Obama Admin. Hires Army Of Private Debt Collectors to Go After Student Loan Debt

When students default on their federal loans, debt collectors are hired to track them down and collect payments.

But according to a new report by Bloomberg’s John Hechinger, debt collectors are demanding larger payments than they should under federal law:

“With $67 billion of student loans in default, the Education Department is turning to an army of private debt-collection companies to put the squeeze on borrowers. Working on commissions that totaled about $1 billion last year, these government contractors face growing complaints that they are violating federal laws by insisting on stiff payments, even when borrowers’ incomes make them eligible for leniency.”

The fact that so many students are letting their loans fall into collection could be yet another symptom of a weak economy.

Collectors will do whatever it takes to get a payment, and their commission, out of students but those in debt do have options.

“Only borrowers who are already in default will be contacted by a collection agency,” FinAid.org’s Mark Kantrowitz told Your Money. “(Students) should ask about the process for rehabilitating their loans. Once the loans are rehabilitated, they should be able to obtain income-based repayment (IBR).”

Ten percent of borrowers are eligible for IBR but a fraction of that actually take advantage of it. IBR caps monthly loan payments at 15% of  income and forgives any remaining balance after 25 years in repayment.

Debt collectors are the subject of more complaints to the Federal Trade Commission than any other industry, almost 181,000 last year.

 

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14 Comments

  1. This story actually is completely contrary to the experiences I have had and the path much of Obama’s policy efforts have taken on this issue.

    The Dept of Ed, under Obama’s direction is offering to take on the debt from other student loan agencies like Sallie Mae, ACS, Great Lakes, etc where students are in danger of defaulting and consolidate them under one account. From there they are able to adjust their loan payments based on income or defer them under such options as unemployment deferment.

    In addition to this Obama is supporting legislation that would forgive student loans for those working public service in half the time they would have previously, from 10 to 5 years. Plus, that legislation also includes provisions where people who have been paying their loans on time for a certain number of years their loans would be forgiven.

    This does not sound like the same President being portrayed by Mr. Hechinger here.

    I’m surprised Bloomberg allowed such a questionable article to be published.

  2. here’s a follow up that article from the same author http://www.bloomberg.com/news/2012-03-30/obama-plans-overhaul-of-student-loan-debt-collector-practices.html

  3. yea and the fact that there is a disconnect imo falls on the Obama administration, if they don’t clearly spell out what they want and what the rules will be then the private debt collectors will do whatever is in there best interest which unfortunately is not in the best interest of students in debt.

    • Despite whatever behaviors debt collectors are displaying I am wholly impressed with Obama’s efforts to help students deal with their financial issues and his focus on education overall.

      Let’s give credit where credit is due instead of nit picking every single detail.

  4. nitpicking? lol, you call this nitpicking? his administration hired these debt collectors, how is it that he somehow escapes responsibility for what they are doing??

    • The Department of Education, some part of the Dept of ed hired out some collections contractors and some of them are acting in some inappropriate manner.

      I am always astounded at how people can blame the leader, like the President of the US for things that are well below his/hers realm of direct decision-making roles. Do you really think Obama himself or even his appointee running the Department of Ed directly signed off on one particular collections company? There are MANY levels of management between those people. More than likely it was a contractor that had worked for them before and were hired again OR had been on the payroll for years.

      So yes, I see it as nit picking when people try to link such things ALL the WAY back to Obama when it is obvious he is not micromanaging down to those lower levels.

      Let’s put this into perspective…PLEASE!

  5. LMAO!! so using your logic he shouldn’t be getting any credit either way for what the Dept. of Ed is doing, correct? yet in your very first comment you wrote
    “The Dept of Ed, under Obama’s direction is offering to take on the debt from other student loan agencies like Sallie Mae, ACS, Great Lakes, etc”

    notice what you wrote there? here I’ll write it again

    “The Dept of Ed, under Obama’s DIRECTION”

    so when things appear good it’s because of Obama’s direction but when things go wrong he has nothing to do with it as he doesn’t micromanage down to that level? lol, that’s a good one.

