Department of Education Severs Ties With Five Debt Collection Companies

The Department of Education took a step in the right direction February 27th when it wound down contracts it had with five debt collection companies that, since 1997, have been hired to do the work of collecting on federal student loan repayments. The contracts were ended because the Department found that the companies—Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery (Navient’s debt collection arm), and West Asset Management—were providing inaccurate information to borrowers at unacceptable rates.

Since borrower counseling is not the specialty or mission of these loan collection companies, this is unfortunately not all that surprising. [See National Consumer Law Center’s report on the government’s relationship with debt collection agencies in the student loan arena, which discusses this inherent conflict in responsibilities.] In this instance, the Department terminated the contracts after concluding that borrowers had been misled regarding the loan rehabilitation program, which is an option that can help defaulted borrowers who agree to make a certain number of on-time payments. Borrowers were specifically misled regarding how such a program could benefit their credit rating and also about the waiving of certain collection fees. Along with terminating the contracts, the Department announced that it would be issuing enhanced guidance for the remaining collection agencies, increasing training, and expanding monitoring for these types of issues.

Navient, whose subsidiary Pioneer Credit Recovery was one of the groups terminated, has a record of misleading student loan borrowers. In 2006, the Department of Justice and the FDIC found that Sallie Mae/Navient was overcharging 60,000 active-duty servicemembers on their student loans, and handling their payments in a manner that maximized late fees. And In November of last year the CFPB issued a Civil Investigative Demand to Pioneer Credit Recovery, as part of an investigation regarding the company’s work collecting defaulted student loan debt.

Much more change is needed in this area: student loan debt collectors that make a practice of misleading or hurting consumers should be held accountable, and companies that work to collect loan debts on behalf of the federal government should be required to respect borrowers’ rights and to provide them with accurate information.

— Rebecca Thiess

2 thoughts on “Department of Education Severs Ties With Five Debt Collection Companies

  1. i appreciate the information that someone in the fed govt takes action for meeting the needs of some of we the people, not to mention acting for a little truth, honesty and justice. i need the reassurance that people in the community act responsibly and that perhaps these tiny seeds of freedom will grow.

  2. I am helping pay my sons student loans unfortunately my sons university was involved with Iowa Student Loan Corp. set up by the state as partnership between lenders and colleges turned out to be expensive fraud with leaders being indicted. Still around with Aspire now collecting high interest loans. Son agreed to pay Libor rate plus 2.2% for admin fees. But been laying on three highest loans 8.4%!or signature loan rate but my complaints to federal govt just sent my complaint back to ISL nothing done to reduce rate to 2.5% his other loans are charged I believe should be his rate. Read the Attorney General office knows ISL is still not being conducted as it was originally chartered but has done nothing. Not just federal loans it’s states. My son and others need need to dissolve ISL and have $2.4 billion in loans restructured and handled by someone else.

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