wall street sign to profit on student debt

Wall Street looks to profit on Student Loan Defaults

Michael Lux News, Student Loan Blog, Student Loans 2 Comments

Editor’s Note: This article was originally published June 19, 2014.  It has been updated to remove links to other websites that have expired.

Sometimes it seems that with each passing day, things look more bleak for student loan borrowers.  Today is one of those days.

FOX Business is reporting that a leading investment group is considering buying up companies that specialize in collection of defaulted student loans.  Their reasoning is simple.  Student debt continues to grow.  The cost of college continues to grow.  Each year more students fall into default, and Washington hasn’t displayed any ability to make a tangible difference in any of these problems.

For current holders of student debt, there should be two big takeaways from this news.

1) Defaulting loans is big business

Companies that service loans only get on average $21 per year to handle the loans.  However, companies that collect on defaulted loans get 10 to 15 percent of the money they bring in.

The big money is in defaulted loans.  If companies are going to make more money on your default, it means that it is critical you don’t rely upon them to avoid a default.

Telling your lender that you can’t afford your payment and that you may be going into default could be exactly what they want to hear.

Use whatever information you can find about the company you are working with to find a way to speak their language.  These guys care only about the bottom line.  If you are trying to stay out of default, convince your servicer that the best thing they can do for their bottom line is to help you.  It is a tough sale, but it could save you a lot of money in the long run.

2) We are not getting any help from DC anytime soon.

As one Wall Street executive put it:

“There is a strong push by the administration and both sides of congress to lower the number of loans that enter default (meaning fewer loans will be sent to the collection agencies).  This could slow the growth in defaults and cause investors to determine these firms are no longer a good investment”

Despite well publicized student loan proposals in Washington, there seems to no sign of any meaningful changes around the corner.  Borrowers need to either find a way to change the status quo in DC, or accept this reality.

The bottom line

The big investment firms pay a lot of money to very smart people to analyze the market.  Right now, these bright minds see nothing but bad news on the horizon for student borrowers.


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Stu @ Poor Student

Oh wow it’s actually new information for me. Crazy how the system works — how universities charge high tuition fees that make the students have to take out loans which they can’t actually pay because of not enough ROI from their education later after they graduate.

The Student Loan Sherpa

Yeah, these days it seems like everyone is getting rich off of higher education except students. It really is crazy.