“The Crisis Has Become Pandemic” – System To Collect Defaulted Student Loans Is No Longer Functioning

by | May 7, 2017 | Headline News | 48 comments

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    This report was originally published by Tyler Durden at ZeroHedge.com

    The system used by the Dept. of Education to collect on defaulted student loans came to a standstill in the last month, leaving an estimated 91,000 accounts in limbo, when the agency ordered debt collectors under contract to stop making collections on accounts.


    As Consumerist’s Ashlee Kieler reports, consumers who expected their student loan payments to be deducted from their bank accounts this month have reportedly found the funds untouched, and their calls to the companies unanswered thanks to a Department of Education’s order prohibiting the debt collection companies from working on default accounts in response to two lawsuits against the agency.

    The strange turn of events began with a lawsuit filed by two debt collection companies, who claim they were unfairly were fired by the Obama-era Education Department for poor performance. On March 29, the judge issued a temporary restraining order that prevented any new defaulted borrowers from being assigned to debt collectors and put into rehabilitation programs. Instead, the borrowers have piled up inside the department’s system, waiting.

    On April 21, the government ordered the debt collectors involved in the suit to stop work altogether on defaulted accounts: no phone calls, no withdrawals from student accounts, nothing.

    The Education Department and the Justice Department are partly to blame for “unnecessarily” throwing a wrench into the entire defaulted loan system, one attorney with knowledge of the case told BuzzFeed News, because they’ve been unable to come to a resolution that allows the loan system to kick back into gear. “There’s no fix in sight.”

    Judge Susan Braden has extended the emergency order [PDF] several times since then, noting that it was made to “preserve the status quo to protect the interests of all parties and to afford the government an opportunity to reach a global solution” to two lawsuits against the Dept. of Education.

    The cases, filed separately by several debt collection firms, claim that the Dept. of Education unfairly terminated their contracts with the companies.

    More recently, the Dept. of Education ordered servicers to stop work on defaulted accounts. The actions, the companies argued in court filings [PDF], “fundamentally alter the status quo and are not fiscally responsible to the borrowers or to the federal taxpayers.”

    “Thus, the well-documented student loan crisis will become a pandemic not because this Court ordered that result, but because [Dept. of Education] thinks that is what this Court expects,” the companies argue.

    This week, the Dept. of Education submitted a court filing detailing how the Judge’s order and its subsequent suspension of collection activities has affected consumers, Career Education Review reports.

    The Dept. claims that the action “has effectively shut down the Government’s defaulted student loan collection program,” with an estimated 91,000 borrowers now stuck in limbo because their accounts weren’t assigned to a debt collector in April.

    Additionally, the Dept. argues that by not assigning borrowers to collectors “tens of thousand of borrowers have been prevented from gaining access to rehabilitation programs” and other benefits.

    BuzzFeed News reports that debt collection agencies say that since the Department ordered a stop to collection activities they have been inundated with calls from borrowers.

    However, the companies can’t help the customers. This, they claim, has resulted in thousands of messages and complaints from borrowers.

    The collectors, BuzzFeed reports, claim that because of this borrowers will re-default and those enrolled in repayment programs could lose their eligibility.

    Suzanne Martingale, policy staff attorney for our colleagues at Consumers Union, tells Consumerist that the stop in collections and payments could do “untold damage to borrowers.”

    “Meanwhile, they’re going to rack up a ton of charges as more interest accrues on their loans,” she adds.

    As the work stoppage drags on, consumer protection advocates are confused about where borrowers stand, especially given a tangle of other lawsuits involving the loan companies and the government. “The whole process has been completely mind-boggling,” said Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, who called the standstill “mystifying from a consumer protection standpoint.”


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      1. Off Topic. Looks like the sheeple of France decided they wanted the globalist Rothschild
        puppet Macron. The ECB and Merkel will celebrate.

        • I bet the federal reserve is celebrating. Let the phony bank loans sky rocket ?

        • Yes. Looks official now. Pains me to say it. Chalk one up for the globalists.

