Collections Agencies Prey on Sky-High Student Debt
As more and more former college students are struggling to make end's meet, debt collection agencies are thriving.
Outstanding student debt is worth roughly $1 trillion. With one in six student loan borrowers in default, defaulted loans make up $76 billion.
Defaults continue to increase, with the number of defaulted borrowers rising by a third over the last five years.
But the Education Department and collection agencies aren't sympathetic. As John Ulzheimer, SmartCredit.com's president of consumer education, put it:
“You are going to pay it, or you are going to die with it.”
And many people are finding that out the hard way. Amanda Cordeiro, a single mother from Florida who has accumulated $55,000 in overdue loans from when she attended school, told the New York Times she has changed her telephone number four times to avoid the seven calls a day from persistent collectors.
Arthur Chaskin, who graduated in the 1970s and is disabled, is still being hunted down by collections agencies. His $3,500 in loans had turned into $19,000 last year when the government tracked him down. He was able to have the amount reduced to $8,200, still more than double what he originally borrowed.
And Lindsay Franke, a graduate with a master's degree in business administration, lost her house in a bankruptcy filing after being unable to keep up with car, mortgage, and loan payments. But she still has $115,000 in loan debt and owes a total of $575 a month.
Last year, the Education Department shelled out $1.4 billion to collections agencies and similar groups to hunt down people like Amanda, Arthur, and Lindsay.
Mark E. Davitt, founder and president of Rochester-based debt collection agency ConServe, has called this a “great opportunity.” His company plans to double its payroll of 420 within three years.
From the New York Times:
“While the department of Education debt collection contract has been one of the most highly sought-after contracts within the ARM [accounts receivable management] industry for years, I believe it is now THE most sought-after contract within this industry, centered within the most sought-after market – student loans,” Mr. [Mark] Russell wrote last October.
Many have chalked up the problems to the fact that debtors simply aren't educated about their options. After all, the income-based repayment program allows borrowers to pay 15% of their discretionary income for up to 25 years, after which the loan is forgiven. Many people haven't taken advantage of this because they aren't aware.
But Lindsay Franke was aware of that program. Her payments were income-based when she was forced to file for bankruptcy.
And for those who aren't educated on their options, it isn't as easy to learn.
Loan servicers receive $2.11 a month per borrower in good standing, but only 50 cents for those who are delinquent – not much incentive to help them.
Loan guarantee agencies receive about 1% of the loan balance if they prevent a borrower from defaulting, but they receive more for collecting a defaulted loan. Meanwhile, debt collectors profit off of collecting, whether or not the borrower is capable of paying.
The more borrowers owe, and the less they know, the more the system profits. And the deeper you fall, the less likely you are to get out.
Maybe you should have majored in debt collection, because that industry is booming...+1
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