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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, Insightful) by Justin Case on Monday May 22 2017, @08:50PM (1 child)

    by Justin Case (4239) on Monday May 22 2017, @08:50PM (#513748) Journal

    giant debilitating black mark on credit that was effectively created out of nothing by the loan company

    But you do owe a debt which you are not repaying, is that correct?

    In which case why do you think other potential lenders should not be warned about your situation?

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  • (Score: 1) by StarryEyed on Monday May 22 2017, @09:08PM

    by StarryEyed (2888) on Monday May 22 2017, @09:08PM (#513765)

    You missed my point of it being the lender's refusal to process paperwork properly, and not the borrower.