Student Loans and Debt Collection Practices

Financial commentators have cited student loan debt as one of the largest problems facing American consumers today. Unlike other forms of debt, student loans can be extremely difficult—although not impossible—to discharge when you file for consumer bankruptcy. And according to a recent article in Fox Business, debtors with significant student loans tend to be at a particular disadvantage since threats of wage garnishment and Social Security deductions result in “a decided lack of leverage when dealing with lenders and collectors.”
Debt Collection Agencies and Student Loans
Given the tremendous student loan debt problem in the country, it’s not surprising to learn that many of those debtors find that their accounts end up in the hands of debt collection businesses. Indeed, the country now has more student loan debt than it does credit card debt. And it’s important to note that the problem isn’t necessarily the amount of money that former students owe. Rather, the problem is that so many of those former students can’t make their payments.
Based on data from the Government Accountability Office, nearly $94 billion of our country’s student loan debt is currently in default. Based on the total amount of student loan debt across the U.S, that amount accounts for greater than 11 percent of all student loan debt. Given that the Department of Education contracts out with debt collection companies in an attempt to collect the money it’s owed, most of the people who fall into that 11 percent will be contacted by a debt collector.
In the year 2014 alone, debt collection agencies will wind up with more than $1 billion in commission costs from student loan debt collections, which will come from taxpayers and student loan borrowers. By 2016, experts estimate that debt collection companies’ total commissions will double to more than $2 billion.
Bad Collection Practices for Student Loan Debt
Are these student loan debt collectors using “dirty tricks” in an attempt to recover, as some commentators suggest? The Consumer Financial Protection Bureau recently took a close look at student loan servicing, and it determined that student loan debt collectors commonly call debtors “at odd hours,” and the frequency of those calls—sometimes nearly 50 calls per person—may fall under the rubric of harassment.
As such, the National Consumer Law Center (NCLC) and other consumer advocates have been trying to make sure that these debt collectors “clean up their acts.” Even if student loan debt collectors abide by the Fair Debt Collection Practices Act (FDCPA), many of those collectors could do more to work with consumers.
For instance, the NCLC suggests that collection agencies might better explain options to debtors who have fallen behind on their payments. Indeed, an NCLC spokesperson emphasized, “the government’s use of debt collection agencies is short sighted.” Rather than “hammering them for the rest of their lives with draconian collection tools,” the Department of Education should look into promoting paths to success for struggling borrowers, especially those who are low income.” In the long run, such paths to success could ultimately cost taxpayers less money, too.
Do you have questions about the relationship among student loans, debt collection, and personal bankruptcy? Don’t hesitate to contact an experienced Chicago bankruptcy lawyer.
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