At a protest last year at New York University, students called attention to their mounting debt by wearing T-shirts with the amount they owed scribbled across the front: $90,000, $75,000, $20,000.
On the sidelines was a consultant for the debt-collection industry with a different take.
“I couldn’t believe the accumulated wealth they represent — for our industry,” the consultant, Jerry Ashton, wrote in a column for a trade publication, . “It was lip-smacking.”
Though Ashton says his column was meant to be ironic, it nonetheless highlighted undeniable truths: Many borrowers are struggling to pay off their student loans, and the debt collection industry is cashing in.
As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments — about 5.9 million people nationwide.
In all, nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans — $76 billion — is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials.
The Department of Education last fiscal year paid more than $1.4 billion to collection agencies and other groups to hunt down defaulters. Hiding from the government is not easy.
Diabetes rendered Doug Wallace Jr., 31, legally blind and unemployed a few years after graduating from Eastern Kentucky University. He filed for bankruptcy protection and got rid of thousands of dollars of medical and other debt.
But his $89,000 in student loans were another story. Federal bankruptcy law forces those who wish to erase that debt to prove that repaying it will cause an “undue hardship.” One component of that test is often convincing a federal judge that there is a “certainty of hopelessness” to their financial lives.
“It’s like you’re not worth much in society,” Wallace said.
Overall, the government recoups about 80 cents for every dollar that goes into default — an astounding rate.
Although the recovery rate is impressive, critics say it has left the government with little incentive to try to prevent defaults in the first place.
“If people were well-informed, how many defaults could be averted?” asked Paul Combe, president of American Student Assistance, a loan guarantee agency based in Boston. “We are hurting people here.”
