The New York Times is out with a sobering article about the exploding business of student loan debt collection. One industry representative witnessed an organized protest comprised of student loan borrowers and later wrote, “I couldn’t believe the accumulated wealth they represent — for our industry. . . . It was lip-smacking.”
As the cost of education goes up while student loans remain widely available and the economy sputters ahead, student loan default rates are skyrocketing and debt collectors are cashing in. If you remember, the federal government has draconian collections powers that make student loan debt unlike any other kind of debt. And increasingly, the government and private student loan lenders are turning to dozens of third-party debt collection firms that are incredibly skillful at tracking people down and making them pay up. The U.S. Dept. of Education paid$1.4 billion last year to third-party debt collectors, according to the article. $1.4 billion. That’s not a typo. And since the government, via these debt collectors, can usually get back about $0.80 on the dollar for defaulted federal loans, there is little incentive for them to work harder at helping borrowers avoid default in the first place.
Don’t take my word for it; read the article here.
And when you’re done, please check out the National Consumer Law Center’s new report on defaults.