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Student Loan Collections Pegged for Overhaul

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  • Student Loan Collections Pegged for Overhaul

    Tuesday, December 4, 2012

    Congress may look at overhauling collections in the $100 billion annual U.S. student loan program, and replace it with automatic withdrawals from borrowers' paychecks linked to their incomes.

    The system, similar to what is used in the United Kingdom, in theory could mean the government would no longer need to hire private collection agencies, which commonly charge fees adding up to 25 percent to borrowers’ loan balances.

    Legislation could be introduced in the House as soon as this week, according to Bloomberg News.

    Payments under such a paycheck withdrawal system would be capped at 15 percent of borrowers’ income after basic living expenses. The Education Department would manage the withdrawals, with help from the Internal Revenue Service. It already has the power, without a court order, to seize a part of wages, tax refunds and Social Security payments to collect on student loans. There is no statute of limitations.

    Student loan debt, currently at an estimated $1 trillion, exceeds credit card debt.

    In the recent campaign, President Barack Obama praised the income-based program as a way to make it easier for students to pay back their loans, while challenger Mitt Romney said it encourages students to take on more debt.

    Last year, 5 million borrowers were in default - meaning they had failed to make payments for at least 270 days -- on $67 billion in loans, more than twice the amount in 2003. Through the new system, based on experience in the U.K., 98 percent of borrowers could meet their loan payments through automatic payroll withholding, according to Wisconsin Republican Representative Tom Petri, who said he may introduce the bill this week.

    Collection agencies, working for the Education Department or state agencies, received an estimated $1 billion in commissions last years. The agencies included SLM Corp., also known as Sallie Mae, and Pioneer Credit Recovery.
    All information contained in this post is for informational and amusement purposes only.
    Bankruptcy is a process, not an event.......

  • #2
    This would be an even better deal for me and thousands of other high-wage earners who are currently under a permanent 15% wage garnishment for defaulted student loans. What I have seen in a draft of this concept is that the 15% would now apply AFTER taxes and living expenses. I currently have 15% of net (after taxes) income going to student loan garnishment. Gosh, if they apply the IRS standards as living expenses, then I would have FAR less than 15% (after taxes) going to garnishment. What a bunch of idiots.

    I think the current 15% is reasonable. What is not reasonable is the amount of collection dollars given to the loan servicers in the tune of up to 25% of gross SL owed. I have heard that for many accounts, the servicing agents never recover the 25%. As a result the government never sees a dime. Perhaps this is why there is such a thought toward direct wage garnishment.

    I wonder about the millions of student loan debtors who are already under wage garnishment after the loan defaulted and collection costs were added on. I imagine, like everything else related to student loans, most changes are prospective, not retrospective.


    • #3

      I don't know if this is the same thing, probably something different, but this repayment program lists some pretty confining restrictions. Thought I'd post it anyway.


      • #4
        Thanks Pjmax,

        I think this is the compromise. You can note that the rule will only apply to loans processed after October, 2007. LOL

        These student loan deals are almost always the same. They have no impact on the majority of outstanding student debt, let alone the defaulted debts. These actions do allow legislators to pat themselves on the back for fixing the now $1 trillion student debt problem.

        Like it or not, student loan debt is unsecured. 15% wage garnishment or 10% SSI garnishment can be really cheap for many professionals who hold in excess of $80K at high interest rates from the 1980's and 1990's. At that time, student loan interest rates raned from 7% - 11.5%. And, because of "restrictions," very few of such loans ever qualified for the modified student loan plans at lessor interest rates.

        I read somewhere that the defaulted student loan debt from just the mid-to-late 1980's is close to $60 billion. The number is very difficult to track as it wasn't until recently that the feds even bothered to track student loan default data for more than 2-3 years.


        • #5
          I am so glad I left college with no debt ...


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