Friday, June 15, 2012

Government Thumb-Breakers

Feds engage in same deceptive lending practices they accuse private firms of practicing

When President Obama signed the controversial overhaul of the federal student loan program into law in 2010, he declared victory over “bankers and middlemen.” To this day, however, the federal government continues to engage in some of the same deceptive lending policies private firms are frequently accused of practicing.

Most glaring, experts say, is an extraordinarily high collection penalty—up to 25 percent—imposed on students who default on their federal loans.

“It just doesn’t seem all that fair,” said Mark Kantrowitz, a student loan expert and founder of Given the “very powerful tools” the government has to compel repayment—such as wage garnishment, the seizure of tax refunds, federal benefits, and lottery winnings—the 25 percent fee is “very high,” he told the Washington Free Beacon.

Though private lenders may charge similar fees, their collection rate is far lower, he said. A spokesperson for Sallie Mae, the largest private student loan purveyor in the country, told the Free Beacon the company “does not assess collections fees when a private loan defaults.”

Kantrowitz said some students could end up spending an additional nine years repaying a federal loan (on a standard 10-year plan) in order to cover the cost of the fee.

“It’s the kind of draconian penalty that would have critics up in arms if it was being imposed by a private lender with the government’s dominant market share,” writes Fortune magazine’s David A. Kaplan, who notes that one in six student in default are assessed the 25 percent penalty, even though many do not end up paying the full amount.

And there is this...

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