The federal government’s system for collecting debt from students who have defaulted on their federal student loans is poorly overseen and rife with perverse incentives for debt collection companies that harm consumers, according to a National Consumer Law Center report released Tuesday.
The report, which analyzes how the U.S. Department of Education oversees and pays the 22 companies it hires to collect defaulted debt on behalf of taxpayers, criticizes the department for not taking borrower experiences into account when doling out billions of dollars to the collection agencies. It further criticizes the incentive structure for those companies, which the group says harms borrowers.
The law center calls for the Education Department to eliminate the use of private collection agencies and explore in-house debt collection as well as increasing transparency and borrower protections. It also builds on a report released earlier this year by the department’s Inspector General.
The report is based on public records analyzed by the consumer group, which is currently in a legal dispute with the department over debt collection records. The consumer group has sued the department over it refusal to release complete documents showing how the federal government awards bonuses to debt collection companies it hires to recover defaulted student loans.