The Dept. of Education is a huge bureaucracy with many internal departments and divisions that handle various education-related operations. It is a vast, complicated organizational structure.
To make things even more complex, the Dept. of Ed outsources many of its student loan operations to private companies, particularly with respect to servicing, billing, and collections.
The Dept. of Ed contracts out its servicing operations to 11 different private companies. For defaulted federal student loans, the Dept. of Ed contracts with over 20 private third-party debt collections agencies to pursue delinquent borrowers.
The problem is that the Dept. of Ed continues to work with companies that have allegedly engaged in serious violations of consumer rights. Take the following examples:
- The U.S. Dept. of Justice recently reached a $60 million settlement with Sallie Mae, Inc. over allegations that the company charged excessive interest rates to military servicemembers who had federal student loans, in violation of the Servicemembers Civil Relief Act. Despite the very serious allegations against the company, the Dept. of Ed announced that it intended to renew its federal student loan servicing contract with Sallie Mae, which may be worth over $80 million in revenue.
- Last year, the parent company of NCO Financial Systems, one of the largest debt collection agencies in the country, agreed to pay a $3.2 million penalty to the Federal Trade Commission for alleged violations of the federal Fair Debt Collection Practices Act, which prohibits unfair and abusive debt collection activities. The Dept. of Ed nevertheless continues to contract with NCO for the collection of defaulted federal student loan debt.
- Another large debt collection agency, Allied Interstate, Inc., agreed to pay a $1.75 million penalty to the Federal Trade Commission for similar violations of consumer protection laws. The Dept. of Ed still pays Allied to pursue defaulted federal student loan borrowers.
These are just a few examples. We essentially have several branches of the federal government pursuing these companies for significant violations of federal law, while another branch of government (the Dept. of Ed) continues to pay these companies to provide the very services for which they were penalized. Is it just me, or is something not quite right with that? Your tax dollars at work, as they say.