Home > 2013 > Students > White House Cuts Student Loan Debt Collector Commissions

White House Cuts Student Loan Debt Collector Commissions

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White House Cuts Student Loan Debt Collector CommissionsStudent loan debt, and instances of delinquency and default on those outstanding balances, has become so rampant nationwide that it has actually turned into a political issue. Now that many federal lawmakers and officials are examining why these problems have become so prevalent, the Obama administration recently made an announcement regarding how it will compensate companies pursuing overdue obligations.

The White House recently began cutting the commissions it pays to private debt collection agencies which pursued funds on federally-issued student loan balances, according to a report from Bloomberg News. In the past, collections agencies could expect to receive as much as a 16 percent commission on the entire balance owed if they could get defaulted debtors to start making monthly payments into those debts, but beginning in March, that total dropped to just 11 percent regardless of a payment’s size.

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Free Credit Check & MonitoringThat could theoretically become a disincentive to collections agencies, which typically have to put in a lot of work to convince defaulted borrowers to begin making payments into these balances, the report said. These companies usually receive a combined $1 billion annually from the federal government for chasing down these balances, and have in recent years been criticized for becoming more aggressive in dealing with borrowers, even when they might otherwise qualify for certain protections. As a consequence, many people carrying these often sizable balances might be able to find relief when it comes to dealing with collections calls.

“It’s a big deal,” Persis Yu, a staff attorney with the Boston-based National Consumer Law Center, told the news agency. “It will make life easier for borrowers. We’re not setting people up to fail.”

This effort is likely part of President Barack Obama’s continued efforts to get the student debt crisis back under control, the report said. Currently, these borrowers owe the federal government and private lenders more than $1 trillion, some $77 billion of which was defaulted last year, thanks to approximately 5.7 million borrowers falling behind on their bills for an average of 270 days or more.

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Students may be graduating with more than just education loan debts these days, as well. Many also have a few credit cards in their names, with several thousand dollars or more worth of debt on them, in addition to auto loans. All of these considerations can make establishing financial independence soon after leaving school somewhat difficult.

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