In Vir­ginia, stu­dent debt deep­ens when schools use col­lec­tion agen­cies

The Washington Post Sunday - - METRO - BY DANIELLE DOU­GLAS-GABRIEL

When Katie Otersen trans­ferred from North­ern Vir­ginia Com­mu­nity Col­lege to Ge­orge Ma­son Univer­sity last fall, she braced for a jump in price. Tu­ition and fees would to­tal $11,300, more than dou­ble what she had paid be­fore. She cov­ered ex­penses the first se­mes­ter with­out tak­ing out loans. But she strug­gled in the sec­ond.

Lit­tle by lit­tle, Otersen paid down her bill with earn­ings from a job at a sa­lon, but she still owed nearly $3,000 when classes ended. When she sought to make another pay­ment in May, she was shocked to learn that her ac­count had been sent to a col­lec­tion agency that tacked on a fee of 30 per­cent. She can’t con­tinue at Ma­son un­less she pays it.

“I can’t ar­gue or ne­go­ti­ate this. I’m just stuck pay­ing al­most $1,000 more,” Otersen, 23, said. “The fact that they charged me as a stu­dent who has been pay­ing through­out the se­mes­ter this 30 per­cent fee is dis­gust­ing.”

Otersen is one of thou­sands of Vir­ginia stu­dents caught in a state-sanc­tioned debt trap. These stu­dents lack the money to pay their bills on time, and are pe­nal­ized in a way that makes it harder to meet the obli­ga­tion.

A lit­tle-known Vir­ginia statute re­quires public col­leges and uni­ver­si­ties to shut­tle stu­dent ac­counts of less than $3,000 that are 60 days past due to pri­vate debt col­lec­tors. Those com­pa­nies can charge up to 30 per­cent of the out­stand­ing bal­ance as a fee. That fee is far more than the in­ter­est on most credit cards, or on any car loan or mort­gage, and it can add hun­dreds of dol­lars to stu­dent debt. Past-due ac­counts of more than $3,000 are re­ferred to the state at­tor­ney gen­eral’s of­fice to en­force col­lec­tion. That also re­sults in a 30 per­cent fee.

Schools across the coun­try use debt col­lec­tors for delin­quent ac­counts. The is­sue is when to make those re­fer­rals, and how much the associated fees add to the bills.

Those in Vir­ginia han­dle the fees in var­i­ous ways. The Col­lege of Wil­liam & Mary, with en­roll­ment of 8,600, caps the fee at 20 per­cent. Col­lege spokes­woman Suzanne Seu­rat­tan said fewer than 1 per­cent of stu­dent ac­counts wind up with debt col­lec­tors.

Ma­son, the state’s largest public univer­sity, has about 35,000 stu­dents. About 1 per­cent of its ac­counts go to col­lec­tors, a spokesman said.

The ar­range­ment is strik­ing be­cause uni­ver­si­ties have the tools to col­lect pay­ments through their bur­sar’s of­fices. Yet the state law forces them to seek out­side help as a last re­sort.

Col­leges typ­i­cally in­cur no ex­pense in em­ploy­ing pri­vate col­lec­tors be­cause the com­pa­nies take their cut through fees. Say a stu­dent had an out­stand­ing bal­ance of $1,000. The col­lec­tion agency could as­sess a 30 per­cent fee, bring­ing the to­tal due to $1,300. The col­lege re­cov­ers its $1,000, and the com­pany gets the rest.

“This is a sur­charge for the stu­dent, just a penalty for the stu­dent,” said Adam Min­sky, an at­tor­ney spe­cial­iz­ing in stu­dent loan law. “It just makes it that much harder, take that much longer, to pay back what they owe.”

With state bud­gets stretched thin over the years, leg­is­la­tures have cleared the way for public agen­cies to seek as­sis­tance from the pri­vate sec­tor to re­cover un­paid debts. At least 15 states have laws in­struct­ing schools to em­ploy col­lec­tion agen­cies when they are un­suc­cess­ful in their own at­tempts, ac­cord­ing to the National Con­fer­ence of State Leg­is­la­tures.

Even with­out a state man­date, the vast ma­jor­ity of col­leges and uni­ver­si­ties use pri­vate col­lec­tion agen­cies, said Anne C. Gross, vice pres­i­dent of reg­u­la­tory af­fairs at the National As­so­ci­a­tion of Col­lege and Univer­sity Busi­ness Of­fi­cers. Eighty-seven per­cent of schools sur­veyed by the trade group said they re­lied on such com­pa­nies, she said, not­ing that the prac­tice and fee struc­ture have been around for decades.

