Joshua Mandelman made $454,000 in a single year as a student-loan debt collector — more than twice the pay of the U.S. secretary of education.
His boss, Richard Boyle, chief executive officer of Educational Credit Management Corp., received $1.1 million in 2010, including commuting expenses from his ranch in New Mexico. Five other managers each took home more than $400,000.
ECMC, a Minnesota nonprofit group, owes its success to an 18-year-old agreement with the U.S. government. The company charges fees to borrowers and earns commissions from taxpayers — totaling as much as 31 percent — when it collects on defaulted student loans. Those rich rewards, which are approved by Congress, are sparking criticism that ECMC and similar collection agencies are reaping a bonanza from former students’ pain.
The loan program “is enriching collection agencies and undermining a goal we all want for society — to encourage people to go to college,” Robert Shireman, a former deputy undersecretary of education under President Barack Obama, said in a telephone interview.
ECMC is one of 32 little-known “guaranty agencies” that play a key role in the world of higher-education finance. They overseestudent loans for the U.S. Education Department, which began its lending program in 1965. The groups guarantee loans made by banks and other private lenders. They promise to repay the lenders if borrowers don’t. If the agencies can’t recover the money, the federal government takes over the loan, shifting the risk to taxpayers.
Scholarship Money
ECMC says it helps keep federal financial-aid programs solvent by recovering taxpayer money. Since its founding in 1994, the company has returned $4.3 billion to the U.S. Treasury, said Dave Hawn, ECMC’s chief operating officer.
The agency’s collectors steer borrowers into affordable payment plans, repairing their credit and turning their lives around, Hawn said in a telephone interview. ECMC also funds more than $20 million a year in college scholarships for low-income students and runs financial-literacy and higher-education counseling programs.
“I’m really proud of what we do as an organization,” Hawn said.
ECMC’s debt collectors earn bonuses as a reward for extracting money from defaulted borrowers. In 2010, the bonuses for top performers amounted to as much as 10 times their base salaries, which ranged from about $33,000 to $46,000, according to the company’s tax return.
Highest-Paid Collector
Mandelman’s $454,000 was more than double his pay in 2006, making him ECMC’s highest-paid collector, tax records show. Four other debt collectors took home between $301,000 and $389,000 in 2010.
In an interview outside his home in Minneapolis, Mandelman, 32, said he works 12-hour days helping borrowers get their finances back on track. Thank-you notes cover his desk, he said.
“I did well,” said Mandelman, part-owner of the Amsterdam Bar and Hall, a restaurant and nightclub in nearby St. Paul. “I worked hard. I also helped a lot of people.”
U.S. higher-education debt is sounding alarms in Washingtonas defaults more than doubled since 2003, to $67 billion. Congress is debating whether to halt the doubling of interest rates on some student loans in July. With college costs soaring, outstanding student loans have spiraled over $1 trillion, surpassing credit-card debt.
Hitting the Jackpot
If an agency “rehabilitates” a loan — getting borrowers to make nine payments in 10 months — it gets a jackpot.
By law, the organizations can receive as much as 37 percent of a borrower’s entire loan amount, half in collection costs and half in taxpayer-funded commissions. ECMC says it typically collects 31 percent, or $7,750 on a $25,000 loan. That’s 31 times what it can make for preventing the default through counseling.
In 2010, ECMC generated $131 million from collections, or about three quarters of its revenue, compared with about $17 million from programs aimed at preventing default.
In terms of caseload, ECMC devotes more employees to default prevention than collections, Hawn said. The company averages 77 default-prevention workers for 241,000 delinquent borrowers in need of counseling. It has about 90 debt collectors for 557,000 borrowers in default.
Bloomberg has the full article
