Student Loan Justice founder Alan Collinge speaks to Nikki about the lack of consumer protections for student loan borrowers and the introduction of two bankruptcy bills that he believes are the first necessary step toward student loan cancellation. Alan explains how Congress and President Biden can work in tandem to reset a predatory lending system and reimagine a more equitable system for Americans to be educated.

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Transcript –

Nikki Nolan: Welcome to the podcast. It’s so good to have you here. So, let’s jump right into it. How much student debt do you have right now?

Alan Collinge: I actually have no idea how much student debt I have right now. I quit looking. I view student loans as a completely illegitimate, lending instrument at this point. I can tell you that I originally borrowed about $38,000, repaid a few thousand dollars. The last bill I cared to look at, which was like 7, 8, 9 years ago was around $200,000. And these are federal loans. 8.5% interest. These are the older style FFELP loans, which originally came from a bank called Sallie Mae. My loans were thrown into default despite my best efforts to keep them in good stead through forbearances, deferments, et cetera. I demanded that my loans be transferred directly to the Department of Education.

When I realized that something, something was horribly awry with the federal student loan system, I refused to deal with third party for-profit enterprises. I’ve got a lot of professional experience in the world of government guaranteed banking, believe it or not through the Department of Transportation. And knowing what I know, it was became very obvious to me that there were very deep, deep problems with the federal student loan system. So that’s where I’m at currently.

Nikki Nolan: We’ll definitely get into your story. Cause you have an extensive story about like the path that you’ve traveled. But before we get into that, what has been the impact of student debt on your life?

Alan Collinge: Okay. Well, I have three degrees in aerospace engineering from the University of Southern California. I spent the first three, two, three years after graduation at the California Institute of Technology as associate scientist working on turbulence theory. if I didn’t have student loans, I probably would still be doing something related to fluid dynamics or aerospace engineering, possibly defense.

It’s hard to say. but what I do know is that none of that is happening or probably ever will happen at this late date, because of these student loans.

Nikki Nolan: Yeah, it’s so wild. How you go to get a degree in something, and you can’t use that degree because of the debt.

Alan Collinge: Yeah. Ironically, in my particular case, particularly if you work in the defense industry, I was an engineer at Northrop Grumman for a time. And, unfortunately my application to get, I think even a low-level security clearance was put on hold because of my student loans. And I was laid off from that corporation, shortly thereafter.

So, I decided to pursue the student loan problem full time. But this is truly the biggest, most, threatening problem I have ever come across in my professional life working, as I said, the federally guaranteed student loan arena.

I mean, this is by far the most unjust lending instrument that we’ve ever seen in this country. I like a fight, I’m an uphill stream, swimming kind of guy. And I cannot even think of, or more worthy battle than fighting for student loan justice. this gets right back to the, the truly, the founding of this country and what the founders said and did, versus what we’re seeing here today with student loans.

I mean, this really is, a direct attack on the wisdom of our founders. And I can go into that a little bit later.

Nikki Nolan: Yeah. Let’s, let’s jump into your story.

Alan Collinge: Yeah, I mean, I was always a, a good student. I got into a fairly good college. I was always interested in science, just I think more because it was hard than anything else. And so, I got a nice scholarship, a deal with the University of Southern California. And interestingly, my graduate school was largely paid for through research assistantships. Some of which were funded by the US Navy, I probably should add. So, the amount of debt that I actually accrued really was not much, at all, for the education that I got, as I said, I brought about $38,000. I never intended, I think like 99.99% of everyone. I, I never really thought much about student loans.

Alan Collinge: I just sort of assumed they were these rather benign, government-sponsored lending instruments that were, I sort of assumed, maybe on balance, a little friendlier than normal bank loans and a little more flexible because these are student loans. The point is to get the nation educated, not to make a killing on them through debt.

And so I like everybody else was very naive. I came to find out the very hard way. Shortly after September 11th, I left my job at Cal Tech. And found myself underemployed, unemployed for a year or so. I tried to put my loans into forbearance and my lender, Sallie Mae, they apparently lost or never received my initial application forbearance according to them.

I sent it again and then I never heard back from them. And the next communication I had my original $38,000 in loans. We’re now all of a sudden, like $83,000. And I was getting letters of demand for payment in full from some company I’d never heard of, Ed Fund, which I know now is a student loan guarantor.

And so, I began to look very closely at this by, by this time by, 19 or sorry, by about 2003 or 2004. This had escalated to over a $100,000. And by this time I was working, I was, Northwest United States, Regional Director of a ironically, a loan program through the Department of Transportation, working with small disadvantaged businesses.

