Update on Department of Education and Debt Collection

The U.S. Department of Education (DOE) has been relying on private debt collection companies to collect unpaid or overdue student loan debt, and many consumers have experienced problems with those debt collection companies and their tactics. In some cases, consumers have alleged that the private debt collecting firms contracting with the DOE have engaged in unlawful debt collection practices in violation of the Fair Debt Collection Practices Act (FDCPA). According to a recent article in The Wall Street Journal, a federal judge just “cleared the way for the Education Department to stop using private debt collectors and revamp the way it handles overdue student loans.”

What do debtors in Illinois need to know about the recent federal case and its impact on debt collection practices?

Plans to Change the Scope of Student Loan Servicing
If the DOE no longer plans to rely on private debt collection companies to recoup money owed by student debtors, what does it plan to do instead? As the article explains, the Education Department “wants to fold [debt collection] duties into student loan servicing as part of a broader overhaul called the Next General Financial Services Environment, or NextGen.” In other words, the DOE wants to change the scope of student loan servicing to include debt collection activities.

Yet this kind of “bundling” is not necessarily so simple to do. It would require companies either to provide additional services or to work together with other companies in order to offer a wider range of services. There is currently no easy answer for having debt collection as part of general student loan serving practices.

Private Debt Collectors Do Not Like the New Plans
The DOE’s new plans do not appeal to private debt collectors. As the article explains, debt collection companies “argue that the Education Department arbitrarily restricted competition and illegally canceled a contract solicitation they were vying to win.” Since last year, private debt collectors have been in court to prevent the DOE from moving forward with NextGen plans, or the solicitation of proposals.

Those debt collection companies sustained a significant loss when U.S. Court of Federal Claims Judge Thomas C. Wheeler decided that the DOE had “provided sufficient justification for consolidating loan servicing and default collection work.”

Now that the Education Department is permitted to move forward with NextGen, it will seek proposals that will involve managing approximately $1.5 trillion in student loan debt. For quite some time, consumer protection advocates have encouraged the DOE to stop using private debt collection companies and to consider ways of helping debtors to repay student loans. It is not yet clear whether the Education Department’s decision to stop relying on private debt collection companies through NextGen ultimately will be better for student loan debtors.

Contact a Consumer Protection Lawyer in Oak Park
If you have been harassed or treated unfairly by a debt collection company, you may have options. An experienced Oak Park consumer protection lawyer can speak with you today about your case. Contact the Emerson Law Firm to learn more about the services we provide to debtors and their families.


See Related Blog Posts:

How to Defend a Debt Collection Lawsuit

7th Circuit Says Debt Collector Can Charge Percentage-Based Fees

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