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Debt Collectors Cashing In on Student Loans

Posted by on Sep. 10, 2012 at 12:24 PM
  • 38 Replies

At a protest last year at New York University, students called attention to their mounting debt by wearing T-shirts with the amount they owed scribbled across the front — $90,000, $75,000, $20,000.


On the sidelines was a business consultant for the debt collection industry with a different take.

“I couldn’t believe the accumulated wealth they represent — for our industry,” the consultant, Jerry Ashton, wrote in a column for a trade publication, InsideARM.com. “It was lip-smacking.”

Though Mr. Ashton says his column was meant to be ironic, it nonetheless highlighted undeniable truths: many borrowers are struggling to pay off their student loans, and the debt collection industry is cashing in.

As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments — about 5.9 million people nationwide, up about a third in the last five years.


In all, nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans — $76 billion — is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials.

In an attempt to recover money on the defaulted loans, the Education Department paid more than $1.4 billion last fiscal year to collection agencies and other groups to hunt down defaulters.

Hiding from the government is not easy.

“I keep changing my phone number,” said Amanda Cordeiro, 29, from Clermont, Fla., who dropped out of college in 2010 and has fielded as many as seven calls a day from debt collectors trying to recover her $55,000 in overdue loans. “In a year, this is probably my fourth phone number.”

Unlike private lenders, the federal government has extraordinary tools for collection that it has extended to the collection firms. Ms. Cordeiro has already had two tax refunds seized, and other debtors have had their paychecks or Social Security payments garnisheed. Over all, the government recoups about 80 cents for every dollar that goes into default — an astounding rate, considering most lenders are lucky to recover 20 cents on the dollar on defaulted credit cards.

While the recovery rate is impressive, critics say it has left the government with little incentive to try to prevent defaults in the first place.


Though there are programs in place to help struggling borrowers, the companies hired to administer federal student loans are not paid enough for lengthy conversations to walk borrowers through the payment options, critics say. One consequence is that a government program called income-based repayment has fallen short of expectations. Under the program, borrowers pay 15 percent of their discretionary income for up to 25 years, after which the rest of their loan is forgiven. But participation has lagged because borrowers are either not aware of the program or are turned off by its complexity.

“If people were well informed, how many defaults could be averted?” asked Paul C. Combe, president of American Student Assistance, a loan guarantee agency based in Boston. “We are hurting people here.”

For borrowers, the decision to default can be disastrous, ruining their credit and increasing the amount they owe, with penalties up to 25 percent of the balance.

Ms. Cordeiro, a single mother, dropped out of Everest College, a profit-making school, 16 credits shy of a bachelor’s degree. She said she could not get any more loans to finish. “I get these letters about defaulting, and I get them and throw them in the bin,” she said.

Jake Brock, who graduated in 2008 from Keuka College, a private liberal arts school in upstate New York, defaulted in May on a federally guaranteed loan of $8,000. With penalties and accumulated interest, the loan balance is now $13,000, he said. “I just fell behind and couldn’t dig myself out,” said Mr. Brock, who is 29 and owes a total of $100,000 in student loans.

There is no statute of limitations on collecting federally guaranteed student loans, unlike credit cards and mortgages, and Congress has made it difficult for borrowers to wipe out the debt through bankruptcy. Only a small fraction of defaulters even tries.

“You are going to pay it, or you are going to die with it,” said John Ulzheimer, president of consumer education at SmartCredit.com, a credit monitoring service.

http://www.nytimes.com/2012/09/09/business/once-a-student-now-dogged-by-collection-agencies.html?_r=1&pagewanted=all

by on Sep. 10, 2012 at 12:24 PM
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Replies (1-10):
Lizardannie1966
by on Sep. 10, 2012 at 12:37 PM

The Department of Education will work with those in default to get some sort of financing for repayment and to eventually see their loan come out of default and even be able to go back to school one day.

I wouldn't take the chance. Department of Education can "garnish" your tax refund or your paycheck.


