Are student loan collectors targeting individuals in neighborhoods and cities that are largely comprised of minorities? That is one claim being made by the National Consumer Law Center, which recently released a report, which attempted to correlate lawsuits filed against individuals with defaulted student loans and where those individuals live.
Individuals who are sued for unpaid student loans have double the average percentage of Hispanic of Latino populations and triple the average African-American populations, according to the report, which also concluded that most lawsuits are concentrated in five states — Texas, Michigan, Pennsylvania, California, and Florida.
On average, minorities comprise 33% of the population in all ZIP codes. But in ZIP codes where an individual has been sued for not paying his or her student loan, minorities make up 48% of those ZIP codes, “demonstrating the concentration of these suits in communities of color,” according to the report.
“The collection practices used by the government have profound and lasting negative effects on borrowers through the assessment of huge collection fees and the seizure of wages, tax refunds, and federal benefits,” according to the report. “If these effects are disproportionately visited on communities of color, they will strip wealth from already significantly disadvantaged neighborhoods and communities.”
In attempting to understand why collection lawsuits are more common in those five states, the report concludes that it could be because all of the firms that have filed at least 50 lawsuits against individuals are headquartered in four of those five states. In contrast, no lawsuits were filed against individuals with defaulted student loans living in Connecticut, Louisiana, Maine, North Dakota, New Hampshire, Rhode Island, Utah, or Vermont.
Default judgments are awarded in 59% of all student loan collection suits, according to the report, which makes a series of recommendations:
- Track and make publicly available data in order to track racial disparities in student loans
- Take steps to address and prevent racial disparities in student lending
- Review its guidelines for when to refer cases to litigation to avoid punitive lawsuits against borrowers with low balances and no ability to repay their loans
- Rigorously oversee its contractors and ensure that they comply with all federal laws and court rules
- Use its discretion to vacate judgments for bor- rowers who want to get out of default and back in good standing
- Improve debt collection policies in order to make it easier for borrowers to get out of default and in good standing, and avoid collection suits
- Implement better default pre- vention policies, such as automatically enrolling delinquent borrowers in income driven repayment plans, and improving oversight of loan servicers to prevent borrowers from defaulting in the first place
- Implement better default pre- vention policies, such as automatically enrolling delinquent borrowers in income driven repayment plans, and improving oversight of loan servicers to prevent borrowers from defaulting in the first place
