Treasury Finds Limited Success in Default Collection Pilot

July 20, 2016

Earlier this month, the Treasury Department announced in a blog post on its site that in a pilot program to collect defaulted federal student loans, it had lower collection levels than private collection companies.

As New America policy analysts Ben Barrett and Alexander Holt write, the pilot program was launched to find out if the agency could collect loan debts without aggressive tactics often used by private contractors -- a source of complaints from borrowers. But the department only managed to resolve 4.4 percent of loans made to 5,729 borrowers, compared to 5.5 percent resolved by a control group of private companies contracted through the department.

Treasury staff members limited contacts with borrowers to one call per week and did not threaten wage garnishment during the first 11 months of the pilot program. The results of the pilot, Barrett and Holt write, indicate that “if we are interested in rehabilitating borrowers, the answer is not to be more gentle.”

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