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Dignity Meets Debt

Students are borrowing in record amounts to put themselves through college, so much so that at nearly $1 trillion, there is now more student debt outstanding than consumer credit card debt. That may be a troubling trend for the economy, but it has helped Dale Van Dellen grow his Canoga Park student loan collection business, Account Control Technology Inc. to 500 employees and $35 million in sales last year, up nearly 95 percent since 2009. But even as he charts a course to hit $100 million in sales within five years, this 56-year old father of two has stayed clear of debt in both his personal and professional life. And he didn’t borrow a dime to put his two daughters through college. “I guess it’s like being a police officer or a firefighter,” he said. “All you see is the danger and I’ve seen too many people get in trouble.” That disciplined approach has helped guide Van Dellen for most of his professional life. He owns his two-story office building in Canoga Park free and clear, and has no mortgage on his home or his Cessna 182 Turbo, which he owns for fun. Even so, Van Dellen has sympathy for the indebted students who help him earn his bread and butter. “They are not bad people,” he said of the students who default on their loans. With never-ending tuition increases and a tough job market, Van Dellen understands that repaying an unsecured debt sometimes takes a back seat to paying the rent. One reason he staked out a niche in the education collections business, he said, is that collection agencies have many more ways to help student debtors pay back their loans than collection agencies who handle consumer debt. Lessons learned Van Dellen also empathizes with people going through a rough patch. He launched ACT in 1990 after his own father fired him from the family collection business. He spent his entire life’s savings of $70,000 to start ACT, only to lose the whole sum that first year. He then borrowed $25,000 against his house the second year, and proceeded to lose that too. “I did a lot of stupid things,” he admits. “I should have hired people instead of trying to do everything myself. I could have spent the money more wisely. I didn’t hire the best people…My wife went back to work as a schoolteacher and supported our whole family.” Those early challenges were all the more difficult to swallow given that Van Dellen never even wanted to go into the collection business in the first place. He got a business degree from California State University, Northridge and went to work for Oscar Mayer as a salesman, the highlight of which was driving the wiener mobile. It was only when his father parted ways with his partner of many years that Van Dellen agreed to help out by joining the sales force. He turned out to be such a good salesman that he helped propel that business to $1 million in revenues in no time. “I love to hunt and fish,” said Van Dellen, who enjoys flying his Cessna to Canada for fishing trips. “But I love selling even more.” As it turned out, he said, his father never wanted to have a business that size and the complexity of running an operation with 50 employees was too much. “A lot of small business people like to be small business people,” he said. “I am always trying to get to the next level…I caused my father a lot of trouble.” Things came to a head one day when the company’s computer systems crashed and father and son got into a shouting match. “He exploded. Then I exploded.” Next thing he knew, his father had fired him. With a two- and a four-year-old daughter, Van Dellen needed to quickly figure out a way to earn a living and what he knew best at the time was the collections business. So he launched ACT. It was only in the third year that ACT started earning some money to support his family. But since then, it’s been on a growth trajectory. Cost of debt As the cost of both a private and a public education climbed through the ‘90s, student borrowing increased dramatically. In 1993, when Van Dellen was just launching ACT, 46 percent of students borrowed to attend college and the average student debt was $9,350. By 2010, 65 percent were borrowing and the average debt was $25,250, according to the nonprofit Institute for College Access and Success (ICAS). Today, total student debt is nearing $1 trillion, according to the Federal Reserve Bank of New York and the U.S. Department of Education. Not surprisingly, student debt is highest for those who attend for-profit schools such as the University of Phoenix. In 2008, the latest year for which this number was available, 96 percent of students who attended a for-profit college borrowed and the average debt was $33,050, according to ICAS, much more than the average debt-load of public school graduates, which was $20,200 in 2008. “Tuition, fees and the overall cost has been going up while family income and available grant aid have not kept up,” said Matthew Reed, program director of the ICAS Project on Student Debt, which advocates for greater access to higher education. “It creates greater need to borrow. The high rate of borrowing and the declining economy have also led to rising default rates on those outstanding loans. In September, 2011, 8.8 percent of students had defaulted on their student loans, up from 7 percent in 2010, Reed said. Again, the rate of default was not even. Students who attended for-profit schools are defaulting at twice the rate of students who attend public universities: 15 percent compared to 7.2 percent. The collection business is no popularity contest and Van Dellen recognizes that he is often perceived as the enemy, profiting from the troubles of others. That’s why he said he chose the education sector. There is no collateral in an education loan, he noted. A lender cannot repossess one’s education. There are also many payment options available to students, he said. A recent change tied repayment to income so that if a student fails to get a job after graduation, he or she will not have to repay that debt until they do. FOUNDED: 1990 HEADQUARTERS: Canoga Park CORE OF BUSINESS: Collecting on student loan debt. Number of Employees 2010: 385 Number of Employees 2011: 497 Revenues in 2010: $27 million Revenues in 2011: $35 million Successful hiring If there is such a thing as a more humane collection agency, Van Dellen strives to be one. For example, he refuses to hire anyone with collection industry experience. “If there is some secret sauce to what we do, it’s who we hire,” he said. “We don’t hire anyone with collection experience. If you have bad habits I can’t fix, I don’t want you in my office.” Those habits include sarcasm, assuming that people are lying to you or just plain treating people badly. His employees must pass an internal assessment that requires a minimum 9th grade math and reading level. They are also required to go through a two-week, off-site training program. Oh yes. They must also have no student loans. “It’ a conflict of interest,” Van Dellen explained. “You can’t be like, ‘I’m not paying mine but I insist you pay yours.’’’ It’s not just an ACT rule; the Department of Education insists upon it, he said. ACT is also part of the Better Business Bureau and contributes to numerous local and national charities. Still, he can’t fully escape the wrath that comes with being in the business he’s in. As a collection agency, ACT is often the target of lawsuits by attorneys who file harassment complaints, some legitimate, some not so much. It is also often the target of state attorneys general, who have oversight of collection agencies, as well as the Federal Trade Commission. The new Consumer Financial Protection Bureau also will have some oversight of lending practices in education, which has Van Dellen concerned. With every regulatory change, there are changes in how he must operate. After almost 30 years in the business, for example, he still doesn’t know what constitutes harassment. “Is it calling once a day? Once a week? We’re still not sure what it is.” The one thing he is sure about is that student debt is not going away and as long as students borrow to finance their education, ACT will have a place in the business. With $3 billion in debt in collection and four offices — including growing call centers in Bakersfield, San Angelo, Texas, and now in Mason, Ohio, — ACT employs almost 500 people. The company’s collection record is pretty good on newly defaulted loans — about 40 to 50 cents on the dollar, he said. The record on older loans which are frequently recycled by the Education Department into new pools, get back very little — 2 to 3 cents on the dollar. Van Dellen’s goal is to see the business grow to $100 million within five years. To get there, he just hired a new CEO for the first time — Nabil Kabbani, a former Western Union executive and former CEO of a payment processing company in the e-commerce arena. As for Van Dellen, he hopes to finally spend more time with his family and his toys — his Cessna, his fishing rod and his hunting rifle — hunting pheasants, not leads.

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