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Student Debt Collectors May Face New Restrictions

Obama administation proposes new policy for collecting public student debt

Common Dreams staff

A "Bail Out Schools, Not Banks" protest as President Barack Obama spoke about college affordability at Colorado University in Denver on October 26, 2011. Photographer: Jewel Samad/AFP/Getty Images

Private companies who are paid to collect student debt for the Department of Education may face new restrictions on how, and how much, they can collect from student borrowers.

The Obama administrations is proposing a new policy that would force collectors to offer borrowers a standard form to fill out where repayment options are based on income, as opposed to the size of the loan debt. Under the proposal, payments could be as low as $50 a month for someone making $20,000 a year.

Student loans recently surpassed credit card debt as the leading cause of consumer debt in the United States. The new proposal is only applicable to public loans.

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Bloomberg: Obama Plans Overhaul of Student-Loan Debt Collector Practices

The Obama administration proposed requiring that debt collectors let student-loan borrowers make payments based on what they can afford, rather than on the size of their debt.

The U.S. Education Department, which hires private collectors, said yesterday it would mandate that the companies use a standard form to gather debtors’ income and expenses. If borrowers protest, they would be offered an income-based formula, which can result in payments as low as $50 a month for an unmarried person with $20,000 in income and $20,000 in loans.

The collection companies -- which receive commissions of as much as 20 percent of recoveries -- are facing complaints that they insist on stiff payments from defaulted borrowers even though the Obama administration and Congress have approved more- lenient plans, Bloomberg News reported March 26. The education department is also reviewing the commissions it pays collectors.

“We definitely feel a sense of urgency to make sure we are doing everything we can to serve the interests of taxpayers and students,” Justin Hamilton, an Education Department spokesman, said in a telephone interview.

The agency first proposed changing the rule governing the treatment of defaulted borrowers a year ago, Hamilton said. After a public comment period, the regulation may take effect as soon as July 2013.

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