Last Friday, the Department of Education made a huge announcement that it’s cutting contracts with five private companies it had hired as debt collectors on defaulted student loans.
For years, Jobs With Justice has worked closely with our allies, including the Student Labor Action Project, US Student Association, and the American Federation of Teachers, to call for the termination of these contracts. We’ve held meetings with Secretary Arne Duncan, organized a massive petition drive to demand the agency cease to contract with lawbreakers, and even commissioned a research report suggesting alternative solutions to the government’s outsourcing of student loan management to private companies. Why? Because we hear from countless student debtors year after year whose ability to manage their debt is left in the hands of the greedy financial companies that manage their federal student loans. What’s worse is that despite repeated pleas from elected officials and even their own Inspector General, the Department of Education continues to shirk its responsibility in overseeing its contractors and protecting debtors who struggle to get accurate information about their loans. While the department still holds loan servicing contracts with many of these questionable companies, Friday’s announcement to cut the debt collection contract with Pioneer Credit Recovery (which is owned by Navient, formerly a division of Sallie Mae) is a tremendous first step by the government toward reining in its contractors – especially given that the department had previously laughed off complaints about these debt collection contracts.
We’ve often heard of the terrible treatment debtors receive at the hands of these debt collectors, ranging from garnishing Social Security payments to categorizing and punishing debtors as being in default even when they were making payments. Thankfully, thousands of debtors will now have their accounts handled by the U.S. Treasury Department, not another for-profit debt collector looking to make a profit off of their loans. Because the Treasury Department won’t be working for commissions like federally contracted student debt collectors still are, debtors will be able to expect fairer treatment and not have to worry about the department violating federal laws.
The Department of Education announced the termination by citing that, “the companies made materially inaccurate representations to borrowers about the loan rehabilitation program, which is an option that can create benefits to defaulted borrowers after they have made nine on-time payments in a period of 10 months. The five private collection agencies… were found to have given inaccurate information at unacceptably high rates about these benefits. In particular, these agencies gave borrowers misleading information about the benefits to the borrowers’ credit report and about the waiver of certain collection fees.”
This is critical victory in our campaign to hold the Education Department and these large financial institutions accountable for their role in the student debt crisis, and of course, for student debtors nationwide. As we’ve reported, defaulting on a student loan can have serious repercussions for a borrower, so cutting the contract with these debt collectors helps ensure that struggling debtors will actually receive the assistance and counseling they need to rehabilitate and eventually pay off their loans without any additional barriers to worry about.
Department of Education Undersecretary Ted Mitchell agreed:
“Every company that works for the Department must keep consumers’ best interests at the heart of their business practices by giving borrowers clear and accurate guidance. It is our responsibility – and our commitment – to uphold the highest standards of service for America’s student borrowers and consumers.”
We hope that Undersecretary Mitchell stands by what he says. If it is the department’s commitment to uphold the highest standards of service, then a hard, critical look at the companies holding student loan servicing contracts should absolutely be next.
Jobs With Justice thanks all of the student debtors, legislators, community members, workers, activists and other allies who made this happen. The long road to government and corporate accountability still stretches far ahead of us, but we’re thrilled to have this victory along the way.