Ep 5: Sallie Mae is Not Your Friend

Summary

Podcast Summary: Borrowed Future – Ep 5: Sallie Mae is Not Your Friend
Ramsey Network | October 28, 2019

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Main Theme

This episode dives deep into the origins and escalation of the American student loan crisis, with a particular focus on the predatory practices of financial institutions like Sallie Mae. Through interviews, history lessons, and real-life testimonies, host George Camel, along with experts such as Anthony O’Neill, Seth Frotman, Beverly Wheelihan, and Dave Ramsey, lay bare the policies, societal myths, and industry behaviors that fueled a $1.6 trillion debt disaster. The episode calls for individual responsibility and systemic change while offering guidance on how to avoid becoming another victim.

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Key Discussion Points & Insights

The Human Cost: Real Borrowers’ Struggles

• Enormous Loan Balances: Young people routinely face overwhelming debt, often stretching across decades.
  • "Probably close to like $200,000." – Seth Frotman ([00:01])
  • Paying off loans can take 10-20+ years, sometimes lasting a lifetime.
• Multi-generational Impact: Some expect to die before completing payments; parents are drawn into debt via cosigning.

Student Loans: How Did We Get Here?

Historical Policy Shifts

• 1960s: The Start of Guaranteed Loans
  • Banks previously avoided student loans due to risk.
  • “...in 1965, the government...guaranteed the student loans...the cost of colleges started rising a little bit.” – Anthony O’Neill ([01:45])
• 1970s: Sallie Mae Creation
  • Sallie Mae founded (1972) to free up money for banks to lend to students, backed by government guarantees.
    • "This was essentially a company created by the government..." – George Camel ([03:27])
• Privatization and Aggression
  • From 1997-2004, Sallie Mae went private but still benefited from federal guarantees.
  • Aggressive marketing, buying influence in colleges, putting salespeople in financial aid offices, and lobbying for loans’ bankruptcy immunity.
  • "They convinced Congress to add private student loans to the list of debts that can't be forgiven..." ([03:27])
• Modern Changes, Persistent Problems
  • Federal direct lending attempted to cut out banks but costs continued to soar.

Systemic Impact

• Inflate tuition: Colleges raised prices because loans were easy to get.
  • "Since 1978, college tuition has increased by over 1,000%." – Anthony O’Neill ([08:55])
• Students (often teenagers) can sign for enormous loans with little real understanding or education.

Myths & Misconceptions

Societal Myths Feeding the Crisis

• “Everyone needs a college degree.”
• “A degree is worth whatever you pay.”
• “Student loans are ‘good debt.’”
  • "These myths fuel the demand for a college education at all costs." – Anthony O’Neill ([08:55])

The 'Permission to Play' Mindset

• College attendance became mandatory for life success, feeding unsustainable demand and encouraging reckless borrowing.
  • "You couldn't even participate in the economy if you didn't go, which was a ridiculous set of assumptions." – Dave Ramsey ([07:41])

The Predatory Nature of Loans & Lenders

Sallie Mae and Lender Practices

• Used aggressive, sometimes dubious tactics to keep customers hooked and confused.
  • Paid colleges to drop other loan programs.
  • Placed employees in university call centers.
  • Sponsored perks for financial aid officers. ([03:27])

Loan Features Weaponized Against Borrowers

• Interest capitalization means balances often go up, not down.
  • "...it grows because of interest...every year they will capitalize. And so it's a snowball for sure, but not the good snowball." – Beverly Wheelihan ([17:23])
• Deferment and forbearance often worsen the long-term picture.
• Default leads to draconian collection methods: wage and tax refund garnishment, lawsuits, ruined credit.

The Co-signing Trap and Its Consequences

• Most private loans require co-signers; Parent PLUS loans often saddle parents into retirement years.

  • "Parent Plus Loans are the devil for a parent that ever hopes to retire. So don't do them." – Beverly Wheelihan ([24:03])

• Lenders sometimes approve loans despite glaring errors (e.g., approving with a supposedly deceased co-signer).

  • "The credit bureau...thinks my mom...is dead. That's a bit of a problem ... and they gave me the money anyways." – Josiah ([27:55])

• Strained family relationships and legal disputes over outstanding loans are common.

Bankruptcy and the Trap of “Non-Dischargeable” Debt

• Student loans (federal and now most private) are nearly impossible to discharge in bankruptcy—except under "undue hardship," a nearly unattainable legal standard.

  • "So technically student loans can be discharged in bankruptcy, but the threshold...is pretty high in most circuit courts..." – Beverly Wheelihan ([36:57])

• Lenders exploit every legal avenue and often resist helping even when approached in good faith.

  • "...their parent or grandparent who co-signed their loans died. And instantly...they're like, now you're in default. Give us all our money." – Seth Frotman ([38:48])

The Scale and Consequences of Default

• 8 million+ borrowers in default, with one borrower defaulting every 28 seconds.
  • “We had a million student loan borrowers default last year, the year before that, the year before that...” – Seth Frotman ([11:32])
• Student debt is “driving income inequality” and impacting retirement, housing, and family formation.

Calls to Action: Individual and Systemic Change

• People must “grow up” and make adult decisions about college and debt.
• "Stop going the easy route because...you're going to regret the easier route. Take action right now..." – Anthony O’Neill ([31:22])
• Go to college debt-free: through hard work, scholarships, grants, and choosing affordable options.
• System-level: Stop issuing predatory loans, fundamentally overhaul college financing, and better educate borrowers.

