Colleges playing tough on debt
Low-income students among the hardest hit
Nina Santos, now owes about $6,000 to Boston University, "Why is it worth it to them to do this to me? My $5,000 is nothing to a school that big, but to me that $5,000 is a big deal." (Essdra M. Suarez/ Globe Staff)
On every college campus, young people arrive each fall brimming with hope that the university will launch them on the path to a better life. But when those students fail to pay their bills, they often find that the school they saw as a benevolent guide to greater opportunity has another side -- aggressive debt collector.
Universities forcefully pursue students to collect unpaid loans and other debt, sometimes taking them to court, refusing to release their transcripts, and tacking on fees of as much as 66 percent of the original balance.
Over the past decade, Northeastern University and Boston University have each filed an average of 200 lawsuits each year to collect money from former students, according to a Globe review of court records. Both schools have commitments to help underprivileged Boston students, but lack the deep coffers of schools like Harvard or Massachusetts Institute of Technology, which can extend more generous scholarships, leaving students with fewer loans.
Most colleges and universities resort to legal action at times, though locally no school appears to be as aggressive as BU and Northeastern. Lesley University has filed an average of 52 lawsuits a year during the past five years, Suffolk University 29 a year, Boston College 13, and Harvard and MIT a handful.
Advocates for students say the universities' aggressive pursuit of the debt conflicts with their responsibilities to the community. They say that those who end up in debt are often from poor backgrounds, and the first in their families to go to college.
"These institutions are tax-exempt because they are there to serve the public good," said Harvard Law School professor Elizabeth Warren , who studies consumer debt. "The extent to which they hammer their own former students who've gotten sick or can't get jobs is a public question, not simply a decision to be left to the backroom accountants trying to maximize the bottom line."
A Globe review of 250 lawsuits that BU and Northeastern filed in 2005 against former students found that the majority of the 120 defendants from Massachusetts live in lower-income or working-class urban communities.
Poorer students can be profoundly naive about how college financing works, said Joan Becker, associate vice provost for academic support services at the University of Massachusetts, Boston.
"I don't think a lot of institutions go the extra mile for the low-income students," she said.
Sometimes debt is just the beginning of their woes. Students who leave school because they can't pay their bills often face a second sanction -- a freeze on their education. Universities typically refuse to release transcripts for students who owe money, preventing those who've dropped out from finishing school elsewhere, which would better position them to repay the debt.
And some students accuse schools of hounding them for money they do not owe -- and refusing to listen to their side of the story.
Every college or university engages in debt collection. Under the federal Perkins loan program that gives at least $1 billion to low-income students each year, schools, not the government, are responsible for making sure the loans are repaid. The government encourages schools to take legal action if students default. Separately, schools also try to recoup unpaid tuition, room, and board, and some schools that give out their own loans pursue those who fail to repay them.
Individual students' debts can range from hundreds of dollars to tens of thousands. Some debtors are students who dropped out; others earned degrees before defaulting on loans.
Typically, schools try to collect for a few months, with phone calls and letters, before sending cases to a collection agency. If that firm is unsuccessful, they sometimes hire a second agency. School officials say they are almost always open to flexible arrangements such as low monthly payments.
Usually, only after nine months or more of unsuccessful collection efforts do schools file suit. Several universities stressed that they don't do so unless they think the former student is able to pay.
"Northeastern doesn't want to be going to court to collect money from students," said spokesman Fred McGrail . "To not deal with these issues is not fair to the students who are making good-faith efforts to pay."
When cases go to collection agencies, colleges tack on additional fees. Those are usually 25 to 33 percent of the original balance if the case goes to one agency, and 40 to 50 percent if the first agency fails and it gets sent to a second.
Northeastern stands out, adding fees of up to 66 percent of the original debt.
McGrail defended Northeastern's approach, calling the fees mainly a wake-up call to bring the debtor to the negotiating table, saying, "Our goal is not to collect the fees but to get the case settled."
McGrail later added: "These are cases that represent a minuscule percentage of students, where there has been no response [to efforts] to contact the student to resolve the matter."
UMass-Amherst caps its fees at 35 percent. Boston University never adds more than 33 percent.
"I just can't in good conscience assess that kind of a fee to someone who is probably struggling already, or else they would have already made the payment," said Elizabeth Reardon , collection officer at UMass-Amherst.
The Perkins loan program expects schools to charge enough in collection fees to pay the collection agency and still recoup the entire original balance owed. But BU absorbs some of the collection costs rather than passing on higher fees to students. And Reardon said Northeastern should be able to negotiate a far better rate with collection agencies, which would reduce the fees to students.
Several consumer advocates called even the schools' lower fees unreasonable. With most consumer debt, debtors pay no collection fee at all. If they do, it's usually 10 to 15 percent of the debt or the actual amount the collection effort cost, they said.
