When you think of the best way to get a job earning six figures, you think – I’ll go to college. And for most students, this necessitates student loans. But Bloomberg has reported that, shockingly, a quicker way to get a fat salary is to skip college and instead collect on student loan debt! Debt collectors are of course a necessary part of the business world, but when collectors opt for oily or illegal tactics, they cross the line.
Many debt collectors work for the government (indirectly at least) because they are collecting on delinquent federal student loans. One such firm is Educational Credit Management Corporation – their CEO made $1.1 million in 2010 (according to Bloomberg) and five of its top managers raked in over $400,000 – all paid for by the government – all for pushing former students to repay what they can ill-afford to.
Debt collectors are little liked according to the Edelman Trust Barometer. Check out the chart below of how industries are ranked by trustworthiness – and you’ll see that financial services (which includes banks, lenders and their collectors) rank lowest. With tools such as garnishment of paychecks and income tax refunds in their toolkit, it’s easy for collectors to make credible threats to force even those in the worst financial straits to scrape up some money, so there’s no need for them to resort to underhanded tactics…
What’s more, student loans – unlike any other form of debt – never expire. This means collectors can wait and allow the interest and fees to pile up and come after delinquent borrowers again and again and again. But when debt collectors step out of the boundaries of their already wide berth, it is truly appalling. One firm that’s been accused of sleazy collections tactics is JP Morgan Chase.
Chase also collects for the federal government, pursuing delinquent borrowers with aggressive – and sometimes illegal – debt collection practices under the corporation name NCO. One tale worthy of note is that of an active duty soldier serving in Iraq who owed $9,000 in student loans. Chase harassed his wife, who was living on a pittance and supporting their young daughter. Collectors told her they had contacted her husband’s commanding officer and that if she didn’t find a way to pay, her husband would be dishonorably discharged from the army.
NCO has been fined millions of dollars by the Federal Trade Commission and 19 State Attorney Generals. Chase’s collection arm has been accused of inflating the amount of debt owed, collecting on student loan balances not owed, launching campaigns of harassment, calling debtors’ employers countless times per day, disclosing private information, harassing student loan borrower’s family members and lying about what extreme measures they could take to collect the debt.
And although, in his recent State of the Union Address, President Obama talked more about college affordability than help for those struggling with student loan debt, it seems he’s finally take a step in the right direction to let some air out of the student loan bubble. As of March, POTUS has cut the commission rates the federal government pays to firms that pursue delinquent federal student loans. Obama cut the rates by 5% on average which should make a dent in these companies’ billion dollar annual industry.
This is a step in the right direction in discouraging the profiteering mentality of private student loan debt collectors. With half of the trillion dollars in student loans now in default, deferment or delinquency, it’s important the government take more steps toward a solution. If you are juggling student loan debts, try Tuition.io’s free student loan management tool to optimize your debt!