ED Blocked From Phasing Out Use of Private Student Debt Collection Agencies
By Allie Bidwell, NASFAA Senior Reporter
The Department of Education's (ED) plan to end its use of private collections agencies (PCAs) to recoup student loan dollars from defaulted borrowers was halted on Friday when a federal judge prevented ED from cancelling the solicitation.
The judge, U.S. Court of Federal Claims Judge Thomas C. Wheeler, said ED "either did not have, or did not sufficiently document, a rational basis for its decision to cancel the solicitation," and granted a permanent injunction preventing ED from ending its use of PCAs. ED announced in May that it would move away from contracting with PCAs and instead hand over the job to a subset of loan servicers, who would work with borrowers before they default, and collect on their debt in instances where borrowers ultimately fall more than 270 days behind on payments.
That announcement came just a few months after ED awarded multi-million dollar contracts to two PCAs, drawing scrutiny from many Democratic lawmakers. A group of 12 Democratic senators wrote to ED, urging the agency to either justify its use of PCAs, or stop working with the private companies.
When ED announced in May that it would end its contracts with PCAs, some of those Democratic lawmakers saw it as a victory.
"Higher education is supposed to open new doors and opportunities, but far too many students are forced to take out a mountain of debt just to earn a degree and are being chased down by private debt companies when they struggle to make ends meet," said Sen. Patty Murray (D-WA), ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, in a statement in May. "I'm pleased Secretary DeVos listened to Congress, and the millions of students and borrowers who were desperately asking for her help, and I will continue to hold her accountable to ensure the Department takes the necessary steps to ease the burden of debt for struggling student loan borrowers."
In his ruling, Wheeler took issue with the documentation ED provided to justify ending its contracts with PCAs, saying the administrative record was "scant," at just 33 pages, and pointing out that ED's first public announcement of the "enhanced servicer program" as part of its "NextGen Financial Services Environment" and an internal memorandum mentioning the program have the same date.
Wheeler went on to say that the documentation "is missing critical information about the enhanced servicer program."
"The [administrative record] does not include any plan or timeline for implementing the program," he wrote. "It does not include a request for proposals, or any mention of what that request might look like. It does not refer to a source of funding. It does not even include a copy of the solicitation that ED cancelled to clear a path for the enhanced servicers."
Still, Wheeler wrote in the ruling that he "does not suggest what further action [ED] may take."
Publication Date: 9/18/2018
You must be logged in to comment on this page.