Attorney Eric Lundquist has added a specialty area of practice to his firm where he assists clients having difficulty with student loans. Lundquist is a graduate of Oakland University (B.A.) and Michigan State University College of Law (J.D.) and was admitted to the Michigan Bar in 1999. He practices in the areas of bankruptcy, student loan law and other debt relief. Lundquist has also lectured and authored articles for the Macomb County Bar Association on a wide variety of topics. He has been a guest panelist on the local Emmy Award winning television program “Legally Speaking.”
Thorpe: How big a problem is student loan delinquency and default in Michigan?
Lundquist: Michigan ranked 11th in the United States in overall student debt load at graduation with about 10 percent of those loans going into default, which is about the same as the national average. There was a recent media report that the U.S. Attorney’s office in Detroit has retained private counsel and is aggressively pursuing claims against defendants who have defaulted on federal government loans.
That same report noted that the Federal Court of the Eastern District of Michigan has been near the top in federal student default civil lawsuits, with 57 collection cases being filed in March 2012 alone, the second most in the nation, and over 10 times the national average. Thus, more people are getting sued here than in other jurisdictions, even when the default rate is about the same as the nationwide average.
There is more fuel being added to this fire, as student loans at Michigan’s 15 public universities have jumped an incredible 49 percent in the last four years, according to the available data. It will take an average college graduate well over 10 years to pay the debt back with after tax dollars, and many of them will have difficulty doing so in a still weak economy. It can be the equivalent of paying a second mortgage for a house that you cannot live in.
Thorpe: You’ve described the student loan indebtedness issue as a “national time bomb waiting to go off.” What is the worst-case scenario?
Lundquist: The worst-case scenario is that a sizable segment of the population will be saddled with substantial student loan debt with few options to deal with it should disaster arise (job loss, divorce, medical condition, etc). The fact that we are in a still weak economy limits job prospects and thus the potential to accumulate the means to pay the money back. This debt will limit the debtor’s credit profile for house and car purchases, as well as their ability to purchase insurance at preferred rates. There would be limitations on spending power of the debtor, which, in a big enough scenario, could adversely impact the economy. There would be garnishments of wages and tax returns for the defaulters, execution upon their personal property and constant (and often illegal) harassment from debt collectors. It’s not a good situation to be in, and it often strains relationships with loved ones. Ordinarily, such crushing consumer debt can be relieved by a simple Chapter 7 bankruptcy, but, pursuant to federal law, educational loans are non-dischargeable in bankruptcy, except in very limited, rare cases. Thus, bankruptcy, the time honored solution to eliminating personal debt problems, is not a realistic option with student loans.
The problem will continue to grow. Universities follow the same rules of supply and demand like any other business, and right now, there is demand for which they have supply. This results in rising costs for the consumer (i.e., the student). Universities have not been shy about raising the costs of tuition, especially in recent years. Between inflation, recent cuts in state funding, and rising costs, the cost of a college education doubles every 12-18 years, whereas most other consumer goods take 32 years to double in cost. Even as these costs grow, there are still many students to attend university and will take out loans to pay for it. Thus, there will be more money lent in student loans and consequently, a greater potential for default and the above-described problems. All in all, it will add to the ongoing problem of personal debt in this country.
Student loans are nothing new, of course, but the sheer (and increasing) amount of money being taken out by students with bleaker job prospects due to economic conditions is frightening. Such debtors often need help to get through the rough patches involving student loans, and my law practice is designed to serve them.
Thorpe: What are the most common mistakes people make when faced with student loan problems?
Lundquist: There are two common mistakes: Ignoring the problem entirely and not fully investigating their options when first presented with student loan issues. When presented with student loan difficulties, such as default or lawsuit, the worst thing you can do is ignore the situation, yet many people do this. Ignoring it robs you of your chances to either work with the creditor to solve the problem or gives away any kind of leverage you have in negotiations to settle it. The debtor is throwing all of that away by failing to come to the table, even when the creditor is drawing their sword to collect. For example, there are options for putting loans in forbearance or rehabilitation that are available to the debtor or otherwise ceasing payments with the consent of the creditor until the debtor gets on his feet again.
Secondly, most people fail to investigate and use the resources available to help them out with their student loans. There is useful information on the Internet, but as always, you should have statute or regulations in hand to verify the claims of some blogger or website. There are professional people (like me) who advise those who are having problems as to what their options are and can help the debtor in advising them as to their next move or representing them (as an attorney) in a litigation situation. Indeed, my practice is set up to consult with those having problems with debt collection issues, litigation, and default assessment. We screen our clients’ situations and come up with a plan for making their life easier. Many people don’t even know they have favorable options until they talk to us.
Thorpe: Are lawmakers looking at regulations or remedies that might address the issue?
Lundquist: President Obama has made it clear that he would like to pass complete student loan reform legislation, and has recently signed into to law some relatively minor measures to relieve some student loan cost to the government. He has also stated his intention to issue an Executive Order that would lower the monthly payments to 10 to 15 percent of the borrower’s discretionary income. Mitt Romney generally opposes such reform and wants to move towards more simplified, bank based lending for students as well as supporting for for-profit learning institutions (which, incidentally, are the biggest sources of students with defaulted loans). There are cries for reform and relief (and the occasional bill introduced) from time to time in the Congress, but, in this era of such divisive politics, nothing of real substance to help those already saddled with student loan debt is likely to happen soon.
Thorpe: If a student is considering applying for financial aid to help pay for their education, what advice would you offer?
Lundquist: There are two things I would advise: The first is obvious: Do your research to find as much free money in the form of grants and scholarships as you can get to go to college. As a parent sending a daughter to Michigan State University this fall, I was absolutely amazed at the amount of free money out there that is available to students. This free money does not come with much publicity and you have to expend time and energy to find it, but it’s there. Also, avoid pricier private and out-of-state colleges when possible. They are incredibly more expensive and you often end up paying more than is necessary for your degree, and thus, you accumulate more debt than is needed. Live as frugally as you can in college, and work for wages to greatest extent possible to pay for your schooling as you go.
The second bit of advice is a bit more complex: Be realistic about your educational goals and what kind of career earnings you expect to have after graduation. Higher education is an investment, and you must be mindful of the price vs. payoff in evaluating your options. When evaluating the prospective school (or career), I would talk to the school’s career services staff or academic advisor for your degree program and ask them some very straight questions: What can I do with this degree? What are the job prospects for the degree? How much money are the jobs with this degree paying? If they don’t know the answer, find someone who does, and verify their information from a neutral source to ensure that you are not being sold a bill of goods. Then, talk to people in the line of work you are looking at and listen to their observations. Then take that information, figure out your expected debt (there are calculators on-line to help) and compare it to the wages you would be making, factor in costs of living, and evaluate whether you can make the living you expect to make. If the cost of education for that field is too high compared to the wages and availability of work for that degree (something we are now seeing with newly minted lawyers in the legal field), then perhaps you should re-evaluate your options. Remember that accumulating debt is not necessarily a bad thing, so long as that money spent was invested into something that will pay for itself and your way of life after you graduate.
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