Bloomberg joins Occupy Wall Street
Yesterday I was astounded to read this article in Bloomberg, explaining how the debt collectors hired by the Department of Education have been illegally screwing people to the ground on their debt. This could have come straight out of an #OWS Alternative Banking meeting. From the article:
Under Education Department contracts, collection companies “rehabilitate” a defaulted loan by getting a borrower to make nine payments in 10 months. If they succeed, they reap a jackpot: a commission equal to as much as 16 percent of the entire loan amount, or $3,200 on a $20,000 loan.
These companies receive that fee only if borrowers make a minimum payment of 0.75 percent to 1.25 percent of the loan each month, depending on its size. For example, a $20,000 loan would require payments of about $200 a month. If the payment falls below that figure, the collector receives an administrative fee of $150.
That differential provides an incentive for collectors to insist on the minimum payment and fail to reveal when borrowers are eligible for a more affordable schedule, according to Loonin, the attorney at the National Consumer Law Center, which is representing borrowers in the Washington talks with the Education Department
Here’s a closeup of Pioneer Credit Recovery, one of the debt collection agencies in contract with the U.S. Education Department. From the Bloomberg article:
Pioneer maintained a “boiler room” environment, with high turnover among those who didn’t perform, said Joshua Kehoe, a former collector. Kehoe worked in Batavia, New York, from July 2006 through October 2008 after managing a pizza stand at a theme park.
Pioneer rewarded collectors with $100 restaurant gift cards, a $500 mahogany jewelry box, televisions and a trip to the Dominican Republic, according to Kehoe, who said he earned $9.60 an hour before the incentives.
It would be “a cold day in Hades” before collectors would tell borrowers about options with lower payments, according to Kehoe, who said “rehab cash was king.” The company pushed collectors to sign borrowers up for the rehabilitation plans, which often required payments equal to 1.25 percent of their loan amount monthly, he said.
Just in case you think student debt is someone else’s problem, read this post from ZeroHedge from a couple of days ago. In it, Tyler Durden throws down two statistics we might want to keep in mind:
- … of the $1 trillion + in student debt outstanding, “as many as 27% of all student loan borrowers are more than 30 days past due.” In other words at least $270 billion in student loans are no longer current, and
- … the unemployment for 18-24 year olds is 46%. Yup: 46%.
When you throw in that student debt cannot be expelled through bankruptcy, you have a major problem for young people. And that means a major problem for all of us.