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Notable Quotes & Moments (with Timestamps)

• On the magnitude of debt:
  “Probably close to like $200,000.” – Seth Frotman ([00:01])
• On the policy monster:
  “We unleashed a monster.” – Alice Rivlin, quoted by George Camel ([04:42])
• On societal pressure:
  “You couldn't even participate in the economy if you didn't go, which was a ridiculous set of assumptions.” – Dave Ramsey ([07:41])
• On the pain of repayment:
  “I borrowed 10,000, I paid back 17 because I did not know.” – Anthony O’Neill ([01:45])
• On loan growth:
  “It grows because of interest...it's a snowball for sure, but not the good snowball.” – Beverly Wheelihan ([17:23])
• On default:
  “That loan is 400% bigger than it was when I borrowed it.” – Teresa ([22:40])
• On the hidden cost of cosigning:
  “Parent Plus Loans are the devil for a parent that ever hopes to retire. So don't do them.” – Beverly Wheelihan ([24:03])
• On co-signer horror stories:
  “The credit bureau...thinks my mom...is dead...and they gave me the money anyways.” – Josiah ([27:55])
• On generational impact:
  “One of my six children...he ended up now paying for it over and over and over again for 22 years.” – Mark ([32:55])
• On blaming the system vs. personal responsibility:
  “I was the person that signed the bottom line...can't blame the government for things that you sign.” – Mark ([35:12])
• On bankruptcy and legal hurdles:
  “...technically student loans can be discharged in bankruptcy, but the threshold...is pretty high...”—Beverly Wheelihan ([36:57])
• On the lender’s indifference:
  "Judge, you should dismiss this case. Because we have no actual responsibility to help borrowers." – Seth Frotman ([41:26])
• On choosing a different path:
  “You have to go after it like it is all that you have...it will be worth it. Your future 40 year old self...is going to say thank you.” – Anthony O’Neill ([42:15])

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Important Segment Timestamps

• [00:00–00:44] – Real people’s debt durations
• [01:45–03:27] – Anthony O’Neill & George Camel: History of federal involvement in student loans
• [03:27–07:41] – How Sallie Mae and the federal government turbocharged the crisis
• [08:55–11:17] – Myths about college and societal expectations
• [11:32–16:10] – Seth Frotman: The wider consequences of the crisis
• [16:38–19:52] – Beverly Wheelihan: Loan mechanics, interest, and forbearance
• [22:00–23:09] – Teresa: Parent PLUS loan gone wrong
• [24:03–26:34] – Risks of co-signing and effects on family
• [27:40–31:09] – Josiah’s co-signer horror story
• [32:55–35:35] – Mark: The generational burden of student loan debt
• [36:57–38:35] – Beverly Wheelihan: Bankruptcy and the near-impossibility of discharge
• [38:48–42:04] – Seth Frotman: Lender practices and harm to borrowers
• [42:15–44:20] – Anthony O’Neill: Call to personal action—how to avoid debt
• [44:52–45:05] – Dave Ramsey: Final warning and policy call-out

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Tone and Final Message

The tone is urgent, sympathetic, and practical, mixing compelling personal stories with hard-hitting commentary on systemic failures. The speakers challenge listeners to reject “normal” debt culture by making informed, disciplined, and creative choices. The episode ultimately concludes that while the system is broken and predatory, individual action is the best current defense—until true reform occurs.

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For further details, stories, or resources on tackling student loan debt, visit BorrowedFuture.com.

Transcript

[George Camel]

How much are we talking?

[Seth Frotman]

Probably close to like 200,000.

[George Camel]

Ouch. 200,000 in loans? You're 24 years old. How long do you think it'll take to pay those off?

[Seth Frotman]

Probably like 10, 12 years.

[George Camel]

You can do it in 10 years?

[Anthony O'Neill]

Yeah, I think so.

[George Camel]

Like 20 grand a year plus interest.

[Beverly Wheelihan]

Yeah.

[George Camel]

Later on, when's lighter, it's probably like.

[Beverly Wheelihan]

In the next five years is probably when it'll start, like being able to.

[Anthony O'Neill]

Really pay it off.

[George Camel]

So we're talking 17 years from now?

[Mark]

Yeah.

[Anthony O'Neill]

Ouch.

[George Camel]

That's a long time. You're gonna be an old man by then. Yeah, prob. How long do you think it'll take you to pay off your student loan?

[Mark]

I've been doing it for probably almost 15 to 20 years.

[George Camel]

Oh my goodness. You've been paying down your student loans for 20 years now?

[Mark]

Yeah.

[George Camel]

Don't you want to see it gone?

[Mark]

I would love that. I would love it.

[George Camel]

How about you? When will I pay them off? But when I die? That's comforting. So you're like, I'm going to pay off my student loan. It'll take forever. Yeah, I'll just like pass it on to my kids. How about you? You got student loans as a freelance artists? I think I keep paying it until you get to a certain age and then at that point it just disappears. So you're gonna rely on the government to hopefully just pay these off eventually. Hopefully, yeah. Good luck. From Ramsey Network, I'm George Camel and this is Borrowed Future, a podcast series exploring the $1.6 trillion student loan debt crisis and the impact it's having on real people. In this episode, the we'll talk about how we got into the student loan debt crisis in the first place and the predatory practices that keep borrowers in debt. Anthony o', Neill, author of the best selling book Debt Free Degree, describes how we got here.

