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Student Loans: The Government's Arbitrary Collections System 

Wednesday, Feb 20 2013

On Jan. 3, nine Bay Area residents were sued for delinquent federal student loans. It was part of a wider trend: The federal government, like the landlord in Coming to America, is making rounds. "Your rent's due, motherfucker! Now don't be pulling that falling-down-the-stairs shit on me again, you hear?"

There are a lot of rounds to make. America's public sector may be struggling financially, but it has a trove of outstanding payments just waiting for collection — including more than $80 billion in delinquent student loans.

As the economy has sputtered, the collections have naturally increased. As the New York Times reported in September, "Collections on federally backed student loans were $12 billion in the last fiscal year, 18 percent higher than the previous year." The government can collect in two ways: administratively, by garnishing wages or withholding tax returns, and through the court system, by suing borrowers. In the latter process, the Department of Education sends delinquency cases to the Department of Justice, which farms out those cases to local attorneys (for these nine, it was Alameda-based Michael Cosentino), who then manage the court proceedings on behalf of the government, collecting commission fees along the way. Those nine locals found that out the hard way.

You can understand the government's motive: These folks owe the taxpayers money, and in these lean fiscal times every recouped dollar brings the country one dollar closer to solving its budget crisis.

What is harder to understand, however, is how these particular individuals were chosen. Their debts were not necessarily large — six of the borrowers owed less than $3,100. And their delinquencies were not necessarily timely — five of them defaulted on their loan before 1994.

"That is the big puzzle," says Janet Lewis, an attorney at the Public Counsel Law Center.

With around 6 million Americans at least 12 months behind on student loan payments, the government is not exactly going door-to-door. The Department of Justice does not discuss the selection process, citing its policy on not disclosing investigative procedures. The Department of Education has only offered a bit more detail: "based on whether the government can expect to recover money," as Business Week reported in July. It's a vagueness that hardly explains the reality.

"If the government has information that somebody has significant assets, those are the people that you would consider suing," says Deanne Loonin, director of the National Consumer Law Center's Student Loan Borrower Assistance Project. "The problem is those are not necessarily the people who are being sued."

The result is that a fair and reasonable debt-collection process becomes arbitrary, the government's silver ball bouncing along a million-man roulette wheel.

About The Author

Albert Samaha


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