Massive private equity firms are exploring investing in or outright acquiring student loan collection agencies as the market for student loans grows at a silly rate, according to FOX Business.
The report specifically cited the Carlyle Group as a potential suitor for one of the 23 collection agencies currently working on the Department of Education’s (ED) student loan debt collection contract. But a spokesman for Carlyle declined to comment on the story.
The most recent figure from the Federal Reserve puts total outstanding student loan debt at $1.11 trillion at the end of the first quarter of 2014. That same figure stood at about $250 billion only 10 years ago.
Because ED’s contract is available to a limited number of private collectors – currently 23 – those companies make particularly attractive takeover targets, according to the piece. Three are already owned by larger financial institutions and one, Performant Financial, is publicly traded.
President Obama recently announced a plan to cap student loan borrowers monthly payments at 10 percent of income, and potentially forgive remaining balances if certain criteria are met. Senate Democrats are also exploring ways to ease the burden on recent grads.
The FOX Business story notes that some industry analysts see this as a potential issue for investors.
“There is a strong push by the administration and both sides of congress to lower the number of loans that enter default (meaning fewer loans will be sent to the collection agencies),” one Wall Street executive told the cable channel. “This could slow the growth in defaults and cause investors to determine these firms are no longer a good investment.”
But others think it won’t make much difference, as the rapid ascent in the total amount of loans outstanding trumps any efforts by government officials.
“I don’t think there will be much of an impact on the market since they have already passed legislation like this before” and it hasn’t stopped student debt or default rates from increasing, said Tom Crosson, director of media relations and communications at the Consumer Bankers Association.