Student Delinquent-Loan Collection

This research explores positive aspects of the collection of delinquent student loans in the USA. The research will set forth the context in which delinquent-loan collection has emerged and the scope of the delinquency problem and then discuss the financial benefits of a well-managed collection project.

In fiscal year 1995, the U.S. Department of Education held about $8.5 billion in delinquent federally guaranteed student loans (Dockter, 1998, p. 4). In fiscal 1996, the federal government paid to private-sector lenders $2.662 million in loan-default guarantees on Federal Family Education Loans (FFEL), a 16% increase from the previous year, bringing the 10-year cumulative total of student loan defaults, or receivables, to about $28.9 million. By comparison, only $15.2 million in FFEL repayments had been collected by the government over the same period (U.S. Department of Education, 1996).

Between 1990 and 2000, the student loan default rate declined overall, from 22.4% to 8.8%, whereas between 1985 and 1990 it had risen from 10% to 22.4% (Dunning, 1985). In FY1999 alone, the Department of Education collected $2.2 billion in defaulted loans, consolidating another $860 million in defaults in order to reschedule debt. Total federal program costs for all student loans, whether direct or FFEL (loans made by the private sector but guaranteed by the federal government) also declined (U.S. Department of Education, 2000).

While that sounds like good news and sound financial manageme

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eivable get jobbed out for collection at 30 to 60 days as opposed to the more traditional 150 to 210 days. In the collection industry, a student loan is considered delinquent if a payment has not been made in 31 days and in default if no payment has been made in 180 days (Kaulkin, 1996). The costs of servicing student loan accounts, even without defaults, are significant. Maintenance fees include loan-related activities that follow the "origination" or granting of a loan, such as maintaining a loan record on Department of Education information systems, processing repayments, bringing delinquent borrowers back into current status, and collecting on defaulted loans. The government also makes account-maintenance payments to FFEL guaranty agencies. Those payments are set by statute and may not necessarily reflect actual costs of administration of student loans. In other words, it is difficult for the federal agencies with student-loan responsibility to achieve real-world efficiencies in the context of changing economic factors (Dept. of Education, 2000, p. 3). That state of affairs implies an operational outsourcing opportunity for entities such as collection agencies, which are well suited to the task of tracking financial records

Category: Government - S