Michigan goes hard after student loan defaulters

Former college students in the eastern half of Michigan get hauled into federal court for defaulting on their student loans at 10 times the rate of the national average.

That doesn’t mean more Michigan residents are stiffing the federal government on their loans  – but it does mean they’re more likely to face legal consequences if they do.

A new report of federal data released by Syracuse University shows that there were 57 lawsuits filed to collect defaulted student loans in March, the second most in the nation -- and the highest rate per-capita.

Michigan's Eastern District covers 34 counties and has been at the top or near the top in federal student default civil lawsuits for the past five years.

About one in 10 student loans wind up in default in Michigan, about average for the country. But more of those defaults are taken to federal court because the U.S. Attorney’s Office in Detroit has been aggressive in pursuing judgments.

A Bridge analysis found that Michigan college students leave campus with higher debt than the national average, a reflection of higher average net costs at public universities.

The Eastern District contracts its collection efforts to four law firms. “This private counsel program started as a pilot program in five cities around the country back in the mid-1980s, with Detroit being the very first one,” recalled attorney Charles Holzman, whose law firm, Holzman Corkery, is one of four used by the U.S. Attorney’s Office.

"At first we weren’t filing many cases, but that was not effective,” Holzman said. Today, the firm “files the bulk in federal courts. File suit first and ask questions later is a lot more effective.”

Holzman said it’s not uncommon for Michigan’s Eastern District to collect more money from defaulted  student loans than any other district in the country, a record the lawyer says reflects collection strategy, rather than the amount of defaulted loans in the region.

The debt threshold for filing a lawsuit to collect defaulted student debt is $40,000, according to Mark Kantrowitz, publisher of FINAID, an online source of college financial aid information. Typically, lawsuits are only filed after other measures, such as wage garnishment, have failed.

“This is money that belongs to the taxpayers,” Holzman said. “For every dollar collected from defaulted student loans, it’s money that can be used again for student loans or taken off the deficit or used for other issues.”

Senior Writer Ron French joined Bridge in 2011 after having won more than 40 national and state journalism awards since he joined the Detroit News in 1995. French has a long track record of uncovering emerging issues and changing the public policy debate through his work. In 2006, he foretold the coming crisis in the auto industry in a special report detailing how worker health-care costs threatened to bankrupt General Motors.