
Americans Are Paying $38 to Collect $1 of Student Debt - JumpCrisscross
https://www.bloomberg.com/news/articles/2017-05-19/americans-are-paying-38-to-collect-1-of-student-debt?cmpid=BBD051917_BIZ&utm_medium=email&utm_source=newsletter&utm_term=170519&utm_campaign=bloombergdaily
======
zaroth
A supposedly college educated American can't make $5 a month payments in order
to clear their credit report and set themselves up for _$0_ per month payments
from that point forward? And it's the loan servicing companies are to blame?

What am I missing here? Is it too hard to Google "income based student loan
repayment" and read for a few minutes to know what to ask for? Or these people
would rather have creditors calling them all day and a credit score of 300?

It's a completely separate matter that the Obama administration setup a system
where we pay $1800 to debt collectors to collect $45 just so that the payer
can default again. What is the point of collecting $5/month? I understand
maybe trying to get at least a regular payment setup -- that's probably worth
paying the debt collector $50 if they can manage it. But $1,800? Wow...

~~~
accountyaccount
It's not that simple

– parent loans are based on the parents' income, which makes income-based
repayment useless

– loan servicers don't want you on income-based repayment, so if you ask them
about it they're not helpful whatsoever

– they fuck up the paperwork CONSTANTLY, almost every year I have to apply for
income based repayment 2-3 times because they lose the paperwork or make some
asinine error

– no one is actively educating grads about the program because there's nothing
to be gained from it

– if you get married your spousal income is factored into the payment, even if
your spouse also has loans

It's not a one time simple thing and you're done situation. It's a pain in the
ass and almost no one will help you figure it out.

This is an industry that thrives on the illiteracy the average American has in
personal finance. I know multiple people who ruined their credit because they
didn't know the unemployed get temporary loan deferments.

~~~
WalterBright
> the illiteracy the average American has in personal finance

These are supposed to be college educated Americans.

~~~
wakkaflokka
I didn't understand that our tax brackets in the US are marginal (i.e. we
don't pay 35% of our _entire_ income if we are in that bracket), until a
quarter way into my PhD program.

It never ceases to amaze me some of the basic stuff in life I still don't
know.

Luckily I researched how to pay off my undergraduate student loans in the best
manner as soon as it was time to start ponying up.

~~~
newjersey
> I didn't understand that our tax brackets in the US are marginal (i.e. we
> don't pay 35% of our entire income if we are in that bracket), until a
> quarter way into my PhD program.

Is this common? How do we educate people about this? How can we have a serious
conversation on tax reform when people don't know what system we have now?
Personally, I want an end to most deductions and credits (but honestly because
there are so many that I'm not using and never will use). However, if wager
that the only people who know about them are the people who use them.

For example, the Masters exemption for Airbnb hosts makes no sense.

~~~
addicted
Misunderstanding how marginal taxation works not only seems common in the US,
but I suspect it's something that is encouraged, as a way to get poor people
to support cuts in taxes on the highest brackets.

~~~
Delmania
Also the United States tax code is amazingly complex.

~~~
newjersey
Yes and simplifying it involves in pissing off a lot of people. Closing
loopholes makes people made. People who have money. People who will spend
money to keep things the way they are. And (sometimes) we are those people.

I don't know how we can ever actually simplify the tax code.

------
KKKKkkkk1
> Close to 80 percent of borrowers who rehabilitate their debt make the
> minimum $5 monthly payment, according to a 2015 estimate by the National
> Council of Higher Education Resources, a lobbying group that represents
> student debt collectors and servicers. That means the Education Department
> is paying its debt collectors up to $1,710 per borrower to collect around
> $45, regardless of whether the borrower continues to make her payments.

In other words, the government is paying through the nose in order to
artificially reduce actual default numbers.

~~~
astrodust
Here (Canada) you can get your loan forgiven if you can plead your case. This
only applies to government loans and not private ones made directly through
banks.

Tuition fees are still outrageous compared to what they used to be, the
subsidies are slashed to nearly nothing, but at least you're not going to be
bled dry if you can't get a job when you graduate.

~~~
jzwinck
Don't you see the connection? School fees are high partly because people can
get free money to pay them. This of course screws the people who do not take
the free money by defaulting on loans.

~~~
StudentStuff
Pretty much, why is an "inexpensive" college over $12k a year, with community
colleges charging upwards of $7k a year? Seems crazy that the minimum you can
spend on college is $40k, how is that accessible to the average person?

~~~
tw04
Well, when you consider the average car price in the US was $33k in 2016, it
doesn't seem that unreasonable.

~~~
notimetorelax
I doubt that students:

1\. Have money to buy a new car

2\. Can buy a new car every year

~~~
labster
They could buy a new car every year if they give up avocados. But you know
college kids, they're all high on guac.

