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Over the past two decades, tuition at colleges across the country has skyrocketed and students, forced to mortgage their futures, are borrowing record numbers of federal dollars to bridge the gap. By the early 1990s, default rates hit an all-time high, with more than 20 percent of borrowers failing to repay their government-guaranteed loans. To help stem the loss, the Department of Education, in conjunction with the Department of Justice, is now aggressively using the law to rein in latepayers, who find themselves prey to strong-arm tactics designed to squeeze them for the overdue cash.
Enter law firms like the Long Islandbased Sharinn & Lipshie or Mullen & Iannarane P.C., whose attorneys act as bottom-dollar bounty hunters for the government's toughest student-loan cases. Outfitted in suits and armed with just a name, social security number, and sometimes an old address, they track the most evasive borrowers and, more important, their assets. If they locate the debtors, these hired guns contracted by the feds after state loan agencies fail to uncover those in arrears try to persuade them to enter into a payment agreement within 30 days before forcing their loans into default. Such a move not only allows the government to tack a 20 percent collection surcharge onto the interest-accruing debt, but also results in a damaged credit rating for seven years. In worst-case scenarios, the lawyers sue to garnish both wages and income-tax returns.
"Once we find assets, where a person banks, works, or if they own property, we can recover a case," says Francis Mullen, of Mullen & Iannarane P.C. In 1987, the firm was hired by the DOJ to participate in the fledgling Private Counsel Program, a Congressional-sponsored initiative intended to alleviate the overwhelmed U.S. Attorney's office by recovering various forms of government debt; soon after, student-loan debt was added to the program.
But such assistance doesn't come cheap. For firms that secure overdue funds by settlement or suit, their compensation runs, on average, at 30 percent of the total owed. Although only 5 percent of the 10 percent of those who default are actually sued, these actions are testimony to how seriously the government which has allowed students to rack up more than $100 billion in loans is taking repayment. "By the time a case gets to the Private Counsel Program, we have exhausted all attempts to get a borrower onto voluntary payments," says Kathleen Haggerty, a director for the DOJ's brand of rough justice. Currently, the agency has 34 law firms hunting down thousands of debtors.
Zeroing in on violators, according to Harvey Sharinn, of Sharinn & Lipshie, depends on how active a person is. Databases such as credit reports, real estate, and employment listings are the weapons used to nail delinquent borrowers. No doubt today's technology and the booming business of selling information on purchase habits, magazine subscriptions, and credit-card transactions has made pinpointing individuals' whereabouts easier.
Ironically, most agree that the majority of borrowers fall into repayment problems because of legitimate financial hardships. "A small percentage think they can get away with it, but I haven't found that to be a real attitude," says Mullen. Collectors say in the early years of the program they went after delinquent loans dating as far back as the early 1970s and those who owed big bucks. But current cases involve graduates who have been out of school for about five years. "My experience has been the only things students really have is a job," says Mullen. "We concentrate on giving someone the opportunity to pay the darn thing, without immediately garnishing their salary."
That the government has become more aggressive in chasing student debtors is no surprise, considering the billions in loans it has floated, says Richard Fossey, co-editor of the 1998 book, Condemning Students to Debt. "Debt has been collected from easy targets: people who are established and/or who failed to repay their loans years ago," says Fossey. "What we are going to see is the government get to the level of people who have borrowed so much, they can't pay."
New York State has followed the federal government's lead. In 1997, the Higher Education Services Corporation which is responsible for managing student loans began employing outside agencies to work alongside its own collections department to recover late payments. Reducing student default rates is within the best interest of the state because federal aid programs drop from their rolls schools whose students consistently fail to repay. Moreover, states are punished by the federal government, which will only compensate 98 cents per each defaulted dollar. But many borrowers charge that HESC and their hired private collectors harassed them, regularly threatening lawsuits and home repossession, and accusing them of laziness.
Marcie Warhol* claims HESC treated her like "scum" when she had difficulties repaying a $12,000 loan she incurred while earning a master's of education from the State University of New York at Cortland. Having successfully repaid similar loans as an undergraduate, Warhol returned to school in her thirties, and describes her latest experience as "student-loan hell."