While the debate about student loan interest rates attracts most of the buzz these days, student loan debt collectors continue to fly under the radar. It is particularly difficult to get to the bottom of the collections issue because we know so little about how these debt collectors get paid and how much they are profiting from financially distressed borrowers.
Given the high stakes and huge amount of money involved, one would think that the government would be meticulous in accounting for payments to collectors. Sadly, a recent Department of Education Inspector General report indicates that in 2012, the Department made payments based on estimates. According to the report, the Department was unable to calculate the actual commissions earned by the collection agencies and so they paid estimated commissions without reviewing supporting documentation. This was not small change—$448 million in commissions to agencies and $8.3 million in bonuses.
The government’s excuse is that the new debt management system doesn’t work and as a result, they were unable to calculate actual commissions and bonuses. These are the same glitches apparently that prevented the Department from completing loan rehabilitations for many borrowers. But note the difference in the way the Department treated borrowers when the system was broken. Borrowers who completed their rehabilitation plans were required to keep making payments and remained stuck in default until the system was fixed. Collection agencies, in contrast, got paid anyway.
As one commenter wrote in response to a Chronicle of Higher Education article on the Inspector General report, “It’s demoralizing, isn’t it? The poor students who struggle to rehabilitate themselves get the shaft—and the companies that harass them to death with robot-calls get rewarded without having to lift a finger…”
To make matters worse, the Department is loath to share information about how much collection agencies get paid and how. We wrote recently about the lack of transparency at the Department and our struggles to get responses to Freedom of Information (FOIA) requests we submitted last summer. The Department responded after the article was posted on the New America site and has begun to send information, but we have still not received the elusive 2012 Private Collection Agency handbook. (You can find the older version here). This handbook used to be posted on a public web site, but not anymore.
How can policymakers and the public debate the true cost of student loans without knowing how much money goes to collectors? We have advocated for years that it is more cost effective for borrowers and taxpayers to give borrowers multiple opportunities to get back in good standing and back into repayment rather than hound them forever. To really understand the costs, however, the government must provide public information (as it has done in the past) about how collectors get paid and how much.
In the meantime, borrowers should continue to let the Department know about problems with collection agencies. We have written in prior reports about problems with the Department’s collection agency complaint system. The Department has made some improvements in this area, but yet another Inspector General report indicates that there is more work to be done. This May 2013 report found that none of the collection agencies audited reported verbal complaints to the Department even though they each received such complaints. This violates the PCA Procedures Handbook (the elusive manual discussed above that the Department no longer allows the public to see).
An accessible complaint system and increased transparency will not solve all student debt problems. However, improvement in these areas can help restore the balance between borrower rights and extraordinary government collection powers. The government has nearly unlimited power to collect student loans. At a minimum, the government must be accountable to the public about how they use this power and how much it costs all of us in the long run.