The New York Times editorial board opined today that requiring students to repay in full freely incurred federal student loan debts is an absolute moral evil. We are also informed privately owned collection agencies are monstrous bastards for insisting on payment for their labor and expenses incurred in collection of past due student loans.*
The New York Times makes the following observations:
- Private collection agencies are paid $600 million a year, which is an indication of their bad faith.
- Collectors don’t do the debtors’ legwork for them by steering them to repayment programs which may benefit them.
- Student loan collectors behave similarly to mortgage collectors, and debtors occasionally encounter problems in getting corrections timely made.
- Collectors post payments “in ways that might cause borrowers to pay more interest.”
- New Department of Education requirements force collectors to steer debtors into repayment plans where, after a time of repayment at a capped rate not equal to the loan’s actual payments, the government forgives all remaining debt.
- Collectors will be graded on how happy defaulted borrowers are with their treatment.
- Government should allow defaulted debtors to pick their own servicers if they’re not happy with the one they have.
- Government should allow defaulted borrowers to complain more about what they believe to be unfair treatment.
- Government should open up student loan collection to more companies.
Great! The New York Times has solved America’s difficulties with student loans! Huzzah! Since, there’s nothing more for ‘Puter to do here, he’ll just shuffle back to the Castle’s rumpus room and see if Czar’s up for some ping pong.
But before ‘Puter leaves, permit him to tell you what a crock of wishful thinking, willful ignorance, unicorn turds and rainbow farts the New York Times’ (and the CFPB and DoE’s) prescriptions are.
- Collection agencies are paid a small per loan fee and/or a small percentage of any recovery made on defaulted student loan debt. The government would never, ever recover most of the money private collectors do because government has no incentive to do so. Government workers (and managers) are rewarded for keeping constituents happy. Collecting loans makes constituents has a sad :(. Therefore, government workers avoid collecting loans. Farming out student loan collections to private collectors makes economic sense, and the money collectors are paid comes from recoveries government would not have had but for the collectors’ efforts.
- It is not in taxpayers’ best interests for collectors to steer defaulted debtors to repayment options that all but ensure all or some of the debt is forgiven. Recent federal student loan “repayment” programs are anything but, enabling a debtor to avoid a substantial portion of his debt, without taxation of the forgiveness. Not only is the federal taxpayer out of pocket for the initial bad loan to the unemployable Fill-in-the-Blank Studies major, the taxpayer also misses out on the additional revenue it should receive on the debtor’s forgiveness of debt tax liability.
- Collectors collect loans. It’s what they do. Collectors should be civil and promptly correct errors in debtors’ account histories. In ‘Puter’s experience, the vast majority of collectors do so quickly, so long as debtors produce proof of inaccuracy, such as cashed checks showing payment. Collectors’ interests are aligned with debtors’ interests in this instance. Collectors don’t want to waste time fighting about an issue that isn’t an issue, because they don’t get paid for the fight. Collectors get paid when they collect. Usually, complaining debtors simply don’t like how the collector applied a payment, meaning debtors owe more than they believe they should owe.
- Debtors are incorrect on payment application, and the Obama toadies on the New York Times editorial boards purposefully obfuscate (read, “lie”) on the issue. The vast majority of promissory notes (evidence of a borrower’s debt) include an application of payments provision. Generally, these provisions permit a lender to apply all payments received in the following order: (1) fees, such as late fees, collection fees and collateral preservation fees; (2) accrued and unpaid interest; and (3) unpaid principal. Debtors want every penny of every payment to go straight to principal reduction, but that’s not how the world works, nor is it what debtor agreed to when he signed his promissory note. Read the damned document before you sign it, college boy.
- It is a craptacular idea to make it easier for debtors to evade debts as proposed by both CFPB and DoE. The proposed “remedies” do nothing more than increase taxpayers’ burden to repay loans to others that never should have been made in the first instance. Se ‘Puter’s discussion of income based repayment programs above. These programs simply shift the consequences of an individual’s piss-poor life decisions onto innocent taxpayers, furthering America’s problem of coddling a generation that’s never had to bear the negative consequences of its decisions.
- Grading collection agencies on how happy its debtors are is profoundly dimwitted. Collectors aren’t there to be nice, they’re there to collect money. It’s never going to be a pleasant experience for a debtor to be hounded for money the debtor freely borrowed, spent and can’t repay. It’s like asking you to rate your colonoscopy technician on how awesome an experience having 20 feet of garden hose with a 1980s era VHS camcorder taped to the end rammed up your ass. Who in their right mind is ever going to say the experience was the best ever, whether we’re talking about loan collection or colonoscopies? No one. Get a new metric.
