The government often pays debt collectors nearly 40 times what they bring in, federal records show. Take the government’s rehabilitation program, which targets people who have defaulted on their debt—meaning they missed nine months of payments. If a borrower subsequently makes nine on-time monthly payments of as little as $5 during a 10-month period, their loans are returned to good standing and the default is supposed to be wiped from their credit reports. But the CFPB found that more than 40 percent of these borrowers defaulted again within three years.
Close to 80 percent of borrowers who rehabilitate their debt make the minimum $5 monthly payment, according to a 2015 estimate by the National Council of Higher Education Resources, a lobbying group that represents student debt collectors and servicers. That means the Education Department is paying its debt collectors up to $1,710 per borrower to collect around $45, regardless of whether the borrower continues to make her payments.