Alan Collinge: And what I learned over the years, working in that particular niche of government lending, was that government loans are supposed to be pretty generous compared to normal bank loans. You would expect that there’d be slightly better terms and so on and so forth, with student loans exactly the opposite was true. True on all levels. Consumer protections that the founding fathers called for, in the Constitution like bankruptcy, the founding fathers called for bankruptcy, uniform bankruptcy laws ahead of the power to declare war, ahead of the power to build a Navy, ahead of the power to build an army, ahead of the power to print money, and create a judiciary.

The founders called for uniform bankruptcy laws. That has been taken uniquely away from student loans. So the founding fathers are shaking their heads, looking down at this, and there’s no other better word for it. This is a lending scam. And I know that I’m not alone. I knew I wasn’t alone way back in the day.

And I’m sorry to say, I only thought that this would be maybe a one- or two-year project before, justice would see the light of day. However, I had no idea how intransigent and how strong and how much inertia predatory lending system has grown to have over our Congress, over the President, over Washington, DC, generally over the colleges.

It’s a really nasty problem. And so, I don’t know if I, if I had to choose to do things over again, that’s always kind of a dicey question, but I’m very happy being engaged in this battle.

Nikki Nolan: What did you learn while you were working for the government and what turned you into an avid student debt justices activist?

Alan Collinge: Well, I learned the principles of good faith in a lending instrument, to have, a legitimate lending relationship, you’ve got to have good faith on both sides of that equation. The lenders gotta be behaving in good faith. The borrower has got to be behaving in good faith. And when you take fundamental bedrock protections like bankruptcy away from the lending instrument. And in the case of the federal student loans, statutes of limitations are also gone. This is another bedrock, consumer protection that exists for every other type of loan. Fair debt collection practices are also taken away from student loans. Truth in lending don’t exist for federal student loans.

So, we’re talking about a lending instrument from which all the guarantees of good faith on the lending side have been removed. So, these lending instruments have been essentially turned into a license to steal. And the only thing that prevents that from happening is just the, the, the good nature of these for-profit many of them, publicly traded companies. And I’m sorry, but that just does not happen when you have a chief executive and their board looking to maximize value for shareholders. if they can legally get away with bad faith, they will do it. And that is precisely what’s happened.

Alan Collinge: Not only with the companies, I mentioned like Sallie Mae, Ed Fund and others. But even with, I’m sorry to say, the Department of Education. The Department of Education has abandoned any pretense of good faith many years ago. And I can go on, I can give hours worth of examples of loan forgiveness programs they have purposely botched. Kickbacks that their people have taken from the industry. Looking the other way, purposely bureaucratizing well-intended legislation to death, like the gainful employment rule, borrower defense. I could go on and on, but suffice it to say this is a corrosively corrupted inexcusable indefensible lending program. And at this point it needs to be in the words of very conservative, Grover Norquist, it needs to be taken to the bath and drown in the tub. This lending system is, is done. It’s finished. The pandemic is the nail in the coffin. Nobody is almost nobody is paying on their student loans right now.

And in my humble opinion, nobody should ever pay again, certainly on their federal student loans. It’s not a wise or patriotic thing to pay at this point. That’s really feeding the beast. And in my view, Congress and the President need to do a huddle. They need to reset this lending system. they need to come up with, a better, more fair, more rational, more rationally priced, and just sort of common-sense way to fund higher education in this country because this lending system has gone over the cliff.

Nikki Nolan: You talked about, in good faith and things like this. Can you define some of these things for people who might not know what in good faith means?

Alan Collinge: Well, good faith is very simple. Both a lender and a borrower should want the borrower to succeed in whatever he’s pursuing so that he can successfully repay the loans according to the terms. Now we have it on very solid evidence for years and even decades the guarantors, Sallie Mae owns some, Ed Fund is another one.

Pennsylvania Higher Education Assistance Agency, AKA Fed Loans servicing. Many other guarantors have been making most of their money on defaulted loans, not loans that remain in good stead. Similarly, the Department of Education for decades, it turns out in many years of White House budget data, Appendix Four, if anybody cares to look, they will see that many years of White House budget data show that the Department of Education has been in fact, making a profit on defaulted student loans.

Alan Collinge: Now let’s look at any other lending system. Let’s look at credit cards. A credit card company is thrilled if they get back even .10 on the dollar on a defaulted account. Well, and so too the federal government, generally every other government loan out there, veteran’s loans, small business loans, et cetera, they get back maybe .15, .20, .25 on the dollar.

Well, for federal student loans, the government gets back like a $1.22 on the dollar, $1.15, depending on what kind of loan. And this is just, I’m sorry, this is just it’s unprecedented and it’s just unheard of. Typically, people don’t even believe me when I tell them that indeed, the government is profiting on federal defaulted student loans, but in fact it is true.

