Judge Blocks Plan To Allow Education Dept. to Cancel Contracts With Collection Agencies

A federal judge has blocked a plan by the Department of Education to cancel contracts with private collection agencies to collect on unpaid student loan debts.

The department had notified the court and the private collection agencies back in May that it planned to cancel the contracts and to take the collection activities it had been outsourcing in house.

But the Education Department’s justification for canceling the contracts was “slipshod,” ruled Judge Thomas Wheeler, and that the government agency did not provide enough details of its new plan to warrant the cancellations. The Education Department’s about-face lacked “reasoned analysis,” Judge Wheeler wrote in his opinion.

Congress had also stepped in and was attempting to block the department’s attempts at canceling the contracts in order to do the collections work itself.

What this means now for the private collection agencies is anyone’s guess. The court’s decision to grant a permanent injunction blocking the department from canceling the contract will no doubt lead to more legal wrangling, which is pretty much all that has occurred since the contracts were announced and awarded.

The Education Department had originally awarded contracts to seven collection agencies back in 2016, which was then changed to two companies — Performant Financial Corp. and Windham Financial.