Report: debt part of “vicious cycle” for low-income families

Photo Courtesy: MGNonline

BOSTON (SHNS) – Crushing amounts of personal debt are preventing low-income people in Massachusetts from getting jobs, housing, or furthering their education – all contributing to a cycle of poverty that is hard to escape, according to a new report looking at the impacts of credit.

In a year-long study, the Crittenton Women’s Union – a non-profit that advocates for low-income women – surveyed more than 120 people, and conducted in-depth interviews of 10 families to look at how debt affected their lives. People reported their debt was often incurred from student loans, housing costs, or unpaid medical expenses, according to the report unveiled Thursday at the State House.

Elizabeth Babcock, president and chief executive officer of Crittenton, said consumer debt is preventing low-income people from attainting the “basic building blocks of getting ahead.”

When low-income people are unable to meet their debts, it “cements them in poverty,” said Jennifer Lowe, the lead author of the study.

The group is calling for passage of legislation that would prevent employers from checking someone’s credit score, as well as legislation that would put limits on health care debt, and protect consumers from credit industry abuses.

Sens. James Eldridge (D-Acton) and Michael Barrett (D-Lexington) both said they plan to file bills related to debt protections. Eldridge said he is also re-filing a bill next legislative session that would require financial literacy curriculum in all public schools.

Margaret Miley, executive director of the Midas Collaborative – a network of community groups focused on financial education – said personal debt has become an overwhelming issue for many people because “real living” expenses are going up while wages are not. College costs in the last 30 years have increased twelve-fold, according to Miley, and medical costs have gone up 600 percent during the same period.

“We are all compensating with more debt than people a generation ago” carried, Miley said.

Forty-four percent of people in the study said debt has impeded their ability to get a job when a prospective employer checked their credit score.

One woman in the survey said she had several job interviews that seemed to go well, and then she was never offered a position, according to Lowe. The woman suspected she was rejected because of her student loan debts.

Barrett said there is no evidence that a person’s credit score indicates what type of employee they will make, and he wants to outlaw the practice of employers checking scores. Sen. Elizabeth Warren has filed similar legislation at the federal level.

Barrett said so much data is collected on everyone “we will not be able to keep up with the ability of lenders to profile our capacity to pay or employers when they consider to employ us.”

“This is going to be a race over the next four or five years where we lose ground” on the amount of information available for people to look at, he added.

Twenty-one percent of people in the survey said debt prevented them from attaining a student loan, according to Lowe.

The effects of debt also impact people’s physical and mental well-being, according to the study’s authors, with 91 percent of the people in the study reporting stress about debt was a barrier to their well-being.

Connie Hillman told the crowd gathered at the State House to hear the results of the study that she hates to be the “poster child” for how debt negatively impacted her life.

Hillman holds two master’s degrees and previously worked as a social worker, but she never earned enough money to keep up with her student loans and living expenses, she said. In one job, she earned about $15 an hour, making owning a home impossible for her and husband.

She applied to have her student loans forgiven under new federal programs instituted after the recession, but was “disappointed to discover I didn’t qualify for them,” because she worked part-time rather than full time, she said.

In December 2010, she had a stroke that prevented her from working again, she said.

“What has transpired since then has been a nightmare,” Hillman said. “We felt as if we fell through an invisible trapdoor. We were suddenly poor.”

When she and her husband applied for public assistance they were horrified by the amount of paperwork, and the fact that different available resources were all segregated, requiring separate applications.

“The sheer volume of paperwork was overwhelming,” she said. “There were reams of paperwork for each and every need, and every agency.”

Even as a trained social worker, Hillman said, she was overwhelmed by the process and wondered how people with less education or who did not speak English navigated it.

In the meantime, she fell further behind in her bills and her debts piled up, along with late-fees and penalties. Her debts, including student loans, had grown to $111,000 before she obtained some loan forgiveness, she said. Hillman said she still has unresolved debts with the IRS stemming from the loan forgiveness.

“It has taken us four years of instability and insecurity to get to a place that we finally feel safe that we are not going to be homeless, that we can meet our basic needs,” she said.

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