          • College loan funding is a huge scam. Colleges colluding with lending banks create massive phony debt and fraudulent loans on the backs of naive students. The loans and paperwork is hidden until after 4 years and 6 months when the student is then required to pay. Come to find out more bogus identity theft loans were taken out in the students name. By the time the student figures this out, and bundles all the fraud loans into consolidation, washing the hands of the school and the bank thieves the student is strapped with fraudulent loans for life, since they are guaranteed by the Government who will will then steal 15% of your Social Security payments when you try to retire for repayment. You retire never being able to get rid of the fraud loans. It is one big scam from the beginning. NEVER CONSOLIDATE YOUR STUDENT LOANS AS THAT IS A PRIVATE LOAN On You WASHING THE HANDS OF THE FRAUDSTER COLLEGE AND BANK AS THE GOT AWAY WITH THEFT. THIS HAPPENED TO ME. However. I always disputed the loans, never paid, and never consolidated which all the paper they got is forged loan paper they will never be able to collect on. Be smart people. Think.

            • You are only forced to pay your student loans if you are white.

        • Nameless, I saw that earlier. The EU has just be given a new lease on life, it appears. The French will never learn. Their only chance for salvation was Marine Le Pen and they blew it choosing the POS globalist macron. Can’t fix stupid.

          • France has fallen Europe is finished never to return at least in our life time. History shows us the Muzzies had it for a few hundred years before. But this time they made it beyond the Rhine something Romans had a very hard time accomplishing. Remember the infamous 9th legion got lost in the forest. Charles Martel of France finally led the beat back of the muzzies. No Martel today. Turkey will Rule the Region and is looking West across the pond.

            I suspect the countries behind the ole iron Curtain will be up for Muzzie invasion like never before. This will keep Russia very busy and that will make EU, Soros, McCain and Graham very happy. White Western and Eastern Europeans are going to die they will cease to exist either through breeding or murder. The French election will make this possible. France will be the seat of Muzzie Europe!

            The US will see a substantial increase in riots and move even closer to civil war. Home grown Commies will continue to destabilize the US with DC and Chewish Globalist direction under “O”. Many states continue to talk about leaving the Union under the Convention of States, if this occurs the military will be fragmented and no protection for the country. Which makes conditions ripe for invasion. But they will kill off the US military anyway. We can see they serve the interests of other non US agendas. America will look like the ME, death and destruction. White people will face the same as Europe along with anyone else who desires Freedom. Under O we lost jobs which means negative economic impact. Healthcare costs finished that, smart on Globalists part.

            Most Americans are too stupid to see what is coming. Part of Americans are just plain frustrated and not sure what to do and/or lack the means. The rest are brainwashed having no clue of history and will embrace their demise. DC is the enemy against Americans. Some how they think when the take over happens they will be spared. However, history shows us again that Leaders are the first to go under the new commands.
            Unless some serious action here at home is taken Western civilization is GONE!

            Welcome to the George H Bush’s New World Order. The US has made the world hate her by all the meddling no other country will assist but plot to invade. The land/climate is NICE!

            Its interesting to watch all the moving parts being put in place but terrible when you see the outcome. I do have to wonder why “White” people of the north are so hated. They were fine until Rome showed up then the unreformed Roman Catholic Church. The only other problem Northern Europe had were the Khazars from the east. History is very interesting indeed.

            Prep, yes, but enjoy the last year or two while you have it. 2018, I suspect will be the game changer.

        • Apparently the French haven’t been paying attention to the “cultural differences” in Sweden and Germany…. or maybe they just think they can handle these things better. Let’s see how they feel after another ten years of attacks and slaughter at the hands of “refugees”.

      2. Department of ” Education ” .

        That says it all .

        • No jobby, no pay off loney

        • Probably massive election fraud in France. Hey we voted for Trump and he is 95% Globalist Neocon war monger zionist.

      3. You cannot get blood from a turnip anyway.

        • Menzo, I’m LMAO at this article. I’ve always said if you want something ruined, get government involved in it. It figures.

      4. Too many college graduates living in their parents’ basement.

        • Not much out there in terms of real jobs.

        • Worse, grown people are banning together with kids grandparents all living together. My neighbors are like that and they are squatters, house not even theirs. I blame Obama and the liberals for it all.

        • The degrees in Call to duty Nintendo playing, useless gender masturbation studies and pot smoking while rioting are so useful. The parents appreciate their useful spoke coming home to fester in their basements and mooching Cheetos instead of supporting themselves too….

