Government Drops Student Loan Collection Agencies for Giving 'Inaccurate' Information

The US Department of Education says it will cut ties with 5 private collection agencies following allegations the firms provided misleading or inaccurate information to student loan borrowers.

The US Department of Education says it will cut ties with 5 private collection agencies following allegations the firms provided misleading or inaccurate information to student loan borrowers.

The decision comes following a months-long review of collection contractors by the department’s Federal Student Aid office. The 5 affected companies are: Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery, and West Asset Management.

“Federal Student Aid borrowers are entitled to accurate information as they make critical choices to manage their debt,” said Ted Mitchell, undersecretary of education. “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.”

In particular, the Department of Education alleges the companies misled borrowers with regard to a loan rehabilitation program in which defaulted borrowers who make 9 on-time payments in a 10-month span can earn certain benefits. The collection agencies were found to have inaccurately described how the rehabilitation program would affect borrowers’ credit reports, and given inaccurate information regarding the waiver of certain collection fees.

The department said it will also provide enhanced monitoring and guidance of private collection agencies to ensure they comply with the Fair Debt Collection Practices Act.

The move won praise from consumer groups. In a press release, the Center for Responsible Lending called the action a “bold step” to protect borrowers.

“Student loan debt is now a trillion-dollar business—and as the financing of higher education increasingly shifts to federal student loans, the Department of Education must insist on the highest consumer protection standards,” said Maura Dundon, a senior policy analyst at the center. “This move illustrates a commitment to responsible lending practices and is a strong step to protect consumers and taxpayers.”