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Eliminate the "legal" loansharking

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Inexplicable View Drop Down
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    Posted: 02/November/2007 at 7:17pm
Here's something that I haven't seen addressed on the posts that I have read, that is the premise that the government is offsetting losses in other departments (i.e. Via Rail) by loansharking on the CSL.
 
Take my situation as an example. When I graduated in 1991, I had about $11,000 in debt owed under the CSL program. Today, that debt is just shy of $26,000 despite the fact that I have made (albiet "involuntary) payments via garnished income tax refunds of almost $9,000 since then.
 
What many people may not realize is that while the loan was in default since early 1992, and a judgement was issued around 1995, interest continued to accrue at 12% annually on the outstanding debt.
 
If I went to a bank today, got a loan for $11,000, and later defaulted on the loan, interest would stop accruing at that point. If not, I would have the remedy of employing a credit counselling service who would be able to get a stop on interest accumulation.
 
Further, if I had defaulted, and was unable to pay, I would have the further remedy of bankruptcy to eliminate the debt. But the government has the right to continue to accrue interest AND pursue collection of the debt in perpetuity, even after my death, attaching the debt to my estate.
 
What other financial institution has this power? What a money-making scheme, eh? If I began making payments now, at say $300 per month, and they continue to garnish my tax returns, it will take almost ten years to pay off this debt, and in that time I will have paid about $80,000 for an $11,000 loan.
 
Is it just me, or is there something morally reprehensible with this picture?
 
M
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Bateman View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Bateman Quote  Post ReplyReply Direct Link To This Post Posted: 09/November/2007 at 10:26am
The difference is if I went to a bank for a loan they would have the right to refuse me the loan. Student loans are pretty much guaranteed so I see nothing wrong with them having different conditions that make default harder.
 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Ottawa Gal Quote  Post ReplyReply Direct Link To This Post Posted: 10/November/2007 at 11:15am
ui do not believe the government can collect once you are dead......in fact i read that in one of the enabling bits of legislation........but they can collect if you get money from other estates - that was my reading of it anyways

 bateman........have you checked into this? 
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Bateman View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Bateman Quote  Post ReplyReply Direct Link To This Post Posted: 10/November/2007 at 11:45am

These type of topics would normally not come up in law school.

Off the top of my head I do believe they could make a claim on your estate but then your estate would claim an absolute defence of statue barred. Assuming you did not die 6 years since last acknowledging the debt. If the estate did not file the defence then a judgement would be files against your estate and they would get their money.
 
If someone lives in a province that has no SOL then that part of the loan would have a claim against your estate.
 
But that is off the top of my head. This is not an area of law I feel comfortable speaking on. If I knew all the answers I wouldn't have come on this site looking for some clarifications.
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Johnny View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Johnny Quote  Post ReplyReply Direct Link To This Post Posted: 10/November/2007 at 11:49am
As far as the Canada Student Loans Program goes - they do not collect form the deceased.
Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

solvestudentdebt.com
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Ferren View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Ferren Quote  Post ReplyReply Direct Link To This Post Posted: 10/November/2007 at 3:49pm
That's likely just an oversight on their part.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Ferren Quote  Post ReplyReply Direct Link To This Post Posted: 10/November/2007 at 4:21pm
Actually, interest does not stop accruing on a loan from a bank after default. If you stop paying or refuse to pay it usually goes to a collection agency where interest continues to compound. Why should a bank waive the repayment of the interest?
 
I also haven't heard that Canadian Student loans were being charged interest rates that were much higher than other unsecured retail loans. It was my understanding that the maximum interest rates that can be charged on a CSL is P+5% fixed or P+2.5% floating. 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Johnny Quote  Post ReplyReply Direct Link To This Post Posted: 10/November/2007 at 4:55pm
Does not compound on student loans. Collectors tell people it compounds as a tactic to create that urgency. Collectors use interest acrual as a collection tool. For government loans and associated directives, this is a breech and will be punishd if caught doing it.
 
Johnny
Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

solvestudentdebt.com
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Inexplicable Quote  Post ReplyReply Direct Link To This Post Posted: 11/November/2007 at 8:13pm
Well, I suppose a lot has changed in 16 years. When I negotiated my CSL in 1988, that (or something close to it) was the posted rate for the loan. I suppose at that time, 12% would have been p+5.
 
Also, I suppose the banks have tightened up also, as I recall when I worked as a loans officer for one of the big 3 in the 1990's, that is how the loans in default operated, at least from the banks point of view. Perhaps the collection agencies continue to accrue interest on the loan to increase their potential payout.
 
Why would the banks forfeit interest? It's simple economics: if you default, there is a good chance that not only are they not going to get their interest, but they are not going to get all of the principal. Aslo, loaning money is simply a business transaction to the bank. They do it to make money. If the loan becomes untenable, if it is no longer profitable, they want to divest it and move on. This is not life and death to them, it is just a business transaction. If the cost of collecting the debt exceeds what they are likely to get, they write it off and move on. At least they can expense it against other revenues.
 
M
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Inexplicable Quote  Post ReplyReply Direct Link To This Post Posted: 11/November/2007 at 8:17pm

Johnny,

 

I'm not sure if I misunderstood your reply there, but based on my understanding, I beg to differ on your comment about it not compounding. As I stated earlier, and in my email to you last week, my original loan was about $11,000. I receive monthly statements from the government showing what I owe. The amount is currently just shy of $26,000 despite about $9,000 in payments.

Explain to me how it got there without compounding? Could simple interest have caused it to get that big that quickly?

