As some of you may know, the current system that the U.S. Department of Education uses to collect on defaulted federal student loans is… messy. To put it nicely.
The Dept. of Education contracts with over 20 individual private third-party debt collection agencies to pursue defaulted federal student loan borrowers. Individual student loan accounts are often shuffled from agency to agency, leaving borrowers confused and unsure about who is actually handling their student loan. The government has paid these agencies billions of dollars over the past several years, but numerous reports have chastised the Department for shoddy oversight, allowing abuses and violations of the law to run rampant. The Department continues to contract with agencies accused of serious, systematic violations of the law. Meanwhile, default rates are only getting worse.
Something clearly isn’t working.