[Anthony O'Neill]

Back in the 1960s, banks were not even considering giving students loans because they were high risk borrowers. Clearly they were, they were 17, 18, 19 years old. And so it was hard for young people to get money to go to college. But then in 1965, the government, you and I, taxpayers, guaranteed the student loans. So this means that if you want to go to this expensive school, as long as you get accepted into the school, you will get the money to pay for school. When the federal government came in, guaranteed the loans, the cost of colleges started rising a little bit. We seen the first spike as early as in the 1980s because it was like, hey, this is free money. Let's get it? We could charge these kids whatever because the federal government's going to guarantee the loans. Does it make me upset that a 19 year old who does not have a job, who doesn't even know how to budget, who's never even worked a job for at least a good solid year, that they can just go in there and sign for $150,000 in student loans? They sign for something equivalent to a house. They sign for something equivalent to 2, 3, 4 cars, depending on what type of car you get. Does it make me upset that a young person can do that? Absolutely. What really makes me upset is that they could do that without even knowing what they're actually doing. And what's the consequence for that? I didn't realize what I did at the age of 19 years old. But I quickly learned when I became homeless, I quickly learned when I had to pay it back, I borrowed 10,000, I paid back 17 because I did not know. So does it make me upset that anyone can just walk in, especially 18, 19 year old, and just borrow money? It does, because they don't even really know what they're doing. So frustrating.

[George Camel]

To help us understand how to fix this mess, we've got to look at how we got here in the first place. Let me explain. After the Soviet Union launched a beach ball sized satellite called Sputnik in 1957, America got a little insecure and decided our students needed more higher education to keep up with these Russian rocket scientists. So President Eisenhower established a low interest student loan program through the National Defense education Act in 1958 to make it eas for middle class families to send their kids off to college. This money came directly from the government. Sounds great, doesn't it? Fast forward a few years to 1965. President Johnson wanted to make loans and grants more accessible to poor students. So he signed the Higher Education Act. Now it was even easier to go to college. But it also changed the way these loans were funded. The money would now come from banks instead of the government. The banks loved it because student loans were now a low risk investment. If students defaulted and couldn't pay back the loan, the government guaranteed that it would foot the bill. Things really went off the rails when President Nixon created the Student Loan Marketing association in 1972, or SLMA for short. A better nickname, Sallie Mae. Not the most creative name, but it stuck. This was essentially a company created by the government to help college students borrow more money in the form of student loans. They did that by helping Sallie Mae buy loans from the banks, which Meant banks now had more money freed up to lend to students. The best part? The government guaranteed all of that money, which really just shifted the majority of the risk to taxpayers. Not cool, guys. Things went completely bonkers when the government decided to let Sallie Mae transition to a private company from 1997 to 2004 while still guaranteeing their loans. This meant Sallie Mae could focus on generating massive profits, which they used to up their marketing and crush the competition. They paid colleges to drop the government loan program and sign up with them instead, sponsored cruises and trips for financial aid officers, and sneakily put Sallie Mae employees in university call centers to talk to students who thought they were talking to college loan officers. Does this sound like a company you want to do business with? Sallie Mae put the cherry on top in 2005 when they convinced Congress to add private student loans to the list of debts that can't be forgiven, making it nearly impossible to wipe away through bankruptcy. That means if you can't pay, you go to the grave with Sallie mae. Skip to 2010, when President Obama decided to do away with the federal guaranteed loan program, which let private lenders offer student loans at low interest rates. He thought this would save money by cutting out the middleman and taking away the government burden to guarantee private loans. But it didn't save money at all. In fact, the Congressional Budget Office just increased its 10 year forecast for the loan program's costs by 30%, which amounts to an extra $27 billion. So over the last 60 years, the government, with the help of banks and lenders, made student loan debt more accessible and easier to get. Mission accomplished. So if you're still tracking with me, we're left with a giant dumpster fire that no one can seem to fix. Back in February 2019, the Wall Street Journal interviewed economist Alice Rivlin, who led the task force during the Johnson administration that created the system of federally guaranteed loans. When asked what she thought about the system after five decades, her response was, we unleashed a monster. This timeline of events laid the groundwork for an entire nation to be duped into taking out student loans. Here's Dave Ramsey, financial expert and host of the Dave Ramsey Show. He's seen the tides change drastically over time when it comes to higher education and student loans.

[Dave Ramsey]

The culture in the last three to four decades has dramatically shifted. We went from saying education is a good idea, that it's good to have some academic prowess, it's good to do those to where it was completely, totally necessary. And then it went to not only Is it necessary? But it's like a guarantee, no matter how ridiculous your degree field is, that you're guaranteed to be more successful. And so you have to have this. It was permission to play. You couldn't even participate in the economy if you didn't go, which was a ridiculous set of assumptions. And so it went from the idea that we value education and we value academia all the way to it's just permission to play. And you can get a degree in anything and you automatically are okay. Thus we have ridiculous student loans associated with it.

[George Camel]

There's a lot of blame going around when it comes to this crisis. But a huge piece of this terrible puzzle is the mindset that college is necessary to to become a successful adult. But as it turns out, 18 year olds with unlimited access to money is a surefire way to avoid ever achieving that success. Anthony o' Neill unpacks some myths that have led us into this mess.

