Student Debt Collectors Are Incentivized to Violate Federal-Aid Laws, Bloomberg Reports People who have defaulted on their student loans are sometimes forced into paying back more per month than they can afford - and more than the federal government requires - because private debt collectors are given incentives to violate federal-aid laws, Bloomberg reported this week. With $67 billion of student loans in default, the Education Department is turning to an army of private debt-collection companies to put the squeeze on borrowers. Working on commissions that totaled about $1 billion last year, these government contractors face growing complaints that they are violating federal laws by insisting on stiff payments, even when borrowers" incomes make them eligible for leniency. Boiler Room Education Department contracts - featuring commissions of as much as 20 percent of recoveries - encourage collectors to insist on high payments. Former debt collectors said they worked in a "boiler-room" environment, where they could earn bonuses of thousands of dollars a month, restaurant gift cards and even trips to foreign resorts if they collected enough from borrowers. In October, President Obama announced the expansion of income-based repayment programs for qualified borrowers who are struggling to pay back their student loans. Although federal-aid law does not set a minimum payment for borrowers to enter repayment plans to "rehabilitate" their loans, some debt collectors have demanded minimum payments without disclosing more affordable alternatives, Bloomberg reports. 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 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 (Deanne) Loonin, the attorney at the National Consumer Law Center, which is representing borrowers in the Washington talks with the Education Department. What do readers of The Choice think about the efforts of these companies to collect student-loan debt? Share your thoughts and experience in the comments box below.