          My kids better figure out how to survive at 18 somewhere else, I’m burning the couch and filling the basement in. Be useful or be gone, but don’t be a vacuum on my work and income. I wasn’t to my folks, won’t tolerate it from them either.

          • …useless spoor coming home….

            • yes…just like a fungus…..

      5. Looks like a replay of 2008 on the way with a side bowl of shit salad.

        • Yes, I can’t wait to watch my fellow employees lose everything in their retirement accounts oh boy oh boy?

      6. Are you telling me my degree in 18th C. Belgian Lesbian Musicology from Pisgy Switch State U, for which I spent 100k isn’t going to get me a 90k/yr job???

        • TEST, LOL! Nice sarcasm.

        • TEST: You should have majored in Pre Columbian Art History instead. Serves you right !!!

          Starbucks is hiring Lesbian Music Freaks as baristas at its “pop up” coffee shop at the Coachella Music Festival …. next year.

          Get your application in early. After SHTF the lines will be backed up to Riverside. 🙂

      7. Why is the government using collection agencies? Take their federal tax return until the debt is paid. That’s the way they used to do it. You know the collection agencies are getting a cut of the money.

      8. Blacks and Communist agitators.


      9. My son was denied a government/Military job becsuse he had a student loan.
        You need a job to pay your loan but becsuse you have a student loan you c a n not get a job

      10. These loans are nothing but highway robbery. Interest on interest or compound interest should be outlawed.


      11. Just another program that Obama wanted to collapse along with others to collapse the entire system. He never intended to have it paid back. Another Cloward&Piven strategy to totally collapse the total system. Free education,basically free housing,phones,etc. It can’t go on.

        • Do they still call them Obama phones now that he’s gone? Its amazing how people know where to get all the free shit.

      12. Don’t know about that. A guy I work with had loans and they garnished a substantial amount of his pay each week. He was all excited one day when he was all paid up. If you don’t have anything they can’t get anything but if you have a job they can garnish. Any college or training program that don’t give job placement after completion is a $ grab. Your tuition$ pays educators salarys. If you go out on a limb for 10yrs with a student loan you got suckered. I work with people with degrees and make same or more $. Most college educated people think they don’t have to do anything and they know more than those who don’t have a degree. I may not have a degree but I don’t have $60,000 in student loan debt. Who’s the smart one. ?

        • Asshat, spot on. I’m not in debt on anything, period. No loans, credit card bills, ZERO, ZIP, NADA. My old Honda I bought for $1800 CASH from a private owner. I don’t have enough income to play with credit anyway. That’s how I’m able to prep as well as I do. I don’t let credit or anything else interfere with my prepping. My prepping is my NUMBER ONE PRIORITY to me. we have a certain poster here whose name I won’t mention that occasionally ridicules me for living without credit and thinks I’m stupid for not having any credit. I’m living proof that YOU DON’T NEED A CREDIT CARD TO LIVE. I know people at work who are underwater on credit card debt and even car loans. I DON’T GO OUT AND BUY STUPID THINGS I DON’T NEED ON A CREDIT CARD AND RACK UP TENS OF THOUSANDS OF DOLLARS IN DEBT. If I did that I couldn’t prep at all. I only buy SENSIBLE things I need for prepping and use cash for most of my transactions. I’ve got a debit card I use for paying 2 bills every month and that’s it. I’m debt-free and manage my money very sensibly and responsibly. And the ‘certain poster’ thinks I’m STUPID for NOT being in debt on something? Go figure.

          • Braveheart. I became debt free last last year, so I hear you. It was like a ton of bricks taken off my back. First time I’ve been debt free since 1993. Going to stay that way. Man is free
            when he decides he is free.

          • Braveheart. I am the 2nd owner of my 2005 Pontiac. I will be the last owner of that car. I will
            drive that joker all the way to the junkyard. Anything beats being a slave to a car note.

        • Only people who don’t have degrees say that those degrees are worthless. Don’t put people down for trying to better themselves, even if the end result was not what was expected. School takes a lot of work and focus, and yes, people who have a degree do know more than those who don’t. I’m not saying they are better or smarter people, but they have more education. That’s what they owe money for, that’s what they bought – knowledge. According to your logic, people should not get loans for houses or cars either, right?

          • People should better themselves and it is encouraged.

