Excerpt: "It's a never-ending cycle between borrower and lender - and the winner is almost always the lender. After all, it's nearly impossible to hide from the government. 'It's the closest thing to debtor prison that there is on this Earth,' former student Patrick Writer said of his federal loan."

Some students receives up to seven calls a day from debt collectors attempting to recover student loans. (photo: public domain)

Debt Collectors Cashing In on Student Loans

By RT

10 September 12

ost US college students hope to land a good job with a high salary after graduation. But for some the reality is very different. Many find themselves faced with insurmountable debt - and a loan industry that's happy to cash in on their misfortune.

As the number of people taking out government-backed student loans has soared, so has the number of borrowers who have fallen behind in making payments.

Around 5.9 million people nationwide have fallen at least 12 months behind in their payments. This number has grown by a third in the last five years, according to a State Higher Education Finance survey.

Many who can't repay their loans feel they have no choice but to default. It's a decision that can be disastrous - ruining a borrower's credit and increasing the amount they owe. It can also result in penalties of up to 25 per cent of the balance.

Despite the scary consequences, young adults across America have chosen to default on their loans. And that decision has resulted in a cat-and-mouse game with the government.

"I keep changing my phone number. In a year, this is probably my fourth phone number," former student Amanda Cordeiro told the New York Times.

Cordeiro receives up to seven calls a day from debt collectors attempting to recover her $55,000 in overdue student loans. But phone calls are just the beginning.

Since the federal government imposes no statute of limitations for collecting loan repayments, escaping the debt is nearly impossible.

"You are going to pay it, or you are going to die with it," said John Ulzheimer, president of consumer education at SmartCredit.com.

As America's poor economy causes companies and small businesses to close their doors, the debt collection industry is booming.

Conserve, a debt collection agency in New York, expects to double its payroll in the next three years.

"There is great opportunity," the company's president and founder Mark E. Davitt, told the New York Times.

It's easy to see where that opportunity comes from.

The nationwide student loan balance is more than $1 trillion. It's a number that makes borrowers cringe.

However, debt collectors are more than grateful for the astronomically high amount of debt among college graduates.

Debt collectors used to receive a steady and reliable income from credit card debt, but the slowing economy has made collection a challenge.

Now, student loans are filling that hole. In fact, many are calling students the "new oil well" for the debt collection industry.

"While the Department of Education debt collection contract has been one of the most highly sought-after contracts within the ARM industry for years, I believe it is now THE most sought-after contract within this industry, centered within the most sought-after market - student loans," mergers and acquisitions specialist Mark Russell wrote on Insidearm.com.

It's a win-win situation for both the government and collection agencies. Government officials estimate they will collect 76 to 82 cents on every dollar of loans made in fiscal 2013 that end up in default. Borrowers then have to pay collection costs, which go straight to the debt agencies.

In addition to the balance, borrowers are charged for collection costs, which go straight to the debt agencies.

The rewards trickle down to other areas, too.

Educational Credit Management Corp. (ECMC), a Minnesota based agency, benefits from its 18-year-old agreement with the US government, according to Bloomberg News.

The company charges fees to borrowers and earns commissions from taxpayers when it collects on defaulted student loans. And the rewards are lucrative.

ECMC's debt collectors earn financial perks as a reward from extracting money from defaulted borrowers. In 2010, the company's top performers received bonuses equivalent to as much as 10 times their base salaries, which range from $33,000 to $46,000.

It's a never-ending cycle between borrower and lender - and the winner is almost always the lender. After all, it's nearly impossible to hide from the government.

"It's the closest thing to debtor prison that there is on this Earth," former student Patrick Writer said of his federal loan.

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+13 # maddave 2012-09-10 07:28

The US Economy, as now configured, is a giant money pump that operates on the counter-trickle -down principle: I.E., it sucks money from the bottom an deliver UP the ladder to progressively higher and richer levels. The efficiency of this device is much greater in those economies that are rich in poverty (and, yes, a pun IS intended.)

+12 # Billy Bob 2012-09-10 07:57

Meanwhile, foreign countries are paying their students to go to college here, colleges are fighting to get those students, and those students are taking those free degrees back to their old countries and working against our economy.

It's as if our government ACTUALLY WANTS us to become a 3rd world economy.

I'll be paying on my own student loans until I'm 197 years old. It was either borrowing or not going to college. That's it. Those were my choices. Those are the choices for millions of students.

I guess we should have all become welders like midwesttom suggests over and over. The problem with that, is that an entire army of welders can't prevent us from becoming a 3rd world economy, when we actually punish people for being thinkers with new ideas.

Apparently, no one needs to tell those welders what to do. Apparently, buildings and bridges just design themselves. Apparently, we don't need any new ideas to compete with other countries that actually value original thinking and are starting to kick our collective ass economically.

+11 # Nell H 2012-09-10 08:21

Two actions need to be taken by Congress:

(1) The law that excludes college loan debt from bankruptcy needs to be changed. That law means that one really can never escape student loans.

(2) Loans to students at for-profit colleges need to be limited. Many of these colleges spend more on recruiting students (and their loans) than they do on teaching. Some of these degrees are worthless.

-1 # Susan1989 2012-09-10 09:29

My son served in the Coast Guard for 7 years and attended a community college afterward...ass isted by the GI bill. He is now a mechanical engineer...so there is another way to do it. He received such high grades that he received a large scholarship to a top private college. His father and I helped as well. There are ways to do it without masive debt. Majoring in. A field where there are jobs does help as well. My son who graduated as a mechanical engineer was offered 2 jobs before he graduated. His masters is nowbeing paid by Uncle Sam as well.

+3 # dkonstruction 2012-09-11 12:43

Quoting Susan1989:

My son served in the Coast Guard for 7 years and attended a community college afterward...assisted by the GI bill. He is now a mechanical engineer...so there is another way to do it. He received such high grades that he received a large scholarship to a top private college. His father and I helped as well. There are ways to do it without masive debt. Majoring in. A field where there are jobs does help as well. My son who graduated as a mechanical engineer was offered 2 jobs before he graduated. His masters is nowbeing paid by Uncle Sam as well.

So your "solution" if people want an education is to: a) we should all support the US military industrial complex and our imperialist expeditions abroad; or b) borrow from their parants.

How about publicly funded tuition free higher education for everyone that wants it. We are basically the only advanced capitalist economy that does not provide higher education to its citizens. One should not have to volunteer to kill for ones country or be lucky enough to have parents one can borrow from in order to get a decent education; one that in the end the entire country needs if we are going to have a productive and competitive labor force in the 21st century.

-10 # amye 2012-09-10 09:59

Why do I not have more sympathy and compassion? I had student loans too. I graduated during the mid 1980's which was a bad economic time. I had a very hard time finding a job. I found a couple bad ones for about 5 years. I went back to school and borrowed more. I found a good job in the early 1990's and paid every dime back of all my student loans!! Yes, somethings have changed like the costs of college have increased and the economy is different. I guess I just don't understand why they can't do it if I could do it?

+11 # Billy Bob 2012-09-10 10:46

The reason you have no compassion is that when you graduated college was A HELL OF A LOT cheaper and easier to pay for. The cost of college has exploded relative to inflation.

+6 # dkonstruction 2012-09-10 12:54

Like with homeowners facing foreclosure, if students go up against the fed or the private company that gave them their student loan, 9 times out of 10 the individual student (like the individual homeowner going up against the banks) will lose. The answer (as usual) is to organize and fight back collectively such that students refuse to pay (the same should have been done with homeonwers fighting the banksters over foreclosure).

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