“Schools aren’t ea­ger to send stu­dent ac­counts to col­lec­tions . . . but they have lim­ited staff who can’t keep work­ing on the same ac­counts. It’s not cost ef­fi­cient,” Gross said. “I would sus­pect that any stu­dent whose ac­count had gone to col­lec­tions has ig­nored or failed to re­spond to six, seven, eight no­tices from the school.”

In many ways, the fed­eral gov­ern­ment set the stan­dard with its col­lec­tion of Perkins loans, which are pro­vided to low-in­come stu­dents through a cost-shar­ing agree­ment with col­leges. The Education Depart­ment lets col­leges im­pose fees as high as 40 per­cent of the bal­ance when stu­dents de­fault on those loans, and that cost struc­ture has be­come the norm for other delin­quent ac­counts.

But those fees may be plac­ing stu­dents with lim­ited means at risk of fall­ing be­hind in school and not grad­u­at­ing.

Be­cause of the money she owes, Otersen said she is not al­lowed to regis­ter for fall classes at Ma­son. Some of the cour­ses she needs to com­plete a bach­e­lor’s de­gree in ath­letic train­ing have filled up. And even if a slot opens, Otersen wor­ries that her bill will not be paid in time. Work­ing 60 hours a week at the sa­lon this sum­mer has only made a dent in the debt, she said.

“I’m so over­whelmed. I just fin­ished pay­ing the col­lec­tion fee. School starts in less than a month and I still have to come up with the rest,” she said. “My mom tries to help, but I have two other sib­lings in col­lege and there is only so much money to go around.”

Ma­son spokesman Michael San­dler said the univer­sity is “sen­si­tive to those sit­u­a­tions where stu­dents re­quire more time for pay­ment” and “has sev­eral op­tions for stu­dents with hard­ships, in­clud­ing mul­ti­ple pay­ment plans that charge no in­ter­est.”

Otersen said she con­sid­ered one of those plans but could not af­ford to pay the in­stall­ments in the three months al­lot­ted. She knew her piece­meal pay­ments would re­sult in late fees but thought that as long as she paid, the school would con­sider her ac­count in good stand­ing. But the bal­ance she car­ried from one month to the next reg­is­tered as delin­quent.

San­dler said Ma­son of­ten gives stu­dents five months and eight no­tices to make ar­range­ments to set­tle their ac­counts. Un­paid debts, in most cases, are not re­ferred to a col­lec­tion agency un­til af­ter the se­mes­ter ends, he said.

“We can’t al­low stu­dents to cre­ate their own pay­ment plans,” San­dler said. “We are bound by state law and have an obli­ga­tion to be re­spon­si­ble stew­ards of the tax­pay­ers’ money.”

Not all Vir­ginia schools en­force the 13-year-old state statute in the same way. Vir­ginia Comp­trol­ler David Von Moll said schools have some lee­way de­pend­ing on their level of au­ton­omy from the state.

Years ago, state col­leges and uni­ver­si­ties agreed to less public fund­ing in ex­change for more in­de­pen­dence in set­ting tu­ition, cap­i­tal spend­ing and cur­ric­ula.

Wealth­ier schools opted for the high­est level of au­ton­omy and have more flex­i­bil­ity on fi­nan­cial mat­ters such as debt col­lec­tion. Two ex­am­ples are the Univer­sity of Vir­ginia and Vir­ginia Tech. They only send past­due ac­counts to col­lec­tors if stu­dents are no longer en­rolled.

U-Va., with en­roll­ment of about 24,000, refers fewer than 100 ac­counts a year to col­lec­tors. Spokesman An­thony P. de Bruyn said U-Va. “takes ex­ten­sive steps to avoid us­ing out­side col­lec­tion agen­cies, pre­fer­ring in­stead to work to keep stu­dents en­rolled and to sup­port them to suc­cess­fully grad­u­ate.”

SALWAN GE­ORGES/THE WASH­ING­TON POST

Katie Otersen, 23, at­tends Ge­orge Ma­son Univer­sity in Vir­ginia but strug­gles with past-due bills. “I’m so over­whelmed. I just fin­ished pay­ing the col­lec­tion fee. School starts in less than a month, and I still have to come up with the rest,” she says.

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