These companies receive that fee only if borrowers make a minimum payment of 0.75 percent to 1.25 percent of the loan each month, depending on its size. For example, a $20,000 loan would require payments of about $200 a month. If the payment falls below that figure, the collector receives an administrative fee of $150.
That differential provides an incentive for collectors to insist on the minimum payment and fail to reveal when borrowers are eligible for a more affordable schedule, according to Loonin, the attorney at the National Consumer Law Center, which is representing borrowers in the Washington talks with the Education Department
Customers benefit from successfully rehabilitating a loan, because they repair their credit, and the government removes thousands of dollars in fees and collection costs, the Education Department and Sallie Mae said. Taxpayers, rather than borrowers, pay the rehabilitation commission, according to the agency. Students who immediately sign up for income-based plans, through a program called consolidation, don't get those benefits, Sallie Mae and the Education Department said.
Automatic Dialers
Debt collectors are under pressure to extract as much money as they can up front, or lose their jobs, said J.C. Cournan, who worked for Pioneer Credit Recovery from 2004 through 2007.
Collectors, then paid about minimum wage, could earn thousands of dollars a month in bonuses, based on the money that borrowers repaid, said Cournan, who took the upstate New York job out of high school. Pioneer set monthly goals for wage garnishments and loan rehabilitations, he said.
Using automatic dialers to track down borrowers, Cournan would figure out where they worked, then contact their employers. He would tell borrowers that he was going to seize part of their wages if they didn't make the payments. Using a company loan calculator, Cournan would insist on the minimum payment, he said.
"When wou're making 8 bucks an hour, it's all about the bonuses. You're starving," said Cournan, 26, now an auto mechanic.
Gift Cards, TVs
Pioneer maintained a "boiler room" environment, with high turnover among those who didn't perform, said Joshua Kehoe, a former collector. Kehoe worked in Batavia, New York, from July 2006 through October 2008 after managing a pizza stand at a theme park.
Pioneer rewarded collectors with $100 restaurant gift cards, a $500 mahogany jewelry box, televisions and a trip to the Dominican Republic, according to Kehoe, who said he earned $9.60 an hour before the incentives.