Recent data, released by the U.S. Department of Education, has shown that the number of student loan accounts being sent to collection agencies has doubled. Even though the data shows the number of people enrolling in government student loan repayment plans is rising, the data still shows a huge jump in the number of people defaulting on their loans. In fact, as of September 30, 2015, approximately 7.6 million people have failed to make a student loan payment in at least nine months – a 7% jump compared to the same period during 2014.
According to the Education Department, the number of people with loans that transferred to collection agencies or debt management climbed from 60,000 to 140,000 at the end of the fiscal year in September – more than double. With such a huge jump in loan defaults, many experts are beginning to question those who collect and apply payments.
The main question has been whether or not they are doing enough to keep borrowers current. Researchers at the General Accountability Office have shared the belief that the gap between participation in income-based plans and eligibility is to blame; that is, borrowers are not receiving sufficient information to make informed decisions. Despite the millions of dollars these servicers are paid by the federal government – for the purpose of educating people so they do not later default on their loans – the information given to the GAO from delinquent borrowers is inconsistent.
According to Collections & Credit Risk, “While servicers make information about income-driven plans available through customer service representatives and websites, researchers believe borrowers have to actively seek it out.”
With the number of defaults rising, the government is providing more loan repayment options. These options also include the expansion of programs that cap monthly payments to a percentage of the borrower’s earnings, known as income-based repayment plans. The general belief is that the government’s push for such repayments plans has contributed to the lower rate of delinquencies seen in the first month of repayment. This rate was compared and found to have fallen from 24% in September 2014 to 21.7% in September of 2015.
It is true that there is still a rise in borrowers that are more than 90 days late in making their payments, but the rate for early-stage delinquents is improving. In the words of senior fellow at the Center for American Progress, Rohit Chopra, it is “hopefully a sign that the situation is getting better”.
Despite the obvious need for collection agencies, it is not an easy task for them to secure the merchant account they need to get up and running. Collection agencies are rejected by banks in most cases and are categorized as being high risk; this makes the task of securing payment processing solutions incredibly difficult, if not impossible. With EMerchantBroker.com, however, agencies can quickly fill out an application for a collection agency merchant account. The process is simple, fast and hassle-free. Because EMB is a high risk specialist, the account is tailored to meet the unique needs of the industry. To learn more about what a collection agency merchant account can do for your agency, contact EMB today.