NEWSSTUDENT LOANS

When you saw the news reports last week of a man being SWAT teamed for not paying his student loans, you may have wondered: are they coming for me next?

Well, worry no more. The team from the film Default: The Student Loan Documentary started a petition on Change.org to end this rampant confusion about whether or not students with outstanding loans could be criminally prosecuted. And they're declaring victory today, as the Department of Education released a statement, saying that defaulting on your school loans is not a criminal offense.

Sara Gast, spokesperson for the Department of Education, made the distinction. Students can be arrested for criminal activity like fraud.  But not being able to pay your loans back isn't something you'll be thrown in jail for.

"Generally, defaulting on student loans is not itself a crime," said Gast. "However, there are a number of circumstances surrounding defaults that are criminal, such as trying to obtain federal student aid while in default, or getting a loan with no intention of going to school and then defaulting with no intention of ever repaying."

The student loan crisis is huge, says Kyle McCarthy, part of the team behind the film Default: The Student Loan Documentary. With one in five students now defaulting on their school loans and student loan debt surpassing credit card debt, the problem isn't going away anytime soon.

But there's one thing he's asking for - one thing that could make the situation better, almost with a stroke of the pen.

United States Department of Education, could you make one thing clear, to Kyle and to all American students: you're not going to SWAT team our homes if we can't pay our student loans, right? McCarthy and the team at Default started a Change.org petition, asking the Department of Education to come out with a strong statement, letting students know they won't be criminally prosecuted for unpaid debt.

Do you know what FAFSA stands for? Free Application for Federal Student Aid.

The first word, "free," is pretty important. It lets students and their parents know that applying for aid won't cost them any money, and might just gain them something in the form of grants and loans. Most people these days apply for federal student aid online, at FAFSA.gov.

But some families, like Darlene Lee's, have typed in ".com" instead of ".gov". A pretty easy mistake, right? But FAFSA.com has a catch - it isn't free. In fact, when Lee got to the end of her son's application, she was asked to pay $79.99 for FAFSA.com's service of filing her application and checking it for errors.

Even before the recession, college was unaffordable for many Americans. But since state budgets have been slashed and tuition costs are on the rise, more and more students are finding it hard to pay for an education.

University of Colorado student Nic Ramos can afford to pay for college, thanks to his parents. But he wanted to show his school just how much his semester cost by paying in singles. That's right - 14,309 dollar bills and some change.

The stunt started off as a joke, but as he collected the cash he needed - from several different banks - it became a symbol of what education really costs.

"It’s just an absurd amount of money. I wanted to give the school a different way to look at tuition," said Ramos.

Here's something to cheer about: Congress has voted to extend a $2,500 tax credit for families who are paying for college until 2012. Not only that - federal Pell Grants escaped the budget ax as well... For now.

In November and December, we covered the campaign by education activists to save this vital tax credit and Pell Grant program from crippling cuts. Our victory came about during last-minute wrangling in Congress at the end of the year. As lawmakers fought during lame-duck session over a tax cut package, they settled on a hodge-podge of relief that included tax cuts for millionaires and more funds for folks without jobs. Nestled inside the controversial bill was what education advocates had been fighting for -- a two-year extension of the American Opportunity Tax Credit (AOTC), a tax credit that puts $2,500 back into the pockets of taxpayers footing the bill for college. Woohoo!

Pell Grants, also on the chopping block, hung on by the skin of their teeth - for now. The federal aid program for low-income students will be fully funded until March 4, thanks to a temporary reprieve from Congress. Students, activists and advocates had been fighting against proposed cuts that would have cut the maximum award by $845 a year.

Education advocates and Change.org members can take a bow - especially the national nonprofit The Institute for College Access & Success. Along with action alerts and valuable research, TICAS created a petition on Change.org to Congress championing these two important program. That petition spawned more than 600 emails sent to Change.org members' lawmakers. Without pressure from voters and advocacy groups, this money for education could have gone down the drain.

They waited for Michael Moore to make a documentary about it, but he didn't. So they decided to make their own.

In a nutshell, that's what spurred Serge Bakalian and Aurora Meneghello to travel around the country and interview hundreds of student loan borrowers while making their 27-minute film, Default: The Student Loan Documentary. The horror stories they kept hearing about private student loans -- the ballooning interest rates, the 18-year-olds owing tens of thousands of dollars, the complex laws that make filing for bankruptcy virtually impossible -- made them angry. But nobody else seemed to know about it.

"Friends kept telling me about their private student loans," Bakalian, the producer and co-writer of the documentary, told Change.org in an interview last week, "and we thought, surely somebody is going to make a documentary about this."

Although many people borrow federal money to pay for college and take advantage of grants and scholarships, approximately 20 percent of college loan dollars are from private, for-profit companies. These businesses, which include Sallie Mae and many commercial banks, can charge exorbitant interest rates while benefiting from special government perks. (Thanks to convoluted federal laws, it's virtually impossible to declare bankruptcy on a private student loan.)

