The title you are reading is not a misprint. A group of activists, affiliated with the Occupy Wall Street movement, have purchased nearly $15 million dollars worth of debt. In their words, they have “abolished” it. As the new holders of the debt, they have sent out letters to all the affected people saying that they no longer owe any money and that the debt has been forgiven.
One of the purposes behind this program, know as Rolling Jubilee, is to shed a light on the “secondary debt market”. The organizers claim that they have been able to pay off all of this debt at a price of $400,000. Thought 400k is a lot of money, it represents less than 3% of the total debt that was paid off.
As some of you may already know, creditors are able to buy and sell existing debt. It is the reason the student loan bills can come from companies you have never heard of. When creditors struggle to collect on the debt, they will often sell it for pennies on the dollar. The $15 million that was “abolished” was comprised primarily of medical bills. When the creditors couldn’t collect, they sold the debt at a huge discount. Now a bunch of lucky people have their bills forgiven.
Obviously the $15 million in question is a very tiny fraction of the existing personal, consumer, and student loan debt in the United States. However, it does demonstrate a couple very interesting concepts.
1) You have no say in who buys or sells your debt
Unless you have some sort of contract that says otherwise, you have no say in whether or not your bank sells your student loan debt to another organization. For those of you who considered customer service as a factor when you picked lenders, this can be especially frustrating.
The Occupy Wall Street people are not bankers, bill collectors, or any sort of financial institution; yet they were able to purchase millions of dollars in debt for pennies on the dollar. Luckily for the people involved, they had great motives. For some, their debt is sold to ruthless collection agencies. While there is some protection for consumers, such as the Fair Debt Collection Practices Act, it can still be brutal dealing with the collectors.
Seeing how easily all this money changes hands is fairly disturbing.
2) Borrowing money from a creditor is not like borrowing money from a family member
If you borrow money from a friend or family member, you want to pay back ever penny of it on time, and you want to pay it back with interest. Our relationships and our personal integrity are more important than money. Paying back the money you owe to your friends and family is the right thing to do.
If you have struggled paying back your debt and find yourself talking with a collection agency that now owns the debt, it is a different situation. It is entirely possible that they bought your account for a tiny fraction of what you actually owe. Even if you only ever pay back half of your debt and struggle with it for the next ten years, they may still have made a profit on you.
As described by a contributor to the project: “when you get called up by the debt collector, and you’re being asked to pay the full amount of your debt, you now know that the debt collector has bought your debt very, very cheaply. As cheaply as we bought it. And that gives you moral ammunition to have a different conversation with the debt collector.”
Bottom line: Don’t let a debt collector try and convince you that sending them a huge check is a moral imperative. The reality of the situation is much more complicated.