FROM: U.S. EDUCATION DEPARTMENT
U.S. Department of Education to End Contracts with Several Private Collection Agencies
After finding high incidences of materially inaccurate representations, Department acts to protect consumers
FEBRUARY 27, 2015
Following a review of 22 private collection agencies, the U.S. Department of Education announced today that it will wind down contracts with five private collection agencies that were providing inaccurate information to borrowers. The five companies are: Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery, and West Asset Management.
The Department also announced that it will provide enhanced Fair Debt Collection Practices Act and Unfair, Deceptive, or Abusive Acts or Practices monitoring and guidance for all private collection agencies that work with the Department to ensure that companies are consistently providing borrowers with accurate information regarding their loans.
"Federal Student Aid borrowers are entitled to accurate information as they make critical choices to manage their debt," said Under Secretary Ted Mitchell. "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. It is our responsibility – and our commitment – to uphold the highest standards of service for America's student borrowers and consumers."
During the past several months, the Department's Federal Student Aid (FSA) office performed a review of all private collection agencies that FSA works with. In these reviews, the Department sought to ensure that its private collection agencies were complying with the terms of the contract, which includes assurances that the agencies would not engage in unfair or deceptive practices and would comply with all applicable Federal and State laws.
In its review, the Department found that agents of the companies made materially inaccurate representations to borrowers about the loan rehabilitation program, which is an option that can create benefits to defaulted borrowers after they have made nine on-time payments in a period of 10 months. The five private collection agencies listed above were found to have given inaccurate information at unacceptably high rates about these benefits. In particular, these agencies gave borrowers misleading information about the benefits to the borrowers' credit report and about the waiver of certain collection fees.
The Department will reassign accounts held by these five agencies which are not already in repayment to other agencies. The Department will also increase monitoring to ensure that the students who began rehabilitation under the five private collection agencies will be treated fairly as they complete the rehabilitation process. Lastly, the Department will issue enhanced guidance to all remaining private collection agencies, increase internal training for FSA staff, enhance the private collection agency manual, expand monitoring for these types of issues, and refine its internal escalation practices.
FSA administers and oversees the federal student financial assistance programs, authorized under Title IV of the Higher Education Act of 1965 (HEA). These programs represent the largest source of student aid for postsecondary education in the United States. The Office of the Under Secretary manages policies, programs, and activities related to postsecondary education.