By Deanne Loonin
There is so much potential for positive change in the student loan programs these days. This is great news for borrowers and we hope Congress and the White House will continue to push for critical changes to benefit borrowers.
As much as things change, however, some things remain the same for the most financially distressed borrowers. There are good repayment options for many of these borrowers, but unfortunately they often do not get the information they need about their choices or if they do get information, it is often inaccurate or misleading.
The main barrier these borrowers face is that they are forced to deal with collection agencies when trying to resolve problems. It is rarely discussed, but it has become “business as usual” for the federal government, student loan guaranty agencies, and schools to contract with private collection agencies not only to collect, but also to resolve disputes and provide information to borrowers. In both the Federal Family Education Loan (FFEL) program and Direct Lending, private collection agencies are given authority to act on behalf of the loan holder in everything from rehabilitation to providing information about discharges to settling accounts. [Editor's Note: In the FFEL program, the government relies on guaranty agencies to try and prevent delinquent borrowers from going into default and collecting on defaulted loans. Guaranty agencies, however, often hire collection agencies to carry out at least some of these functions. To learn more about guaranty agencies, click here.]
This policy has been a disaster for financially distressed borrowers who are desperate for help. Dispute resolution is, obviously, not the primary mission of loan collection agencies. Debt collectors are not adequately trained to understand and administer the complex borrower rights available under the Higher Education Act, and the government does not provide sufficient oversight of their activities.
There are certainly times when a borrower is uncooperative or has exhausted all options. In those cases, the loan holder may have no choice but to focus on collection efforts. Yet there are many borrowers who want to find a solution, but are stymied because they can’t get past the rude, harassing, and often abusive behavior of a collection agent.
Take, for example, the case of a recent client of mine -- a young man, originally from Honduras, who was struggling to get by. He had dropped out of school after only a year because he had been institutionalized after trying to commit suicide. By the time he came to see me, he had a job earning about $10 per hour, no health insurance, a car that constantly broke down and two small children to care for. He sought my help after receiving a notice of wage garnishment from the guaranty agency in New York. He had tried to find out about his options from the agency’s collection agency, General Revenue Corp (GRC), but was treated so badly that he gave up.
The deadline to request a hearing on his case was only a week away. So I called the guaranty agency to see if we could set up a repayment plan and avoid having to go through the formal hearing process. I was told that I would have to deal with GRC. I called and asked for the person the guarantor had referred me to. After being put on hold for a while and passed around, I eventually was informed that this person hadn't worked at GRC for about a year. I was transferred to a different agency representative who told me that she could only speak directly with the borrower. I said I had a release form signed by my client and I just needed to know how to get the release form to her. After 15 minutes of debate, the representative finally gave me the fax number to send the release but said that it was a very large agency and that it could take a long time for the release form to be entered into the agency’s computer system. Given the looming deadline, I asked that she try to expedite the process. I alerted her that we would have to request a hearing unless we could get an extension. She “responded” by hanging up on me.
I sent the release right away and asked the GRC representative to call me back when she received the letter. She didn’t call me back. I called the collection agency back and asked for my previous contact. The person answering the phone said she would transfer me, but I ended up with someone else. The new person said that she couldn’t and wouldn’t talk to me, only to my client. I explained that I had already been through this with my previous contact and that I had already sent a release form. Amazingly, they hung up on me again!
There is so much wrong with this picture, it’s hard to know where to start. Is it too much to ask that borrowers be treated respectfully? Why couldn’t the guaranty agency deal with me directly? Why isn’t there a process to accept releases from borrower’s attorneys? Why did the guarantor give me a contact name for someone who no longer works at the collection agency?
There is a relatively happy ending to this case. I told contacts at the Department of Education about this situation and they gave me a contact at the guaranty agency. Suddenly, the guarantor started treating me like a queen. We were able to resolve the problem by setting up a repayment plan, the option we had been seeking from the beginning.
This was a good result for my client, but it is frustrating in many ways because we will never get systemic reform if it requires this level of effort from a borrower and his advocates. There are very few of us representing these borrowers and we can only intervene at this level for a handful of borrowers who need help.
The “helpers” can never come from the collection industry. The Department of Education and other loan holders should acknowledge this fact and move on. The Education Department should terminate its contracts with private collection agencies and hire in-house staff to resolve disputes and collect debts. The Treasury Department made a similar move in March 2009 when it announced that the I.R.S. would not be renewing contracts with two private debt collection agencies working with the I.R.S Private Debt Collection program. The I.R.S determined that the work is best done by IRS employees who have more flexibility handling cases. They decided that this was particularly important in a time when so many taxpayers are facing economic hardship.
We understand there is a balance between the need to collect student loans and the need to assist borrowers. At this point, the balance is way off on the collection end. Whether it acknowledges it or not, the government has chosen high pressure collection over a resolution-based system -- to the detriment of financially distressed borrowers. As the White House and Congress look for ways to reform the federal student loan system, this is an area that is in desperate need of attention.
Deanne Loonin is a staff attorney with the National Consumer Law Center and the Director of the Center's Student Loan Borrower Assistance Project. She focuses on consumer credit issues generally and more specifically on student loans, credit counseling, and credit discrimination. She is the principal author of numerous publications, including "Too Small to Help: The Plight of Financially Distressed Private Student Loan Borrowers," and "Income-Based Repayment: Making it Work for Student Loan Borrowers." Her views are her own and do not necessarily reflect those of the New America Foundation.