    • There is a VERY clear distinction there my friend. What I stated in my first post are DIRECT policies Obama directed the Department of Ed to take. So yes, under his direction. THOSE are the types of efforts a manager, a leader, a President takes in directing the path they want those under his direct command, so to speak, should take. From there, those managers, or agency heads take it to their people to implements and their department heads take it to their people who operate more “on the ground” directly implementing the varied aspects of those policies laid down by the leader (the president in this case).

      The VERY big difference here, that I’m sorry you’re not comprehending, is that the day-to-day activities that are managed WAY down the line is where these collectors come into play. I’m actually very surprised you’re having such a hard time understanding this as it is quite clear to those of us who understand management structures in VERY large, complex institutions like large corporations and governments.

      Try to spin it all ya want, laugh all you feel the need to, BUT the facts are still there on my side. A few bad apples that are operating way, WAY down the chain of command do not reflect the desires or direction of the top leader.

      I do hope this helps you understand the bigger picture here if not, I’m sorry, I don’t know how to put it into simpler terms.

  6. nope, you can spin it anyway you want in a desperate attempt to absolve the president of any and all responsibility, but If he is going to direct people to do certain things than he needs to lay out how he wants those actions to take place. You claim he directed the Board of Ed to help students with their debt, his responsibility to oversee and make sure his plans are being carried out correctly do not end there.

    what ever happen to the buck stops here!?

    He is the man in charge, EVERYTHING his administration does reflects on him as a leader, you don’t just tell underlings “go do this” and then are absolved of all results, are you kidding me!?

    • “nope, you can spin it anyway you want in a desperate attempt to absolve the president”

      Don’t need to spin it since there is no need to, unlike the accusations you’re attempting to make.

      “If he is going to direct people to do certain things than he needs to lay out how he wants those actions to take place. “

      Uh… he did. And he’s not going to be a micro-manager for every little detail of the day-to-day activities of ONE agency when he has to oversee all the others as well as stay apprised of all the goings-ons of the rest of the country and the world. It’s called D-E-L-E-G-A-T-I-O-N of duties.

      “You claim he directed the Board of Ed to help students with their debt, his responsibility to oversee and make sure his plans are being carried out correctly do not end there.”

      Like I said, it’s DELEGATION of duties. And guess what… they are addressing some of the issues. I believe it’s in the other article I posted. Did you read it? If not, then here it is again, http://www.propublica.org/article/white-house-emphasizes-easing-student-debt-burden-collectors

      “what ever happen to the buck stops here!?”

      LOL!! Yeah, I predicted you’d try that one. Obama does, much to his credit, believe that it does stop with him BUT the claims you’re making are more akin to you trying to blame the President for some bottom-rung, contracted, customer service person for being rude to a customer. I mean really, is the ridiculousness of this THAT difficult to grasp here.

      “He is the man in charge, EVERYTHING his administration does reflects on him as a leader, you don’t just tell underlings “go do this” and then are absolved of all results, are you kidding me!?”

      I didn’t say that…my god… wanna talk about spinning… wow! I said that the contractors are SOOOOOOOOOOOOOOOOOOooooooooooooo far down the line from the President of the United States that their actions are not a reflection of his policies that were laid out to the Dept of Ed. Granted there may be some incentives for the collectors to get people to pay but if THEY are going beyond the boundaries then the Department will revisit their contract as it states in the article you posted, “Hamilton said. The department is also considering changing the commission structure in its debt-collection contracts, he said.“

      What is simply asinine is this ridiculous attempt to place significant blame for the doings of a few individuals at some collection firm. PLUS, the article you based this WHOLE thing on, ONLY points to TWO cases by TWO firms, one of which was lying to person with the debt about minimum payments. In the end she ended up working out a plan with the Dept of Ed. Where are all the rest? Are you really going off like this because of 2 cases, one of which had a positive ending?????

  7. you are a funny individual, don’t forget to vote!!


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