In the anything-goes financial world of the early 21st century, student lenders, like mortgage lenders, convinced millions of Americans to take on heavier and costlier debt than they could handle or understand. Now the scary consequences are coming back to haunt us as an economy and a society.

Student-loan debt has doubled since 2007. At an estimated $1.1 trillion, it’s the nation’s second biggest form of household indebtedness, after mortgages. One in five families have such loans, with an average balance of $26,682 at last count. Many owe far more than that – more, in some cases, than they can imagine ever being able to repay.

The cold statistical facts can be found in recent reports from, among other sources, the Pew Research Center and the Federal Reserve Bank of New York. For a glimpse of the human consequences, though, you can’t beat the more than 28,000 statements that went up on the Consumer Financial Protection Bureau website last week. Here’s just a sample:

I graduated 6 years ago and have been making monthly payments ever since, but my balance never, ever seems to go down…

Between my federal student loans and alternative loans I am projected to pay 79% of my gross monthly income, starting next month…

When I first went to the Financial Aid department they told me that I could take out Federal Loans but that it would be a lot easier, with less hoops to jump through, if I took out private loans…

Sallie Mae attached a $4000 PENALTY to one of our loans — But I have no idea which loan is what–or what loan is whose…

I am 70 years of age and must keep working in order to afford to continue to pay for my student loan…

I was young and I had NO idea…

The Bureau did the country a large service when it asked for this input in February. Thanks are also due Public Citizen, U.S. PIRG and Young Invincibles, among other groups, for their role in spreading the word and gathering a body of testimony that puts flesh and blood on a number of disturbing trends:

• Five or 10 or more years after college, student-loan debt is causing young adults to avoid buying cars and homes.
• Student loans go a long way toward explaining why, between 2007 and 2010, the number of 18-to-34-year-olds living with their parents increased by roughly two million.
• They have led many young workers not to contribute to 401(k) plans, even at the sacrifice of matching money from employers.
• They are making it hard for many graduates to pursue careers such as teaching that don’t generate enough income to repay debt.
• They’re discouraging people from starting businesses and other forms of risk-taking.

“Are these the shadows of the things that Will be, or are they shadows of things that May be, only?” Ebenezer Scrooge inquired of the Ghost of Christmas Future. The question might also be asked about where the United States is going with its current system of financing higher education.

The Consumer Protection Bureau sought policy ideas for current as well as future student-loan debt. Its report groups the responses under several broad headings, including a “Road to Recovery” for people trapped in unmanageable private student-loan debt, and a “Refi Relief” program that would allow borrowers who have dutifully made payments to refinance at rates that reflect current interest levels and their own improved creditworthiness.

But it will take action by many arms of government – Congress, state legislatures, and the Departments of Education and Labor, along with the Bureau itself – to turn the nation away from what Kevin Carey of the New America Foundation describes as “a big social experiment that we’ve accidentally decided to engage in” – the experiment of sending a generation of young people “out into their professional lives with a negative net worth. Not starting at zero, but starting at a minus that is often measured in the tens of thousands of dollars.”

And any meaningful policy response will require continued organizing and action on the ground. The good news is that the organizing has begun, and that a huge national problem is on the way to getting the attention it deserves.

Originally published on USNews.com.

(Originally published on USNews.com – 5/7/13)

Wall Street will be watching the House Financial Services Committee today – and counting on the rest of us to have our attention elsewhere.

The committee will consider a package of proposals to roll back important reforms adopted after the 2008 financial crisis. Most of these bills involve derivatives – the complex financial instruments that were the proximate cause of the meltdown. If approved, they would let the biggest banks go on enriching themselves, and endangering the country, with taxpayer–subsidized bets.

Take the Swap Jurisdiction Certainty Act. In the name of simplicity, the bill generally permits the foreign subsidiaries of American banks to follow the derivatives–trading rules of other nations. What the proposal’s supporters don’t say is that the rest of the world is way behind the U.S. in setting such rules and that a couple of clicks on a computer keyboard is pretty much all it takes for the typical megabank to route a transaction overseas, potentially escaping serious oversight.

This would be a huge loophole. “During a default, risk knows no geographic border,” Gary Gensler, chairman of the Commodity Futures Trading Commission, said in a recent speech.

A second bill, the Swaps Regulatory Improvement Act, would undermine Section 716 of the Dodd–Frank financial reform law, which tells banks to segregate their most exotic derivatives transactions from taxpayer–guaranteed deposits. The bill would restore banks’ right to conduct these complex and dangerous deals inside units that benefit from deposit insurance and access to Federal Reserve support.

