The U.S. Department of Education contracts out the collection of defaulted federal student loans to nearly two dozen private, third-party debt collection agencies. Borrowers, advocates, and the media have been severely criticizing the Department (quite loudly) after various independent reports accused many of these debt collection agencies of engaging in abusive and deceptive practices that violate federal law. These reports have accused the Department of poor and insufficient oversight of its contractors. Despite this, the Department has repeatedly ignored the criticism and renewed its contracts with many such agencies.

This may be changing. Perhaps in response to the growing chorus of criticism, the Department recently announced that it is terminating its contracts with five of its debt collection agencies, including:

Coast Professional
Enterprise Recovery Systems
National Recoveries
Pioneer Credit Recovery
West Asset Management

The Department indicates that it is severing ties with these agencies because (you won’t believe this) these agencies provided “materially inaccurate representations to borrowers” about federal student loan programs on a widespread, systematic basis. In other words, these debt collection agencies systematically lied to borrowers about their rights and options (shocking, I know). Borrowers who have accounts with these five agencies will be reassigned to other collection agencies, unless they are already in some sort of repayment arrangement.

I think this is a step in the right direction, but it’s not enough. Private companies that mislead and defraud consumers should not be rewarded with federal contracts, and I know from experience that these are not the only agencies engaging in shady practices. I hope this is not just a symbolic move by the Department, but rather an indication that they will be taking a more assertive role in supervising and overseeing these agencies to ensure that borrower rights are protected.

We’ll see, won’t we?