mug blittStudent loans have been a fixture of the American higher education system since the late 1950s when the launch of Sputnik led to the National Defense Education Act. Wider support for higher education followed with the Higher Education Act of 1965. As a result, most of us probably have personal experience with student loans. However, the amount of money involved in student loans has never been higher. A recent New York Times article revealed student loan debt may exceed $1 trillion dollars, causing an examination of both the positive and negative impact of these loans on the economy and young graduates seeking work to repay these loans.

 

Student Loan Collections

In the world of collections there are various avenues of business opportunities. One such area is the collection of student loans. Student loans can be government backed or issued through a private lender. Where the government is the lender, the firm may be required to engage an extensive “on boarding” process. Due to competitive bidding regulations, the firm may be required to prepare an RFP (request for proposal) in order to be considered for the opportunity to do the work. The RFP, in my experience, can be very detailed and require a fair amount of time to gather the specifics in order to accurately fill out the forms and provide the requested documentation. Thereafter, the government entity will submit the RFPs to a board or its internal authority for approval. The goal of the approval process is to create fairness in the entity’s choice of vendor and also to allow equal opportunity. I don’t believe that the contract will always go to the lowest bidder. Obviously, I’m talking about the firm’s fee for doing the work. After going through this lengthy process, getting the go-ahead to do the work can be very gratifying.

 

Advantages and Disadvantages to Collecting on Student Loan Debt

The challenge of students repaying these loans presents many of the same challenges in recovering them for the lenders. One advantage of a student loan portfolio is the potential for a high volume of placements. Most graduates are young and their degree should lead to jobs allowing them to repay the loans. Another advantage to collecting student loans is the existence of parental co-signors that may increase collectability. Finally, though politically controversial, many student loans are non-dischargeable in bankruptcy.

 

For the same reasons that collecting on student loans can be attractive, there are also many hurdles. Due to the high volume of student loan debt and the media attention, there is a focus on limiting the amount of interest charged and their requirement regarding forbearance agreements to safeguard the consumer. Also, an obstacle in the effective handling of these claims is the necessity in keeping track of the co-signors on these accounts. The same student may have several different loans, some co-signed, some not, some co-signed by different people such as mothers, fathers, grandparents or step-parents. This means it is likely there will be multiple addresses and parties related to an account. Now, the firm has to determine whether to file a multi-count complaint where each count may have a different loan and different defendants as well as properly allocating funds, and reconciling balances. Managing notices of bankruptcies to determine if the account is dischargeable as well as loan consolidations, to ensure the consolidation covers all affected accounts in your office is critical to effective representation of your client. Clients may require interest to accrue through the date of judgment, making the timing of receipt of affidavits touchy. And, in certain government funded loans, your ability to negotiate balances for settlement may be greatly limited.

 

What the Student Loan Complaint Contains

When the account is placed with the law firm, each claim and the student loan contract will require an initial review to determine what the interest rate is and whether attorney’s fees are allowable. That initial work will set up your internal file so that you have all the information needed to file a court case. What’s ultimately prayed for in the complaint will depend upon the jurisdiction where the complaint is to be filed. If you receive your files from a third party, authorized government collection agency, there may be legally authorized collection costs. Special consideration should be given to making sure all the correct parties are named and included in the complaint.

 

In our office, an emphasis is placed upon collecting compliantly. That hopefully will make the members of your firm and its client happy!

 

 

Fred N. Blitt, Esq., is a partner with Blitt and Gaines, PC in Illinois and Couch, Conville and Blitt in Louisiana. He is past president of NARCA. Contact: This email address is being protected from spambots. You need JavaScript enabled to view it.