- Letting debtors pick their collectors again incentivizes collectors to avoid forcing debtors to repay their just debts. This is exactly why government had to move collections to private collectors in the first instance. Government collectors refused to collect debtors’ loans because doing so caused government collectors to be marked down, missing salary increases and promotions. If you want more incompetent collection of massive amounts of debt, by all means incentivize it. But let’s have an honest conversation about the New York Times’ recommendation before doing so.**
- You know what will incentivize private companies to behave better? Permitting people who are never going to be happy with a company’s service, no matter how proper such service is, complain directly to powerful government regulators only too happy to interfere with a company’s business despite the regulators’ utter lack of experience in the company’s business, much less in the private sector. That’s a great idea. Go with that.
- Ah! Finally a solution that makes sense! Open up student loan collection to even more private companies! Genius, New York Times! Except that every single position you’ve just finished advocating makes student loan collections absolutely toxic to private business. Businessmen sit around all day, ensconced in their Wall Street office buildings, just looking for opportunities to jump into heavily regulated industries with razor thin margins where regulators change the rules midway through the game. The editors’ recommendation is a wolf in sheep’s clothing. The editors aren’t advocating a free market solution, they’re advocating dragooning more private businesses into a government-controlled nightmare from which there is no escape.
If the government is truly concerned about student loan debt, there’s a simple solution. Stop making direct federal loans to students, and stop guaranteeing private lender loans to students. Without a never-ending spigot of other people’s money, universities will have to lower tuition to affordable rates. Lowering tuition will require universities operate efficiently, cutting useless programs and reconsidering five-star resort style accommodations and meal plans. Universities will also have to cut made up and useless programs such as the aforementioned Fill-in-the-Blank Studies genre aggrieved groups invented in the 1960s, hoodwinking Americans as to their usefulness.
America’s problem isn’t that too few kids go to college, it’s that too many do. Not everyone’s cut out to be a medical doctor, a lawyer, a philosophy professor or an engineer. There’s no shame in that. Learn a skilled trade, invent your own job or travel the world. If you’re not interested in or cut out for higher education, admit it. You’ll be happier and fiscally healthier in the long run.
* Private student loan collectors exist precisely because the federal government (with the notable exception of the IRS) is horrible at collecting its debts. If the government were able to collect the loans it made, taxpayers would receive (arguably) an additional $600 million each year, equal to the money not paid to private collectors. Frankly, private collectors are cheaper and better at collecting loans
** ‘Puter’s certain the New York Times editors know exactly what they’re recommending: shifting an individual’s burden to bear the consequences of his poor decisions onto a nebulous “other,” the taxpayers. The editors are wagering that you’re either (1) too dumb to notice you’re going to pay for others’ debts or (2) willing to ignore this injustice because you’re a greedy bastard on the receiving end of a hidden “freebie.”
Always right, unless he isn’t, the infallible Ghettoputer F. X. Gormogons claims to be an in-law of the Volgi, although no one really believes this.
’Puter carefully follows economic and financial trends, legal affairs, and serves as the Gormogons’ financial and legal advisor. He successfully defended us against a lawsuit from a liquor distributor worth hundreds of thousands of dollars in unpaid deliveries of bootleg shandies.
The Geep has an IQ so high it is untestable and attempts to measure it have resulted in dangerously unstable results as well as injuries to researchers. Coincidentally, he publishes intelligence tests as a side gig.
His sarcasm is so highly developed it borders on the psychic, and he is often able to insult a person even before meeting them. ’Puter enjoys hunting small game with 000 slugs and punt guns, correcting homilies in real time at Mass, and undermining unions. ’Puter likes to wear a hockey mask and carry an axe into public campgrounds, where he bursts into people’s tents and screams. As you might expect, he has been shot several times but remains completely undeterred.
He assures us that his obsessive fawning over news stories involving women teachers sleeping with young students is not Freudian in any way, although he admits something similar once happened to him. Uniquely, ’Puter is unable to speak, read, or write Russian, but he is able to sing it fluently.
Geep joined the order in the mid-1980s. He arrived at the Castle door with dozens of steamer trunks and an inarticulate hissing creature of astonishingly low intelligence he calls “Sleestak.” Ghettoputer appears to make his wishes known to Sleestak, although no one is sure whether this is the result of complex sign language, expert body posture reading, or simply beating Sleestak with a rubber mallet.
‘Puter suggests the Czar suck it.