"We have helped thousands of student-loan customers in default get back on track to fulfill their obligations, giving consumers the opportunity to improve their credit and providing cost savings for the American taxpayer," Patricia Nash Christel, a Sallie Mae spokeswoman, said in an e-mail.

New Rules?

The Education Department this week will hold meetings with industry, government and consumer representatives to consider requiring that debt collectors automatically offer payments based on income to defaulted borrowers who qualify. If approved, the rules could take effect in July 2013.

"We want to make sure we are striking the right balance between helping borrowers who have hit hard times and honoring our responsibility to be good stewards of taxpayer dollars," Justin Hamilton, an Education Department spokesman, said in a phone interview.

To protect customers, the department randomly monitors tape recordings of student-loan debt-collection calls, Hamilton said. The department is also considering changing the commission structure in its debt-collection contracts, he said.

The agency encourages students to file reports if they feel mistreated, Hamilton said. In the year ended in September, the department received 1,406 complaints against the debt collectors it hires, up 41 percent from the year before.

Collectors' Power

Under U.S. law, student loans can rarely be discharged, even in bankruptcy, making them more difficult to shake than credit cards or past-due mortgages. The government can also confiscate tax refunds and Social Security payments, as well as paychecks.

"Student-loan debt collectors have power that would make a mobster envious," Harvard Law Professor Elizabeth Warren, who helped establish the Consumer Financial Protection Bureau and is now running for a U.S. Senate seat from Massachusetts, said in 2005.

Under Education Department contracts, collection companies "rehabilitate" a defaulted loan by getting a borrower to make nine payments in 10 months. If they succeed, they reap a jackpot: a commission equal to as much as 16 percent of the entire loan amount, or $3,200 on a $20,000 loan.

Incentive Pressure

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