The House bills threaten the authority of the Securities and Exchange Commission as well as the CFTC. Existing law requires the SEC to consider the economic impact of its rules; indeed, financial companies have won a number of lawsuits on cost–benefit grounds. But the SEC Regulatory Accountability Act would shift the odds even more in Wall Street’s direction by saddling the commission with new cost–benefit–analysis procedures that it would have to follow not only for the rule it adopts but for all “available alternatives.” The net effect would be to add a set of near–impossible obstacles to a process that is already tortuously slow.

These proposals – the ones enumerated here and others – present a textbook case of how a powerful industry pursues goals that run sharply against both the public interest and public opinion. Money and muscle loom large in the tale, needless to say. We got a glimpse of Wall Street’s inside game with the recent disclosure of a February skiing bash in Utah, where the new Financial Services Committee chairman, Jeb Hensarling, R-Texas, was joined at a weekend fundraiser by representatives of a number of financial companies and Wall Street groups. (Around the time of his ski trip, the direct and indirect contributors to Hensarling’s political action committee included Visa, MasterCard, JP Morgan, Capitol One, Credit Suisse, UBS, U.S. Bank, and the payday lenders Cash America and CheckSmart.)

Disguise is another key element of the strategy. Americans overwhelmingly support tough financial regulation, so the banks have broken their agenda into mini–bills with mind–numbing names like the Business Risk Mitigation and Price Stabilization Act and the Swap Data Repository and Clearinghouse Indemnification Correction Act.

Persistence is a piece of the puzzle, too. Three years after the legislative fact, the financial lobby is still battling to undo the progress of Dodd Frank. And making more headway than it should.

Many of the bills before the Financial Services Committee were approved by the House in 2012, and they could be headed for approval in 2013. But every vote cast will matter; the more nays there are in the committee and on the House floor, the easier it will be to prevent these bills from moving in the Senate, where reform forces will have to hold the line again this year as they did last year.

The challenge is to spread the word and hold legislators accountable, convincing Senators and House members alike that a favor for Wall Street will be noticed – and remembered – on Main Street.

Last month, AFR and many of its member groups were among the nearly 250 signers of a letter urging federal bank regulators to “move quickly to ensure that payday lending by banks does not become more widespread” and to tell banks already making payday loans to “stop offering this inherently dangerous product.”

On Tuesday April 9^th,  petitions bearing the same emphatic message – and the signatures of more than 157,000 Americans (gathered by CREDO and Color of Change along with AFR, NPA, and CRL) – were hand-delivered to the Federal Reserve, the Consumer Financial Protection Bureau, the Office of Comptroller of the Currency, and the Federal Deposit Insurance Corporation. Meanwhile, Illinois Senator Richard Durbin reinforced the pressure against payday lending with the introduction of his Protecting Consumers from Unreasonable Credit Rates Act.

While a growing number of states have moved to outlaw payday lending over the past decade, the problem has become harder to combat, with major banks – Wells Fargo. U.S. Bank, and others – beginning to offer their own payday-style triple-digit-interest loans dressed up with polite names like “Direct Deposit Advance.” At the same time, the Internet has empowered a new generation of payday lenders to target just about anybody from anywhere. (Some of these online hustlers have incorporated offshore or on tribal lands, as well as in states without usury caps.)

Bank payday loans pose a special threat because, as Liz Ryan Murray of National People’s Action pointed out this week on The Hill’s Congress Blog, people who would be sensible enough to “avoid sketchy storefronts with ‘get cash now’ signs” often “don’t realize their personal bank’s short-term loans could be so toxic.” Taking advantage of that bond of trust, bank payday loan products “are decimating the bank accounts of some of America’s most vulnerable residents,” Murray writes, noting that “a full 25 percent of bank payday loans are to recipients of Social Security.”

Senator Durbin’s measure would end payday lending regardless of its auspices, by establishing a nationwide interest-rate cap of 36 percent for all forms of consumer credit. Another bill – the SAFE Lending Act, introduced by Senator Jeff Merkley (D-Ore.) – zeroes in on the online and offshore predators.

But because these proposals face daunting odds in Congress, the problem remains, for now, in the hands of the prudential bank regulators – the Fed, the OCC, the FDIC, and the CFPB. Fortunately, they have the authority to call an immediate end to payday lending by the banks they supervise. It is time for them to use that authority, once and for all.

For more information, see these two recent reports from our allies, along with letters of support for the anti-payday-lending bills.

• Payday Lending: How a Short-Term Loan Becomes Long-Term Debt (Center for Responsible Lending)
• Why Cap Small Loans at 36% (National Consumer Law Center)
• Letter on S 3452 (Original Durbin Bill)
• Letter on SAFE Lending Act (version introduced in the last Congress)