The U.S. Department of Education announced Friday it would end contracts with five private collection agencies. While the Education Department’s Federal Student Aid office handles student loans, it contracts out to debt collection agencies to collect payment on those loans. These agencies must adhere to federal debt collection laws — in particular the Fair Debt Collection Practices Act.
Unfortunately, as the Education Department has found, five such agencies were likely providing inaccurate information to borrowers. Doing so stands to agencies’ benefit: if these agencies mislead borrowers about their options to get out of default, they stand to reap even more collection fees. Why they need them is debatable: according to Dwight Vigna, an Education Department official, debt collectors expect to make nearly $5.8 billion in commissions over the four-year period ending in 2016.
It is important to reflect on just who the borrowers are in these situations. The Federal Student Aid office gives loans to students attending college. The amount of student debt in our country is well beyond where it should be — according to The Institute for College Access and Success, in 2013 nearly seven out of 10 graduating seniors left school with an average of $28,400 in student loan debt. According to The Huffington Post, cumulative federal student debt is now over $1.1 trillion, and the number of borrowers now in default is over 7 million.
With the growing student debt problem and the difficulties indebted students face upon graduating college, the possibility of students being misled about their payment options is nothing short of outrageous. The toll this kind of debt can take on an individual is immeasurable: according to a Gallup report, college graduates with high levels of student loan debt are less likely to thrive physically, have a good sense of purpose and be involved in their communities. In other words, debt is, quite literally, debilitating.
If collection agencies knowingly concealed payment options that could lighten students’ burden of debt, the Department of Education is right in its decision to cut ties with those agencies. Moreover, the U.S. Department of Justice should immediately begin investigating whether those agencies violated existing federal debt collection laws — a strong possibility.
It is important for the Department of Education to look out for the populace it aims to serve — namely, students. In the future, the Education Department should scrutinize its contracted debt collectors, and, if possible, find ways to compensate borrowers who were misled by these particular agencies. Perhaps the Education Department should also reevaluate the agencies with which it contracts more regularly: one of the agencies it cut ties with has worked for it since 1997, and the number of days, months or years during which the agency has misled its borrowers remains unclear.
The above solutions, however, are band-aid solutions at best. The ideal scenario would be for the Education Department to cut out the middlemen altogether and funnel federal loans directly through the Treasury Department or a federal program of some kind, where collectors will have no incentive to mislead borrowers. No matter what, if a collection agency misleads borrowers, the Education Department’s response is reactive — making it difficult to compensate borrowers for whatever money they may have lost in the process. Were the process to be streamlined without outside agencies, students would have a better chance of graduating with less debt.
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