A group of 12 Senators — all Democrats — have written a letter to Betty DeVos, the Secretary of Education — expressing their “significant” concern about awarding private collection agencies contracts to collect on delinquent and defaulted student loans.
What collection agency executives will find interesting is the arguments made by the Senators why they think collection agencies should not be working on collecting student loans. Namely, that they are being overpaid for the work they are doing.
Using a report from the Consumer Financial Protection Bureau which concluded that private collection agencies receive as much as $40 for each $1 collected from “certain borrowers through loan rehabilitation,” the Senators have determined that “collectors may be receiving hundreds or thousands of dollars for the cost of placing a few phone calls or sending a few emails.”
Making matters worse, the Senators allege, are the “perverse” incentives to “aggressively pursue borrowers that no reasonable private sector company would pursue without a government guarantee and encourages distressed borrowers to use less successful tools to help them deal with default.”
The Senators detailed a number of questions they would like DeVos and her staff to answer, including:
- What is the per-borrower cost of using private collection agencies
- What is the average amount of collection costs paid by borrowers in default
- An analysis showing the cost of collection activities carried out by private collection agencies compared with the compensation paid by the federal government
- How much with be collected if the Department used wage garnishment and the Treasury Department offset program instead of using private collection agencies?
- Please provide a full unreacted copy of the collection agency handbook, including compensation arrangements
A copy of the letter can be accessed here.