[Anthony O'Neill]

There are two main things that have caused the student loan crisis. The very first one is our sleeping society. You see, as a society, we bought into some powerful myths about college. We've not only bought in, but we keep teaching this to our young people. Everyone, a college degree, a degree is worth whatever you have to pay for it. College is always a good investment. Student loans are good debt. The more prestigious schools you go to, then the better off you'll be, the better jobs you'll secure. These myths fuel the demand for a college education at all costs. So that's our sleeping society. But here's the big part. The government, I said it. Since 1978, college tuition has increased by over 1,000%. You see, because we have this guaranteed money from the federal government, colleges can jack up their prices every year. If we could take away the guaranteed money, if we can end student loans, this forces colleges to bring down their prices. And then it also forces our young people, our parents, to now get creative with how they're going to pay for college, which is working scholarships or grants. But it starts with ending student loans. So our colleges will be forced to bring down their prices. If we really want our young people to take control of their future, it's time for them to stop taking the kids approach and start making an adult decision. Because an adult decision is thinking about their 40, 50, 60, 70 year old self. An adult decision is thinking about their future wife, their future husband, their future kids, their future family, their future legacy. But a kid's approach is all about today. How do I feel today? I'm going to the coolest school I'm going to this real nice school. I'm going to get a good job. No, an adult makes an adult decision that is best for for their adult future. It's time for our young people to grow up. It's time for our parents to help our young people grow up and make better decisions. Because the caliber of their future will be determined by the decision the choice they make right now.

[George Camel]

The student loan debt crisis is a complex issue. And the worst part is the negative impact it's having on people. Seth Frotman has seen the struggle people face in his work as the executive director at the Student Borrower Protection Center.

[Seth Frotman]

America absolutely has a student loan crisis. And the folks who I think argue that we don't have a crisis aren't being nefarious. I think we have a problem now where everyone thinks the only way we have a significant issue or crisis in consumer markets is if it looks exactly like the world looked in the late 2000s. And what I always try to argue is we could have a crisis even if investment bankers aren't walking out of their offices with the contents of their desks in a box. Right. The threshold for crisis and action can't be, does this look like the entire mortgage market melting down? The only way America reacts is if we call something a crisis and it has to rise to the systemic risk levels of mortgage backed securities. We're in a lot of trouble because in the student loan market we absolutely have a crisis. So there are now more than 8 million student loan borrowers in default. We had a million student loan borrowers default last year, the year before that, the year before that, the year before that. So if you do the math, that means every 28 seconds another student loan borrower defaults on his loan. On top of that, we have 3 million more borrowers who are behind with no plan to figure out how to help them. So that's over 10 million people or one out of four student loan borrowers who are having their financial lives ruined as they can't make their payments. But I think where this really becomes a crisis is the definition of like, who's struggling is a lot broader than people who aren't just paying their bills. And there are millions of people who faithfully pay their student loan bill every month where that debt is having an enormous implication on their lives and their communities. So we see student debt now impact things like the ability to buy a save for retirement, you know, whether or not you're going to go to grad school, what career you choose, even if you're going to start a family. But then I think where this gets really scary are the larger implications. Like, the student loan crisis is bigger than just the monthly bill that people get. So we're seeing student loan debt drive income inequality. There was a study documenting how student debt is driving out migration from rural counties because people just can't afford to live in a rural area with a $400 a month student loan bill. And I think where you see momentum and optimism is like, the people who are in charge of running states and cities kind of get this. So we've seen some of the most conservative politicians in the country fight for things like student loan repayment plans, arguing that student debt is an existential crisis in rural communities. And I think when we've reached that level, we could confidently say we are in a crisis now. So what's interesting is I've talked to thousands of people in my career talking about student debt. They're frustrated that policymakers are engaged in a massive game of finger pointing. Is it states not investing in higher education? Is it academic bloat? Is it the free flow of credit in the form of student debt? And what I hear is like, we don't have time to wait to figure out which is the most or the number one culprit. They're like, I just need help now because I think people understand at a basic level, you don't have a $1.6 trillion market with one villain, with one culprit. What you generally hear is almost a from policymakers, like, what's the silver bullet? Or here's a policy proposal that could give some relief to some people, but it doesn't help anyone. Is it worthwhile? And my response is, you can't solve a nearly $2 trillion problem with a single policy intervention. It is the culprit of many, and we will need many solutions to solve it. And I think people just don't have the luxury of having these big academic debates and, like, having this battle royale of who's the policy winner. They're just like, I can't buy a house for my family, or I can't put anything away for retirement, or, you know, I desperately need to go back to school. And I'm petrified because I have so much debt already. That is, I think, where more of the focus needs to be, which is people are struggling and they just need help.

[George Camel]

Millions are struggling to keep up with their student loan payments, and it's affecting their lives. And the farther you fall behind, the harder it is to get caught up, which leads to bad Places like default, forbearance, deferment, and even bankruptcy. To help explain some of these concepts, I talked to Beverly Wheelihan. We heard from her last episode. She's an attorney in Michigan who focuses on student loan law to help borrowers who are in bad situations. Here's more of her story.

[Beverly Wheelihan]

So I knew I wanted to be a lawyer from a young age. And the only way you get to be a lawyer is to go to law school. So in order to go to law school, I needed to have money. Law school that I went to was a private law school and it cost close to 30,000 a year to go. So I took out student loans. Everybody took them out. That's what I was told. A financial aid officer said, don't worry about it. Of course, you don't know how much you're taking out. I signed and signed and at the end I walked out of law school with 80,000. And then I had a few private loans, which was not all that much to cover the cost that the federal loans didn't. And I can tell you right now, I'm over six figures. And I've been paying on my student loans for 13 years.

[George Camel]

So has it grown in time instead of going down?

[Beverly Wheelihan]

Yes, it grows because of interest. And if you're not on the 10 year repayment plan, really you're not hitting the principal. And every year they will capitalize. And so it's a snowball for sure, but not the good snowball.

