Home > #OWS, finance > Bloomberg joins Occupy Wall Street

Bloomberg joins Occupy Wall Street

March 27, 2012

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.

Incentive Pressure

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:

  1. … 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
  2. … 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.

Categories: #OWS, finance
  1. ttt
    March 27, 2012 at 9:31 am

    zero hedge?

    really?

    come on now.

    • March 27, 2012 at 9:32 am

      What, I should never read that?

      • ttt
        March 27, 2012 at 3:15 pm

        i wouldnt go that far, i read it from time to time when someone else references it

        but i have an enormous supply of tinfoil hats at the ready

  2. Sam
    March 27, 2012 at 3:12 pm

    The unemployment rate among 18-24 year olds isn’t 46%. The labor force participation rate is 54%. There’s a big difference between labor force participation and unemployment. I can’t find an exact analog on the BLS site, but the seasonally-adjusted unemployment rate for 20-24 year olds in February was 13.8%.

    So, youth unemployment is certainly a significant problem, but ZeroHedge’s inflated statistics aren’t particularly helpful for a serious discussion.

    • March 27, 2012 at 3:15 pm

      Because a bunch of them are in college, I assume you mean. I agree that it’s not the end of the story, although I have two comments in support of this being an interesting statistic. First, it would be interesting to see how this statistic changes over time. Second, it does matter that it’s so high, even considering that many of these young people aren’t even looking for work right now if they’re in school, because eventually they will need jobs, and if there are no jobs (or there are only jobs for people with tons of experience) (or there are only crappy jobs) then they will be shit out of luck.

  3. Sam
    March 27, 2012 at 5:03 pm

    Not sure if this will work, but here’s a graph of the participation rate among 20-24’s since 2002: http://data.bls.gov/generated_files/graphics/LNS11300036_29325_1332879538237.gif

    Definite decline, looks like it’s dropped from about 76% in 2002 to 71% now.

    Here’s the same graph, but for people ages 25-54:L http://data.bls.gov/generated_files/graphics/LNS11300060_29817_1332882105546.gif

    Similar general trajectory, but less total decline — about 83.5% in 2002, and 81.5% today.

  4. Sam
    March 27, 2012 at 5:15 pm

    Just another quibble with ZeroHedge’s numbers (actually Fitch is the offender in this case):

    FRBNY estimated that 27% of student loan borrowers are delinquent, but did not say that 27% of outstanding balances are delinquent. In fact, they say the total past due balance is $85 billion, roughly 10% of all loans outstanding. So it’s not “at least $270 billion”… it’s “$85 billion.”

    http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

    Again — huge problems, really important for people to engage on them and work toward solutions. But incorrect and misleading statistics from ZeroHedge just confuse the situation.

    Also, wouldn’t you think Tyler Durden would know better than to trust Fitch’s assessment of a bond market?

  1. March 27, 2012 at 12:19 pm
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