Pop quiz … where does the majority of tax payer funded money currently go towards: helping debt saddled graduates? OR … The debt collectors hired to get that borrowed money back? If you guessed debt collectors, you’re unfortunately right.
The U.S. Department of Education pays third party collection agencies nearly 1 billion dollars annually to collect your money and supposedly help you prevent future defaults. But according to the Consumer Financial Protection Bureau, collectors are the ones raking in the dough while your accounts continue to default – hurting your credit and increasing your interest. On average, the government pays these agencies nearly 40 times what they bring in.
Here’s how it works. Once a collection agency receives your minimum monthly payment (which can be as low as $5), they get paid up to $1,710 per borrower – even if you default again down the road; and according to statistics, without being enrolled in the proper repayment program, the odds aren’t really in your favor. The issue here is with the pay structure. Once you’ve made good on one default, collection agencies get their money – so there’s no real incentive for them to help you avoid defaults in the future. Long story short, even though the government is paying them to help you stay on top of your payments, when their check clears, you’re no longer a priority.
“Wait… debt collectors don’t always have my best interest in mind?”
You guessed it, not really – but here’s what you can do to protect yourself. According to the CFPB, 95% of the highest-risk borrowers do not redefault within the first year when they consolidate into an affordable repayment plan. These programs have been put into place to help borrowers get lower monthly payments, pause payments altogether and/or help them see if they qualify for potential forgiveness. So why isn’t everyone enrolled? Well, most people just don’t know about them. Here’s your golden ticket. Knowing is half battle, now… all you have to do is take action.
Here’s how you can avoid defaults and stop the debt collector’s from profiting off of you.
- Organize Your Student Loan Debt (see how much you owe and who you owe it to).
- Determine the repayment plan that fit’s your budget best (see what programs you can benefit from).
- Apply & File (stop stress and defaults with a plan you can actually afford).
If you get stuck or need help filing, DocuPop’s expert student loan debt advisers are always here to provide assistance. Get your FREE consultation today!
Resources:
Bloomberg https://www.bloomberg.com/news/articles/2017-05-19/americans-are-paying-38-to-collect-1-of-student-debt
CFPB http://files.consumerfinance.gov/f/documents/201705_cfpb_Update-from-Student-Loan-Ombudsman-on-Redefaults.pdf
Disclaimer: DocuPop is a private company, not affiliated with the Department of Education. The DOE offers several programs that may offer lower monthly loan payments for borrowers who meet the qualifications based on income and family size. Lower monthly payments may lead to longer student loan maturity periods, increasing the total amount of interest over the life of the loan. The DOE also offers programs that may forgive some or all of the borrower’s loan balance. The Public Service Loan Forgiveness program (PSLF) is based on the number of qualified payments made under the program while working full-time for a qualifying employer. Other programs require a specific number of qualifying payments and then forgive the remaining balance once those payments are completed, without any public service obligation. Depending on the type of forgiveness, any amounts forgiven may be treated as taxable income for income tax purposes, please consult your tax professional. More information can be found on the DOE website: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation
