This is going to seem like a “dog bites man” kind of news story. It likely won’t come as a shock that debt collection firms contracted by the Dept. of Education, to collect on the $67 billion of defaulted student loans, are running into big problems with borrowers. This has been thoroughly documented in a detailed new report by the National Consumer Law Center (NCLC).
The report shines a critical light on the exacerbating part of the problem, a grossly inadequate complaint & response infrastructure. (No doubt the Dept. of Education had no idea what they were getting into when setting up a program that offered a significant financial incentive to collection firms that recouped defaulted debt.)
Bloomberg reports collection firms getting up to 37% funds collected, creating an environment where it pays, handsomely, to get people to pay up. It’s astounding to see student debt collector Joshua Mandelman earn $454,000 in a single year, twice the pay of the Secretary of Education (and a fraction of what his boss took home.)
Now I don’t begrudge anyone making money, wealth is responsible for curing nearly every societal ill. However what the NCLC report shows is that these earning are coming from student loan collection abuses. It’s amounting to a repeat of the same tricks and abusive behavior we’ve seen in areas like 3rd party credit card collections.
It may be time for Richard Cordray and the CFPB to step in and oversee not just public markets collections, but governmental efforts too.