The majority of outstanding federal student loans are designed such that there are middlemen "guarantors" which have ambiguous, friendly sounding mission statements like "maximizing student opportunities", and "fostering higher education success", etc...In reality, these guarantor entities have zero financial interest in the student' success. Rather, they actually make a significant majority of their revenue from penalties and fees attached to defaulted loans. Citizens should not be fooled into believing the doublespeak: They want defaults to happen, and would be out of business without defaults.
Guarantors are extremely efficient at taking money from citizen's paychecks, their social security income, and even their income tax returns...But they can make far more money, faster through a particularly predatory, and harmful process described below.
"Softening the Borrower"
The defaulted borrower often finds additional pressures on their livelihoods, which can include suspension of their state professional license, exclusion from federal funding for their practices (like Medicare, or Medicaid), termination (or threat of termination) if they have a federally funded job, problems with their security clearance, etc. The borrower feels that they must get their loan out of default status, no matter the cost. Conveniently, the guarantors find this the optimum outcome, and will go to great lengths to facilitate this.
"Loan Rehabilitation to the Rescue"
So the borrower has exactly two options to make this happen, Pay the loan off in full *which most cannot do), or submit to "loan rehabilitation". Loan rehabilitation requires the borrower to make 10 months worth of payments (that go straight into the pocket of the guarantors, or their agents), at which point the entire balance, which is significantly increased at this point with penalties, fees, and interest, is repackaged, and the guarantor sells this far larger, "rehabilitated" loan on the open market, or to the federal government, if there is no market for the loan.
So the borrower makes a year's worth of payments that don't even go towards their loan, and at the end of the year must sign for (thus legitimize) a far, far larger, "rehabilitated" loan that is guaranteed to be significantly more difficult to manage than their original defaulted loan, and if the loan defaults again, the process starts over again...and indeed, rehabilitated loans are far more likely to default than, statistically. For the guarantors, and their agents, this is essentially extracting large sums of wealth from the citizens, without doing any real work. Expressions like "Stealing candy from a baby", or "shooting fish in a barrel", are good descriptors, here.
In researching this topic last decade, it was obvious that this rehabilitation process was quite lucrative for the guarantors and their collection agents. However, it was not until the maturation of social networking platforms like Facebook that the unbridled greed, shamelessness, and lack of concern on the part of guarantors and their agents became apparent.
Facebook and other social networks have been turned into what amount to hunting grounds for an army of anonymous collection agents, or worse, agents assuming fake identities, and infiltrating groups dedicated to the student loan crisis. These agents have proven to be extremely effective at luring defaulted borrowers into rehabilitation programs (as evidenced by their sheer numbers). What is perhaps more despotic and harmful to the public interest, however, is the fact that these agents typically will dramatically damage online group dynamics with their deception, and all the confusion this creates, as well as usually leaving the honest people demoralized, confused, distrustful, and intimidated. This predatory activity has even reached to the highest levels of some of these groups, and defaulted borrowers are urged strongly to question the administrators of student loan related groups to ascertain whether they are making money from this industry.
There is far more that needs to be said on this topic, but it probably merits a separate article.