[George Camel]

So what were your minimum payments coming out of school?

[Beverly Wheelihan]

$1200 just on my federal loans a month.

[Mark]

Wow.

[George Camel]

So when you were hit with that bill and you had to start paying off those loans, how did it feel?

[Beverly Wheelihan]

Devastating. It was devastating because I went to school with absolutely no debt, no credit card debt, nothing. And so now you're looking at $1,200 and you're going to, well, how do I ever buy a house? How do I even get a car to get to the job I'm supposed to have? And how am I going to feed a family if I have a family and all of those things? I mean, $1,200 is a lot of money.

[George Camel]

What was the terms of that? How many years?

[Beverly Wheelihan]

So 1,200 for 10 years. Unfortunately, when you lose a job and you can't find a job, then there's these things you can on your federal loans get different payment options. So oftentimes you'll hear income based repayment as some buzzwords, deferment, forbearance. So when I lost my job While I was looking for another job, I did put my loans into a forbearance, which means I don't have to make the payments, but the interest goes up and up and up and up and up and just keeps going. And that's where that snowball started. I knew just from the math that I was in trouble, but it was too late at that point. And so what I realized is that if I'm smart and as smart as I thought I was, if I'm in this kind of trouble, there's probably a lot of other people in the same kind of boat. That's how I kind of became a student law lawyer.

[George Camel]

So talk to me. What exactly is forbearance, and what do they tell you about it?

[Beverly Wheelihan]

Well, forbearance is when you are, under certain circumstances, allowed not to make a monthly payment because maybe it's an economic downturn for you or unemployment. Forbearance is another forbearance. So they halt your monthly payments, but your interest continues to accrue. And depending on the type of loan, there's different options for you. Usually these are only options on federal loans. Private loans rarely have a forbearance.

[George Camel]

Unfortunately, the number of people who can't make their student loan payments keeps growing and growing. According to the Wall Street Journal, nearly one in four borrowers are now behind or in default on their student loan repayments. And if they dropped out of college, their chances of defaulting increased to 40%, according to the national center for Education Statistics. That's not good. So what's involved with going into default? Let me explain. There are millions that are saddled with debt so badly they can't even make their payments. And that can lead to something called default. Delinquency is the first step missing that first payment? And when you miss full payments on your student loans for nine months or more, you move into default on your loans. At this point, a collection agency is coming after you to get their money. They'll take money out of your paycheck without your permission. Your tax refund can be withheld, and to add insult to injury, your lender can take you to court. Sounds like a party, right? Defaulting on student loans is now an epidemic.

[Beverly Wheelihan]

So a default on a federal student loan takes 271 days. So what it means is you've missed a payment and you didn't put it in forbearance or a deferment or any other type of halting on the process. So they'll send you letters that say, call us, call us, call us. Let's work something out. On day 272, you've technically defaulted on your federal student loans. A private student loan is a contract, and so the first missed payment, technically you are in default. It just depends on the person that has loaned you the money, what steps they will take next.

[George Camel]

This is all fun stuff here.

[Beverly Wheelihan]

Oh, it's wonderful fun. I deal with it every day. This is a really huge, huge impact on people in every regard of their life.

[George Camel]

I talked to Teresa, who, while seeking help with her payments, was unaware of how interest rates would increase her balance and keep her stuck on the treadmill of debt. Why did you take out student loans? Why did you feel like that was the right option for you?

[Teresa]

Okay, so in 2006, I took out a loan for my oldest son for him to go to College. I borrowed $11,000 so he could go to a junior college in Illinois. And then the very next year, my second son, 2007, also graduated high school and was about to go to college. And so I borrowed money for him as well. $12,000. The first year that each of them was in school, the loan was a parent plus loan. So if you fast forward those two loans that started out in 2006 and 2007, I've made some payments over the years, a few here and there. However, if you can't pay, it takes 10 seconds for them to simply tell you that you can do forbearance. They read you a disclaimer. It literally takes less than 10 seconds, and you're on your merry way, and you don't have to pay again for the next six to eight months. So if you fast forward to today, that loan is 400% bigger than it was when I borrowed it. The first one is now 28,000 and the second one is now 39,000.

[George Camel]

Default, forbearance and deferment are dangerous words, but there's one word when it comes to student loans that doesn't seem to scare off many parents. And that word is co signing. When you co sign a loan, your name is attached to the debt, which means you essentially just took on that debt yourself. If your student can't make their payments, you are 100% responsible to pay it back. According to consumer reports, about 93% of private student loans taken out in the past year required a cosigner. For most federal loans, you don't need a cosigner. But when you do need a cosigner on a federal loan, it's called a Parent Plus Loan. That means the parent is the primary borrower. Beverly describes how these work and why they're so terrible. When we're talking about parents, a lot of parents want to help their kids out with Parent Plus Loans. How do they work?

[Beverly Wheelihan]

So Parent Plus Loans are the devil for a parent that ever hopes to retire. So don't do them. You're not helping your kid by going into any more debt for them. And what I have heard now is that oftentimes the student loan office or the financial aid office will push parents into these student loan offices, Parent Plus Loans, by saying to them, oh, don't worry about it. When your child graduates, they can just consolidate that Parent plus loan into their loan so you don't even have to worry about it and pay it. So absent hurting yourself financially by taking on debt when you may want to retire, you're hurting them in the long run. Because if your goal is to just put it on them, how are you really helping them? You're not.

