The Department of Education plans to stop assigning unpaid federal student loan debts to private collection agencies and will instead keep those accounts with the organizations that are servicing the loans, according to a published report.
Attorneys for the Department “implored” a judge for the U.S. Court of Federal Claims to dismiss a lawsuit filed by the agencies because the Department is “revamping” how unpaid debts are collected, according to the report.
From the report:
The strategy is part of a broader overhaul of the federal student loan program, a project dubbed the Next Generation Financial Services Environment, or NextGen. While the Federal Student Aid office implements its new approach, the 13 private debt-collection companies already under contract will absorb new accounts until the transition is completed. The department has yet to set a completion date.
The plan to assign unpaid student loans to private collection agencies has been a quagmire for the Department of Education since it announced the plan. Companies that were not selected sued the Department of Education, alleging the criteria used in selecting the two winners — Windham Professionals and Performant Financial.
Similar to a program in place at the Internal Revenue Service to assign unpaid tax debts to private collection agencies, the program at the Department of Education was scorned because of excessive costs and concerns about effectiveness. The Bureau of Consumer Financial Protection estimates that the Department of Education pays private collection agencies $40 for every $1 recovered, according to the report.
