America Sends Debt Collectors After Cash –Strapped Student Borrowers

Kimberly Watson, Editor in Chief
April 02, 2012 /

Reports indicate that students have been told that they are dealing with the Federal Government regarding outstanding loans and that they have no other options but to settle them!

Indications are that student loans are $67-billion in default and the Education Department has been forced to turn to private debt-collecting companies to recoup from the borrowers. Companies, contracted by the government earned a commission total of $1-billion last year. However, there are numerous complaints relating to claims that they violated Federal laws, by their insistence on high payments.  Allegations are that this occurs even when borrower’s incomes, make them eligible for leniency.

It has been proposed by the U.S. Consumer Financial Protection Bureau, that they supervise the largest debt collectors, to ensure compliance with the laws, for example the Fair Debt Collection Practices Act. There are about five million federal education-loan borrowers in default, which means they have not made any payment for at least 270 days.

The Federal-aid law requires that collectors offer ‘reasonable and affordable’ payment terms, in order that debtors can ‘rehabilitate’ their loans, repairing their credit and making good on what they owe.

Cash-strapped borrowers are entitled to make minimum payments and failing to disclose the available lower-cost filing tips to them, violate both the federal-aid and the fair-debt collection laws.

The Education Department is holding meetings with representatives from industry, government and consumer sectors, to discuss debt collectors automatically offering repayments, based on income of the defaulted borrowers that qualify. If it is approved, then the ruling is likely to take effect from July 2013.

Under U.S. law, student loans are not dischargeable, even in Bankruptcy. This ruling makes them more difficult to settle than credit cards or overdue mortgages. The government also has the right to confiscate tax refunds, social security payments and pay checks.

Under Education Department contracts, the collection companies arrange for a borrower to make nine payments in ten months. If they are successful, their commission is equal to as much as 16% of the entire loan, for example, US$3,200 on a US$20,000 loan.

 

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