The U.S. Department of Education may sever ties with private debt collection firms.
This could be good news for federal student loan borrowers in default. Consumer advocates say some delinquent borrowers have dealt with collection agencies that haven’t been forthcoming about options that may be available to them.
Some of these third-party collection agencies, such as Performant Recovery Inc. and Windham Professionals Inc., have been accused of predatory practices.
The Department of Education’s move to drop private collection agencies is part of a larger initiative to revamp the federal student loan system. In November 2017, the Department of Education put out a press release detailing its vision to overhaul the federal student financial aid repayment system and improve the customer service experience.
[Read: What the Proposed Borrower Defense Rules Mean for Student Loans.]
The department’s blueprint, known as the Next Generation Financial Services Environment, is intended to modernize and simplify the student loan repayment process. According to the Education Department, the agency will have one website for all things related to student borrowing.
Currently, federal student loan borrowers face multiple brands and vendors during the life cycle of their student aid experience. Under the present system, borrowers are assigned to one, and sometimes more, of nine student loan servicers. Loan servicers, such as Nelnet and Navient Corp., are companies that collect payments, respond to customer service inquiries and perform other administrative tasks on behalf of the U.S. Department of Education.
Under the department’s NextGen vision, a new loan servicing platform would provide a more uniform service for repayment. Moving away from private debt collection firms is a step toward simplification to reduce borrower confusion.
[Read: How the Trump Administration May Reform Student Loan.]
Private debt collection firms have also been accused of using aggressive practices to collect student loan debt. They have been accused of not working with consumers to find a solution. Consumer protection advocates say earlier communication with at-risk borrowers may lead to fewer defaults. It’s hoped that a move toward having servicers handle collections will result in better and earlier communication with borrowers.
But there are concerns among consumer advocates that the Trump administration hasn’t done enough to police student loan servicers and protect borrowers from predatory practices.
In fact, several states are currently suing Navient regarding repayment options. These lawsuits draw heavily on complaints the Consumer Financial Protection Bureau received from borrowers and an ongoing suit brought by the CFPB against the servicer.
These lawsuits charge that Navient pushed their clients into unnecessary forbearance, instead of offering an income-driven repayment plan. But the Trump administration maintains that the states don’t have jurisdiction over federal programs.
Some legal experts say the move away from private collectors is one way to show that these lawsuits are unnecessary.
Until the change to remove private debt collectors from the system is put in place, here’s what borrowers in default need to know.
Student loan borrowers in default have rights. While borrowers in default may still have to deal with private collectors, they should know that student loan collectors are subject to the rules of the Fair Debt Collection Practices Act. The FDCPA protects consumers from harassment by collectors. For instance, a collection agency can’t threaten arrest or harm.
If contacted by a collector, the agency will discuss the debt and request payment. But there are rules about when they can contact borrowers. For instance, they can’t call before 8:00 a.m. or after 9:00 p.m. If they use a work number, borrowers can request not to be contacted at work. After that request is made, the collector must not call there again.
If a collector doesn’t have a phone number for the borrower, they can contact family, friends or neighbors in an attempt to obtain a number. But they can’t disclose the debt or that they are a collector.
The federal government is increasing its outreach to at-risk borrowers. It’s worth noting that in May, the Department of Education told a federal court about a new policy that would start significant engagement with at-risk borrowers as early as 90 days after they become delinquent on their student loans.
[Read: What to Know About Possible Bankruptcy Rule Changes for Student Debt.]
This is much earlier than the standard default mark. Student loan default happens after borrowers fail to make full payments on their student loans for 270 days or more. According to court documents: “[The Education Department] expects these enhanced outreach efforts to reduce the volume of borrowers that default, improve customer service to delinquent borrowers and lower overall delinquency levels.”
The Student Loan Ranger advises borrowers to stay informed about their loan status and reach out early for assistance. Help is also available through nonprofit student loan counselors.
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How Debt Collection May Change for Student Loan Borrowers originally appeared on usnews.com
