The Fiscal Times
The graduating class of 2015 has more student debt than any class in history — an average of $35,000 per borrower for the 71 percent of students who take out loans. The average debt has doubled over the last two decades, and rising defaults and reduced household formation have created concern, even in a good economy, where a college degree can fetch higher wages. Overall, outstanding student debt totals $1.2 trillion, more than any other obligation except for mortgages, and 8 million debtors are in default.
This has made students an inviting target for predatory companies who abuse the repayment process to maximize returns. The Consumer Financial Protection Bureau opened a formal investigation yesterday that will hopefully shut down this cottage industry.
CFPB announced a public inquiry into student loan servicers, the companies responsible for day-to-day management of the debt. These private companies inform students of repayment options, manage borrower accounts and collect monthly checks.
As I’ve written before, these servicers should not exist. Most student loans these days are written by the federal government, which surely knows how to collect money. The U.S. maintains the largest collections agency in the world: the IRS. Yet we outsource student loan servicing to companies that repeatedly break the law.
Picture: Tulane Public Relations (Graduation Uploaded by AlbertHerring) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)%5D, via Wikimedia Commons