This is a defining hallmark of a predatory lending system. And when you combine not just bankruptcy, but statutes of limitations, the other consumer protections I mentioned, you give the lending side a license to steal and ruin. Some people wind up paying 5 or 10 times more than they borrowed. Other people get forced off the grid for the rest of their lives. So their lives are essentially ruined. They’re relegated to a sort of second-class citizenry. And who does that benefit? I don’t know, but this is exactly what the founders were worried about when they called for uniform bankruptcy protections, a head of the power to raise an army and declare war in constitution. Bad faith is part and parcel of what the federal student loan system has become.

Nikki Nolan: Tell me a little bit about the organization that you started, StudentLoanJustice.org.

Alan Collinge: Sure. when I realized something had gone wrong with the lending system, I started doing research and I, started speaking with reporters. first Bethany McLean, the reporter who broke the Enron story for, fortune magazine. And after about a year or so, Bethany did a five-page story on Sallie Mae, which was pretty cool.

That very quickly became, me being featured on a top story on 60 Minutes in 2006, May, who this was a very seminal, groundbreaking story. I might also add, interestingly, this was Elizabeth Warren’s first big splash in the national spotlight. And so it was really a historically important 60 Minutes segment for a number of reasons. So, I started Student Loan Justice around that time. I never intended for us to be a huge Washington, DC, massively funded, very, official organization, but rather I always intended it to be a very active, sleek, and agile grassroots group with very little or no oversight. And, maybe for better, maybe for worse, that’s the way we remain today. We refuse to get a 501C3 certification. We’re not, we’re not interested in building, some bureaucracy. we’ve only seen that fail in the space in terms of actually solving the problem. All we care about is solving the problem. And solving the problem for many years. The first 16 years of our existence meant only getting bankruptcy protections returned to the loans.

Alan Collinge: But now here today, I am here to report that by all rational metrics and measures, this is a catastrophically failed lending system. Even before this pandemic, 80% of all borrowers were never going to be able to repay their loans. So we were looking at a default rate of something around probably 75% or 80% even before this pandemic.

By contrast, subprime home mortgage loans, the default rate for those was, roughly 20%. So we are like four times higher than the default rate for subprime home mortgages at this point. So I don’t, I don’t think there’s any other data you can point to. There’s nothing you can spend.

Alan Collinge: There’s no way you can spend that. I think anybody that inculcates that information will very quickly come to the very same conclusion that I did, which is that this lending system is dead. It’s a dead man walking. There’s no saving it and there should be no saving it.

It’s a national threat at this point.

And while yes, indeed, we continue to fight for bankruptcy protections. Truly the best thing and really, maybe the only thing to do at this point is to cancel these loans and end this lending system. You know this transcends party and partisan politics, all that stuff. We are a strictly nonpartisan group. our members comprise America as it looks, probably 47% Republican, 53%, left leaning. Whatever that happens to be is probably a pretty accurate reflection of our group. And I can tell you, this goes way past Washington, DC politics at this point. It’s a national threat.

Nikki Nolan: Very specifically, why is this such a huge threat?

Alan Collinge: Well, there’s 45 million people in the country. That’s one in five of all adults have student loan debt now. When I first started doing this, we owed maybe $350 billion in student loans. Today, we are pushing $2 trillion. There’s 12 times more student loan debt in the country than medical debt. The price of college has risen, and student loan debt has increased far quicker than even, the cost of healthcare and medical debt.

This is a nationally threatening, aggressively hyperinflationary lending scam, and it is a scam. It cannot continue. at this point 80%, so of those 45 million student loan borrowers, probably 38 million of them were in deep distress over their loans. People have stopped getting married.

People have stopped, making very basic, lifestyle choices cause they’re just unable to. Buying homes, starting families, starting businesses. even people like Jamie Dimon in the New York Federal Reserve are starting to say, hey, these student loans have gotten out of control here. People aren’t able to even buy houses these days.

So, this has become something that the Congress of 1965, when they authorized the Higher Education Act, they had no idea that this thing was going to grow into this sort of a big government, nationally threatening beast. President Lyndon Baines Johnson when he signed the Higher Education Act in 1965 in Texas, he promised, he declared that the loans would be free of interest. Well today over a $100 billion dollars a year clicks off in interest alone on this debt. We now have over a third of US states where student loan debt exceeds the entire state budget. What is going on here? These are student loans we’re talking about. These aren’t nuclear launch codes, these are, these are student loans. These were never supposed to be even a big deal at all. And that’s exactly what they’ve become, unfortunately. And again, this is a very conservative thing that I’m saying, but it’s time to take this big government beast to bath and drown it in the tub because it’s far too big, far too threatening to normal, decent people whose biggest crime was going to college. This is nonsense and ridiculous. So we still saw, we were still fighting for bankruptcy protections, but it turns out that the President, has all the authority he needs. I researched the law on this very carefully in August of 2019.

