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At a protest last year at New York University, students called attention to their mounting debt by wearing T-shirts with the amount they owed scribbled across the front -- $90,000, $75,000, $20,000.DODGING CREDITORS Amanda Cordeiro of Clermont, Fla., owes $55,000 in student loans. She has changed her phone number about four times in a year to avoid being found.
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On the sidelines was a business consultant for the debt collection industry with a different take.
"I couldn't believe the accumulated wealth they represent -- for our industry," the consultant, Jerry Ashton, wrote in a column for a trade publication, InsideARM.com. "It was lip-smacking."
Though Mr. Ashton says his column was meant to be ironic, it nonetheless highlighted undeniable truths: many borrowers are struggling to pay off their student loans, and the debt collection industry is cashing in.
As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments -- about 5.9 million people nationwide, up about a third in the last five years.
In all, nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans -- $76 billion -- is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials.
To get the money back, the Department of Education last fiscal year paid more than $1.4 billion to collection agencies and other groups to hunt down defaulters.
Hiding from the government is not easy.
"I keep changing my phone number," said Amanda Cordeiro, 29, from Clermont, Fla., who dropped out of college in 2010 and has fielded as many as seven calls a day from debt collectors trying to recover her $55,000 in overdue loans. "In a year, this is probably my fourth phone number."
Unlike private lenders, the federal government has extraordinary tools for collection that it has extended to the collection firms. Ms. Cordeiro has already had two tax refunds seized, and other debtors have had their paychecks or Social Security payments garnisheed. Over all, the government recoups about 80 cents for every dollar that goes into default -- an astounding rate, considering most lenders are lucky to recover 20 cents on the dollar on defaulted credit cards.
While the recovery rate is impressive, critics say it has left the government with little incentive to try to prevent defaults in the first place.
Though there are programs in place to help struggling borrowers, the companies hired to administer federal student loans are not paid enough for lengthy conversations to walk borrowers through the payment options, critics say. One consequence is that a government program called income-based repayment has fallen short of expectations. Under the program, borrowers pay 15 percent of their discretionary income for up to 25 years, after which the rest of their loan is forgiven. But participation has lagged because borrowers are either not aware of the program or are turned off by its complexity.
Source: The New York Times | ANDREW MARTIN
