When past-due or defaulted debts goes into collections, debtors must deal powerful agencies able to employ vast resources to secure the money they are owed. Their aggressive, sometimes harassing tactics make life miserable for those already struggling to make ends meet.
Few collection agencies are more influential and enjoy more resources than the federal government. Investigators and regulators at the federal and state level are now accusing the United States Education Department of abusing that power.
According to the Federal Reserve Bank of New York, 11 percent of the $1.325 trillion in federal student loans is severely delinquent or in default (270 days or more). The DOE’s solution seems to focus on steering debtors away from affordable repayment plans. Their preference seems to be focused on garnishment efforts, an option that reduces their costs.
The DOE and their official designees target not only the borrowers, but also co-signers that could be parents, grandparents and other loved ones. Wages are their initial target for garnishment. However, if income is insufficient, they set their sights on tax refunds and Social Security payment reductions.
According to federal data analyzed by Reuters, the garnishment efforts over two years by DOE servicers and private debt collectors have yielded approximately $3 billion in wages. Over the past year, DOE’s using tax refund seizures and Social Security benefit reductions has brought in $2.6 billion, an increase of $2.2 billion in 2015.
Since 2009, the DOE has collected about $15.2 billion since 2009. With the Federal Reserve Bank of New York estimating that 11 percent of the $1.325 trillion in federal student loans is severely delinquent or in default, they have only begun to collect.
The fallout of default goes beyond garnishment and other aggressive collection actions. It puts financial stability even more out of reach. In addition, credit scores plummet, often disqualifying debtors applying for car loans, property rentals, utilities and, in some cases, cell phone contracts. Employers who do background checks may be scared off after seeing a low FICO score.