Trouble is, Bakalian said, even though he had witnessed so many college graduates trapped by impossibly high student loan payments, most people don't know it's a problem. Many U.S. policymakers came of age when college was cheaper, and loans were less common. A story like 23-year-old Kelli Space's, who is $200,000 in debt after earning an undergraduate degree, might sound far fetched, but Space is nowhere near alone. More and more 20-somethings are starting their professional lives with five-and-six-figure debts.  To capture these stories, the Default team traveled the country interviewing borrowers and co-signers who are buried under private student loan debt.

Everyone knows someone like Luke Stacks, a Virginia 27-year-old who has a Master's degree and a part-time job answering phones for a home-electronics chain.

Stacks, profiled in a recent GOOD magazine article, was planning to enter at the University of Iowa to earn a Ph.D. and become a university professor. But after the stock market crash of 2008 made a career in academia seem like a long shot, he decided to change course and look for a full-time job.

That was in May of 2009. Now, Stacks is still looking for full-time work that pays enough to live on. Meanwhile, he's living at home and making $10 an hour.

Stacks isn't alone. Kristen Vockel is $30,000 in debt and has been searching for a job - any job - since she graduated in May. Currently holding down an unpaid internship, she's dreading the day her loan payments become due.

All of us have been hit by the economic downturn that has pushed millions of workers and their families into unemployment limbo. But one little-known group experiencing record levels of unemployment is workers ages 16 to 24. Many of these young people are juggling student loan payments while scrambling to find jobs. In July of this year, the youth unemployment rate was 19.1 percent -- the highest July rate on record since the Bureau of Labor Statistics began collecting data in 1948.

The co-founder of PayPal is putting his money where his mouth is.

Peter Thiel, 42, is backing up his claims that higher education doesn't prepare students to be successful entrepreneurs by offering 20 kids under 20 up to $100,000 to drop out of school to work on their business ideas.

Thiel calls it "stopping out of school," implying that they can put their formal educations on hold and then go back if and when it's convenient. He's said he'll be accepting applications through the end of the year.

"I do think there are a lot of things people learn in school," he told TechCrunch's Sarah Lacy. "I don't think they learn much about entrepreneurship."

Let's step back and look at Thiel himself. At first glance he's the success story every would-be-Zuckerberg dreams of becoming. He co-founded PayPal at 31 and sold it to eBay after four years for $1.5 billion. He was the first investor in Facebook, earning him another huge pot of cash, and now he runs a venture capital firm and a hedge fund.

Sure, Thiel has a gargantuan amount of personal wealth, made by thinking outside the box. What else does he have? College degrees. The Internet whiz earned a B.A. in Philosophy from Stanford University, followed by a J.D. from Stanford Law School. He's even taught classes at Stanford Law.

Quick! Which one doesn't belong? (A) A beach house, (B) a Fendi handbag, (C) a cruise to Jamaica, (D) a privately-funded college education at State U. If you guessed college, you'd be right. You can declare bankruptcy if you're drowning in debt from buying a house, a handbag or a vacation, but if you took out private loans to pay for school, you're out of luck.

No one knows this better than Jim Reach, an Illinois father who co-signed on private loans to help his four children pay for college. Not only did the Reach family find that the loan rates and payment plan they signed up for were dramatically different once the loans became due, both Jim Reach and his wife lost their jobs in the economic downturn. Caught in a trap of escalating loan payments, their home was foreclosed on last month. The parents who wanted the best for their children - and thought they could pay for it - are now homeless.

In 2005, Congress passed the Bankruptcy Reform Act, which made it harder for private student loan borrowers to file for bankruptcy. More specifically, they had to prove they'd suffered "undue hardship" in order to file, proving they had no income now, or in the future.

It's so difficult to prove "undue hardship" that fewer than 100 people -- nationally -- tried to declare bankruptcy due to private loan debt last year, Alan Collinge, founder of advocacy group Student Loan Justice, told Change.org today. "Of those, only a small fraction were successful," he said. Bankruptcy lawyers generally don't want to get involved because of the small chance of success, so private student loan borrowers are out of luck.

Would you pay for a lottery ticket if the odds of winning were 2 to 1?

How about paying for college classes?

Of the students who started class at 16 for-profit colleges in the 2008-2009 school year, 57 percent have dropped out, Senator Tom Harkin (D-Iowa) said Thursday in Congress. That's more than half of students who entered with hopes of earning a degree, but now have only bills and debt to show for it. Graduation is literally a gamble for the students at schools like the Washington Post-owned Kaplan Inc.

A report from the National Center for Education Statistics backs up this truly stunning rate of failure. Of students who entered college in 2001 for a bachelor's degree, 55 percent at a public school had graduated in 6 years. At private schools, 64.4 percent had graduated. And at for-profit schools, 24.5 had graduated.

The for-profit college industry has been under scrutiny after an August report from the Government Accountability Office uncovered wrongdoing at 15 out of 15 for-profit schools it investigated. (One school's financial aid counselor was even caught, on video, telling a potential student to falsify his FAFSA application to hide the fact that he had $250,000 in the bank.)