The Feds Get Caught in the Crossfire Between Students and Debt Collectors
July 19, 2016 — 11:35 AM EDT
One in eight Americans has a federal student loan, and complaints of mistreatment are legion. Unfortunately, a series of recent moves by the federal government could prolong borrowers’ misery.
The Obama administration has struggled to police student loan collectors at a time when student loan debt has skyrocketed. (The Federal Reserve pegs the total at about $1.4 trillion, double the amount from the start of 2009). The consequences of this debt load for the general public could be disastrous. Of the nearly 42 million people with federal student loans, more than 7 million of them are in default, government data show. Almost 3 million more are at least one month behind on their required payments.
Borrowers who default can face a lifetime of ruined credit, affecting their ability to secure housing or even a job. High debt burdens could hamper household consumption and limit demand for new credit, stunting economic growth, as the Federal Reserve, Treasury Department, and the nation's financial regulators have warned (PDF). The federal government owns or guarantees more than 90 percent of all outstanding student loans.
Loan servicers are central to taxpayers' and borrowers' future success. They are the financial middlemen who collect borrowers’ payments and counsel them on repayment options. When borrowers struggle, servicers are supposed to answer their phone calls and evaluate their eligibility for the government's various income-based repayment plans. But loan servicers and debt collectors say borrowers dodge their calls. Consumer advocates, state and federal regulators, and borrowers say these loan companies are largely to blame, due to ill-trained staff and companies’ general desire to minimize costs. They argue that some loan companies create financial incentives for employees to end borrowers’ phone calls as quickly as possible. The Education Department last year paid its student loan servicers about one-third the typical fee that mortgage servicers receive for handling traditional home loans, according to calculations by Bloomberg.
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http://www.bloomberg.com/news/articles/2016-07-19/the-feds-get-caught-in-the-crossfire-between-students-and-debt-collectors
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