Obama's Dept. of Education Using Shady Debt Collectors to Hunt Down Student Borrowers
We know that over 20% of student borrowers are in default thanks to a recent report from the New York Fed.
But a chilling new report from Bloomberg now details exactly what those defaulting borrowers are facing--at the hands of the government.
Education Department contracts -- featuring commissions of as much as 20 percent of recoveries -- encourage collectors to insist on high payments. Former debt collectors said they worked in a “boiler-room” environment, where they could earn bonuses of thousands of dollars a month, restaurant gift cards and even trips to foreign resorts if they collected enough from borrowers.
In failing health, after contracting hepatitis from a blood transfusion, Campos pleaded with Pioneer, owned by SLM Corp. (SLM), the nation’s largest student-loan company better known as Sallie Mae. He left a $40,000-a-year job at the Massachusetts health department when he got too sick to work and waited for a liver transplant. The 52-year-old former busboy, a naturalized U.S. citizen from El Salvador, earned bachelor’s and master’s degrees in the 1990s from Cambridge College in Massachusetts.
These are private, for-profit debt collectors, pocketing a chunk of change from the Department of Education to harass, hound, and browbeat student borrowers into forking over the cash, ASAP. Bloomberg notes, too, that several of them have gotten in trouble for their slightly-less-than-ethical business practices: "Within the past 17 months, three companies working for the Education Department -- including one that is majority owned by JPMorgan Chase & Co. (JPM)’s private-equity arm -- settled federal or state allegations of abusive debt collections."
The Consumer Financial Protection Bureau has proposed supervising the debt collectors to make sure they're complying with the law, and as we've noted, the government actually recovers a substantial amount of the debt even from borrowers that go into default. Now that we see just how they're doing it, will there be added incentive for the CFPB to pay attention? The economy continues to be sluggish, and young borrowers continue to have trouble paying off their debt. Is this the future for many student borrowers?
[Kimberly] Noland, 44, lives in Fayetteville, Arkansas, with her husband, a laid-off factory worker now employed at a Wal-Mart store, and their seven-year-old daughter.
Noland injured her leg while working in a day-care center. She started collecting $828 a month in Social Security disability payments in 2010.
Shortly after she qualified, Collection Technology Inc., an Education Department debt collector, called about Noland’s roughly $30,000 in defaulted student loans from attending the University of Arkansas.
A collector told her she had to pay $325 a month, almost as much as her rent, Noland said in a phone interview. She couldn’t afford it on her family’s $20,000 annual income, she said.
“I have a child,” Noland remembered telling the collector. “I can’t give you every bit of money in my house.”