Debt Collectors With a Financial Agenda

With $67 billion worth of student loans in default in the U.S., the 23 private debt-collection companies under contract with the Department of Education are putting the squeeze on borrowers. Private debt collectors, working directly for the DOE or state agencies, raked in about $1 billion in commissions last year. Now these companies are facing growing complaints that they’re violating federal laws by insisting on stiff payment plans, even when borrowers’ incomes make them eligible for leniency. Last year the DOE received 1,406 complaints about its hired debt collectors, up 41 percent from 2010.

Oswaldo Campos got a call in December from a debt collector contracted by the U.S. Department of Education who issued an ultimatum: Pay $219 a month toward his $20,000-plus in defaulted student loans or the collection firm, Pioneer Credit Recovery, would garnish his pay from a part-time job at a social services agency in Boston. “You’re dealing with the federal government,” Campos recalls the collector saying. “You have no other options.” Actually, the 52-year-old Campos, who’s disabled from liver disease, did have one: Because he makes about $20,000 a year, he’s eligible to pay just $50 a month under a federal program that allows low-income borrowers to adjust payments to their salary level.