[George Camel]

How does co signing work? And if someone dies, does that get passed on to the cosigner?

[Beverly Wheelihan]

Okay, so co signing in most, and I say that in general, most federal loans, you do not need a cosigner. There are certain federal loans that require it. It depends. It's grad school, it's this. That it's different loans. Okay, So a cosigner oftentimes will only come into place on a private student loan. What that is is that the student themselves don't have the credit or the income to support port loaning them. So the bank needs that co signer. So what happens is when the student defaults, that co signer is now on the hook. And so they'll then go to the co signer for payment. So what oftentimes will happen is that you're sitting around Thanksgiving dinner and you found out that somebody wasn't paying because the conversation comes up that somebody either filed bankruptcy or, oh, I missed a payment. So guess what? You're gonna get that collection letter pretty soon. I'm really, really sorry. They started to call. It makes birthdays and Christmas a little icky for a while.

[George Camel]

Have you seen that affect relationships?

[Beverly Wheelihan]

Yes. I've had parents and I've had grandparents call me and say, I want to sue my nephew, or I want to sue my son or my daughter because they promised me they would pay me back. Can I sue them? The short answer is sure. The long answer is, are you gonna ever celebrate Christmas again? Yeah. Lawyers can sue people for just about anything if you're creative enough. So certainly yes. You could sue your son because he promised to pay that loan you took out. But are you really gonna. And some people say yes. I don't do those lawsuits, though.

[George Camel]

But I mean, yeah, they sound like a blast. If you ever wanna get into it.

[Beverly Wheelihan]

Maybe I should. Maybe that's what I need to do, is do those lawsuits.

[George Camel]

So you're talking to these parents. They're still paying on their student loans now with this newer generation coming out. So what stories are you seeing from baby boomers who are still paying on their student loans?

[Beverly Wheelihan]

Really, the story is just like, how did I get here? I should be retiring. How do I get rid of this student loan? That's really what they're asking, how do I get rid of it? And the answer is, you gotta pay it. So you're not retiring. You're not retiring anytime soon.

[George Camel]

Are you seeing their Social Security being garnished from that?

[Beverly Wheelihan]

Yes. If they're in default, if they're in a payment plan? No, but the reality is that if they're in a payment plan, they can't retire. Right. Because they're paying that debt they need the income from the job.

[George Camel]

Co signing may sound like a kind gesture for families to help students pursue education, but lenders have done some crazy things to get people on the hook. Remember Josiah, who was shocked by the interest rate math in our first episode? He's back with a co signing horror story. Why did you feel that student loans were the only option for you?

[Josiah]

My brother had them, wasn't a big deal. My sister had them mainly through federal money, but to me, it wasn't a big deal. My stepbrother had them, my stepsister had them. 90% of people in college had them.

[George Camel]

So it's just normal.

[Josiah]

Yeah, it's just normal. It's not this big thing that I have to worry about because, hey, you know, it's normal to have student loans because not everyone has, you know, $20,000 sitting ready to go. So I just said, it's normal, doesn't matter. I'm 18, who cares and I'm going to do it. My brother had my uncle sign for his loans. So when it came time to actually co sign for loans, my mom decided that, you know, okay, I can do it this time. You know, I'm remarried, I got good credit score, I got all these things that I'm just ready to do. So she said, I can help you out. So, awesome. I'll take the money where I can get it. And then we got approved. Awesome. Okay. I mean, it's the money That I needed to go to school. It's not just as simple as that. The interest rate for that loan is at 13%. And that's just a mind bending number. Like how is that even possible? To me, being 18, that didn't mean anything. It's just a number. It's 13%, whatever. I don't know what that really even means to my mom. No, that was shocking. She couldn't believe what was going on. But we went to go do it again. A year or so later, same thing comes back. And then we realized that the credit bureau that we use for the student loans thinks my mom, who's my co signer, is dead. That's a bit of a problem seeing the fact that my mom is not dead and that she was co signing my loans and yet the loan agency was giving me the money anyways. So I was getting $20,000 with no income with a dead co signer and they said, yeah, what's the worst that can happen? And they gave me the money anyways. So that's when it was really a mind blowing thing. And I realized that not everyone has your best interest at heart, that they're going to do what they got to do to put money in their pockets.

[George Camel]

So Sallie Mae allows a co signer who they think is dead to sign off on this loan. What was their reaction when you called them and you said, hey, my mom isn't dead.

[Josiah]

When they told us, my mom was talking to the lady and she's like, well, the reason why the interest rates are so high is because your co signer has shown that she is deceased. And I think my mom just lost it, saying like, how is this even possible? How could you do this? Why would you even approve us for the loan when you think I'm dead? Granted, I'm not. I'm right here. But it was all because of when my father passed away. My mom and him had a credit card together and it showed that the owner was deceased. Well, they were both the owners, so she got marked as deceased. We didn't really know what to do. We just kind of knew that she couldn't be the co signer anymore. So I had my stepdad co sign from there on out. And the interest rate went from 13, 11% with my mom to about 4% with my stepdad.

[George Camel]

Even when your co signer is alive and well, borrowers can't always make their payments, which means their co signers are on the hook. Anthony doesn't want parents or students to be on the hook when it comes to their future.