But the President, the Secretary, have all the statutory authority that they need to broadly cancel, waive, or release every dime in student loan debt that the federal government owns directly. And today it turns out that the federal government owns directly something like 80%, 89%, 88% or 89% of all student debt.

And so I started a petition in March of last year. I was interviewed about this by Vice News back in August 2019. We are now calling for the President to make good on that power that Congress gave him and cancel student loans by Executive Order. This has to be done by Executive Order because by Executive Order, the President doesn’t need a Congressional approval, but more importantly, he doesn’t need to, to quote unquote pay for it.

Alan Collinge: And that’s a very important distinction your listeners need to be aware of. Congress can and never will actually cancel any significant amount of student loans because of the pay go rules. To cancel $1.8 trillion in student loan they would have to raise a $1.8 trillion in taxes or cut $1.8 trillion in other programs.

And that’s just never going to happen. It’s just not a reality. The President, however, can cancel $1.6 of that $1.8 trillion with nothing more than the stroke of his pen.

March 2020, I started the petition calling for the President to cancel every dime in federally owned student loan debt.

Almost nobody was talking about it at the time, but the petition really took off. And I think we had a quarter million signatures by like June or July. And then thankfully in September, senators Elizabeth Warren and Chuck Schumer to their great credit, took this ball and started running with it.

Alan Collinge: And so now today, student loan cancellation by Executive Order is at the top of the news. And the key point here that I want to make, I didn’t make maybe a minute ago. If you want to cancel student loans by Congress, you got to raise money and essentially you’re going to wind up adding to the national debt.

So like in, during the pandemic, we just threw trillions of dollars out in the country, including some in the forms of these PPP loans, quote unquote, which don’t need to be repaid. All of those trillion dollars added to the national debt and required money to be drawn from the treasury. The President, however, can cancel all federally owned student loans without needing one dime from the treasury. Without adding even a nickel to the national debt.

So, I mean, this is a no-brainer. President Trump if he had had smarter people around him, he could and should have cancelled these loans a year ago when this pandemic first started happening. this was obviously the cheapest and easiest way to stimulate the economy and that remains true today. so that is now what needs to happen.

Bankruptcy has gotta be returned certainly to all student loans, including the loans that the President can’t cancel by executive order, but that’s only like 10% of all loans. President can cancel 90% today, right now. And there’s no better opportunity than this pandemic to put this failed experiment in the rear-view mirror. Put it on the scrap heap of failed US policy history and come up with a better, fairer more cost-effective way to fund college in this country.

Nikki Nolan: How do we get him to do that? How do we win?

Alan Collinge: Well, number one, President Biden has all power he needs to do this. In my humble view the additional pressure that we need to see, because right now Biden’s like, oh no, I don’t think I have the power to do that. He’s throwing up all these roadblocks. Number one, he does have the power, the law on this is very clear. And it’s not just me saying this. It’s Yale researchers like Luke Herring and a national consumer law center, many other, far smarter people than I have looked at the very same law that I looked at in the very same conclusion. So, the President does have the power.

But quite frankly, I really believe that bankruptcy still lies at the core of this issue. I think until bankruptcy protections are returned; I don’t think we’re going to see meaningful loan cancellation. What we’re seeing and, I love Elizabeth Warren, Chuck Schumer, et cetera, but unfortunately what they are promoting this up to $50,000, up to $10,000.

Alan Collinge: I’m sorry, but that’s just nonsense. Up to $50,000 could mean anything. And that if the Department of Education has anything to say about it, and they probably will with all the strings attached and means testing and whatever else, they will bureaucratize, whatever is put in front of them to death.

This is what they do. This is what they have always done. Look at every other loan cancellation program out there. Public Service Loan Forgiveness, 98% rejection rate. Look at all the income contingent repayment programs that have been with us since 1993, 99.99% rejection rate.

The Department of Education has no desire or intentions of canceling any student loans.

However, With the great equalizer, the constitutionally enshrined right of bankruptcy returned to all student loan borrowers, everything changes. if I’m the President, I don’t want to be the President that forced 20, 25 million people into bankruptcy for the crime of going to college. if bankruptcy protections were to be returned tomorrow to student loans, I think finally it would light a fire under Biden, light a fire under the Department of Education. And they would realize that the jig is up. The scam is done. It’s time to do what they should have done years ago and broadly canceled these loans. so I think bankruptcy is what’s going to make this happen.

