One portion of President Obama’s deficit-reduction plan will make it a lot easier for creditors to contact people who owe money on their student loans. This has consumer protection groups very concerned. According to an article by Collin Eaton in the Chronicle of Higher Education:
The plan—one of a number of proposals in President Obama’s $3-trillion deficit-reduction plan that seek to enhance the government’s ability to collect on debts it is owed—would let collectors use automated dialing to call delinquent debtors’ cellphones, a method they already use to call land-line phones.
Under current law, federal agencies are allowed to contact cellphones by dialing manually, but not automatically. The White House says the change it is seeking simply reflects the fact that many people use cellphones only these days. In an e-mail, a spokeswoman for the Office of Management and Budget said the provision would help the government recover millions of dollars in overdue student-loan debt and help reduce defaults.
In the grand scheme of things, this is pretty weak. The real problem is that students have such massive loans; the way their creditors contact them about it is sort of irrelevant.
According to the article, contractors working for the Department of Education, the Department of Health and Human Services, and the Treasury don’t end up collecting much money. They collect less than 10 percent of the money they’re trying to get from borrowers.
The rule changes probably won’t move that number very much. In general people don’t pay their student loans because they can’t afford to do so, not because somehow they haven’t received enough phone calls.
The financial services companies would, however, make more money with the rule changes. Under current regulations, people employed by debt management companies have to actually dial and speak to debtors. If the companies could just automatically dial loan holders, however, it would be a lot cheaper for such companies to operate. It’s unlikely that the federal government would be able to collect any more on its debts, however.