~~~
quickben
That was a story that I found outrageous.

I recall my distant relative and another few of my friends got a house here in
Toronto when they were 1/4 - 1/3 of what they are now. All while their salary
being maybe 10% less.

And then the older generation starts lecturing us... Completely disconnected
with the current reality.

~~~
randomdata
Of course, the houses were cheap back then because it was a petty undesirable
place to be.

Incremental change tends to be less noticeable if you see it every day, but as
someone who visits Toronto just a handful of times per year it blows me away
how much the city has changed in even just the last 10 years. Once old and run
down neighbourhoods that I wouldn't ever want to live in are now highly
desirable places to be. While I'm a bit too young to have much perspective on
the situation 20-30 years ago, from what I've learned from those who lived in
those neighbourhoods back then, it was even sadder and even scary to live
there.

I am surprised they were only 1/4 of what they are now.

~~~
astrodust
> Once old and run down neighbourhoods that I wouldn't ever want to live in
> are now highly desirable places to be.

There's never really been "scary" places to live in Toronto apart from a few
neighbourhoods and housing projects. The places that people describe as scary
just have a lot more "character" than other parts. You'll see mentally ill
people on the street, those with physical disabilities, those who are dirt
poor. In other parts of the city they're swept away or ignored.

What you're describing is gentrification. Gentrification has happened.

~~~
randomdata
I'm going to have to disagree with you on your first point. A friend of mine
purchased a house from in what is now a bustling tech community with all kinds
of money around, but the past is still evident. There were bars on the
windows. Visible damage to the home where someone tried to break in. Others
who lived in the area in the past also echo similar sentiments of how it used
to be.

Of course those are just anecdotes, but the data confirms it. Crime rates have
declined meaningfully over the years. Gentrification made these nice places to
live, but the decline in crime is why they are less scary. Unless you are
trying to imply that crime isn't scary?

~~~
astrodust
Most of the crime comes from crackhead types, and those people are allergic to
conflict. They like to break into places when nobody's home, grab a few things
and bolt. They love garages, they hate homes.

I've known people that have lived in Parkdale for thirty years, and while it's
better now, less petty crime, it's never been an especially violent place.
"Sketchy" in Toronto means places where you can't leave your bike unattended
for six seconds or where your garage will be ransacked by people every couple
of years if the door isn't locked properly.

Gentrification pushed the troublemakers further away, jacked up rents, and
changed the demographics substantially. It's a whole different town in some
places.

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theprop
It would be much better to send those defaulters to prison where the annual
cost is typically more than the most expensive colleges in the country...oh
wait, maybe we should just send them to college and pay for it, that might
save even more money?

~~~
trendia
Before we start paying for it, we should ask why the costs have increased so
dramatically in the last 10 years, and why the benefits of a degree have gone
down. Then, neither debt nor debt collection would be an issue.

After all, the reason people can't pay back their debts is 1) even state
colleges are expensive, and 2) the job market doesn't reward degrees. It's not
like changing the payer of tuition from the individual to the government is
going to change either of those issues.

~~~
peckrob
> Before we start paying for it, we should ask why the costs have increased so
> dramatically in the last 10 years

When I started college in 2000, in-state tuition at my alma mater (a major
state university) was $3,021 for 2 semesters. I just looked and it's now
$10,968 for the same 2 semesters. In 17 years, tuition went up 263%. From what
I can tell, inflation over the same period was 42%.

At this rate, I'm scared that I will literally never be able to save enough to
put my daughter through college without taking out loans, assuming tuition
continues this trend. Something has _got_ to give.

~~~
kaybe
If she's young enough to learn another language well in time, you could
consider sending her to Europe. All in all, it's still cheaper and possible to
get by with summer jobs and some help from parents.

------
djrogers
Here's the thing, if you do as many seem to be suggesting and give up on
collections for this small percentage of loans, then your default rate will go
up as people realize there are no consequences.

It's not as if we are spending $38 for every $1 in student loans - the vast
majority of them have no money spent on collections.

$38 seems crazy high to me, and given the fact that it's the federal
government in charge I'm sure it's horrifically inefficient, but we can't just
walk away from the money or it all goes to hell.

~~~
jackvalentine
> then your default rate will go up as people realize there are no
> consequences.

I don't see a problem with that. How about this - in a similar manner to the
'starve the beast' ideological mantra we can starve the student loans beast to
force change.

(Just like starve the beast I expect that it wouldn't work and we'd just end
up totally messing up some systems that rely on that money, but desperate
times right?)

~~~
ericd
It's a very bad idea to train everyone that their debts are optional, and that
they have no obligation to pay them back. Loans for people who won't abuse the
system will become much more expensive to make up for those who don't pay them
back.

~~~
jackvalentine
Debts _are_ optional to repay, and there are legal frameworks to resolve debt
disputes if you choose not to. Businesses do it every day why shouldn't
people?

Student loans are completely outside of this framework because they're risk-
free for the lender and can't be discharged at bankruptcy by the lendee.

Because of this the loan costs for those that present a good and bad debt
proposition are basically the same - I'd call this more of an abuse.

~~~
ericd
I completely agree that they shouldn't be risk free - that was probably a
harebrained idea to make college cheaper and more accessible to everyone, but
it completely messes up the incentives.

And I know they're technically optional. What I was saying is that we
shouldn't be trying to build the idea that it's OK to default if you're better
off financially not paying people back into our culture. Trust is important to
the functioning of society.

~~~
jackvalentine
> _What I was saying is that we shouldn 't be trying to build the idea that
> it's OK to default if you're better off financially not paying people back
> into our culture. Trust is important to the functioning of society._

I disagree with this. We saw people during the GFC screwing themselves by
continuing to pay mortgages that they were underwater on out of some misguided
sense of honour.

In that case, they should have walked away and left the bank saddled with the
stranded asset. Loans are a commercial proposition with a risk and a reward.
Introducing washy hard to define concepts like 'trust' to pressure one side
only screws the good guys - the unscrupulous ones will do what they want.

Better to have a clear playing field where both lenders and lendees understand
there will be situations in which the loan isn't going to get repaid and have
the risk of that priced in.

------
noobermin
"I don't see how anyone wins from this system other than the collection
industry," said Adam S. Minsky, a Boston-based lawyer who represents student
debtors.

The thing is, that's precisely the point of the system. The same can be said
of health insurance. It isn't to service debt, it is to prop up an industry
that has grown around servicing that debt.

~~~
mythrwy
The collection industry. And presumably Mr. Minsky.

~~~
ReligiousFlames
Plus, de Vos.

------
mr_turtle
Why does the government even pay companies to manage and rehabilitate student
loans? Even if a student defaults on said debt, that debt is practically
impossible to discharge even if you file for bankruptcy.

~~~
xemdetia
The biggest problem I have seen is people can get into situations that instead
of just owing the government the debt starts getting passed around like a hot
potato and it becomes increasingly difficult to get a hold of who owns your
debt right now.

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newnamessuck
Has anyone actually dealt with a default? Sadly, I have. It's like dealing
with a thug, mixed with trying to do taxes on your own with no knowledge of
the exact repayment. It's a tricky system they run. I went through default 3
times, once with my payment being higher without any transparency, and when I
tried to pay the difference, I was apologized to, and kicked off. I don't know
if it's been made better in the past few years, but that was the worst
experience for an education I don't even use today.

------
webninja
How about we make a website where it is easier for students to pay back your
loans? The healthcare.gov for student loan payback?

As one commenter said, it's difficult to pay back your loan when your debt is
being passed around to different collectors like a hot potato and it's
increasingly difficult to get a hold of who owns your debt right now.

Edit: already exists, it's called Studentloans.gov.

------
tzury
Putting the "Student Debt" essential concept and current state aside, I mean,
this phenomenon got to get a deep massive reform, but just regarding the topic
of the title.

Sometimes, you'll pay $38 to collect $1, cause, otherwise, you will face a
reality where you have $100 to collect and not $1.

In other words, enforcement costs and ROI shall not be measured by direct
results and achievements, rather by the side effect of prevention.

It might costs $250K to put in jail someone who robbed 10 houses in total
amount of goods of $10k. But you'll do it all the way to alram others.

------
moultano
Suppose student debt payments were capped as a fraction of income, say 10%. It
seems like this would align everyone's incentives correctly toward the student
succeeding​.

~~~
djrogers
Or conversely, it would completely remove some individual's incentive to ever
make life choices that would lead to paying that debt off.

~~~
pessimizer
Only that strange hypothetical person whose entire life goals revolve around
avoiding payment of student debt.

~~~
luck_fenovo
I have a lot of friends from high school who seem to fit that description

------
wisty
On the other hand, if there's no efforts made to collect than no-one would
want to pay.

It's like prison and retention. It's not worth it for the people it directly
effects, but it is good because it encourages people to avoid it.

~~~
goldbeck
Maybe? I'm not sure the analogy helps here, as it seems unclear that prisons
are an effective way to discourage crimes.

This here govt website suggests is the act of being caught that is the major
deterrent to crime, not the severity of the punishment [https://nij.gov/five-
things/pages/deterrence.aspx](https://nij.gov/five-
things/pages/deterrence.aspx)

Original source:
[http://www.jstor.org/stable/10.1086/670398?seq=1#page_scan_t...](http://www.jstor.org/stable/10.1086/670398?seq=1#page_scan_tab_contents)

~~~
wisty
Or prisons do discourage crimes, they just don't do so very well if the
suspects aren't brought to justice. People are natural gamblers, and will be
likely to discount the risk of punishment if there's a decent chance they'll
get away.

