Can Collections (and Higher Learning) Keep Pace with Student Loan Debt?


student loan debtWhile the “Great Recession” is slowly fading from memory for many of us, recent college graduates still have a monthly reminder of it in the form of student loan payments.

The current student loan debt is further intensified by lingering unemployment rates. According to statistics from the U.S. Labor Department, college graduates in 2011 had an average debt load of $27,500. Students graduating in 2012 faced unemployment rates of 13.3%, leading many to default on their loans.

While Congress was considering whether to maintain current student loan interest rates or allow them to double, the media was responding with reports about the severity of student loan default rates.

According to a USA Today article, many colleges now have loan default rates that are higher than their graduation rates.

The original report found over 500 “red flag colleges” where default rates were higher than the school’s graduation rate. Nearly half of these institutions were for-profit colleges, while another third were public community colleges.

In all, around 5 million people are in default on their student loan debt.

The collections industry finds itself in the middle of this situation. As the percentage of loan defaulters continues to rise, collections agencies also find themselves servicing an increasing number of education clients. For an industry whose priority is to reconcile debt, the right action seems apparent, but is it? Around 5 million people are in default on their student loan debt.

John Monderine, CEO of a debt collection agency, noted that “student loan debt is crippling the future of Millennials.”

The amount of student loan debt is becoming apparent as graduates put off buying homes, getting married, and saving for retirement because of debt. Appropriate education and counseling at the beginning of the loan process will help future students, but current graduates have little recourse when faced with seemingly insurmountable debt.

How will educational institutions and the collections industry meet this growing challenge? What are your thoughts on the current student loan crisis? What options do you think the collections industry has? How do you think colleges and universities should address this systemic problem?