Finally Some Relief for Stressed Student Loan Borrowers!
March 21, 2013

We’ve talked a lot in this blog about the student loan bubble – now at one trillion dollars – and the impact of debt stress on borrowers. And what’s been disappointing recently is that the government has been largely ignoring this burgeoning crisis. When President Obama made his State of the Union address last month, he spoke about college affordability and access for prospective students and families, but failed to address the plight of those now in debt.

But now, Barack Obama’s administration has finally taken an important step toward helping those deeply in debt. Private debt collectors were being paid as much as 16% of the loan amount by the government if they could squeeze blood from the proverbial stone in the form of stiff monthly payments that borrowers can ill afford.

The new policy which will be implemented this month will knock this rate down closer to 11%, making it much less profitable for collectors to pursue student loan borrowers. Defaulted student loans now total $77.4 billion and collecting on this sum is a billion dollar per year industry. This new drop in collection fees paid will make pursuing delinquent borrowers much less lucrative.

What’s unfortunate is that, in the past, the larger the payments the collection firm could get from the borrower, the higher the commission would be. With profits foremost, collection firms did not inform borrowers of the many options available to them to get their student loans current including income-based repayment options which feature affordable monthly payments.

Federal law is focused on collectors offering borrowers reasonable payments to rehabilitate loans. Rehabilitating a delinquent student loan is defined as getting a borrower to make nine payments within 10 months. There is no minimum payment amount and finances can be taken into account. So why would collectors not offer reasonable payments to borrowers? Simple. They made more money by being aggressive and harassing debtors into paying more than they could afford.

The higher the monthly payment a collector could get the borrower to agree to, the higher their commission and so borrowers were not often told they could pay far less and still rehabilitate their loan. Under the adjusted contract signed off on by the Obama administration, low income borrowers could rehabilitate their loans by paying as little as $5 per month and if their lot doesn’t improve, their balances could be cleared out within 20 years.

This is an important and welcome step from the Obama administration to try and help struggling student loan debtors get control of their finances and improve their outlook for the future. If you are behind on your student loans, you can use’s free student loan management tool to explore repayment programs and contact your lender about affordable options for paying down your student loan debt. You can use’s tool on your desktop, laptop, iPad, smart phone or other mobile device – we’re mobile because we know most of our users are part of the mobile lifestyle!