The student loan scam

What this book actually teaches

The Student Loan Scam by Alan Collinge, published in 2009, is an advocacy-driven account of how the federal student loan system evolved from a tool of educational access into what Collinge argues is a predatory debt system that extracts wealth from borrowers through interest accrual, fee structures, and the systematic removal of consumer protections available to every other form of consumer debt. Collinge, who founded StudentLoanJustice.org after his own federal student loans ballooned far beyond what he borrowed, argues that the student loan industry — both the government-backed loan program and the private lenders who operated alongside it — was shaped by lobbying that benefited loan servicers and collectors at the direct expense of borrowers.

The book's central factual argument is that the 1998 Higher Education Act reauthorization and the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) systematically stripped federal student loan borrowers of protections that other consumer debt carries. Unlike credit card debt, auto loans, or virtually any other consumer obligation, federal student loans (as of the book's publication) could not be discharged in bankruptcy except through the extremely narrow "undue hardship" standard, could not be subject to statutes of limitations, and could not be refinanced at lower rates when market rates fell. Collinge's argument is that this legal framework was not an oversight but the result of deliberate lobbying by the student loan industry — specifically Sallie Mae and the collection companies that profited from delinquent and defaulted borrowers.

The fee structure chapters are among the book's most specific and empirically grounded. Collinge documents how collection fees are applied to defaulted student loans — fees of 25% or more of outstanding principal, applied before any collections proceeds reduce the balance — and how the government guarantee structure meant that Sallie Mae and private lenders faced no downside risk on defaulted loans while continuing to profit from collection fees. He shows how a borrower who defaults and then rehabilitates a loan can end up owing significantly more than the original principal, with the excess going to collection companies as a structural feature of the system rather than as an edge case.

The chapter on the Public Service Loan Forgiveness program — newly created in 2007, two years before the book's publication — is necessarily thin on implementation detail since the program had just been authorized and no loans had been forgiven yet. Collinge's treatment of income-contingent repayment options is more developed but reflects the limited options available in 2009 before the income-driven repayment landscape expanded significantly under the Obama and Biden administrations.

This is for student loan borrowers — particularly those with federal loans who are in repayment difficulty, default, or rehabilitation — and for policy-engaged readers interested in the political economy of higher education finance.

The weaknesses are advocacy register and currency. The book does not present a balanced analysis of the student loan system; it is a prosecution brief. Counterarguments — that the removal of bankruptcy discharge reflects the lack of collateral behind educational investment, that income-contingent repayment provides a form of hardship relief — are not engaged with seriously. The 2009 publication date predates substantial changes to the student loan landscape: the elimination of the FFEL program (government-guaranteed private loans) in 2010, the significant expansion of income-driven repayment options, the PSLF program's first actual forgiveness cohorts in 2017 (and the subsequent failures), and the Biden-era forgiveness actions and their legal challenges. The specific servicer and collector practices Collinge documents were targeted by CFPB enforcement actions beginning in 2014, which reduced though did not eliminate the abuses he describes.

For borrowers navigating federal student loan debt who want to understand why the system is structured the way it is and what protections they lack that other consumer debtors have, The Student Loan Scam provides a clear account of the political history — even if specific repayment options and servicer practices require current verification from the Department of Education's studentaid.gov rather than from this 2009 source.

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About Alan Collinge

Read more from Alan Collinge and explore the full bibliography on ClearValue Books.