July 16, 2014

Student loan collectors giving you trouble? You're not alone, federal auditor says

LANSING -- If you've ever complained about a company trying to collect a defaulted student loan, the U.S. Inspector General's office says those complaints fell on deaf ears.

"Federal Student Aid did not effectively monitor borrower complaints against private collections agencies and ensure that corrective actions were taken," an audit released Tuesday stated.

The audit examined how well the U.S. Department of Education's student loan division was overseeing the 22 companies, who were paid $687 million last year for their efforts to collect defaulted student loans from borrowers.

More than $34 billion in student loans were in default as of December 31, 2013, meaning no payments have been made on those loans in more than 360 days. The companies charged with collecting on those loans are required to follow federal debt collection laws and the terms of their contracts with the government, but the audit found that often did not happen.

Part of the problem, according to the report, is that the student loan agency does not track all complaints made against a collector, and does not have a common definition of what a complaint is.

"Because Federal Student Aid’s Business Operations and Default Division senior managers consider the number of complaints to be immaterial, they place insufficient emphasis on the importance of identifying, tracking, and resolving borrower complaints," the audit states.

For example, three collections agencies visited by federal auditors did not report verbal complaints to Federal Student Aid, as required under their contracts, and more than 1,000 complaints the agency did receive were stored in an outdated system and were not reviewed for more than a year.

The director of Federal Student Aid's default department told auditors that only .1 percent of borrowers submitted complaints, but auditors were unable to back up that claim because of the problems with how the agency collects complaints.

Student aid officials also did not review monthly written reports submitted by the collectors to ensure they were following the law, according to the audit.

The agency is supposed to listen in on calls to delinquent borrowers to ensure collectors are following the law, but the number of monitored calls for each agency has dropped to 10 per month.

"We found that for one quarter, a private collections agency had about 30,000 calls where borrower contact was made; Federal Student Aid’s monitoring protocol would require review of only 0.034 percent of those calls," auditors wrote.

The student loan agency has already begun implementing changes in response to the audit recommendations, but those changes have not been evaluated for effectiveness, the inspector general's office said.

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