[Anthony O'Neill]

So I was sitting down talking with one of my mentees who I mentor throughout the year and he said, Anthony, like how I'm just going to take out student loans, I just cannot do it. And I looked at him and I said, you know what, man? You're going the easy route. Stop being lazy, set a vision, take action and just go after it. You have to accept your responsibilities. If you're going to be a grown man and or a grown woman, stop waiting for everyone to help you out and to give you something. Stop going the easy route because I'm telling you right now, in the future, you're going to regret the easier route. Take action right now and be willing to endure some pain so you can gain so much momentum and freedom after you graduate college. You have to take action right now. And the best way to do that is to step back, assess your situation, look at your major, look at an affordable school, identify if going to college is even for you. Maybe it's trade school, maybe it's a military process, maybe it's taking a gap year. You have to identify what's the best route for you that will impact you perfectly in the future.

[George Camel]

Every parent wants to believe that their kid is going to be able to afford their student loan payments. One of those parents is Mark. He co signed on his son's student loan to help him pursue his dream of a career in film. Why did you want to avoid debt so badly?

[Mark]

Well, I just saw it happening around me. People carrying it for years afterwards and not being able to get their life in order. And I actually have One of my six children, he has $2,000 a month in student debt from going to St. John's University and just couldn't afford it, got the loans and he ended up now paying for it over and over and over again for 22 years. He has to pay.

[George Camel]

So knowing your story and now hearing about his, was there a conversation between you guys where you said, hey, I think this is a bad idea. And he went, I don't care, dad.

[Mark]

Exactly. That's exactly the story. Two babies that he has that are 4 month old and they pay more in student debt than they do for their rent.

[George Camel]

That's wild. So how much did he end up taking out total?

[Mark]

I don't know the exact amount, but somewhere in the $200,000 range. It cost him $250,000.

[George Camel]

And what kind of degree cost $200,000?

[Mark]

He went for film and television and he's now selling computers for Dell. So it really did not pay off the way he had expected it to pay off.

[George Camel]

So does he regret getting the degree?

[Mark]

I think he loved the experience. He went to Europe for a year. They had a campus at the Vatican. But I think looking back, he would have gotten a different degree or not had the student loan.

[Seth Frotman]

Wow.

[George Camel]

So how have you seen it affect his Life, having a $2,200 a month student loan payment?

[Mark]

It affects my life more than it affects his life, because we pay for most of it because he just can't afford, especially with babies. So he's not able to do anything extra that he would like to do other than work and basically stay home.

[George Camel]

Was there a reality that you considered when he took out these loans that, hey, I might be footing the bill for this guy at that time?

[Mark]

No, because everything was going to work out perfect. You know, it just was the right thing to do. And the loan was going to be cheap and little, you know, that it becomes all interesting. The first six, seven, eight years paid none of the principal, and then find out you still owe $250,000 after paying for eight years. I think the government's done a horrible job, but the independent banks have done a worse job. They take advantage of kids trying to go to the school, have the experience, do the experience, live in campus, travel all this kind of cool stuff, and not really explain to kids that, hey, besides the bottom line, this is what you're gonna owe. Coming down the pike.

[George Camel]

So who do you think is to blame for this whole student loan crisis? $1.6 trillion in outstanding debt? Me.

[Mark]

It was my decision to do it and let him do it. So at the end of the day, you know, I was the person that signed the bottom line. He was the person signed the bottom line. Can't blame the government for things that you sign. Is there. Should there be a better way? Absolutely. But it's something that I think consumers are not well educated before they sign. The bottom line. It's an emotional decision because your child wants to go to college, and of course you want to go to college.

[George Camel]

What kind of conversation should parents be having with their kids when it comes to college?

[Mark]

I think, number one, just decide really what you want to do down the line. We never had that conversation. It was college was the next thing you had to do. Just have to do it. And you really don't have to do it. You don't have to go four years for a top school, Go to community college, figure out what you want, get through your classes, don't spend all the money, become an adult a little bit. You go from being a high schooler to being on your own. I think it's a conversation and understanding what you're signing, understanding the financing and the replications that you may have down the line.

[George Camel]

There are lots of consequences when it comes to getting behind on your student loan payments. And when those payments can't be made because of life circumstances, some people look to the ultimate last ditch effort for some relief bankruptcy. According to a recent lend EDU study, 32% of consumers filing for Chapter 7 bankruptcy carry student loan debt. Of that group, student loan debt took up 49% of their total debt on average. If you're doing the math at home, that means one out of three people who filed for Chapter 7 bankruptcy had student loans taking up half of their debt load. I asked Beverly Wheelihan if declaring bankruptcy can actually make someone's student loans disappear. Let's talk about bankruptcy. Can you just say, well, I'll just file for bankruptcy and the student loans will disappear?

[Beverly Wheelihan]

Absolutely not. And again, there's different rules for the federal and for private. So federal student loans are non dischargeable debts. The private student loans under, and I love the name of this law under the bankruptcy Consumer Protection act in bankruptcy. The private student loan bank lobbyists were successful in getting private student loans considered in the bankruptcy Code as a non dischargeable unsecured debt unless undue hardship is proven. And I have a really great case to illustrate how hard it is to prove undue hardship. So in the sixth Circuit, which is where Michigan is, there was a man who was working, paying off his student loans. He was diabetic, he was, he was blind in one eye, prosthetic eye in the other. So that's a glass eye. He was on kidney dialysis and needed a liver transplant and was in the hospital. He filed bankruptcy to of course discharge his student loan debt. And the student loan trustee in the bankruptcy court, the judge basically said, ah, you know what, you could get better and pay this off. So I'm not going to discharge it because you haven't shown undue hardship. So technically student loans can be discharged in bankruptcy, but the threshold in which you have to prove undue hard hardship is pretty high in most circuit courts, federal courts. So there are some circuits that are a little bit more lenient and are trying to push towards allowing some relief because that's the whole point of bankruptcy, right to get relief. But I haven't seen a lot of movement in the last couple years on that.

