The Student Loan Scam: The Most Oppressive Debt in U.S. History, and How We Can Fight Back

By Alan Collinge | Go to book overview

CHAPTER THREE
Collection Abuses

“I knew there was something fishy going on with Sallie Mae … it's called fraud. It's definitely highway robbery.”

“No one stops these people and they stop at nothing to extort millions from the public.”

These allegations—and more like them—have been received by StudentLoanJustice.org from citizens across the country. However, the people making these allegations are neither angry borrowers nor student advocates. They are current and former employees of student loan companies.

Since 1998, defaulted loans have become lucrative for all concerned except, of course, the borrowers. An entire industry devoted to collecting the penalties and fees over and above the original debt has sprung up around them. In fact, it is far more profitable for the industry when students default on their debts than when they pay the loans back on time. This is because when a loan is defaulted, not only is the lender paid nearly the full balance of the loan (both principal and interest), but the guarantors of the loan and the collection companies they contract with— which are often owned by the original lenders—can still collect on the defaulted loan, the amount of which is now vastly inflated by fees and accrued interest.

In 1998, Congress removed standard consumer protections from student loans. Combine that with the collection tools Con-

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