Obama Relies on Debt Collectors Profiting From Student Loan Woe

With $67 billion of student loans in default, the Education Department is turning to private debt collection companies to recover student loan money.  In fact, the Education Department has already held meetings with consumer representatives to discuss the considerations of requiring debt collectors to offer payments based on income to defaulted borrowers who qualify. 

In a phone interview for Bloomberg News, Justin Hamilton, a spokesman for the Education Department, said, “We want to make sure we are striking the right balance between helping borrowers who have hit hard times and honoring our responsibility to be good stewards of taxpayer dollars.”

Student loans can rarely be discharged, even in bankruptcy.  This makes it difficult for borrowers to escape the debt, especially compared to debt from credit cards.  However, as an increasing number of borrowers have been hit with job loss, unforeseen medical expenses, and otherwise devastating economic circumstances, the government is working to recoup its money while helping the thousands of Americans who have met economic loss and are unable to pay their bills.  Since the government has funded many student loans with tax payer dollars, it can confiscate tax refunds, paychecks, and Social Security payments. 

   

Under these contracts between debt collectors and the Education Department, a defaulted student loan can be “rehabilitated” if a borrower makes nine payments in 10 months. These payments must be .75 percent of the loan’s total each month.  Collectors who are able to achieve this result from borrowers can make up to a 16% commission on the total amount of the loan.  If they are unable to achieve this amount, they are generally given a $150 administrative fee to hold the account and continue collection efforts on it.