Five of the 22 private collection agencies used to recover overdue student loan debts are having their contracts cancelled by the Department of Education after years of aggressive collection methods used in the spotlight of public criticism. This occurred after a statement by the Education Department that it would step up the monitoring of the debt collectors they use for student loans.
The Columbian reports that this decision has been made after an investigation into hundreds of phone calls between these collection agencies and borrowers showed that they were duping the borrowers into believing they could regain their credit rating and waive potential fees if they paid up. BuzzFeed reports that another possible reason was due to these collectors also failing to help negotiate affordable loan repayments in an attempt to drive bigger profits, which is shown in a NCLC report.
One of the borrowers quoted in the NCLC report, Christy, stated that she had been told by her collection agency that the amount of her repayments would be based on her loan balance rather than her income. She was also told that she was ineligible for an income-based repayment plan due to the loan being consolidated. These were found out to be misrepresentations by the agency in an attempt to elicit bigger repayments.
“If I could have rehabbed this loan making regular payments based on my income, I would have done so many years ago,” she told the NCLC. “Now the loan went from $70,000 to $170,000.”
Education Undersecretary Ted Mitchell said this in a statement:
“Federal student aid borrowers are entitled to accurate information as they make critical choices to manage their debt,” he said. “Every company that works for the department must keep consumers’ best interests at the heart of their business practices by giving borrowers clear and accurate guidance.”
As a result, company shares for one of the five agencies has shown a decrease of 8% last week, reports Dan Freed from TheStreet. The company appeared to have little knowledge that the DoE were dissatisfied with their performance and that the decision to cancel their contract was about to take place.
“There doesn’t seem to be a lot of information supporting the Department of Education’s position,” said Janney Capital Markets analyst Sameer Gokhale.
Another of the agencies involved, Pioneer Credit Recovery, will also take a large blow to their yearly revenue because of this decision, with student loans reportedly making up a staggering $65 million of their total revenue last year. This will end an almost 18-year-old relationship with the Department of Education that initially began in 1997. A spokesperson from Pioneer denied that their behaviour during this time was wrong, however the remaining four companies failed to return phone calls on the issue.