[George Camel]

In most cases you can't wipe away student Loans through bankruptcy. And lenders are relentless when it comes to getting their money back. Here's Seth Frotman with a few situations he's seen people get stuck in.

[Seth Frotman]

It is very hard to declare bankruptcy is the accurate way to say it. Like people can. So we're just like really careful because I think some people who could meet the pretty extraordinary test aren't doing it because they just hear like you can't. But it is very hard to do. So we've seen groups like, you know, AARP become more involved in this issue because is tens of thousands of people are missing out on the promise and protections of Social Security because they have a defaulted student loan. Example of some of the horrific stuff we worked on at the bureau. So we had borrowers with private student loans, which nearly everyone now requires a co signer where they would be paying their loan on time, faithfully making all of their payments. And their parent or grandparent who co signed their loans died. And instantly, despite the fact they were paying, they're like, now you're in default. Give us all our money. So we actually sued a student loan company who was engaged in this practice because it was like so unclear that they were able to do this. There's been some policies now to try to push back against this, but just to show you like there is no depth that some of these companies would go. So I think there are real questions about why so many people are defaulting on their student loans. And I think this is the intersection between so much debt and illegal practices. Right. Because there are protections and benefits that should be helping the millions of people who are defaulting. So there are things that allow a student loan borrower to make a payment not based on how much you owe, but how much you earn. And these are like, should be really powerful tools to prevent delinquencies, people falling behind or in default. But there's this enormous mismatch between what borrowers are promised and what's happening on the ground and in between our student loan companies, many of which who get hundreds of millions of taxpayer dollars to try to help those borrowers. And we've just seen those companies fail at every stage. So while I was at the Consumer Financial Protection Bureau, we sued one of the largest players in this space for this exact issue, which is borrowers are coming to you to get help. And instead of actually giving them the advice that would really help their financial lives, you're more interested in getting those call reps off the phone because it saves you money. And so we sued this company in court. And one of their top legal arguments were, judge, you should dismiss this case. Because we have no actual responsibility to help borrowers. And I think that is like a general sentiment that we hear frequently, which is we love getting the money to be involved in the student loan system, but when it actually comes to doing the work to help borrowers to avoid the defaults, how dare you accuse us of being part of the problem? But I think that is the question, which is, how do we ensure that these borrowers are getting the help we have? Because we're not moving the needle like we have a million people defaulting every year. We have data despite these protections that should help them.

[George Camel]

If you think the government or student loan companies have your back, you're wrong. It's clear by now that the people who got us into this mess are not going to get us out. That's up to you.

[Anthony O'Neill]

You're probably thinking right now, hey, Anthony, I gotta go to college. Signing a student loan is nothing. You know, I'm the first person in my family to go to college. You know, I'm in the hood, I'm in the city. I don't have a lot of resources, financial resources. I do not know how else I can go to college without taking out student loans. But let me say this right now, you can. Taking out student loans is not the only way. To be honest with you, it's not the way at all. You can go to college 100% debt free. It will take hard work. It will take you being disciplined. It will take you having to feel like you're alone or feel like you cannot do a lot of things. Because the truth will be you will not be able to do a lot of things. But you have to go after it like it is all that you have. You're going to feel alone, your friends are going to look at you weird. But that's cool. You are weird because you're going about something that's totally different from the norm, which is you're avoiding debt, you're avoiding student loans, you're going to have to get a job, you're going to have to work 20 hours a week. You're going to have to come home and look up grants and scholarships every single day. When some of your peers may go out to something fun, you may have to come home and do some things that's going to progress your future, not keep you in your present and hold you into your present while you're trying to walk forward. I get it. It's not going to be fun. It's not going to be nice but it will be worth it. Your future 40 year old self, 30 year old self is around their friends and everyone else is in debt but you. Your 40 year old self is going to say thank you 20 year old. Thank you for working hard. Thank you for the lone nights. Thank you for saying no so that today we could say yes. Thank you for saying no to that student loan so that today I can say yes to my wife and take her on this trip so I can say yes to starting this business so I can say yes to to opening up a 529 or ESA for my future kids who are going to College. Thank you 20 year old for saying no so that I can say yes.

[George Camel]

We've covered a lot of ground from the origins of the student loan industry and how we got here to the predatory practices that keep borrowers in debt. Terms like default, forbearance, deferment and co signing don't need to be a part of your story. Lots of people are trying to find relief for borrowers and figure out a solution to this crisis, including the government. In the next episode, we'll talk about the current student loan forgiveness program and what the future of the student loan debt crisis looks like if nothing changes.

[Dave Ramsey]

If it's so bad that we need to forgive the loans, why are we continuing to make them? Congress needs to stop the federally insured student loan program now.

[George Camel]

Join me. You've been listening to Borrowed Future. You've been listening to Borrowed Future. If you like what you've heard, do us a favor and rate and review us on Apple Podcasts. It helps. You can find more information about this and other Ramsey network [e-mail] or on your favorite podcast app. Tell us about your student loan experience by emailing storyorrowedfuture.com Our show is produced by Chris Wright, Eric Cieslevich, Eva Daniel and Kevin Weimer. Music has been curated by James Childs. Will Rutter is our engineer. Our editor is Tim Hull. Blake Thompson is our Executive producer. I'm George Camel. And remember, only you can prevent student loan dumpster fires.