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