Government Profiting From Student Loan Defaults

[WorldonaString]

Say it ain't so...

http://www.credit.com/blog/2011/01/government-profiting-from-student-loan-defaults/

[fisharmor]

Pfff. Government profiting?

I'm a first-hand witness to the fact that DoE is hiring debt servicers to do the actual collections work.
DoE forwards the overdue and defaulted loans to the servicers (which are sometimes subsidiaries of giant corporations),
then the servicers forward the loans to other collections companies which are actually licensed to work in the state the debtor lives in.
Depending on the company used, they may forward it to another collections company, or they may have to give it back to the servicer company after a certain period of time, without profiting on it, so that the servicer can give it to another collections company to work for a while.

So think about that for a second:
There are multiple levels of corporate involvement,
they each potentially take a cut,
and in the end, DoE still profits.

I was recently involved in helping to convert software at a single servicer company. There are many servicers to DoE loans.
They were trying like mad to keep a DoE loan service contract. If they lost that contract, 1600 people would have been laid off in that company alone, and the actual collections companies that did the work would have suffered as well.
Again, one servicer company.

Think about the volume that has to be there to make that necessary.
Remember that the next time we talk about abolishing the whole department. The only way to do it politically is to write off all those loans. That's the only way you'll get more people in favor of it than against it.