- Created: Thursday, 04 May 2017 13:52
By, Greg H. Lercher, Esq.
Student Loan Borrowers Beware: America has a student loan problem. At the end of 2016, 42.4 million people in the United States owed $1.3 trillion in federal student loans. Since 2013, the average amount owed per student loan borrower increased by 17%. The Department of Education (“DoE”) has contracts with approximately two dozen private debt collection agencies to pursue student loan borrowers who have fallen behind on their payments. Nearly eight million federal student loans were in default at the end of 2015.
When borrowers with federal student loans default on their student loan debt it can be a credit-ruining event that puts their Social Security check, tax refunds, and wages at risk of garnishment. The federal government, however, does offer options for borrowers to get out of default, including through a program called rehabilitation, which requires defaulted student loan borrowers to make nine on-time payments in 10 months to cure their default. The program provides guidance for how much certain student loan companies can charge borrowers as they pursue those options.
Back in 2015, the Obama administration issued a directive that prevented debt collectors from charging high interest rates on overdue student loans. Specifically, accordingly to The Atlantic, so long as the borrower entered the government’s loan-rehabilitation program within 60 days of defaulting, agencies of the old, bank-based Federal Family Education Loan Program (FFELP) were forbidden from charging up to 16 percent of personal and accrued interest. Nonetheless, lawmakers argue that debt collectors continue to impose these fees, despite the Obama regulations.
In March 2015, The Obama Administration’s DoE announced it was firing five of those debt collectors, whom, according to the DoE, provided borrowers with “inaccurate information at unacceptably high rates” about the benefits of a federal program that allows borrowers to get their loans out of default. Said fired companies were:
- Navient-owned Pioneer Credit Recovery
- Coast Professional
- Enterprise Recovery Systems
- National Recoveries
- West Asset Management.
According to the DoE “these agencies gave borrowers misleading information about the benefits to the borrowers’ credit report and about the waiver of certain collection fees.” As a previous example, in 2014, Navient paid $97 million to settle allegations by the federal government that it overcharged military service members.
However, during the last few months of 2015, the DoE sent two of those companies new batches of defaulted student loans to manage. Coast Professional received an additional $863.5 million worth of student loans, and National Recoveries added $679.8 million to its inventory. The other three companies -- Enterprise Recovery Systems, West Asset Management and Navient-owned Pioneer Credit Recovery -- have also continued working for the DoE since it announced the winding down of their contracts last February. Although their student loan portfolios shrunk, those companies were still each managing billions of dollars' worth of defaulted student loans as of last fall.
One debt collection company, USA Funds, sued the DoE over its 2015 directive, and as part of an ongoing legal battle, a federal judge in that case asked the Trump administration to weigh in by March 16, 2017 about whether it was going to uphold the previous Obama-era guidelines regarding barring guaranty agencies from imposing their usual 16 percent collection fee if the borrower agrees to enter into a payment plan within 60 days of being notified that his or her loan is in default.
Accordingly, to Ben Miller, senior director of postsecondary education at the Center for American Progress and former policy advisor at the DoE, "These things sound trivial and they're totally inside baseball, but it really does matter for the borrower. The notion that a guaranty agency can charge a borrower an arm and a leg when that person tries to fix their default right away is unfair."
On the other side, advocates for the debt collection agencies have said in the past that cutting the payments to their industry will force them to provide less comprehensive services to help struggling borrowers stay current on their payments or help them climb out of default.
The Atlantic reported Senator Elizabeth Warren and Representative Suzanne Bonamici, both Democrats, penned a letter in March asking Secretary of Education Betsy DeVos to uphold the previous memo, reading in part: “We urge the [Department of Education] to stand by its previous guidance and give borrowers in default a chance to rehabilitate their loans and successfully repay their debt without being charged massive collection fees.”
Notwithstanding, the Trump administration’s DoE revoked the Obama-era guidelines and instructed guarantee agencies (companies that issue government-backed student loans) to collect on defaulted debt. Trump’s DoE said it also will reevaluate whether to assign new defaulted borrower accounts to the debt collection companies referenced above. Notably, however, the DoE’s prior findings that the debt collection companies misled student loan borrowers “will not be considered” as part of that decision, the department wrote. The DoE instead said it was prepared to potentially award new business to the companies as soon as two weeks after the resolution of the lawsuit.
Moreover, this past April, Education Secretary Devos, as part of a series of cabinet-level agency decisions aimed to roll back regulations from the Obama administration and withdrew certain consumer protections for student loan borrowers. The withdrawn regulations were originally implemented to hold student loan servicers—the middlemen responsible for placing borrowers in affordable repayment plans—more accountable.
The Consumer Financial Protection Bureau (“CFPB”), in particular, has documented instances of student loan servicing companies providing inconsistent information, misplacing paperwork or charging unexpected fees.
The Obama administration’s regulations requested routine audits of student loan servicer’s records, systems, complaints and a compliance-review process. The previous regulations also directed the Education Department to base compensation on response time to answering calls, completing applications for income-driven repayment plans, errors made during communications and the amount of time it takes to process payments.
“In order to have accountability, there must be real consequences when servicers violate the law,” said Alexis Goldstein, senior policy analyst at the progressive Americans for Financial Reform. “DeVos’s actions moves us away from true accountability, and creates dangers for the very student loan borrowers the department is responsible for protecting.” Secretary DeVos said the changes afford an opportunity to improve outcomes for borrowers and demonstrate “sound fiscal stewardship” of taxpayer dollars.
If you or someone you know has been the harassed by student loan debt collectors, please visit www.leavenlaw.com or call (727) 327-3328. Our experienced attorneys are dedicated to vindicating the rights of consumers, including student loan borrowers. If you have been harassed, you may be entitled to damages, and in that case, the offending student loan debt collector may have to pay our attorneys’ fees and costs. Call today for your free consultation or visit leavenlaw.com.