Not-So-Honest Broker

Education Department office for resolving disputes is staffed by company that also does loan collections for the agency, a potential conflict that troubles student borrowers.
July 7, 2009

Ombudsman's offices at federal agencies are designed to be honest brokers -- places where members of the public or aggrieved parties can go to resolve disputes "from a neutral, independent viewpoint," as the ombudsman's office at the U.S. Education Department Federal Student Aid office describes itself.

But the student aid agency's ombudsman's office is staffed by a company, Vangent, that also works with other offices in the department that provide financial advice to borrowers on their loans. Vangent does not collect loan payments on the department's behalf, but some of the company's employees in the ombudsman's office formerly worked in the department's Default Resolution Group Call Center. Those connections, which were identified by a former student loan borrower affiliated with the group Student Loan Justice, troubles not only officials of that group but financial aid experts like Mark Kantrowitz of (Note: This paragraph has been updated from an earlier version of the article to correct an error.)

"The purpose of an ombudsman's office is to have a disinterested body looking at the problems that students are bringing to its attention, and try to negotiate with lenders to resolve problems," said Kantrowitz. "If you're a borrower, would you call the ombudsman if you knew people there worked for a company that does collection of debt?"

Officials at the Education Department say that they take the matter seriously, but that the agency has investigated the matter and concluded that the concerns are overblown. While Vangent provides employees both for the ombudsman's office and, under a separate contract, for two call centers for borrowers, a spokesman said, the company is compensated based on the number of student borrowers it serves, not at all based on how successful it is in collecting student loan debt. "Vangent is neither authorized nor incented to perform student loan collection services on behalf of the department," said the spokesman, Justin Hamilton.

Questionable Objectivity

The composition of the staff at the ombudsman's office first got on the radar screen for student loan advocates when Heather Dunbar, who held $3,500 in loan debt, contacted the office and was troubled by what she perceived as the biased information and advice it provided. The office acted more like a collection agency than a troubleshooter, Dunbar said.

Her Web searching unearthed evidence that some of the ombudsman's employees worked for Vangent, a Virginia company. The news release notes that the company has worked with the department for 30 years, and a recent "case study" from the company highlights its debt collection efforts on the agency's behalf. (Note: This paragraph has been updated from an earlier version of the article to correct an error.)

A 2007 newsletter from the ombudsman's office identifies several then-new employees there who had worked in the Default Resolution Group Call Center, which works with borrowers to ensure they can make payments.

To borrower advocates like Alan Collinge, who heads Student Loan Justice, the idea that a student calling a purportedly neutral office at the Education Department would find a "wolf in sheep's clothing, misleading us for the interest of the other side," is deeply troubling.

Department officials say their review of the situation challenges the notion that it presents a conflict of interest, since Vangent is not paid based on how much it collects from borrowers. "While the advocacy group ... is mistaken about Vangent’s role, such concerns are taken very seriously at the Department of Education," Hamilton, the spokesman, said in an e-mail message. "In response to recent inquiries on this issue, the department assessed the Vangent contracts and confirmed there is no conflict of interest in work Vangent performs for the Department’s Federal Student Aid office and the FSA Ombudsman."

Kantrowitz, the financial aid expert, said the extent of the problem in the ombudsman's office would depend on the nature of the relationship between Vangent and the department. The problem would be much more significant if Vangent was being "compensated based on its success in collecting debt for the department," which Hamilton said it is not.

But even lacking that kind of arrangement, Kantrowitz said, the involvement of Vangent employees in the ombudsman's office puts at risk the agency's traditional independence.

"Regardless of how you slice it, the contractor for collections and the contractor for ombudsman appear to be same company," he said. "That still poses at the very least the appearance of a conflict of interest, if not a bona fide conflict of interest, that is not consistent with the purpose of the ombudsman office."


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