M

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Post Options Post Options   Thanks (0) Thanks(0)   Quote Bateman Quote  Post ReplyReply Direct Link To This Post Posted: 12/November/2007 at 4:31am

For a loan $11,000 loan at 12% to go to $26,000 in 10 years despite $9,000 in payments requires compounded interest.

Even with compound interest the numbers don't make sense. Had you made no payments the amount owing would be $34,150. Subtract the $9000 you paid and the amount outstanding is $25,150.
 
Now knowing when the $9000 was paid makes it impossible to come up with an exact number. If it was paid yesterday then the $25k is correct. If it was paid in 1999 then the outstanding balance would be closer to $7k. If the $9k was paid any any significant time in the past then the $26k outstanding balance is too high even with compound interest.
 
You might want to confirm that all payments were actually credited to your account.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Bateman Quote  Post ReplyReply Direct Link To This Post Posted: 12/November/2007 at 4:32am
Now = Not
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Johnny Quote  Post ReplyReply Direct Link To This Post Posted: 12/November/2007 at 6:45am
Contact the Canada Student Loans Program and read the CSLFA. It is all written up in there ragarding the manner in which interest is accrued.
 
Johnny
Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

solvestudentdebt.com
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Ottawa Gal Quote  Post ReplyReply Direct Link To This Post Posted: 12/November/2007 at 1:21pm
i bet even a regular accountant wouldn't be able to figure out how the interest is calculated unless s/he made it his/her life's passion (or got paid serious dollars to get motivated)


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Post Options Post Options   Thanks (0) Thanks(0)   Quote Johnny Quote  Post ReplyReply Direct Link To This Post Posted: 12/November/2007 at 5:02pm
I have business relationships with three accountants who are very able to understand this sort of arithmetic. Two of them are basic and one is a forensic.
Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

solvestudentdebt.com
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Bateman Quote  Post ReplyReply Direct Link To This Post Posted: 13/November/2007 at 2:23am
Please ignore my previous post. I was under the impression that Inexplicable had defaulted in 1998. I now re-read his post and realized it was in 1988.
 
Over 20 years (not the 10 as I previously though) an $11,000 loan would easily add up to $37k-9K=$28k with no compounding. In fact if it had been compounding the loan would now have a balance over $100k
 
Quote   bet even a regular accountant wouldn't be able to figure out how the interest is calculated unless s/he made it his/her life's passion (or got paid serious dollars to get motivated)
 
I'm pretty sure anyone with a simple calculator and high school math could figure it out. Especially now that it is clear the interest is not compounded.
 
The only reason I was confused before was because the loans are so old. I never even registered the 88 but just read 98. The only reason I even noticed was that he said 16 years. I thought it was baffling that I have loans from 10 years ago but to have loans from almost 20 years is even more unbelievable.


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Post Options Post Options   Thanks (0) Thanks(0)   Quote Johnny Quote  Post ReplyReply Direct Link To This Post Posted: 13/November/2007 at 11:28am
It is important to remember that collectors tell people the darndest things. They say things that tweak a certain stimuli in order to get that motivated and fearful response. Interest accrual, legal action, and exposure are the three top "psycho-tenderizing"  tools they use. Collectors will say that interest compaounds but it doesn't - and a lot of borrowers do not really know for sure. Collectors will also threaten exposure, such as calling and disclosing to employers, family, friends, and creditors. These thing cause panic in the minds and hearts of student loan borrowers.
 
 
Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

solvestudentdebt.com
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Johnny Quote  Post ReplyReply Direct Link To This Post Posted: 13/November/2007 at 11:32am
The threat of legal action is more saleable because thatis something that carries the element of truth and real consequence in the event they are able to do it. It is also important to remember that collectors have to sell out to their clients to get that mighty permission to sue, and in many cases, collectors lie to their clients by making the debtor out to be "combative" and unwilling to repay", regardless of the fact that the debtors are offering payments - and the collectors are simply refusing. Collectors have WAY TOO MUCH power, which can easily be abused. Here is where some of the legal energies should be aimed at. From a cultural perspective, the third-party debt collection industry is in most part biased and stereotypical towards people who owe money. From a behavioral analysis perspective, the debt collection industry behaves in most part like hyperactive children with little to no patience - and nothing seems to pacify them.
 
 
 
Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

solvestudentdebt.com
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Bateman Quote  Post ReplyReply Direct Link To This Post Posted: 13/November/2007 at 12:00pm
My understanding is that in the States it is possible to extract money out of collection agencies for engaging in this type of behaviour. Is there anything similar for Canadians?
 
I had someone staying with me a while back who was in heavy debt. Collectors eventually found him and somehow got my number. Despite making it clear I was not the person they were looking for they revealed information to me that I felt was of a private nature. 
 
They also told me to tell him that they had confirmed his employment which was an obvious bluff as he had been unemployed for the last 4 years. There has to be some protection against this kind of behaviour.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Johnny Quote  Post ReplyReply Direct Link To This Post Posted: 13/November/2007 at 12:15pm
In the states the FDCPA is rather strict, but many of the day to day breeches often go unaddressed from what I am told. Serious complaints are the ones that are treated and enforced upon. A collector having a bad day is not really addressed as agressively. In Canada, you have collection agencies' acts, which are provincially fueled and driven. The USA has a Federal statute, which certainly has much sharper teeth.
 
Here is something that you might want to look at:
 
Solve Student Debt specializes in solutions for students and graduates in student loan default, and those at risk of defaulting.

solvestudentdebt.com
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