JPMorgan Chase's Debt Collection Agency's Sleazy Tactics to Squeeze Student Loans Debtors of Their Last Cash
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Out of One Racket Into Another
In July, JPMorgan Chase stopped issuing private student loans to non-Chase customers—people without an existing student loan or credit card, loan or bank account. "We have decided to focus on providing private student loans only to current Chase customers as the private student loan market has continued to decline and government programs have expanded to help more students and their families," a Chase spokesperson told the Huffington Post.
It's nice to know that Chase is concerned with helping students and their families, but with variable interest rates running up to nearly 10 percent, as Mike Konczal of the Roosevelt Institute and Tamara Draut of Demos have noted, student debt is hardly “aid” these days. Instead, it's an immensely profitable business, and the actual issuance of loans is only one tiny part of it.
For instance, NCO Group, itself a subsidiary of JPMorgan's One Equity Partners, has a subsidiary in turn called University Accounting Services, LLC, which services 2.5 million loans according to its Web site. It services loans for universities ranging from Stanford to the University of New Orleans to the Christian University of Sioux Falls. And of course that servicing includes “default management.”
You have to search NCO Group's Web site a bit to find its debt collection services, under “Accounts Receivable Management.” What it plays up instead is its outsourcing -- bragging that they are really, really good at shipping American jobs overseas. The debt collections gig, despite the multi-million-dollar government contracts? Just a sideline, described in charming euphemisms: “NCO's third-party collection service imparts a sense of urgency upon seriously delinquent customers during these periods, reducing net write-offs and the cost of collecting after charge-off.”
It continues, “The best way to achieve this objective is NCO's method: concerted calling campaigns supplemented by automated skip tracing and third-party notices.” (“Skip tracing” is what they call tracking people down when their address has changed.)
And all of this, to the Department of Education, is worth quite a bit. The Federal Procurement Data System reports multiple contracts for NCO Financial Systems for “debt collection.” The most recent is for some $68 million; a previous contract was for $143.4 million. And they get commissions.
As John Hechinger at Bloomberg noted, some $67 billion of student loans are in default; because of the 2005 changes to bankruptcy law, even private student loans are non-dischargeable in bankruptcy, meaning you're stuck with them for life unless you can prove exceedingly dire hardship (and even then you still might find yourself chased by collectors).
Which brings us back to JPMorgan's decision to cut down on its lending. The financial blog Zero Hedge wonders if by doing so, JPMorgan may have popped the student loan bubble. “What JPM is implicitly saying, is that the party is over, and all private sector originators are hunkering down, in anticipation of the hammer falling.”
And if that's true, juicy debt collection contracts might be a better bet.
Where's Wall Street?
JPMorgan Chase is not alone in the creating-debt-and-getting-paid-to-collect it game—CitiGroup, as well as Sallie Mae and NelNet, also own collection agencies that have contracts with the Department of Education.
What this illustrates more than anything is how impossible it is to get the big banks and lenders out of the student lending business. During the first presidential debate this fall, Barack Obama touted his move to stop subsidizing private lenders to the tune of some $60 billion, with the FFEL program. And it's true, that was one of the few victories in the first four Obama years.