The Department of Education last week notified the private collection agencies it had been using to help recover payments on defaulted student loan debts that it would no longer be placing accounts with them. Instead, the accounts will be placed with five private contractors hired by the department last year to help provide customer support to borrowers as they work to repay their loans.
The news was announced by Richard Cordray, the chief operating officer of Federal Student Aid, which oversees the $1.6 trillion in federal student loans that are outstanding.
While the move is expected to have a minimal immediate impact on borrowers, that is only because borrowers have not had to make any payments on their student loans for more than 18 months, and that pause — which was put into place at the start of the COVID-19 pandemic — is set to end on January 31, 2022.
The decision to stop using private collection agencies is part of a “long-term strategy to improve federal student loan collections and help support borrowers at risk of defaulting,” according to a published media report. Using the private contractors will allow Federal Student Aid to streamline the process for any individual with a student loan to get assistance for any type of issue.
The report notes that Democrats have been critical of using private collection agencies since the program started several years ago.
Meanwhile, a group of Senate Democrats last week sent letters to
