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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
(Score: 2) by VLM on Monday May 22 2017, @07:54PM (5 children)
You accurately point out that higher end kids don't go to collections because they have no debt or more post school income, but there's also pressure from the bottom where I know a couple waitresses and bartenders who pay zero, you forward proof of income (tax return? W-2 form?) and the required minimum payment is $0.
And in that shrinking middle that can afford to pay, but isn't, there's also various public service programs where you teach in the hood for a couple years or similar and if you live thru it you get debt discharged by .gov.
(Score: 2) by kaszz on Monday May 22 2017, @10:12PM (4 children)
No, point were that if you have 100 people in debt and 5 of them skip on payment. Then even if the collection on those 5 people is a net loss. It will keep the other 95 people paying.
(Score: 1, Insightful) by Anonymous Coward on Tuesday May 23 2017, @01:15AM (2 children)
Except the whole point of the article is that it isn't a net loss, the companies make money when people default. In fact, it is currently in the service companies' best interests to have more people default, as the revenue from defaults is higher than the expenses from defaults. Basically, the program has privatized the gains and socialized the losses. If we are going to spend all the money, it might as well be on the people who need help.
(Score: 0) by Anonymous Coward on Tuesday May 23 2017, @06:15AM (1 child)
But but... that flies against all the libertarian fantasies about the benefits of meritocracy!
(Score: 2) by kaszz on Tuesday May 23 2017, @02:31PM
Then the contract with the collectors has to reflect that.
(Score: 2) by VLM on Tuesday May 23 2017, @02:05PM
I think we kinda agree with each other mostly.
Looking at the disease transmission model of the spread of anti-social behavior or whatever its called, if one waitress goes into default it can't spread to other waitresses because the rest of them are already on income based repayment of $0 which also has the side effect that you can't credit the collections agents with convincing people to pay if like half of loans are either already in collections or income base repayment of $0.