Student loan debt is a hot topic that will likely only get hotter as the amount of student loan–currently over 1 trillion dollars–continues to rise.
The National Consumer Law Center recently published a report that criticizes the Department of Education and it’s contracted debt collection companies, saying that “the Department has created financial incentives for its contractors that encourage high collections at the expense of borrower rights.”
Complaints against student loan collectors are rising
The report was critical of the Department’s use of external collection companies to collect on defaulted student loans. All told, the Department of Education contracts with 23 collection companies to try and recover on the defaulted loans. In general, the report raised concerns about the level of oversight with the collectors.
Specifically, the report cited apparently rising numbers of complaints filed against student loan debt collectors. Notably, the report acknowledged that the current complaint system is not widely accessible, meaning the number of complaints could be an understatement.
The report also criticizes the current systems for evaluating the success of collectors, which appears to place an overwhelming emphasis on dollars collected, and an proportionately lower-value on customer service.
Nearly $1 billion dollars paid in commissions in 2011
The report details how the Department of Ed evaluates contractors with a series of metrics that result in a total score evaluating the collector’s performance. The report bases this analysis on Private Collection Agency (PCA) manuals. These manuals are provided to PCA once they have a contract with the Department of Education to collect student loans.
The most important metric used in that evaluation is the percentage of dollars collected on federal student loan accounts. This accounts for a possible 70 points. The second most important metric is the number of accounts that have activity as a result of the collector’s efforts. This accounts for a potential 20 points.
Another 10 points are available for accounts for administrative resolution and 5 points are available for using small businesses on subcontracts to assist in collection efforts.
The metric for “service quality” is not defined. There is information indicating that if the Department receives a complaint about a collector, and then another complaint resembling the first, the Department will deduct 2 points on the next evaluation. The report suggests, however, that given the high number of complaints and high scores of collectors, the department does not automatically deduct those points.
In other words, there is evidence suggesting that complaints against the collectors have little to no bearing on the score used to evaluate collector performance.
Complaints? What complaints??
The PCA’s provide strict requirements for receiving, tracking, and dealing with consumer complaints. Specifically, the collectors must maintain records of all complaints, provide a fax number for complaints, designate at least two employees to receive and process complaints, and suspend all collection activity after a complaint is received. The collector must also forward complaints directly to the Department of Education. This can trigger a response from the Department of Education that may even lead to revoking the contract.
According to the report, consumers interacting some collectors will have difficulty locating information on how to file a complaint. In fact, for some consumers they may be wholly unable to find that information. For other collectors, the report suggests the procedures do not meet the Department of Education’s requirements for complaints. Allegedly, at least one company simply referred complaints directly to the Department of Education.
Given the potential penalties, however, the reports suggest that many collectors make it difficult to file complaints for that very reason. If the collector does not receive the complaint, they have no way of passing it on to the Department of Education. As a result, this would theoretically limit any potential action from the Department of Education regarding the collection contract.
Bottom line: you have options and you have rights
It is unknown whether the report will lead to any changes in borrower rights or how student loans are collected. In the meantime, consumers and borrowers need to understand they have rights.
Student loans that are backed by the federal government provide borrowers with specific rights. In addition, whether a student loan is privately backed, or federally backed, all consumers have rights against debt collectors.
If you have questions or concerns about student loans or interactions with a debt collector, please contact me.