Report: “Pounding Student Loan Borrowers: The Heavy Cost of the Government’s Partnership With Debt Collection Agencies”
Authors: Deanne Loonin and Persis Yu, both lawyers at the National Consumer Law Center
Organization: National Consumer Law Center
Summary: The authors reviewed complaints filed with the Better Business Bureau and the Federal Trade Commission against 22 companies that collect defaulted student loans on the federal government’s behalf.
They found no relationship between the number of complaints lodged against a company and its federal performance score, which determines how much future work it is allocated. Indeed, the Education Department has never deducted points from an agency’s score on the basis of complaints, according to the report.
Instead, debt collectors are evaluated almost entirely upon the amount of money they collect. For example, the NCO Group, which has been sued by state and federal regulators, has been given the highest rank several times in recent years.
The authors accuse the Education Department of turning a blind eye to abuses by the companies and of disregarding borrower complaints against them.
The report comes just over a month after the department’s Office of Inspector General accused the agency of lax oversight over its debt collectors. According to the inspector general’s audit, the department has not effectively monitored borrowers’ complaints and ensured that corrective actions are taken against the companies. It has also failed to penalize companies for continued bad behavior, the audit found.
Bottom Line: The authors recommend that the department reform the evaluation system or eliminate the use of private collection agencies altogether. They call on Congress and the president to improve the department’s oversight of collection agencies and require the department to make public information about the companies’ performance scores.