Veni.Vidi.Vici.
by on Sep. 10, 2012 at 12:49 PM

AH! The hierarchy of debts.Student loans isn't at the top of the list.

kenleespice
by on Sep. 10, 2012 at 12:51 PM


Quoting Lizardannie1966:

The Department of Education will work with those in default to get some sort of financing for repayment and to eventually see their loan come out of default and even be able to go back to school one day.

I wouldn't take the chance. Department of Education can "garnish" your tax refund or your paycheck.



yep.it happened to me and the shitty part was it wasnt even my tax return but my husbands! we was really counting on it to and yea I had already set up a payment plan and they did it anyways.but at least its paid off.

Cutenessmom
by Bronze Member on Sep. 10, 2012 at 12:56 PM

We seperated our debt!   You can change your soica lsecurity and or get a disabilty  discharge...

 

Lizardannie1966
by on Sep. 10, 2012 at 12:56 PM


Quoting kenleespice:


Quoting Lizardannie1966:

The Department of Education will work with those in default to get some sort of financing for repayment and to eventually see their loan come out of default and even be able to go back to school one day.

I wouldn't take the chance. Department of Education can "garnish" your tax refund or your paycheck.



yep.it happened to me and the shitty part was it wasnt even my tax return but my husbands! we was really counting on it to and yea I had already set up a payment plan and they did it anyways.but at least its paid off.

Collection agencies are going to attach their own fees, too, so it's best for anyone with student loan debt to not ignore this and especially if the loan is in default.

I didn't realize that they could come after your spouse's refund or wages?

kenleespice
by on Sep. 10, 2012 at 1:02 PM


Quoting Lizardannie1966:


Quoting kenleespice:

 

Quoting Lizardannie1966:

The Department of Education will work with those in default to get some sort of financing for repayment and to eventually see their loan come out of default and even be able to go back to school one day.

I wouldn't take the chance. Department of Education can "garnish" your tax refund or your paycheck.



yep.it happened to me and the shitty part was it wasnt even my tax return but my husbands! we was really counting on it to and yea I had already set up a payment plan and they did it anyways.but at least its paid off.

Collection agencies are going to attach their own fees, too, so it's best for anyone with student loan debt to not ignore this and especially if the loan is in default.

I didn't realize that they could come after your spouse's refund or wages?

they can and its not right.luckly I only owed about 3000$ I only went to the college for about 7 months,I became pregnet and my last trimester was really hard and I was put on bedrest.the school said that was fine but later I found out I was no longer a student due to being absent even though they knew I was on bedrest and even had the note from my dr. never go to brown mackie

gsprofval
by Silver Member on Sep. 10, 2012 at 1:03 PM

"One consequence is that a government program called income-based repayment has fallen short of expectations. Under the program, borrowers pay 15 percent of their discretionary income for up to 25 years, after which the rest of their loan is forgiven. But participation has lagged because borrowers are either not aware of the program or are turned off by its complexity."

Students are absolutely NOT informed of this program, either. I knew about it and told my daughter to make minimum payments so that after 25 years, the rest is forgiven.  She can't do that, though, and wants the loan paid off.

The biggest problems in this area are the for-profits who charge exhoribant tuition rates and never explain to students what is going on with their financial aid. They seldom give copies of all the papers signed to the students, either.

The other side is that the for-profits do not provide a worthy education--worthy of the high tuition and worthy of getting a decent job in the field of study.  Most of those "graduates" received a sub-standard education and cannot get a job paying more than $10 an hour.  That is not enough to live on let alone pay $600 + a month for student loans.

I used to work at one of those hideous colleges.  The director would directly order me to reinstate dropped students so he could keep getting their loan money--very fraudlant, illegal, immoral, unethical, etc.   And the students were never informed of what was going on, but kept getting higher and higher loan statements. The reputation of many of the for-profits is so bad that graduates can't get jobs because of the schools they attended. That's why I no longer work there; I could see a federal investigation coming again--yes AGAIN--and refused to be part of that kind of activity.

 

Billiebeth
by on Sep. 10, 2012 at 1:05 PM

Being on bedrest doesn't excuse you from paying the tuition for the classes you were supposed to take nor from the loans you took for the classes.

Quoting kenleespice:


Quoting Lizardannie1966:


Quoting kenleespice:


Quoting Lizardannie1966:

The Department of Education will work with those in default to get some sort of financing for repayment and to eventually see their loan come out of default and even be able to go back to school one day.

