ED Ends Contracts With Student Loan Debt Collection Companies

By Owen Daugherty, NASFAA Staff Reporter

The Department of Education (ED) last week announced it was ending its contracts with private collections agencies it uses to recoup payments from borrowers with defaulted student loans.

ED in a statement to NASFAA said the Office of Federal Student Aid (FSA) notified private collection agencies that it will recall the federal student loans the companies hold and end FSA’s relationship with them.

“This step is one part of a long-term strategy to improve defaulted federal student loan collections and help FSA more effectively support borrowers who are at risk of defaulting on their student loans,” FSA Chief Operating Officer Richard Cordray said in the statement. “This step will also streamline the process for all customers to get assistance with any federal student aid issue and operate more efficiently.”

Cordray added that the move “should have minimal impact on borrowers” due to the fact that it is taking place while student loan payments are paused through January due to the coronavirus pandemic.

Once the payment pause comes to an end on January 31, FSA said it plans to transition the work to support borrowers with defaulted student loans to its Business Process Operations (BPO) vendors, which were awarded contracts last year to “support all phases of the student aid life cycle as part of FSA’s long-term Next Gen strategy.”

FSA added that it will work in the short term with Maximus Federal Services, which is currently tasked with managing FSA’s system for defaulted federal student loans, and BPO vendors to help defaulted borrowers back into repayment.

The announcement comes as ED is still evaluating what to do with the roughly 7 million defaulted borrowers with federal student loans who have not had to make a payment in more than 18 months amid the pandemic, but will soon see payments and interest accrual resume.

Rep. Virginia Foxx (R-N.C.), ranking member of the House Committee on Education and Labor, knocked the announcement from the Biden administration to end the contracts.

She argued ED gave no guidance to these companies and the decision will put them “out of business permanently.”

“The Department’s action is yet another example of putting the preferences of their progressive allies over the needs of struggling student borrowers,” Foxx said in a statement

ED asserts the move is meant to further center FSA’s work on borrowers “and ensure they are supported and not taken advantage of by servicers or collection agencies.”


Publication Date: 11/8/2021

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