The discussion about student loan defaults too often assumes that it is acceptable and typical to use the full force of the government to collect from defaulted borrowers. In fact, there is nothing typical about the government’s draconian student loan collection powers. A recent Wall Street Journal article highlights the extraordinary nature of student loan collection by describing the Department of Agriculture’s (USDA) sugar loan program.
The article explains that a glut of sugar production over the past year has sent sugar prices plummeting and has sparked a huge wave of defaults on USDA sugar loans. According to the article, taxpayers are already stuck with a $280 million bill due to the loan defaults.
If the sugar processors (companies that turn raw beet and cane into sugar) were treated like student loan borrowers, it would be extremely unlikely that they would ever get government help again. Their dreams of making it in the sugar business would be ruined and they would be prevented from getting a fresh start. Instead, U.S. farm policy, according to the Journal article, requires that the government make new loans for the new season. This includes loans to companies that defaulted in the past year. According to the article, Minn-Dak Farmers Cooperative borrowed $18.1 million this year after failing to pay back $7.2 million due in August. Another company, Amalgamated Sugar took out $18.8 million in new loans after defaulting on $17 million at the end of September.
Not surprisingly, the Journal reports that the government places few restrictions on sugar loans, allowing companies that default to immediately borrow again without penalty. And what about loan limits similar to those for student loans? It turns out that they don’t exist if you are a sugar processor. They can take out as much as they want as long as they put up collateral. The collateral in this case is, what else?….sugar. The USDA is currently holding about 300,000 tons of sugar that it received as collateral. It is apparently not so easy to get rid of these sugar reserves. According to the Journal, the USDA often sells it at a discount of 80% or more or in some cases dumps it on nursing homes and prisons.
Admittedly, we do not know much about sugar processing, although we do know that sugar isn’t all that good for your health! Regardless, it is quite clear that there aren’t many incentives for sugar processors to curb borrowing. The contrast with student loan borrowers is almost laughable. It isn’t so funny though, especially if you are a low-income student like one of our clients who sought higher education as the ticket to economic mobility. Instead of giving them a helping hand as we do for sugar processors, the government hammers student loan borrowers relentlessly until they take hold of one of the limited ways to get out of default if one is available and if they know about it or if not, until they die.
Presumably the sugar processors have a stronger lobby in D.C. than low-income student loan borrowers. That’s no excuse for making policies that make no sense. The negative consequences reach far beyond borrowers and their families. Eliminating the possibility of a fresh start to students who do not succeed the first time around prevents them from climbing the economic ladder and making productive contributions to our economy.
