If you listen carefully to the election debates, you might have noticed an unusual policy discussion starting to take shape: Student loan debt.
With estimates most recently reported at $1.3 trillion USD, presidential candidates are beginning to propose solutions to help struggling students take a healthy approach to paying back student loans.
In fact, it’s estimated that approximately 17% of students are currently behind in their student loan debt payments. What else should we consider?
• A student loan debt is not considered delinquent until it is unpaid for 270 to 360 days, making the estimates of non-repayment difficult to ascertain
• During a bankruptcy, or when declaring bankruptcy, student loans are not dischargeable
• Student loans do not include collateral, such as a housing mortgage would, or interest rates for late payments, like credit cards do
• Student loan defaults are currently higher than mortgage default rates
For collections agencies hoping to assist clients whose debtors include students, it’s clear to see that, as a line of business, student loan delinquency is a prime market.
When Does Student Loan Debt Become a Collections Issue?
As we suggested above, student loan debt is not considered delinquent for 270 to 360 days. Note this indicates that a payment would not have been made for almost a full year before the loan-servicing agency will consider the loan in “delinquent” status.
At this point, collections agencies should begin the legal process in their state to collect from the debtors. This includes the ability to assess collections fees of 18% to 40% to the delinquent loans in question.
Additionally, the status of delinquent also indicates that a student loan has become “accelerated” and the amount of the loan is due in full, giving collection agencies ample incentive to pursue these five-figure debtors as a new line of business.
What Consequences of Non-Repayment Can Collection Agencies Cite for Students?
When taking on student loan debt collection contracts, collection agencies might also consider the incentives student debtors have to resolve delinquent loans immediately:
• Wages can be garnished if a judgment is entered against the debtor; these are often capped off based on the earnings of the debtor, but since they are managed through the courts, re-payment is unavoidable and burdensome
• Income tax refunds may be taken and/or withheld for loan repayment
• Those pursuing graduate school may become ineligible for Federal Financial Aid and/or unable to qualify for additional loans to pay for their education
• High student loans, and those in default of a loan, may have difficulty qualifying for a mortgage due to the debt to income ratio
• Defaulted student loans may appear on a credit report for up to 7 years and, by the time a collections agency is engaged, most debts have already started to affect the debtor’s credit score and/or line of credit
The amount of student loan debt also continues to rise, opening the door for agencies with expertise in this area to continue to expand as more loan-servicing industry needs arise.
Whether you already work with a few clients in this genre, or hope to expand your practice, it’s clear that collection agency services are vastly needed to get those in non-repayment back on track.