not going to get very much...' Their response was, 'So?'"

Part of a new series. Thanks to the good folks at StudentLoanJustice.org

Whether it’s CNBC telling us what issues mattered to the young in the presidential election, or Yahoo! Finance telling us the big winners in the 2020 election were “young people and student voters,” or Forbes telling us “young people with student loan debt have a harder time reaching financial milestones,” the student loan controversy is almost universally presented as a “youth” issue.

This is the first of many deceptions baked into coverage of one of the more misunderstood and misreported issues of our time. Student loans matter to older people, too. In fact, that’s the problem. They matter far too much, to too many older people.

“People that are 45 years and older, that's where the student loan problem is a real issue,” says “Chris,” who took out his first loan in 1981. “Because those are the people that normally would have the highest balances.”

Now 59, Chris asks to tell his story under a pseudonym, to protect the service industry career he’s built in part with the hope of someday escaping his student debt.

“In the realm I'm in now, I don't really advertise the fact that I owe $236,000,” he sighs.

It’s often argued that forgiving student debt would unfairly punish other groups, particularly those who “did the right thing” and paid off their loans. In truth, political changes have already punished plenty of student loan holders. Chris is a prime example.

He grew up in the Midwest, and began studying philosophy and political science at Southwest Missouri State (now called Missouri State) in 1980. He began paying for his undergrad studies upfront, a decision that would have fateful consequences. He entered school just as Americans were electing Ronald Reagan, who wanted to dramatically re-order federal spending priorities. Among his first acts: raising the interest rates for some federally-guaranteed student loans from 7% to 9%.

“What’s really ironic,” Chris says, “is that if I hadn't paid cash the first year and a half that I was in college, my loans would have gotten locked in at a much lower rate.”

Paying the Reagan rate instead of the pre-Reagan rate was Chris’s first political misfortune. The second kicked in years later, in the mid-eighties, by which time he’d transferred to the University of Missouri-Columbia, graduated with a B.A., entered and completed a grad program there, and moved on to Joe Biden’s Alma Mater at Syracuse law. He left graduate school owing $14,000, and left law school with a total balance of $79,000.

He thought he’d be graduating with a law degree, and expected to be able to make his payments. Part of his calculation involved the fact that student loan interest was once tax-deductible, much like mortgage interest. But the Tax Reform Act of 1986 began a see-sawing journey for the student loan deduction, essentially eliminating it as a personal deduction for a time.

“I looked at education as a capital expenditure,” Chris says. “Part of my strategy was, is that the interest would always be tax-deductible. So that would at least give me a little bit of a [cushion] in making my payments, because, I would have that tax deduction.”

After they changed the law, “It was like, ‘Wow, this is going to be difficult, this is going to be interesting.’”

The loan system we have now is predicated on a few key assumptions, all unrealistic. One is that people graduating with higher education degrees will be immediately employable in their chosen fields. Even with the sort of professional credential that once meant nearly guaranteed income in America, like a law degree, this is no longer true. Job markets tighten, economies hit recessions or worse (in the years after the 2008 financial crisis, for instance, the number of law school grads still looking for jobs a year after graduation nearly tripled, from 4.1% to 11.2%), and technological or cultural changes can lower the value of degrees.

The other assumption is that people with higher degrees will stay in their fields, and avoid accidents, illnesses, personal problems, and other detours. In the nineties, Chris became disenchanted with the law, and went through a “riveting” divorce that hit him with a slew of unexpected costs (including, ironically, legal fees). He missed a few payments, and then began missing them altogether, beginning a period of years when he paid nothing at all — in part because he was underemployed after leaving his law practice, and in part because he just handled his loans “in a cavalier, stupid way.”

“I'll take ownership of the fact that my stupidity bought me a [ton] of interest and penalties,” he says now.

In 2002, Chris got a middle-level job with one of the world’s larger service-industry companies. His first position paid him $28,000 a year, but he didn’t see much of that money. In 2004, his wages began to be garnished. A single federal lender can garnish up to 15% of “disposable” pay, i.e. what’s left over after mandatory withholdings. If there is more than one lender, they may garnish a maximum of 25% of wages.

Chris’s pay was garnished at 15% from 2004-2011, and at 25% from 2011 on. He paid, but didn’t gain ground, thanks to another painful quirk of the system, involving the order of obligation.

“They apply your penalties first, then your interest, then your principal,” he says. “So really they're guaranteeing that you're never going to pay down your loans.”

Into his second decade of garnishment, Chris was paying pure penalties, fees, and interest, not touching a dollar of principal. Although the government had since re-introduced some student loan interest deductions, these were capped at $2500 per year. “At the height of my garnishment, I was paying $900 every two weeks,” he says.

Career advancement didn’t particularly help his cause, as raises just meant he was able to pay more in fees and interest on an inalterably enormous core debt. Through 2020, when student loan obligations were halted due to the coronavirus, he paid $190,000 on an original debt of $79,000. His current balance? The aforementioned $236,000.

Politicians when they talk about student debt usually talk in terms of amounts owed, but the dirty secret is the American system is about streams, not sums. The tension in this game is between borrowers trying to chop their debt into finite, conquerable amounts, and lenders who are incentivized to make the balance irrelevant, turning people into vehicles for delivering the highest possible monthly bill, without the real possibility of repayment.

Having some business experience, Chris tried multiple times to renegotiate his debt with the company that ultimately ended up servicing his debt after all of his loans were consolidated. No dice. As he advanced in age, his appeals began to contain a mixture of desperation and amazement, as he realized how completely disincentivized his lenders were to compromise.

“I've even used the argument, ‘Look, you know, I'm 59 years old right now, my life expectancy is 15 more years. At this rate, you're not going to get very much.’” He pauses. “I told them, ‘I'm probably going to retire in nine years. And my income is going to go down.’ And their response is, ‘So?’”

Like a lot of student loan holders, Chris no longer expects that he will ever pay off his loans, or even begin touching the principal. He’s heard the stories of people having their Social Security payments garnished and wonders if that is in his future. While he understands that the reaction of some hearing his story will be that he brought his problems on himself, he has now paid two and a half times his initial balance, and is scheduled to pay it at least five times over, if he doesn’t die first. Even accounting for his “stupidity,” he figures, “I paid my student loans.”

Chris’s experience is by no means unusual, something he feels politicians either fail to understand, or consciously ignore.

“Whether it's Elizabeth Warren, or Biden, or even Trump — whoever — when they talk about student loans, they throw around numbers like $10,000, or $20,000, or $50,000,” he says. “Those numbers are basically applicable for people that have really low amounts of student loans. And it doesn't take into account loans that are in a distressed condition.”

Chris made mistakes, but as he’s noticed, so have other types of borrowers. “It doesn't appear that we seem to hesitate much in giving money to Ford or Chrysler, or a collection of banks,” he says, citing bankruptcies, bailouts, and other programs.

“They have tools,” he says, “the individual does not.”