As of the end of last year, the burden of excessive student loan debt was affecting 40 million American students, whose debt totaled $1 trillion. Student debt is also the only type of consumer debt that has actually risen since the Great Recession, increasing by 84 percent between 2008 and 2014, according to a study by Experian. At the same time, college debt appears to be its own industry. Student debt is bundled into packages and sold to investors as securitized loans in practices not dissimilar from those that contributed to the subprime mortgage crisis. To add insult to injury, the mechanisms that favor creditors and produce seemingly perpetual debtors are allowed to operate with little hope of legal help because of powerful instruments of corporate law: mandatory arbitration clauses.
A recent expose by the New York Times found that a well-organized coalition of credit card companies, lenders and retailers -- from Starbucks to American Express to TimeWarner -- have lobbied successfully to change contract law in a way that fragments people who could comprise a broad opposition to predatory implementations of fees, penalties and interest rates. A mandatory arbitration clause stipulates that, upon signing a contract, "the company 'may elect to resolve any claim by individual arbitration.'" The average American can be fined a $600 fee for canceling their phone service and be forced to go take on corporate giants in court alone, instead of joining with others in a class action suit -- a vital tool for the public to hold non-state power accountable. Corporations argue that class action suits are unnecessary since people are capable of having their cases solved in court on their own; however, massive legal fees involving long, drawn-out court battles make serious challenges untenable for anyone outside the nation's upper economic echelon, leaving them with little choice but to accept the unfair hand they are dealt.
According to the National Consumer Law Center, "the 2010 Dodd-Frank Act legislation banned forced arbitration in mortgages and gives the new Consumer Financial Protection Bureau (CFPB) the authority to prohibit or impose conditions on other forced arbitration provisions involving consumer financial products or services." However, lenders still find ways to practice virtual extortion and leaving their borrowers no way to meaningfully defend themselves. According to the website Fair Arbitration Now, "lenders will often insert forced arbitration clauses in private student loan agreements to bar borrowers from challenging the loan’s terms in court ... these clauses allow predatory lenders to escape responsibility for their abusive lending practices or other violations of the law." Secondary lenders who step in to offer emergency loans are even more likely to get away with and make use of these tactics, further choking students with debt.
On their own, the prohibitive costs of higher education and the loan packages required to pay them are robbing millennials of their futures. To combine these with exploitative and opaque techniques for extracting still more value from a debt-saddled generation is nothing short of criminal. While some class action suits have been successful on relatively small scales, the kind of broad challenge to unaccountable creditors that is necessary to improve the conditions of many struggling students and graduates has yet to materialize. With college tuition prices becoming increasingly unaffordable, the least the government -- on both the state and federal level -- can do is prioritize passing a ban on mandatory arbitration.
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