mardi 25 juillet 2017

From Forbearance To Garnishments: 5 Things We Learned About Student Loan Debt Collection

Student loans are big business, both for private lenders and the federal government. And with $1.4 trillion dollars in education debt outstanding, it should come as no surprise that these companies and the government would want to recoup these costs. However, that often comes at a cost to borrowers, from those who have fallen on hard times, to those failing to receive proper notice and options from servicers, or those who believe they were defrauded by the educators who promised them a better life.

Reuters recently took a deep dive into the world of student loan debt, looking at the borrowers who struggle to make payments, the servicers that fail to provide support, and the government, which contracts with questionable companies to collect these debts.

The investigation contains a wealth of information and consumer stories about the state of education debt and the efforts to collect on those debts. We suggest you read the entire piece, but here are five things we found interesting.

1. $137.4 Billion Default

Reuters reports that 11% of the $1.325 trillion in federal student loans currently in circulation are either considered delinquent or in default.

In all, about eight million borrowers are in default with $137.4 billion in federal student loans. At this rate, the default is higher than it was during the mortgage crisis.

“There is an uncanny resemblance between the foreclosure crisis and our student default dilemma,” Rohit Chopra, a senior fellow with the Consumer Federation of America, told Reuters.

Related: Complaints About Student Loan Servicing Increased 429% In Past Year

While student loan debt currently sits at $1.4 trillion, it’s just a fraction of the $14.8 trillion dollars outstanding at the peak of the mortgage crisis, treatment of the debtors isn’t entirely different. For instance, advocates note that in both cases, servicers haven’t acted in the best interest of borrowers, from failing to provide them with information repayment plans to mishandling paperwork.  

2. Ballooning Debt

Total student loan debt has increased quickly and swiftly in the last decade. For instance, in the first quarter of 2006, total student debt was $480 billion. A decade later, that debt was at a staggering $1.36 trillion.

That debt didn’t come just from students taking out loans to pay for their higher education dreams; much of it accumulated after they were done with school.

While student loans typically come with lower interest rates than other forms of credit and federal education loans offer borrowers a range of payment plans and protection that can keep costs down, not all students are aware of these options.

One student told Reuters that when she was contacted by Navient about her inability to repay her student loans, she was offered the option of forbearance.

Under forbearance, a borrower can postpone their payments and keep their loan from going into default. However, the woman says she wasn’t told that the loan would continue to accumulate interest and fees.

Her debt quickly ballooned from $6,625 to nearly $17,000.

3. No Options

The Department of Education, the largest student loan issuer, contracts much of its education loan collection activities to servicers, the largest of which is Sallie Mae spinoff Navient.

Related: Education Secretary DeVos To Give All Student Loan Accounts To One Company; Strip Away More Protections

Naivent was recently sued by the Consumer Financial Protection Bureau for allegedly cheating customers by not fully informing them of their repayment options and instead guided them into forbearance or deferment programs that benefited the company.

An analysis by the CFPB found that between 2012 and 2015, 90% of the country’s highest-risk borrowers were not enrolled in any of the several federal repayment plans.

It’s unclear if these borrowers were placed in forbearance or if they simply were never told of their options. For its part, Navient has argued in a response to the lawsuit that it was under no obligation to actually help borrowers repay their debts.

This appears to have been the case for the borrower who spoke with Reuters. She says that Navient failed to tell her about other repayment programs and plans, and instead simply offered the option of forbearance.

4. Expanding Costs

As Reuters points out, enrolling a borrower in a repayment plan takes time and actual personal contact between the servicer and debtor, while entering forbearance takes just a phone call.

Additionally, by enrolling borrowers in forbearance, the servicer is padding its bottomline, adding fees and interest to the consumers’ tab.

To that end, the CFPB alleges that Navient was able to add $4 billion to outstanding student loan debt by putting 1.5 million borrowers into forbearance.

5. Collecting At All Costs

Because the servicers contracted by the Dept. of Education are essentially given the government’s board powers in collection, borrowers’ debts don’t simply sit in an account forever.

Instead, servicers are able to go after borrowers, sometimes forcefully.

For instance, one borrower told Reuters that she had planned to use her recent tax refund to move herself and her young daughter out of a homeless shelter and get back on their feet.

But her check never came, and the IRS told her the Dept. of Education was “holding back” her $8,220 refund, Reuters reports.

It’s a scenario many borrowers find themselves in, as the government and its servicers can garnish wages, hold back tax refunds, or even reduce Social Security payments. Reuters reports that since 2009, the government has used these collection options to bring in $15.2 billion in student debt.



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