The U.S. Department of Education spent $1.4 billion in 2011 to track down students who are in default on their government-guaranteed loans. The total amount in default was $76 billion.
Of the $1.4 billion paid out, $355 million was paid to nearly two dozen companies specializing in private debt collection. Another $1.06 billion was allocated to “guarantee agencies,” nonprofit organizations or state government agencies that administer student loan. Guarantee agencies often outsource the dirty work to debt collectors as well.
The government does not stop guaranteeing these loans for banks. It increases its guarantees. The size of the market keeps growing. The Feds back the loans. The Feds pay for the collection agencies.
Overall, Americans owe more than $1 trillion in student loans. Students who attended for-profit colleges account for almost half of the defaults even though they make up only about 11% of students. The biggest lenders are the SLM Corporation (aka Sallie Mae), Wells Fargo, Discover Financial Services, NelNet and JPMorgan Chase.
This is the banks #1 income source. What could be better for bankers?
Tracking down people who have fallen behind on their student loan payments has grown considerably in recent years. Nearly six million Americans are at least 12 months behind, which is 30% more than there were about five years ago.
The recent graduates cannot find jobs that enable them to pay off these loans. The average debt is $25,000. But the non-average debts higher than $50,000 are expensive to repay. The job market for recently graduated students is the worst in three decades.
If this program were titled accurately, it would be called the “Getting Blood Out of Turnips” program. There is no way that the government is going to get back this money.