House Education Committee Has Questions on Department of Education’s Decision to Cancel Private Student Loan Contracts

The ranking member of the committee is calling for details on the department’s decision she said will impact borrowers and has resulted in job loss in the student loan servicing industry skilled to help with these payments, especially when they resume Feb. 1.

12/17/2021 9:00 A.M.

3 minute read

Members of Congress have requested an examination of the U.S. Department of Education’s (DOE) decision to terminate its federal student loan contracts with private collection agencies.

“That unexpected action has created questions and concerns for borrowers, industry stakeholders, and Congress—particularly as student loan payment is set to begin on February 1, 2022,” U.S. Rep. Virginia Foxx, R-N.C., ranking member of the U.S. House Committee on Education and Labor, and U.S. Rep. Julia Letlow, R-La., said in a letter to U.S. Department of Education Inspector General Sandra Bruce.

The DOE cancelled the contracts with student loan servicers in November, ACA International previously reported.

The contract cancellations will impact ACA members. Before Federal Student Aid Chief Operating Officer Richard Cordray’s announcement, the DOE had recently extended the federal student loan servicing contracts through December 2023.

“While … Cordray has stated this action ‘should have minimal impact on borrowers,’ we are concerned this will not be the case,” Foxx and Letlow said. “Of the five business process operations (BPO) vendors who are expected to perform collections activities for the [d]epartment going forward, only one has collection experience and is licensed to undergo collection activities in the states in which they work. Moreover, these contractors are facing labor shortages due to the pandemic and will not be required to undertake new responsibilities with fewer resources.”

With approximately 7 million student loan borrowers who will see payments and interest resume Feb. 1, Foxx and Letlow said it is “particularly troubling” that the department cancelled the contracts “without providing the necessary information and assurance that is prepared to address the array of unintended consequences resulting from the contract termination.”

The legislators are requesting economic analysis information the department used to reach its decision to terminate the contracts, a timeline of events before the decision was made, and its plans to address employee shortfalls to handle the collections work from absent employees who were terminated as a result of the decision, among other information.

Read the complete letter here.

Meanwhile, several other members of Congress have requested another extension of student loan payment forbearance beyond Feb. 1, ACA previously reported.

Senate Majority Leader Chuck Schumer, D-N.Y., has been leading the charge for President Joe Biden to extend the pause on student loan payments since the omicron variant emerged.

Another group of senators is requesting for the Biden administration to waive interest when student loan payments do resume, according to a letter from the office of U.S. Sen. Raphael Warnock, D-Ga.

ACA continues to push back on flawed policymaking decisions that unfairly target the accounts receivable management industry and will continue to educate Congress on why consumers and the economy are harmed when professional debt collectors are removed from the process.

ACA looks forward to seeing the results of the request from Foxx and Letlow and more information on the department’s decision to end the contracts.

“This decision, made for the sole purpose of scoring political points, has caused hundreds of Americans to lose their jobs,” said Leah Dempsey, ACA’s vice president and senior counsel of federal advocacy. “It will also elongate and complicate the process for former students to address legal obligations, harming both consumers and the taxpayers left on the hook. The information requested from the inspector general will provide helpful insights on the department’s decision to end the student loan contracts and hopefully some remediation to help borrowers navigate their payments next year as well as for work in the student loan servicing industry.”

 

 

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