Lawyers drained Linda Brice’s bank account and seized a quarter of her take-home pay, or more than $900 a month. Brice, a first-grade teacher and Coast Guard veteran, begged for mercy, saying she couldn’t afford food, gas or utilities.
Brice’s transgression: she defaulted on $3,100 she had borrowed more than 30 years ago to pay for college. The chief federal judge in Los Angeles took her side, ruling that Brice should pay only $25 a month. The law firm of Goldsmith & Hull – representing the federal government – then withdrew $2,496 from her bank account.
“I am at the end of my rope,” Brice wrote in a May 2009 court filing. “I apologize for taking the court’s time, but I simply do not know what to do.”
Brice’s case shows how tough the government can be when it comes to collecting its share of student-loan debt, which totals $1 trillion, surpassing the amount owed on credit cards. Students who borrow as teenagers and whose degrees don’t pay off confront some of the harshest treatment and fewest chances for a fresh start of any debtors, except those owing child support.
When the U.S. Education Department fails to get repaid, the agency can turn borrowers’ names over to federal prosecutors. In turn, U.S. attorneys are hiring private law firms to retrieve money for taxpayers – after the firms keep a cut for themselves.
Borrowers have almost no way out. Because of a 1998 change in federal law, student loans can rarely be discharged through bankruptcy. Unlike most consumer debt, there has been no statute of limitations on collections since 1991.
William Goldsmith, an attorney with Goldsmith & Hull, the firm that pursued Brice, referred questions to the Justice Department, which declined to discuss details of borrowers’ cases.
The government’s aggressive collection efforts contrast with President Barack Obama’s recent speeches on student debt that stress his administration’s offers of leniency for strapped borrowers.
During a June 7 speech at the University of Nevada, Las Vegas, Obama promoted his executive order making it easier for students to sign up for a program that lets borrowers tie loan payments to their incomes. The loans could be forgiven in 20 years.
Even as Obama makes those statements, student-loan borrowers who default are being pursued and punished more severely than just about any other kind of debtor, said Deanne Loonin, an attorney with the National Consumer Law Center, a nonprofit advocacy group in Boston.
“It’s a huge contradiction,” Loonin said. “It’s misleading to say you’re being more flexible when you’re being so aggressive with people who are already in default.”
The Education Department turns to lawsuits as a last resort, said Justin Hamilton, a spokesman.
Former students must stop making payments for at least four years before they are sued, Hamilton said. The Justice Department gives borrowers a chance to settle their debts before filing a lawsuit, Allison Price, a spokeswoman, said in an email. •