The Education Department provides student loans through its Federal Student Aid office, which is the organization borrowers interact with while their loans are current. On the other hand, if a borrower defaults on a loan, the Education Department contracts these loans out to private debt collection agencies. Such contracts are extremely lucrative for private debt collection agencies, as the number of borrowers now in default is over 7 million.[i] In just the four-year period ending in 2016, private debt collection agencies are expected to take nearly $5.8 billion in commissions off of student loans.[ii]
"Federal Student Aid borrowers are entitled to accurate information as they make critical choices to manage their debt," Under Secretary of Education Ted Mitchell said in a statement. "Every company that works for the department must keep consumers' best interests at the heart of their business practices by giving borrowers clear and accurate guidance. It is our responsibility – and our commitment – to uphold the highest standards of service for America’s student borrowers and consumers.”[iii] Despite the Education Department’s “commitment,” and this general policy of responsibility, many of the contracted private debt collection agencies routinely and systematically violated consumer protection statutes in order to harass student loan borrowers into payment. Namely, as a result of ever-increasing evidence of wrongdoing, the Education Department terminated its contracts with the following debt collectors: Pioneer Credit Recovery, Coast Professional, Enterprise Recovery Systems, National Recoveries, and West Asset Management.
The Education Department said that its decision to terminate these contracts was prompted by what it described as "high incidences of materially inaccurate representations" to borrowers that it discovered in reviews spanning several months. The fired debt collectors according to the Education Department, systemically misled borrowers about their options to get out of default in order to increase revenue and commissions. Further, according to the Consumer Financial Protection Bureau, some debt collectors threatened borrowers with lawsuits even though they had no intention of suing. Other collectors used call scripts and letters that misled borrowers about the benefits of repaying their defaulted federal student loans.
"It's encouraging to see the Department take steps towards a more accountable debt collection system," said Deanne Loonin, director of the National Consumer Law Center's Student Loan Borrower Assistance Project. "We also urge the Department to explain what this long overdue action means for borrowers. It is essential to provide relief to borrowers harmed by abusive collection practices."[iv]
"After years of hearing complaints from borrowers of abusive treatment, we are relieved to hear that the Education Department has taken this first step to protect borrowers and hold the companies they contract accountable," said Chris Hicks, an organizer who leads the Debt-Free Future campaign for Jobs With Justice, a Washington-based nonprofit.[v]
The Education Department said it would transfer accounts from the fired companies, including Pioneer, to its other debt collectors, and would officially terminate its relationship with the fired companies once all accounts have been transferred. The move is the Education Department's most forceful response in years to alleged wrongdoing by its student loan contractors.[vi]
LeavenLaw is a law firm that has helped consumers with issues related to debt for over three decades. Whether it is student loan debt collection, defending lawsuits, managing student loan debts through bankruptcy, or helping consumers come up with a game plan to take student loans out of default and into deferment, LeavenLaw will sit down with you and explain your options.
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 debt collector may have to pay our attorneys’ fees and costs. Call today for your free consultation.
- [i] http://www.huffingtonpost.com/2015/02/27/education-department-debt-collection_n_6773286.html
- [ii] http://www.huffingtonpost.com/2015/02/27/education-department-debt-collection_n_6773286.html
- [iii]https://www.insidehighered.com/news/2015/03/02/us-ends-contract-5-debt-collectors-citing-misrepresentations-borrowers; http://www.jwj.org/victory-department-of-education-cuts-contract-with-five-student-debt-collectors
- [iv] http://www.mainstreet.com/article/5-rogue-student-loan-debt-collectors-fired-by-department-of-education-fires
- [v] http://www.huffingtonpost.com/2015/02/27/education-department-debt-collection_n_6773286.html
- [vi] http://www.huffingtonpost.com/2015/02/27/education-department-debt-collection_n_6773286.html