Unlike much of the industrial world, the US system of higher education places most of the financial burden on the student. Families without the economic means to pay for higher education have funded it by taking out student loans. Many of these loans have gone into default. Around half of the loans that are in default are from students who attended for-profit colleges. They represent only 11% of those enrolled in higher education. The for-profit higher education sector is much like the sub-prime mortgage industry in the US. It preys upon desperate, and poorly informed individuals, by selling them a high cost product that is funded by debt. The sales pitch promises them high paying jobs upon graduation. Many of their customers fail to graduate, and many who do graduate, fail to find the high paying jobs that were promised. The Department of Education supports this industry by making the loans available. Efforts to curtail the predatory operation of these schools has been thwarted by lobbyists who write much of the legislation for Congress. The student debt problem, however, is not restricted to the for-profit higher education sector. Students who attend non-profit colleges also fund much of the cost with debt.
This article describes the operation of the private debt collection agencies that are hired by the Department of Education to collect on the defaulted loans. The story is not pretty. The government has introduced new programs than might benefit many indebted students but the collection agencies do not inform the debtors about their options and the Department of Education has done a port job of informing them either. In a sense, the collection agencies have done their job. The Department of Education receives a greater share of defaulted debt than most lenders. That is partly due to the legal restrictions on debtors to take advantage of bankruptcy protection. Most of those in default, are also hit with penalties and fees that substantial increase the amount owed.
The student debt problem is not only devastating for those in default. Many students are servicing their debt, but they do so at a substantial cost. They are having more problems starting households and they have less money to spend on other things. We have created a new generation of young people who start out their lives as debtors.