A $144,000 Student Default Shows Who Profits At Government Expense

By Janet Lorin
Bloomberg News.

Jody Sofia borrowed $92,500 to get a degree from Florida Coastal School of Law. Now she’s in default, her outstanding balance having ballooned to almost $144,000, and she spends her days fielding calls from government-contracted debt collectors.

The companies making those calls are just one part of a system feeding on federal student loans. There are also debt servicers, refinance lenders, firms that help former students stay out of default and for-profit schools that make money as borrowers try to repay more than $1.2 trillion in government-backed education debt.

Sofia is one of 7 million former students in default on a record $115 billion in federal loans, an amount that has grown almost 25 percent in two years, according to U.S. government data. The mountain of debt, for which the government is on the hook, has provided a stream of revenue to companies throughout the process.

“This is not some small cottage industry,” said Rohit Chopra, the former student-loan ombudsman for the U.S. Consumer Financial Protection Bureau, which oversees loan servicers, debt collectors and private student lenders. “There is a large student-loan industrial complex. Rising costs of college and flat family incomes have created enormous business opportunity for every step of the loan process.”

Sofia, who didn’t take the bar exam and never got a job in the legal profession after graduating from Florida Coastal in 2004, says the system is dysfunctional. Derailed by illness and having to care for ailing parents, most of her income has come from working as an independent insurance adjuster, the same thing she was doing before going to law school. While she has made some payments, interest on the loans keeps accruing.

“There’s something really wrong with this system,” said Sofia, 45, who was born in Florida, raised in the New York area and recently moved to the West Coast. “The government is spending all this money for these people to constantly call you. How effective is that?”

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