From CNBC:
http://www.cnbc.com/id/100598257
The Department’s Office of Inspector General found in December that more than $1.1 billion in defaulted student loans were stuck in a sort of computer limbo.
“The Department is not pursuing collection remedies and borrowers are unable to take steps to remove their loans from default status,” wrote Assistant Inspector General for Audit Patrick Howard in the December 13 report, which blames a system installed in 2011 by Xerox that is supposed to transfer defaulted loan accounts from servicing companies to private collection agencies. Those collection firms have considerable power, including the ability to garnish up to 15 percent of a borrower’s wages. But none of that can happen until the accounts are transferred.
SNIP SNIP
He said some $600 million of the affected loans will be transferred “in the coming weeks.”
But government auditors say some damage is already done. The Inspector General’s office says the collection problem led to a “material weakness” in the department’s financial controls last fiscal year—an issue Education Secretary Arne Duncan has vowed to address.
You knew the game was over when the New York Times posted that story a couple of years ago about a twenty-something guy who was up to his ears in student debt and had no way of paying it off. The guy had recently finished law school and had no solid employment prospects, so he basically gave up and began working for cash in various odd jobs around New York City. He was pretty confident that he’d never pay a penny of the money back because he was, in his own words “judgement-proof” from a legal standpoint.