BUZZFEED: One Winner In The Trillion-Dollar Student Loan Crisis: Debt Collectors

Career College Central Summary:

  • There are few winners in America’s trillion-dollar student debt crisis. The government has become the guarantor of a giant pool of increasingly bad debt, low-income borrowers are saddled with decades of repayments, and taxpayers foot the bill. The class of 2014 was the most indebted in history.
  • But at least one industry is making money off of the crisis: the debt collectors that the Education Department pays to service and collect on federal student loans.
  • Payouts from the Education Department to private debt collectors topped $1 billion in 2014, the National Consumer Law Center reported. And business is booming — by 2016, the center said, it will have doubled to $2 billion.
  • “There’s just an explosion of the amount of loan debt. Default rates are incredibly high, and federal loans are very hard to discharge in bankruptcy,” said Persis Yu, an attorney with the National Consumer Law Center, in an interview with BuzzFeed News. “There’s a lot of opportunity for these companies to get new accounts.”
  • Swelling debt levels — and debt delinquency — mean a major headache for the Education Department: how to adequately oversee the private companies that deal with the growing portfolio of loans made with taxpayer dollars. The billion-dollar debt collection industry is only a piece of the puzzle; the department also pays private companies to service its federal loans, making sure nondelinquent borrowers keep paying on time.
  • The debt collectors don’t always live up to what the Education Department expects of them, and their drive for profit is often at the root bad behavior. The department recently said it had ended contracts with a group of collectors after they misled borrowers about ways they could get out of default. Though the Education Department did not specify motive, the NCLC report found debt collectors failed to help borrowers negotiate affordable loan payments because they wanted to maximize their payout under the Education Department’s contracts.
  • Christy, a borrower quoted in the NCLC report, said that she had been told by her debt collector that if she wanted to rehabilitate her loan, her monthly payments would be based on her loan balance, not her income, and that there was nothing she could do to lower her payments. When she asked about the income-based repayment plan she had heard about, she was told her loan was ineligible, because it had been consolidated.
  • Those were all misrepresentations. Christy was, in fact, eligible for income-based repayment. But at the time, her debt collector would have been paid just $150 if she had enrolled in income-based repayment, compared with a hefty 13% commission if she made the higher payments. The department later made changes to their contracts, hoping to change those practices.
  • “If I could have rehabbed this loan making regular payments based on my income, I would have done so many years ago,” she told the NCLC. “Now the loan went from $70,000 to $170,000.”

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