By Dmitriy Synkov
Five private debt collection agencies will soon be dropped by the U.S. Department of Education for giving “materially inaccurate representations to borrowers” about the department’s loan rehabilitation program, which provides options to defaulted borrowers seeking to manage their debts.
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The move is yet another dent in the already tumultuous reputation of debt collection agencies and also a sign of hope, according to groups that advocate on behalf of consumers, students and borrowers.
“It is encouraging to see the department take steps towards a more accountable debt collection system; however, a lot more needs to happen to stop collectors from gouging student loan borrowers on the taxpayer dime,” says Dianne Loonin, director of the National Consumer Law Center’s (NCLC) Student Loan Borrower Assistance Project.
After a review, the Department of Education’s Federal Student Aid office recently decided to end contracts with five of the 22 agencies used for student loan debt collection. The five are:
- Cost Professional
- Enterprise Recovery Systems
- National Recoveries
- West Asset Management
- Pioneer Credit Recovery
In an earlier NCLC report, Loonin and co-author Persis Yu found that the department paid higher fees to agencies that arranged for loan rehabilitation plans that did not take borrower income into account than for those that did — despite there being more affordable options based on a borrower’s financial situation. Findings showed that collectors were primarily motivated by inflated earnings and competed for who could get the most out of struggling borrowers.
So what does this mean for students and borrowers? “Certainly better accountability by the department should result in better services,” says Yu, “but in terms of immediate effect of this change, more information is needed.”
The department vows to “increase monitoring” and “issue enhanced guidance” to the remaining agencies, according to its announcement.
Oregon community college teacher Lauren Zavrel, who was invited to the White House last June to witness President Barack Obama signing an executive order to make student loan debt more manageable, said the department is falling woefully short in addressing the continued use of private debt collection agencies by the federal government:
I think it’s a travesty. It demonstrates the spoken and unspoken principles that profit is the motive behind the handling of monies that people are using to better their future. I think that if there’s one area that private agencies should not be profiting from, it is students.
Zavrel, who works two jobs in addition to her teaching career, claims her own student debt is more stressful than her mortgage, and is concerned that her students will face the same risks as they go through college. “Here we are to promote higher education, yet we’re locked in to the unpredictability of debt ourselves.”
Sen. Elizabeth Warren (D-Mass.), a prominent supporter for student loan refinancing, released an open letter to Education Secretary Arne Duncan along with six other Senators, stating it’s “not the job of the Dept. of Education to maximize profits for the government at the cost of squeezing students who are struggling to get an education.” The letter was released just two days before the Dept. of Education’s decision.