The Second Circuit recently issued an important decision that highlights student loan collection agency abuses. The court found that a collection agency’s notice to a student loan borrower stating “Account Ineligible for Bankruptcy Discharge” was exactly the kind of abusive debt collection practice that the fair debt collection practices act was designed to target.
The Court noted that the letter was not only false, but also misleading in suggesting that the borrower had no possible means of discharging student loans in bankruptcy. In reality, it is very difficult, but not impossible, for borrowers to discharge student loan debts in bankruptcy.
A recent New York Times article reviews the many hurdles borrowers face when attempting to discharge student loan debt in bankruptcy. We have testified on this issue and advocated repeatedly for Congress to restore bankruptcy rights for student loan borrowers.
This case, however, is not about bankruptcy rights, but about the misleading and abusive tactics of private collection agencies.
Dispute resolution is obviously not the primary mission of loan collection agencies. Debt collectors are not adequately trained to understand and administer the complex borrower rights available under the Higher Education Act, and the government does not provide sufficient oversight of their activities. There are certainly times when a borrower is uncooperative or has exhausted all options. In those cases, the loan holder may have no choice but to focus on collection efforts. Yet there are many borrowers who want to find a solution, but are stymied because they can’t get past the rude, harassing, and often abusive behavior of a collection agent.
Until such time as the government identifies viable alternatives to private collection agencies, we call on the Administration to issue a moratorium on using private collection agencies. At a minimum, the government should bring all accounts in-house for borrowers that are already subject to extreme collection programs such as Social Security offset. This will limit the costs of pursuing borrowers with little or no resources. In addition, if a borrower informs a collection agency that he believes he has a defense to the debt, that the amount is wrong, or that he wants to request a hardship waiver, the file should be immediately brought in-house.
The Department must also ensure that borrowers have an accessible way to let the government know about collection agency problems. Not all borrowers are able to bring a private lawsuit and stick with the case all the way through the appeals process. These cases can go on for a long time–The borrower in this Second Circuit case took out her student loan in 1987!
The government must also ensure that a fair and efficient collection agency complaint process is in place. We released a report in May 2012, “Borrowers on Hold” detailing serious concerns about the complaint process and lack of accessible information. Among other conclusions, we found that Department contractors do not maintain accessible complaint systems and some collection agencies ignore the Department’s minimum requirements for handling borrower grievances. This has numerous negative consequences for borrowers, especially since the Department evaluates agencies at least in part based on the numbers of complaints.
An efficient complaint process will not solve everything, but it should help the government find out about problems and possibly investigate them. Investigating and penalizing agencies that use a collection letter with information that is just plain wrong could be a place to start!