According to the Federal student loan website, loans are considered to be in default after 270 days of no payments, if monthly payments are scheduled. When loans are in default, the Department of Education uses debt collection agencies to collect money from borrowers. Debt collectors often garnish the wages of borrowers in default. Some of these debt collection agencies have come under fire for their aggressive practices and deceiving students about important details of their repayment options. For example, debt collectors overpromised the restoration of credit files and told borrowers they needed to use, either their credit card, debit card, or Automated Clearing House payment in order to participate in the federal student loan rehabilitation program when no such thing was required, according to the Consumer Financial Protection Bureau’s supervisory report. As a result, the Department of Education ended its contracts with five of the 22 debt collection agencies it uses.
Pioneer Credit Recovery is one of the major debt collection agencies in the United States. Pioneer is part of Navient, which was once a part of Sallie Mae before it became an independent company in 2014. Sen. Elizabeth Warren wrote a letter to the Department of Education in 2013 about its relationship with Sallie Mae. In the letter, Warren wrote that Sallie Mae continues to receive hundreds of millions of dollars from the government, despite complaints about its servicing and debt collection practices. Many of her major complaints were about Pioneer: the agency had done an inadequate job of documenting its debt collection process and did not inform consumers of their rights and obligations during debt collection.
Complaints about debt collection agencies have been accumulating for years. The Department of Education released a report in July 2014 on borrowers’ complaints against private collection agencies and how Federal Student Aid (FSA) responded to them. The report found that the FSA did not ensure that the debt collectors were following the federal debt collection laws or the terms of their contracts. The report also noted that the FSA did not ensure that corrective action was taken against the collectors. This lack of response and monitoring placed borrowers at risk of exploitation. NCLC has noted that there is a fundamental conflict in federal debt collectors’ role: in addition to collecting debts, they are supposed to educate borrowers about their rights and options—a task they are not adequately trained to carry out.
The Department of Education’s decision to end contracts with five student debt collection agencies is a long-overdue step that will protect borrowers struggling with repayment. More people are going to college and more people are taking out student loans, but the unwelcoming job market poses challenges for repayment. Borrowers deserve transparency regarding options, conflict-free counseling, and fairness in collection practices. We urge the Department of Education to continue to explore ways to improve the debt collection process for student loan borrowers.