Today, the National Consumer Law Center’s Student Borrower Loan Assistance Project released a new report:
The U.S. Department of Education (the Department) relies on an increasing number of private collection agency contractors to recover defaulted student loans. By contracting out its defaulted loan portfolio and failing to provide effective oversight, the Department has abdicated its responsibility to uphold the borrower protections in the Higher Education Act. These protections include affordable payment plans and loan cancellations in circumstances such as disability or death. The Department has created financial incentives for its contractors that encourage high collections at the expense of borrower rights.
There is growing evidence that borrower dissatisfaction with collection agencies has increased. The report focuses on the inaccessibility of agency complaint systems and poor agency tracking of complaints. It also offers recommendations to create a complaint system that works for borrowers.
NCLC found that contractors do not maintain accessible complaint systems and some agencies ignore the Department’s minimum requirements for handling borrower grievances. Overall, the complaint systems used by some collectors display a haphazard approach to resolving borrower disputes. The Department also has failed to inform borrowers of the resources available through the agency to address complaints.
As long as the Department and its contractors can deploy extraordinary collections tactics to recover federal loans, borrowers must have an accessible way to register their dissatisfaction. A long‐term solution is that the Department should simply stop using collection agencies to provide assistance to struggling borrowers. In the meantime, it is essential that the government aggressively oversee agency performance, evaluating agencies not only based on dollars collected, but also on service to borrowers. Tax dollars should not reward collectors who abuse borrowers, break debt collection laws, or who fail to inform borrowers of their options under the Higher Education Act.