------
pavement
Put another way, Americans subsidize 97% of the financing of assisted post-
high-school education, regardless of profitability or how inefficiently such
financing is structured.

------
theprop
For students reading this, Germany offers absolutely free college & university
education to everyone...even Americans coming there and most classes are in
English.

~~~
SamUK96
There is usually a small fee of a few hundred Euros. Or at least, that's what
a few German students told me.

~~~
jononor
Yes there is a registration fee, per semester. It avoids people who are not
actually studying claiming student benefits (on public transport etc), and
helps a little to clean the records for people who have effectively dropped
out (and might instead be job seeking).

------
xbmcuser

       The Us government would  be better of using those billions to paying of loans in liu of service. 
         You became a doctor or lawyer using goverment loans pay it off by working part time in goverment hospitals, health clinics and legal clinics. You got an MBA or became an Accountant pay it of by working part time in goverment administration or in goverment schools etc.

------
qrbLPHiKpiux
Gotta prove that point, though. One thing I have learned is that, proving
points, enforcing some rules, is expensive and wasteful.

~~~
sjg007
More efficient to take tax refunds.

~~~
exclusiv
I know a few that had their wages garnished for non-student loan debt. Between
that and tax refunds as you mentioned - there shouldn't be any reason to have
collectors.

------
qrbLPHiKpiux
Gotta prove that point, though.

------
techsupporter
Only tangentially related but what is up with the massive increase in URL
length?

Taking this one for example:

h t t p s://www.bloomberg.com/news/articles/2017-05-19/americans-are-
paying-38-to-collect-1-of-student-debt

If you include the question mark query parameter separator, the tracking parts
take up as many characters as the entire reference to the article itself:

?cmpid=BBD051917_BIZ&utm_medium=email&utm_source=newsletter&utm_term=170519&utm_campaign=bloombergdaily

Am I just being an old-man-get-off-my-lawn about this or is there an actual
purpose?

~~~
droithomme
I am on your side. This stuff annoys me as well and I've posted about it in
the past to no effect. The trailing tracking garbage in urls should be
algorithmically removed. If this results in a paywall access block, then posts
with such domain names should be blocked. It is absolutely not reasonable to
post links that lead to paywalls because that is clearly and by definition,
spam. Posting a link in the hope that it will result in someone buying
something is totally different from posting a link to something that is news
or discussion worthy. Posting commercial links such as all paywalls are is
fundamentally spamming and is reasonably removed, blocked, and the poster
banned.

------
GlobalServices
We need to stop Government backed student loans immediately. Then we can watch
tuitions drop like a rock!

If and only if we stop Government backed student loans will I be OK with some
debt forgiveness or amnesty program.

~~~
fny
It would be better if the states didn't treat education like indentured
servitude. Society as a whole benefits immensely from an educated populous,
and our tax dollars should in turn recognize this. Instead we have a
population that's​ indebted to corporations precisely because there's no other
means to pay of their student debt. Why take the risk of a startup or
independent venture when you have 100k in debt to pay for an education that
makes you a productive member of society.

------
subterfudge4
This is why a media studies degree is useless (assuming thats what the
journalist writing this story got) as they probably don't teach basic math.

The point of collection is that it also acts a deterrent. So the $38 spent are
not just to get the $1 back but also to tell others that government will go
out of the way to get back that debt.

That $38 needs to be compared with the total $s that come in as repayments.

Also this is the reason why government should not be in the business of giving
loans.

~~~
advael
That's an absolutely insane way to do statistics. You can't just say "it's a
deterrent" and then magically assume that anyone who pays their debts wouldn't
have in absence of the evidently horribly inefficient debt collecting process.

~~~
subterfudge4
If you think people will pay nevertheless government should declare the
payment voluntary and see how many people pay.

~~~
Bluestrike2
That's not at all what he's saying. To judge the efficacy of a deterrent, you
need to be able to identify the expected payment rate in the absence of said
deterrent. The problem with that is that identifying the difference is
incredibly difficult. If not damned near impossible.

That said, I'd question the deterrent effect. Per the article, nearly 40
percent of 'recovered' borrowers default within the next three years. Combined
with paying debt collectors "nearly 40 times what they bring in," it seems as
if there's a measurable problem with the current approach. But is that a
problem with current recovery efforts, or merely a symptom of a larger issue?
Like with most things student loan-related, there are no easy answers here.

