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posted by on Monday May 22 2017, @06:53PM   Printer-friendly
from the cost-effective dept.

The federal government has, in recent years, paid debt collectors close to $1 billion annually to help distressed borrowers climb out of default and scrounge up regular monthly payments. New government figures suggest much of that money may have been wasted.

Nearly half of defaulted student-loan borrowers who worked with debt collectors to return to good standing on their loans defaulted again within three years, according to an analysis by the Consumer Financial Protection Bureau. For their work, debt collectors receive up to $1,710 in payment from the U.S. Department of Education each time a borrower makes good on soured debt through a process known as rehabilitation. They keep those funds even if borrowers subsequently default again, contracts show. The department has earmarked more than $4.2 billion for payments to its debt collectors since the start of the 2013 fiscal year, federal spending data show.

[...] Officials at the CFPB say the government should reexamine whether the loan program, and the lucrative contracts it bestows on private firms, is working for the millions of Americans struggling to repay their taxpayer-backed student debt.

"When student loan companies know that nearly half of their highest-risk customers will quickly fail, it's time to fix the broken system that makes this possible," said Seth Frotman, the consumer bureau's top student-loan official.

-- submitted from IRC


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  • (Score: 3, Informative) by VLM on Monday May 22 2017, @07:20PM

    by VLM (445) Subscriber Badge on Monday May 22 2017, @07:20PM (#513685)

    My dad was involved in debt collection toward the end of his life. Legal collection not so much Sopranos style. Mostly cell phones and medical back then. The software suite at that time was very vertically integrated.

    The private world is completely different from the article.

    You can contract out someone to fight your accounts receivable for a commission but this is somewhat unusual.

    You can buy a collection of debt off, for example, a cell phone company, for a rather modest fee just a couple percent of balance and you get to keep whatever you can squeeze out of them sort of Roman Empire taxation system.

    The legal requirements are nuts in that you pretty much need a lawyer to review what you can do and say for all combinations of the state the debt is owed to vs the state the debtor is currently living in. This is computerized and is necessary given the level of complexity. Most debt collectors sit in an outgoing call center boilerroom with the computer telling them exactly what they can and cannot say and just listening to them is quite a trip. Most collectors make a modest commission. Turnover was very high, and its classist in the American corporate sense where support folks like my dad wouldn't talk to or make friends with the collectors because a 600% annual turnover rate or whatever it was meant you'd likely never see ta collector again anyway.

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