The Department of Education announced late in the day on Friday that following a review of 22 private collection agencies, the Department will “wind down” contacts with five agencies that were “…providing inaccurate information to borrowers.” The five companies are: Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery (owned by Sallie Mae/Navient), and West Asset Management.
We applaud this long overdue action. We couldn’t agree more with this statement from Department of Education Under Secretary Ted Mitchell: “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.” The CFPB supported the Department’s action, stating tht: “Student loan debt collectors that mislead and harm consumers must be held accountable….consumers need clarity, not confusion.”
Unfortunately, we were not surprised that the Department found widespread problems with the collection agencies, including inaccurate representations to borrowers about loan rehabilitation. We have been sending examples of these inaccuracies and other legal violations to the Department and other agencies for years. We also documented many of these problems in our 2014 report, Pounding Student Loan Borrowers. What is surprising is that the Department is taking action, “walking the walk” and starting to stand up to the powerful collection industry.
This should not be the end, but rather the beginning, of increased oversight and attention to borrower needs. This is great news, but there is much more to be done to stop collectors from gouging student loan borrowers on the taxpayer dime.
While it is essential to ensure that collectors are complying with existing laws, we still have serious concerns about the Department’s use of private debt collectors. As we wrote in a 2010 New America post calling for the elimination of private debt collection agency involvement in collecting federal student loans, the use of private debt collectors “,,,, has been a disaster for financially distressed borrowers who are desperate for help. 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.”
We call on the Department to ultimately eliminate the use of private collection agencies. The new pilot program at the Department of Treasury is a great opportunity to test different models with the goal of understanding how to collect money when appropriate AND inform and counsel borrowers about the full range of available options. In the meantime, the Department should keep engaging in aggressive oversight. This should include a focus on how the collectors are explaining and implementing the new rehabilitation program.
The Department also announced that it will issue enhanced guidance to the remaining agencies, increase internal training, enhance the private collection agency manual, expand monitoring for these types of issues, and refine the internal escalation process. We strongly support these actions, but we need more public information as the Department engages in these reforms. As we wrote in this December letter to Secretary Arne Duncan, among other actions, the Department must once again make the collection agency handbook available to the public. “Borrowers are entitled to programs such as rehabilitation”, we wrote, “The programs exist to help borrowers succeed. It is a huge disservice to borrowers to ‘hide the ball’ regarding the details of these programs. Further, it indicates to us that the Department is more concerned about collecting from borrowers in default than informing them about relief programs.”
Finally, we 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 agency practices.
Stay tuned, there is much more to be done, but for now, we applaud and support the Department for taking action and protecting borrowers.