Private collection agencies provide critical service

Over the last few weeks, there have been many news reports about private collection agencies (PCAs) who recover defaulted student loan debt on behalf of the U.S. Department of Education. Despite the negative press and accusations, no proof of intentional wrongdoing has yet to be shared. More importantly, there is a need to recognize the critically important work that the nation’s PCAs perform on behalf of students, borrowers, and families. This is difficult work that benefits borrowers, taxpayers and the national economy.

The U.S. taxpayer invests over $100 billion each year in low-interest loans to college students with no collateral or proven ability to repay. This is a crucially important investment, as a well-educated population benefits society as a whole and provides opportunity to individuals to become better citizens and improve their financial wellbeing. With it, however, comes a tremendous responsibility to ensure that these loans are repaid so future generations of college students have access to the same opportunities as those who came before them. The nation’s student loan collection agencies assist in meeting this responsibility by adding accountability to the federal student loan programs. Without this accountability, the program could not continue to function or would be curtailed as its cost would be fiscally unsustainable.

{mosads}The companies specializing in defaulted student loan collection are highly effective organizations that work to communicate with millions of borrowers. These organizations employ highly trained staff to locate and assist defaulted borrowers in accessing the many available programs that allow borrowers to get out from under the heavy burden of default. Collection agencies are only paid if they are successful in locating borrowers and resolving their defaults – making the outsourcing of this work extremely cost-effective for the taxpayer without adding several thousand full-time employees to the payroll of the federal government. 

Contrary to some reports in the media, student loan collection agencies are among the most highly regulated companies in business today. Compliance with a multitude of federal and state consumer lending laws and regulations, including the Fair Debt Collection Practices Act (FDCPA), is critical to the success of a collection agency. Oversight of these agencies is substantial and overlapping, with various federal and state agencies performing numerous reviews each year. Those under contract with the U.S. Department of Education are required to record 100 percent of all incoming and out-going telephone calls (unless prohibited by state laws or borrower requests), employ only certified and trained staff, and provide for internal and external third party audits. All verbal and non-verbal complaints must be tracked and resolved. Collection agencies are supervised by the U.S. Department of Education, the Federal Trade Commission, and the Consumer Financial Protection Bureau, and subject to numerous city and state licensure requirements.

But the Department’s PCAs do far more than add integrity and accountability to the federal student loan program. Borrowers and taxpayers benefit greatly from the work of these agencies. For example:

·       In the last decade, PCAs helped over 2.6 million borrowers rehabilitate their defaulted student loans and nearly 1.1 million pursue loan consolidation.

·       More than 90,000 borrowers had their defaulted loans resolved in FY 2014 through one of the many loan discharge programs.

·       Nearly 2.7 million individual borrowers will be assisted in the current fiscal year, representing millions of telephone contacts and tens of millions of successful financial transactions.

·       Borrower complaints – as a percentage of overall borrower contacts – are infinitesimal, and this record of success should serve as a model for other customer service-oriented businesses.

·       Over the last 10 years, nearly $110.3 billion was recovered and returned to the U.S. Treasury.

·        In FY 2013, the federal government kept $0.91 of every $1.00 recovered by a PCA, showing the tremendous value of outsourcing collections.

·        These companies employ more than 10,000 Americans throughout the country, with compensation standardized by U.S. Department of Labor guidelines. Both the companies and their employees support their local communities and the national economy through taxes and consumer spending.

It is understandable that some defaulted borrowers will complain about their experiences with collection agencies – after all, who wants to be contacted about debt they are delinquent in repaying?  However, it is time for both the media and the consumer advocates to stop defaming student loan collection agencies and to start recognizing the critically important role they play in support of borrowers, taxpayers, and the nation’s student loan programs.

Bergeron serves as president of the National Council of Higher Education Resources (NCHER).