Certainly it makes a lot of economic sense to contract & pay for lawyers & collection agencies in order to pursue "the debtors [who] are often marginally employed," more than half of whom are women, "many of whom say they are single mothers." Your tax dollars at work!
***** The Washington Post April 19, 1999, Monday, Final Edition SECTION: A SECTION; Pg. A04 HEADLINE: Lawsuits Over Student Loans Rise; U.S. Hires More Collection Lawyers to Pursue Defaulters BYLINE: Edward Walsh, Washington Post Staff Writer
Herbert A. Rosenthal is in the debt collection business and it has never been better. You may be hearing from him soon.
If, that is, you owe money on a student loan that the government considers in default. Rosenthal, 57, is one of dozens of lawyers under contract with the Justice Department to collect delinquent student loans that have eluded the efforts of 17 collection agencies that make the first attempt to collect for the Education Department.
In the last couple of months, Rosenthal said in an interview, his business involving student loans has probably doubled to 30 to 40 new cases a month.
In fact, business is booming across the country. During the fiscal year that ended last Sept. 30, the Justice Department filed 14,080 student loan default cases in federal courts, including 526 cases in the District, 409 in Maryland and 161 in Virginia, according to the Administrative Office of the U.S. Courts. That was a 55 percent increase in filings over 1997.
As recently as 1995, there were only 1,142 student loan default cases filed throughout the nation. This year the Education Department has already referred 30,000 default cases to the Justice Department for legal action and Education Department officials say they expect the number to continue to grow.
The surge in filings reflects a generally more aggressive stance toward defaulted student loans at the Education Department, which Congress has encouraged. Jack Reynolds, who heads the department's debt collection office, said that the 17 collection agencies that are now in pursuit of debtors is the most the department has ever used; the previous high was 12 collection agencies. Working under contracts with Education, the collection agencies keep part of everything they collect for the government, about 23 cents of every dollar.
Congress a few years ago also eliminated a six-year statute of limitations on bad student loans, allowing the collection agencies to go after longtime debtors who may have thought they had successfully converted a student loan into an outright government grant.
Moreover, said Greg Woods, chief operating officer of the Education Department's student financial assistance program, the department has started to rate the collection agencies according to their performance and is funneling the most business to the most efficient. The agencies are even rated on the quality of their "customer service" and are rewarded if there are few complaints from the targets of their collection effort.
The default rate on student loans, which peaked at 22 percent in 1990, has been declining steadily during the rest of the decade. In 1996, the latest year for which default information is available, it dipped below 10 percent for the first time. Still, Woods said, Education Department officials have found students "are not really in touch with their obligation." He said the department was trying to do a better job of "exit counseling" to make sure students understand their obligation to repay.
Even with a declining default rate, there is still plenty of business for collection specialists like Rosenthal. According to government figures, there are currently 59.6 million outstanding student loans totaling $ 152.7 billion. Of these, 13.3 million loans worth $ 26.7 billion are in default. The average loan in default is about $ 2,000.
The demand for student loans is also rising despite the fact that the Education Department has stopped granting loans to attend more than 1,000 schools with the highest default rates, chiefly "proprietary schools" offering vocational courses. In 1980, the government lent $ 4.6 billion to 2.2 million students. Last year, it made 8.7 million loans worth a total of $ 38 billion.
Some of those loans are destined to go into default. And if the collection agencies are able to locate the debtor but he or she still refuses to pay, the Justice Department steps in.
A Justice Department official said most student loan debtors "have the ability" to pay. Rosenthal has certainly dealt with some true deadbeats, like a woman who simply wrote a check for the $ 24,000 she owed the government just days before he was to file suit. "I want more like that," he said. "That made for a very good month."
But in general, Rosenthal said, the debtors are often marginally employed. More than half are women, many of whom say they are single mothers.
"I've got one doctor who owes me $ 100,000-plus and I don't think he's making that," he said. "I have lawyers as debtors and a lot of those are marginal, sole practitioners just scraping by. I don't feel I have many deadbeats." *****
Why do they go after even poor single mothers & take them to court? What's at stake? Morality & respect for state power.
***** The Times-Picayune July 12, 1999 Monday, ORLEANS SECTION: NATIONAL; Pg. A1 HEADLINE: UNPAID SCHOOLL LOANS ATTACKED: UNCLE SAM SUES DEADBEAT DEBTORS BYLINE: By David A. Fahrenthold Staff writer
Uncle Sam used to be the kindliest creditor around. Those who defaulted on federally insured student loans were protected by a statute of limitations and the Department of Education's general unwillingness to sue.
Now it's payback time. In the past year, thousands of deadbeat debtors have gotten an offer they couldn't refuse: mailed notice of a suit against them in federal court.
Federal loan collectors in Louisiana and across the nation have become more aggressive with unpaid student loans after Congress repealed the six-year statute of limitations on loan debt in 1991.
The newly emboldened Department of Education has stepped up its use of collection agencies, and last year it began referring a raft of cases to the Justice Department -- 26,294 nationwide in the past fiscal year. In the New Orleans area, more than 140 lawsuits have been filed since Oct. 1, the start of the current fiscal year.
Government lawyers who are successful give debtors a grim choice: pay up or have your wages garnisheed or property seized by the court....
In local cases, most debts are near the national average of $2,500, though they range from about $1,000 to more than $70,000. The age of the debts is also usually around the national norm, with many over 10 years old and some dating to the early 1980s.
Nationally, most debtors attended traditional two- or four-year colleges. Many New Orleans area debtors borrowed money for vocational or beauty school.
Some local debtors facing suits said they don't understand what the government hopes to gain by taking them to court.
"I have no idea what happens now," said Mark Cornwell of New Orleans, who owes money from a bartending course he took eight years ago. "If I don't have the money to pay the loan, I don't know what they want to get out of me."...
These student loans were originally made by private banks, but after a student defaults and the bank gives up its collection efforts, the debt is taken over by the federal government under the Higher Education Act of 1965....
Debtors can call the U.S. attorney's office and work out a payment plan tailored to their financial situation. The Justice Department likes most cases to be paid off within three years.
But, according to Assistant U.S. Attorney Eneid Francis, who handles the cases in this area, most cases end in a default judgment against the debtor.
"Most of them have spent a lot of years ignoring us, and when we sue, they ignore us again," one Justice official said .
This can allow the Justice Department to take part of a debtor's wages, seize property and income tax refunds, or put a lien on the debtor's home in order to recover the money.
In cases involving just a few thousand dollars, this effort may cost more than what is collected. Joe Cook of the American Civil Liberties Union said he wonders if this is the best use for government money.
"If you make a determination that a person is incapable of paying ... what good does it do to drag them into court?" Cook asked. "It's unlikely to make money magically appear that these people do not have."
But officials say the national effort is expected to more than pay for itself. Besides, the Justice official said, this is more about a message than money.
"From our point of view, this has a law-enforcement connotation," she said. "We want to send a message that the federal government takes this seriously even if they do not." *****
Yoshie