Kai Ryssdal: If you owe money on a student loan and odds are you do because there's about a trillion dollars of student loan debt out there. Here's my question: Are you up to date on your payments? Because if you're not, you're in for some very nasty phone calls from debt collectors working for the Department of Education. John Hechinger writes about federal student loans gone bad and what the government's doing to get some of its money back for Bloomberg News today. John, good to have you with us.
John Hechinger: Thanks for having me, Kai.
Ryssdal: Who are these -- or what, I suppose -- are these debt collection companies? Private enterprises, right?
Hechinger: They are. The Department of Education hires a kind of army of debt collectors that work on commission. The more money they collect from borrowers, they more money they make, the more money they take home.
Ryssdal: And is it fair to say that that sort of influences their tactics?
Hechinger: Well, I think it is. They have a strong incentive to collect as much money as they can up front. And they have very little incentive, the way the contracts are structured, to let the students into some very favorable plans that the Obama administration and Congress have been trying to promote.
Ryssdal: What are their powers, though? What can they force these debtors to do?
Hechinger: Well, debt collectors have powers for student loans that are unlike any other. They can garnish wages without a court order. They can take Social Security checks. There are no statues of limitations. So they really have borrowers over a barrel. Elizabeth Warren, who is a Harvard law professor and bankruptcy expert, one said...
Ryssdal: And also, we should say, candidate for the Senate in Massachusetts.
Hechinger: That's true. She once said student loan debt collectors have power that would make a mobster envious.
Ryssdal: Oh man. Define your terms for me for a second, John. How much money is out there in defaulted, federally-guaranteed student loans that we're talking about?
Hechinger: It's about $67 billion and it's doubled since 2003. And you have to remember that student loan, debt outstanding, is enormous. There's a trillion dollars in the student loans outstanding -- that's more than credit card debt. And there's a lot of pain out there. A lot of people are having trouble paying it back in this economy.
Ryssdal: So what actually happens. Give me an example. You talked to a bunch of people for this story.
Hechinger: The borrower defaults on his or her loan. The borrower gets a call from a debt collector. And the debt collector says, 'You've run out of options. You must pay a minimum, maybe $200, $300 a month.' And the borrowers I talked to were in some pretty desperate straits. They were disabled. They didn't have the money. Many of them said they wanted to pay the money, but they couldn't pay $200-300 a month. And what they were told is, 'I'm sorry, this is the minimum. This is all that we can do.' And that's not the way the program is set up. The program is set up where the debt collectors are supposed to work with borrowers. They're supposed to find out what their incomes are, and find out what they can afford to pay. The Obama administration and Congress have said they want to have these income-based payment options. And at least what I'm told is that borrowers often aren't informed about their rights.
Ryssdal: You mention Elizabeth Warren earlier, the woman who was the brains I think you can say behind the Consumer Financial Protection Bureau. The CFPB has tried to regulate these guys, hasn't it? Debt collection agencies.
Hechinger: That's right. They're proposing to regulate. They're very interested in the subject broadly, not jsut for student loan debt collections. ANd they're very aware that the Federal Trade Commission receives more complaints about debt collection companies than any other industry. So one way or another, these companies are under a microscope.
Ryssdal: John Hechinger, he's a reporter with Bloomberg News. John, thanks a lot.
Hechinger: Thank you, Kai.