I wouldn't take the chance. Department of Education can "garnish" your tax refund or your paycheck.



yep.it happened to me and the shitty part was it wasnt even my tax return but my husbands! we was really counting on it to and yea I had already set up a payment plan and they did it anyways.but at least its paid off.

Collection agencies are going to attach their own fees, too, so it's best for anyone with student loan debt to not ignore this and especially if the loan is in default.

I didn't realize that they could come after your spouse's refund or wages?

they can and its not right.luckly I only owed about 3000$ I only went to the college for about 7 months,I became pregnet and my last trimester was really hard and I was put on bedrest.the school said that was fine but later I found out I was no longer a student due to being absent even though they knew I was on bedrest and even had the note from my dr. never go to brown mackie


kenleespice
by on Sep. 10, 2012 at 1:12 PM


Quoting Billiebeth:

Being on bedrest doesn't excuse you from paying the tuition for the classes you were supposed to take nor from the loans you took for the classes.

Quoting kenleespice:

 

Quoting Lizardannie1966:


Quoting kenleespice:

 

Quoting Lizardannie1966:

The Department of Education will work with those in default to get some sort of financing for repayment and to eventually see their loan come out of default and even be able to go back to school one day.

I wouldn't take the chance. Department of Education can "garnish" your tax refund or your paycheck.



yep.it happened to me and the shitty part was it wasnt even my tax return but my husbands! we was really counting on it to and yea I had already set up a payment plan and they did it anyways.but at least its paid off.

Collection agencies are going to attach their own fees, too, so it's best for anyone with student loan debt to not ignore this and especially if the loan is in default.

I didn't realize that they could come after your spouse's refund or wages?

they can and its not right.luckly I only owed about 3000$ I only went to the college for about 7 months,I became pregnet and my last trimester was really hard and I was put on bedrest.the school said that was fine but later I found out I was no longer a student due to being absent even though they knew I was on bedrest and even had the note from my dr. never go to brown mackie

 

you did not read my reply,yes I was on bed rest but according to the school I could take up to a 6 month absence without having to pay and after 6 month be able to come back and start where I left off.I took four months off,when I came back I found out they had terminated me as a student because I had been absent even though they said I could,then I found out I wasn't even allowed to be re enrolled since I had been terminated,its not the loan I had a problem with but the school whom told me one thing them did another.

Billiebeth
by on Sep. 10, 2012 at 1:16 PM

It wasn't clear.

And you should have gotten it in writing.  One more thing, were your grades okay to come back?

Quoting kenleespice:


Quoting Billiebeth:

Being on bedrest doesn't excuse you from paying the tuition for the classes you were supposed to take nor from the loans you took for the classes.

Quoting kenleespice:


Quoting Lizardannie1966:


Quoting kenleespice:


Quoting Lizardannie1966:

The Department of Education will work with those in default to get some sort of financing for repayment and to eventually see their loan come out of default and even be able to go back to school one day.

I wouldn't take the chance. Department of Education can "garnish" your tax refund or your paycheck.



yep.it happened to me and the shitty part was it wasnt even my tax return but my husbands! we was really counting on it to and yea I had already set up a payment plan and they did it anyways.but at least its paid off.

Collection agencies are going to attach their own fees, too, so it's best for anyone with student loan debt to not ignore this and especially if the loan is in default.

I didn't realize that they could come after your spouse's refund or wages?

they can and its not right.luckly I only owed about 3000$ I only went to the college for about 7 months,I became pregnet and my last trimester was really hard and I was put on bedrest.the school said that was fine but later I found out I was no longer a student due to being absent even though they knew I was on bedrest and even had the note from my dr. never go to brown mackie


you did not read my reply,yes I was on bed rest but according to the school I could take up to a 6 month absence without having to pay and after 6 month be able to come back and start where I left off.I took four months off,when I came back I found out they had terminated me as a student because I had been absent even though they said I could,then I found out I wasn't even allowed to be re enrolled since I had been terminated,its not the loan I had a problem with but the school whom told me one thing them did another.


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