May 15, 2012 at 11:48 AM ET
Some collection agencies bugging you about late or defaulted student loan payments are cashing in big time on your financial pain.
The staff at Educational Credit Management Corp., a non profit collection agency in Minnesota, has been getting fat pay checks -- nearly half a million dollars in annual pay for one student-loan collector, according to a story on Bloomberg Tuesday.
In addition, the article reported, the ECMC CEO Richard Boyle brought in $1.1 million in 2010, and more than $400,000 for five other managers at the company.
Such organizations have a lot of business right now thanks to the escalating cost of college tuition and a tight labor market that’s left many recent graduates unemployed or underemployed. As a result, many grads are having a tough time paying back their student loans.
The average student-loan debt for graduates jumped 25 percent from 2000 to 2010 to nearly $17,000 in inflation-adjusted dollars, while average wages for workers 25 to 34 with bachelor's degrees dropped by 15 percent over the same time period, according to the Progressive Policy Institute.
This all means, many grads are dropping the ball when it comes to keeping up on loan payments.
Student loan defaults are on the rise, increasing to 8.8 percent in fiscal year 2009, up from 7 percent the previous year, according to a Department of Education report released late last year. And 27 percent of student-loan borrowers are more than 30 days past due on payment, found recent report by the Federal Reserve Bank of New York.
So it’s disheartening to hear organizations such as ECMC are profiting on fees they charge borrowers and commissions coming from taxpayers, stated the Bloomberg piece.
Robert Shireman, a former deputy undersecretary of education under President Barack Obama, told Bloomberg that the loan program “is enriching collection agencies and undermining a goal we all want for society -- to encourage people to go to college.”
These student loan collection agencies, 33 in all, oversee student loans for the U.S. Education Department and they guarantee loans made by lenders. It’s a failsafe proposition for these agencies because if they can’t recover the funds the burden is shifted to taxpayers, the article reported.
Such agencies have come under fire recently in a report released this month by the National Consumer Law Center looking at what it deemed a faulty complaint system for borrowers and the poor job being done tracking complaints.
This from the report:
By contracting out its defaulted loan portfolio and failing to provide effective oversight, the Department has abdicated its responsibility to uphold the borrower protections in the HigherEducation Act. These protections include affordable payment plans and loan cancellations in circumstances such as disability or death. The Department has created financial incentives for its contractors that encourage high collections at the expense of borrower rights.
ECMC’s chief operating officer, Dave Hawn, defended his organization, telling Bloomberg that the company has returned $4.3 billion to the U.S. Treasury, helps direct borrowers to payment plans and repair their credit. And, he added, “I’m really proud of what we do as an organization.”