NEW YORK (MainStreet) — The Department of Education (ED) has been criticized for not keeping better tabs on debt collectors that go after students who owe ED money--debt collectors that ED pays to collect loans that it originated.
Last Friday ED revealed that it would step up the monitoring of debt collectors and, as if to demonstrate its seriousness, fired five of the 22 collectors it has contracts with.
Debt collectors Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery and West Asset Management got the boot. ED stated last week that it would continue to monitor the ones that remain but declined to say which, if any, had been issued a warning or had been put on notice.
Pioneer Credit Recovery, which is owned by Newark, Dela.-based student loan originator and servicer Navient, was said to have drawn the most complaints from borrowers to the Consumer Financial Protection Bureau and the Federal Trade Commission. What Pioneer's next steps to recover what will be a significant loss of business was not clear. Navient spokesperson Nikki Lavoie could not be reached for comment.
ED's examination of the debt collectors looked at whether they were observing federal requirements and whether or not they "engage in unfair or deceptive practices” and follow state laws. ED found that the five firms whose contracts were terminated misled borrowers about their ability to go into loan rehab programs which, after making a series of loan payments, would have gotten them out of default.
"It's encouraging to see the Department take steps towards a more accountable debt collection system," said Deanne Loonin, director of the National Consumer Law Center's Student Loan Borrower Assistance Project. "We also 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 practices."
Others were less sanguine. The message to the Department of Education from Higher Ed Not Debt's campaign manager, Maggie Thompson, was a little blunter: "Thanks for firing five debt collectors that cheated students. Next, break up with Navient and Sallie Mae entirely.” Sallie Mae used to consist of a private lender and servicer of private and public student loans and a consumer bank. Last year the entity was separated into different companies, with the student loan and loan servicing arm being re-branded Navient and the bank retaining the Sallie Mae name, which will continue to offer consumer banking products while also originating student loans.
The National Council of Higher Education Resources, a trade association representing four of the five debt collectors as well as other loan collectors and servicers, criticized ED in a press release last week for failing to “provide details of the alleged findings to the impacted agencies” before taking action against them.
“The five affected debt collectors should have the opportunity to respond to the allegations before losing their contracts,” said James Bergeron, the council’s president.
Borrowers whose loan accounts have been held by the five agencies, but who are not in repayment, will be reassigned to other debt collectors, the department said. It was not clear when the shift to new debt collecting agencies will begin.
--Written by John Sandman for MainStreet