            However, trillions in debt for worthless degrees and not even trying to pay them back in many cases is the PROBLEM.
            I end up having to pay More TAXES!

            Even worse are the brainwashed Communists the Federal Dollars are paying to turn out. That’s insanity!

            But the line will be drawn by many when those dumbazz brats claim whiteee owes them and we should give it up!

      13. This is why you “pay as you go” when you go to school, I did. My uncle who was a doctor did. This article is about people that defaulted on their student loans. Most people pay their student loans. I wouldn’t call defaulters a “pandemic”. I’d force the department of education to stop all education and loan activites, turn them into bill collectors and put the department completely out of business when the last loan is paid off or forgiven.

        • Rellik, colleges are not what they used to be. These people coming out of college nowadays are as dumb as rocks. I don’t mean to sound like I’m bragging but I know I have a lot more sense and brains than those kids and I DON’T have any degree. When the student loan program first started that was one thing that made colleges go downhill, not to mention all of the political BS.

      14. As long as there is also a policy that no student loans will be issued by the government until they have the means to collect the money/payment back for the American public–after all, it really is the taxpayers who are lending the money to students, the government is just the shady middle man.

        • If that’s the case, the USGov won’t stop, its not in the shady middle man’s interest to.

      15. Pay as you go is best rellik. You run into problems just pull out for a bit and keep your college credits. Then resume without debt

      16. Hmmm. So collection agencies hired to collect delinquent loans for the college loan programs were mean to students who took loans out for useless degrees and now can’t pay them back?

        Naughty collection agencies. Of course the students were all honor students.

      17. PTPO, LMAO! Very nice sarcasm!

      18. I wonder if after the 2008 crash many figured I’ll get a student loan and go to colledge instead of food stamps? By the time I get out the economy will be recovered and I’ll get a better job? Now 6 years later most are out and there are no jobs and they have big debt. Try paying off 4 or 6 years of colledge making 10 dollars per hour. Think they’ll be having kids? Selective genocide to idiocracy? A more manageable population ? The ultra rich want more . So give it up or die.?

      19. Gee, you don’t think 8 years of Obama encouraging “FREE” college has anything to do with this…..oh no…or the fact ultimately it is yet another De facto wealth transfer in actuality from poor people using loans to the wealthy elite, destroying America…..something Obama wanted above all else…cool thing is is that the biggest fleecing will be all the morons who should be in college anyway because they aren’t there for academics but to party like it’s 1999. But let’s all boo hoo the morons who are screwing themselves silly by misusing the education system as a socialist Utopia of all play at someone else expense, I love a large crowd of useless unemployable stupid losers who will perish first when economy collapses…useless breeding fools.

        • This just fans the human overpopulation problem in the end, more ironic flesh for the grinder….oh well like a virus we do multiply until poof, we snuff ourselves out…500 millions is more like and more attainable, and mother nature will always snatch a species back to reasonableness.. she never fails to.

      20. Now, another bubble, this time in the car and SUV industry…

        The debt-bubble landmine Obama left for Trump
        “President Trump came in for much jeering when he told reporters he had “inherited a mess” from President Barack Obama. On the economy, though, Obama did indeed leave behind a hidden mess: a seemingly healthy jobs market dependent on cheap debt.

        When this debt bubble bursts, just as the last one did, the manufacturing jobs Trump wants to save will be in even greater peril.

        The country’s last bubble was in housing. Between 2000 and 2007, Americans nearly doubled their mortgage debt, from $5.9 trillion to $10.6 trillion.”

        Now, there is “another bubble, this time in the car and SUV industry…”

        “But who is borrowing for used cars — and at much higher interest rates — is a huge concern.

        People with not-great credit scores have always made up about a fifth of the auto-loan market.

        But the percentage of people borrowing even though they have really bad credit scores has surged, reports Bloomberg. It’s now a third of the subprime auto-bond market, up from just 5 percent seven years ago.”

        “…this bubble presents a much more direct risk to the economy — and manufacturing jobs. If people with terrible credit can’t borrow an average of nearly $18,000 to buy a used car (what the DriveTime customer pays), the market for used cars collapses.

        That, in turn, affects the market for new cars.”

        ht tp://nypost.com/2017/05/07/the-debt-bubble-landmine-obama-left-for-trump/

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