And that’s a very important question. I’m glad you asked because bankruptcy and loan cancellation are not competing against each other. I know a lot of people out there, particularly people in our opposition, they would love to divide the student loan borrowers and the people and sort of pit bankruptcy against loan cancellation.

Well, that’s just nonsense. The two are complimentary compatible. And in fact, I think that, the one depends on the other. I don’t think we’re going to see meaningful loan cancellation until we get bankruptcy back.

And so again, just to follow up, this is important. We now have a very good bankruptcy bill in the Senate.

Senator Dick Durbin and Republican Senator John Cornyn out of Texas, they are introducing legislation which would return bankruptcy protections to federal student loans. So this is S 25-98. We have never had a bipartisan bill like this in the Senate ever in the 16 years that I’ve been doing this.

We also have another bill coming out from, Congressman Steve Cohen, which will return bankruptcy protections to private student loans. So everybody out there with student loans, if you want loan cancellation, we pretty much have to fight for bankruptcy first. Because I don’t think we’re going to get anything meaningful from Joe Biden, nor otherwise, until we get bankruptcy protections back. These two bills are exactly what is needed.

The bankruptcy laws were put in place by the founders for a very good reason. There’s no good reason that student loans should be treated from any differently from every other loan in bankruptcy court.

And that’s what’s happening today. the stuff we’re seeing in the media about people’s sort of rearranging legal deck chairs on the sinking ship by trying to argue cases in the, in the presence of a there’s one line of federal code 11 US code 5-23, 8-8, which makes bankruptcy for student loans, very different from all other loans.

That one line of federal code has got to go away. And this bill S 25-98, finally achieves that for federal student loan borrowers, whose loans are more then 10 years old. We would like to see student loans treated precisely the same as all their loans in bankruptcy court.

There’s no good reason not to. so frankly, I have to admit that this current bill is a bit of a compromise in that there is a 10-year waiting period and that sucks. There’s no good reason for it. But this is actually a giant leap forward. This will finally return the right of bankruptcy protections to, 45 million federal student loan borrowers.

So this is long overdue, and I can only hope that Senator Durbin and most importantly, the Republicans in the Senate will champion this issue because this truly is a conservative issue. And I don’t know why Republicans have historically been very resistant to this, but that is how it has gone up to this point.

So I can see a light at the end of the tunnel. And if I could only say one more thing this whole day, I would say S 25-98,

Which is so important right now.

Loan cancellation will come, but we’ve got to get bankruptcy back first and anybody who disagrees with that, I’m sorry, but they’re just wrong. we’ve learned the very hard way that nothing good is going to happen until the good faith, that bankruptcy compels is returned to this lending instrument.

Nikki Nolan: What advice would you give your younger self, knowing what you know now?

Alan Collinge: I would tell myself, don’t take any nonsense and don’t put up with any bullshit is what I would tell myself. There’s a lot of nonsense, a lot of, a lot of BS out there that is used by others to conquer and enslave the citizens in debt and other ways, don’t fall for it. We’re a better country than that.

We’re a stronger citizenry than how we are portrayed on in the mainstream media. We got this. this lending system is done. And people need to just inculcate that fact and stop being afraid. Stop walking around their lives with their tail in between their legs. Federal government, and wall street and this lending apparatus, they are far more afraid of us than we should be of them. So be brave and courageous and strong. Courage is what I would say.

Nikki Nolan: Well, is there anything that you want to promote?

Alan Collinge: I do want to promote a documentary that we’re just finishing up now. Very important documentary featuring very conservative people, very liberal people. Ralph Nader, on the left, former Sallie Mae board member, Jill Stein on the left, professors from George Mason University on the right, the Cato Institute on the right.

This is a very, non-partisan very, extremely hard-hitting look at the student loan scam. And it is a scam. This is going to be the strongest documentary ever made on this topic. And people can go to www.scaredtodebtseries.com to watch it and support it.

The petition is very important. S 25-98 is supremely important.

Well, I would urge people if they want loan cancellation, to please come sign our petition. We’ve got over a million signatures now. We really should have 20 or 25 million. Even more really, if you look at the 38, 39 million distressed federal student loan borrowers in the country. Change.org/cancel student loans.

Tell a friend, we can move mountains together. we’ve got an army larger than all the standing armies on earth combined if we actually get together as student loan borrowers. And I think this petition is a good place for that to happen.

Nikki Nolan: Thank you so much for being here. I really appreciated this conversation.

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