Student Loans: The Government's Arbitrary Collections System

On Jan. 3, nine Bay Area residents were sued for delinquent federal student loans. It was part of a wider trend: The federal government, like the landlord in Coming to America, is making rounds. "Your rent's due, motherfucker! Now don't be pulling that falling-down-the-stairs shit on me again, you hear?"

There are a lot of rounds to make. America's public sector may be struggling financially, but it has a trove of outstanding payments just waiting for collection — including more than $80 billion in delinquent student loans.

As the economy has sputtered, the collections have naturally increased. As the New York Times reported in September, "Collections on federally backed student loans were $12 billion in the last fiscal year, 18 percent higher than the previous year." The government can collect in two ways: administratively, by garnishing wages or withholding tax returns, and through the court system, by suing borrowers. In the latter process, the Department of Education sends delinquency cases to the Department of Justice, which farms out those cases to local attorneys (for these nine, it was Alameda-based Michael Cosentino), who then manage the court proceedings on behalf of the government, collecting commission fees along the way. Those nine locals found that out the hard way.

You can understand the government's motive: These folks owe the taxpayers money, and in these lean fiscal times every recouped dollar brings the country one dollar closer to solving its budget crisis.

What is harder to understand, however, is how these particular individuals were chosen. Their debts were not necessarily large — six of the borrowers owed less than $3,100. And their delinquencies were not necessarily timely — five of them defaulted on their loan before 1994.

"That is the big puzzle," says Janet Lewis, an attorney at the Public Counsel Law Center.

With around 6 million Americans at least 12 months behind on student loan payments, the government is not exactly going door-to-door. The Department of Justice does not discuss the selection process, citing its policy on not disclosing investigative procedures. The Department of Education has only offered a bit more detail: "based on whether the government can expect to recover money," as Business Week reported in July. It's a vagueness that hardly explains the reality.

"If the government has information that somebody has significant assets, those are the people that you would consider suing," says Deanne Loonin, director of the National Consumer Law Center's Student Loan Borrower Assistance Project. "The problem is those are not necessarily the people who are being sued."

The result is that a fair and reasonable debt-collection process becomes arbitrary, the government's silver ball bouncing along a million-man roulette wheel.

My Voice Nation Help

I can testify to the above.  I, like many others, have "offsets" on disability, to pay back loans, and the collectioni agencies are fond of being bullies, lying, and refusing to document their actions.  I don't see how making life impossible for the disabled is going to save the nation.  Never had a credit card, never bought a car, never tried to buy a house or condo, and I'm far more responsible in paying my bills than Congress.  Seems to me that if people can't use their education, the banks that made the bad loans, and the educational institutions that took money for degrees that didn't lead to financial solvency are the problem.    It's kinda like how SF will have to pay for Larry Ellison's party . ..  . let the big spenders who waste the most get off scott free, and those on the bottom taxed until death looks like the best option.  How aobut just opening up the Soylent Green Centers already, and encourage those of us who aren't able to contribute to the cancer that is mulitnational corporate greed at least get turned into usable protein? 

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