School officials say they make no profit on the fees. They say they are trying to balance their budgets or get back borrowed money so they can lend it out again to other students.
"These amounts add up," said Anne Gross , a vice president at the National Association of College and University Business Officers. "There's no other magic source to pay for it when a student doesn't."
Vincent Simonelli, BU's director of collections and student loans, said schools are simply asking students to live up to their responsibility.
"What we do has to be done . . . [and] we do it in as ethical and conscionable a manner as humanly possible," Simonelli said. "There are people out there struggling to pay, but there are people out there who may have the means at their disposal and don't pay."
That memory, he says, sustained his dream of going to college even though his mother had no money to pay for it. Food was sometimes so scarce in their apartment in a Jamaica Plain project that he and his siblings ate peanut butter sandwiches and instant noodles for days in a row.
Johnson got into Northeastern, but after a dispute over his bill, the university sued him for $16,159, which included a 66 percent collection fee, or $6,463 on top of his original debt.
"I have lived in poverty my entire life, and now Northeastern threatens to take my future as well," Johnson wrote to school officials two years ago.
His mother, Judy , had the first of her five children at age 15, and often has several nieces and nephews living with her because of her sister's drug problems, she said. Judy Johnson, who earned her GED a few years ago, has worked sporadically in a nursing home and as a school lunch monitor and is currently unemployed. She said she knew nothing about college financing when her son applied.
Jeremy Johnson , a soft-spoken and tidily dressed 24-year-old, graduated from the John D. O'Bryant School of Mathematics and Science, a Boston exam school. He worked hard to focus on school and stay away from the drugs and gangs that beckoned in his neighborhood, he says. In a college recommendation, a math teacher praised his perfect attendance and "drive to succeed."
Johnson thought being accepted to Northeastern meant he'd earned the scholarship for Boston Housing Authority residents he'd heard about as a child, and he assumed that the scholarship covered room and board. But Northeastern said Johnson's grades and SAT scores didn't qualify him for the scholarship, which actually covers tuition only.
Johnson said every time he told a financial aid officer that they owed him a full scholarship, they sent him to inquire in a different office. He said no one at Northeastern ever told him that he simply was not going to receive a full scholarship.
McGrail said officials work with all students to make sure they understand their obligations. But bureaucratic red tape is so notorious at Northeastern that students have a nickname for it -- "the NU shuffle."
Johnson enrolled in classes in the fall of 2000, starting off with financial aid worth about $21,000 toward the $27,000 cost of freshman year, much of it in grants. That included a $7,500 grant from a Northeastern program for promising African-American students who don't meet the school's regular admissions criteria.
Had all gone according to the university's plan, Johnson would have owed $5,748 for freshman year. But somehow, he failed to sign paperwork for a state scholarship and a federal loan, which he does not recall being asked to do.
Though the school found Johnson another smaller grant, the mix-up increased the amount for which he was responsible to $9,695.
Johnson said he would have gone to UMass if he thought he had to pay anything for Northeastern. While he was there, his paychecks from two part-time jobs bought food for his family or sneakers for his younger cousins, he says.
Johnson dropped out after freshman year because of the money dispute. He later started over as a freshman at UMass-Lowell because Northeastern would not release his records, meaning he could not apply his credits toward graduation at UMass.
McGrail called Johnson's case a "tough and sad situation," and said the school would have bent over backward to work out a reasonable payment plan had he responded to their letters and phone calls.
In response to questions from the Globe, Northeastern provided a log showing that its staff sent Johnson four letters and called his home 25 times over three months before his case was referred to a collection agency, then a second. Johnson denies receiving the letters or phone messages. He often stays with a friend near school in Lowell.
The university sued Johnson on October 1, 2004. It asked the court for $16,159 plus court costs, as "the balance due for tuition," and did not mention that a hefty chunk of that balance came from collection fees.
Questioned by the Globe about this, McGrail said that after Johnson was sued, the school changed its policy and now sues initially for the original balance only -- then decides whether to seek collection costs in a separate court filing.
On Friday, he said Northeastern would amend the complaint against Johnson down to the original balance, $9,695.
Last spring, Johnson refused the school's offer to reduce the balance to $6,000 if he signed a court document acknowledging he owed the money, then paid $3,000 up front and the rest in $125 installments. If he missed any payments he'd be on the hook for his original balance, $9,695, but not the collection fee.
Johnson refused, saying he shouldn't have been charged in the first place, and that he doesn't have the money.
He is now studying electrical engineering and business management while working part-time in customer service at Putnam Investments.
The outcome of Wednesday's trial, he says, will determine how far away he'll be from his dream when he graduates next spring -- to earn enough to buy a house and move his mother out of the projects.
If the judge rules against him, he will be $9,695 further away from that dream. "It definitely puts my life on hold, big-time," he said.
Marcella Bombardieri can be reached at email@example.com.