Who is Helping Consumers With Defaulted Student Loans?

Clearly, the biggest surprise in consumer borrowing since the crash has been the explosive expansion of student loan debt. It has surpassed both auto lending and credit card lending. And, since it ties with Payday Lending and pre-crash sub-prime mortgage lending for the thinnest underwriting there are defaults aplenty. 

Consumer advocates are rightly urging the Department of Education to provide simpler and clearer paths forward for consumers with student loans in default but many people still need a helper.  As defaults in mortgage loans and on credit card loans have fallen, providers who live on the profits of counseling people who default on those loans have turned their attention and their advertising and marketing to consumers who are in trouble on their student

Since bankruptcy offers very little to this crowd, and sometimes their social security payments might be offset, and collectors can be very aggressive, people in trouble on their student loans can be desperate for help. Hopefully, a greater percentage will be able to fix their problems themselves with clearer Department of Education guidelines and procedures; still, the National Consumer Law Center issued a well-advised Caution a few years ago about the folks who were purporting to help. Similar to mortgage loans, the world of government student loan defaults is many times more complex than the world of credit card defaults. 

Even in that simpler world of credit card defaults an expert such as then Professor, now Senator Elizabeth Warren years ago warned consumers to stay far away from all consumer credit counseling agencies. here Now these counseling agencies have stepped in in a big way to purport to help those with student loan defaults. Several of the largest providers piloted an effort which now has expanded to the National Foundation of Credit Counselors.  here This effort is new so it is too soon to evaluate the results. Suffice to say the standards in the credit counseling world have not been high and there is a worry that this will be a back door approach to sell the student loan borrower a debt management plan, which remains a high profit item. 

All of this points out the larger problem. It is shocking and sad that there is not a college major in "helping people in financial trouble" (other than consumer bankruptcy lawyers); nor is there much of a professional job market for people who learn these skills and graduate. Forty years ago social work schools taught these subjects but that was largely abandoned. The good news is that the financial literacy education and the savings/i.d.a folks have made progress in both the college curriculum and the job market; that is great, but it does NOT provide a route for helpers of those who have already stumbled.  We have both an educational route and a career line for those who want to counsel people with problems related to child abuse, spouse abuse, domestic difficulties and alcohol and substance abuse, and many routes for those who want to provide financial counseling to consumers with money. The overwhelming number of consumers in financial trouble who do not choose bankruptcy seek help from the large phone bank providers who do not look or act at all like high quality human service providers. Although there are outstanding individual counselors, the pay and the various service restrictions and the methods of reimbursement and the people who run the large providers operate against traditional social service functions.  

It is a chicken and egg problem; it is hard to create experts if there are no jobs that pay for that expertise and provide a professional high quality social service setting; and it is hard to establish such a job line until there is a training ground. All of this requires an economic solution. F0r years the world of credit card counseling was well-funded by revenue from the debt management plan; the mortgage counseling world was government funded. Someone needs to step forward now and begin to build a network of helpers and raise standards and pay so that it becomes a high quality human service profession that can help.