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DOE rehires 'misleading' student loan debt collectors

By Amy R. Connolly   |   Updated March 25, 2016 at 5:55 AM

WASHINGTON, March 24 (UPI) -- Two Department of Education private collection agencies once blacklisted from collecting student loans are back on the department's payroll, documents show.

Coast Professional and National Recoveries were among the five private collection agencies terminated in February 2015 after they made "materially inaccurate representations" to borrowers in default, the Education Department said. But in the final few months of 2015, Coast Professional was given an additional $863.5 million worth of student loans, and National Recoveries added $679.8 million for collections.

So far in 2016, Coast Professional has received $15.3 million and National Recoveries has received $9.3 million for debt collection services.

The department told Inside Higher Ed that Coast Professional and National Recoveries engaged in "corrective action," allowing them to restart student loan collections.

"Of the five [private collection agencies] that were found to violate federal consumer protection laws, Coast Professional and National Recoveries addressed those problems and took corrective action to ensure borrowers received accurate information," the department told Inside Higher Ed. "As a result, pursuant to federal procurement law, those companies became eligible to continue competing for department contracts."

The other three companies have not received new accounts but continue to do multi-billion dollar business with the department since the beginning of 2016. The department has paid Enterprise Recovery $15.1 million and Pioneer Credit Recovery $10.3 million so far this year. There is no data for West Asset Management. The department said it has kept borrowers with the agencies for consistency while they progress through loan rehabilitation programs.

Of the $1.3 trillion in unpaid student loan debt, about $121 billion is in default. The department currently uses 25 agencies to collect on that debt. With college costs rising, experts predict student loan debt will become the next financial crisis to pound the United States.

When the department announced it was severing ties with the companies early last year, Under Secretary Ted Mitchell appeared to be protecting borrowers, something consumer advocacy groups and lawmakers had demanded. The companies were found to have given "inaccurate information at unacceptably high rates" and gave borrowers "misleading information about the benefits to the borrowers' credit report and about the waiver of certain collection fees."

"Federal student aid borrowers are entitled to accurate information as they make critical choices to manage their debt," Mitchell said at the time. "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. It is our responsibility – and our commitment -- to uphold the highest standards of service for America's student borrowers and consumers."

In April, a federal judge dismissed a consolidated lawsuit from Coast Professional, National Recoveries, Enterprise Recovery Systems and Pioneer Credit Recovery protesting the department's ending of their contracts. An appeal is pending.

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