This week, the National Consumer Law Center (NCLC), a consumer rights policy and legal advocacy organization based right here in Boston, announced that it is suing the U.S. Dept. of Education under the Freedom of Information Act (FOIA) for its secretive debt collection practices.
By way of background, the Dept. of Education contracts over 20 private collections agencies to collect on its defaulted federal student loans. Taxpayers foot the bill for these collections contracts, which cost over $1 billion in 2011 alone. The Dept. of Education projects that these costs may eclipse $2 billion by 2016. There is widespread agreement that many of these debt collection agencies routinely misrepresent student loan law and violate consumer protection statutes. Nevertheless, this federally subsidized debt collection business is booming, and contracts are routinely renewed by the Department despite widespread abuses.
NCLC stated that they have tried for over a year to obtain information under FOIA on secret contracts between the Dept. of Education and individual debt collection agencies in order to obtain details on Department oversight of the industry, and financial incentives that are provided to the companies. The Dept. of Education failed to fully comply with NCLC’s request, so NCLC filed suit in federal district court.
It will certainly be interesting to see how this turns out. The contract details between the Dept. of Education and debt collectors would shine a huge light on how these operations actually work, and could provide a foundation for reform.