Obama Cuts Student-Debt Collector Commissions to Aid Borrowers
By John Hechinger - Mar 19, 2013 12:01 AM ET
President Barack Obama’s administration slashed the commissions paid to private collection companies that chase overdue student loans, reducing an incentive to squeeze borrowers.
Previously, the U.S. Education Department paid a commission as high as 16 percent of the entire loan amount only if collectors convinced defaulted borrowers to make stiff monthly payments. Starting this month, the fee dropped as low as 11 percent, no matter the payments’ size, according to a copy of a new contract obtained under the U.S. Freedom of Information Act.
With $77.4 billion worth of student loans in default, the federal government turns to an army of private collectors to pursue borrowers. These companies, which receive about $1 billion annually in commissions, have faced growing complaints that they insist on high payments, even when borrowers qualify for leniency, Bloomberg News reported in March 2012. Under the new schedule, collectors will no longer have an incentive to avoid offering affordable payments tied to borrowers’ incomes.
“It’s a big deal,” said Persis Yu, a staff attorney with the Boston-based National Consumer Law Center. “It will make life easier for borrowers. We’re not setting people up to fail.”
more:
http://www.bloomberg.com/news/2013-03-19/obama-cuts-student-debt-collector-commissions-to-aid-borrowers.html
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