President Barack Obama has taken several steps over the past few years to address the $1 trillion problem of student loan debt. He’s pushed loan forgiveness programs and efforts to help borrowers reduce payments. One thing that apparently isn’t factoring into his plans, though, is reining in abusive debt collectors that the Department of Education hires to collect student loans debt when people can’t pay.
More than $94 billion of the nation’s student loan debt was in default as of September 2013, according to a March report from the Government Accountability Office. And the percentage of people defaulting on school loans has increased steadily for six years in a row. In 2011, the Department of Education paid private debt collectors $1 billion to try to collect on that debt—a number that is expected to double by 2016. The tactics used by those debt collectors range from harassing to downright abusive. In March 2012, Bloomberg reported that three of the companies working for the Department of Education had settled federal or state charges that they’d engaged in abusive debt collection.
Consumer advocates have found that the debt collectors routinely violate consumer protection laws when trying to collect on student loan debt, which is especially problematic given that some of those firms are supposed to be helping borrowers “rehabilitate” their loans to reduce their debt burden. The student loan collectors have vast power, including the ability to garnish wages and seize tax refunds—tools not normally available to companies collecting ordinary consumer debt.
In March 2012, the Department of Education said it was reviewing the commissions it paid debt collectors in the wake of complaints that the contractors were abusing borrowers. But so far, there’s not much evidence that anything has changed. The GAO report found that the Education Department still does little to oversee student-loan debt collectors, and has done little more than provide “feedback” when alerted to abuses.
The National Consumer Law Center has been highlighting the problems with student-loan debt collectors for a few years now, and watchdogging the Department of Education’s work in this area. Or at least it’s been trying to. Since 2012, the non-profit advocacy group has filed multiple Freedom of Information Act requests for information about the government’s relationships with student-loan debt collectors. But so far, the Obama administration has stonewalled the requests. On Monday, after more than year attempting to peel back the secrecy around the debt collection contracts, NCLC filed a lawsuit demanding that the Department of Education comply with the Freedom of Information Act and release the data.
“Collection agencies routinely violate consumer protection laws and prioritize profits over borrower rights,” says Persis Yu, an attorney with NCLC. “Abuses by these debt collection agencies cause significant hardship to the millions of students struggling to pay off their federal student loans. Taxpayers and student loan borrowers have a right to information about the impact of the Education Department’s policy of paying outside debt collectors on the rights of borrowers. The Education Department should not insulate itself from public scrutiny.”