Student Loans

Controversial Collection Tactics Used on Student Loan Borrowers

In light of recent news that the Department of Education is planning to discontinue using private debt collection agencies (PCAs) for student loan debt, we analyzed government data on the dollar amount of debt recovery and the complaints filed by consumers to give better clarity as to how borrowers were affected by these agencies.

Key Takeaways

  • Wage garnishment is used frequently by private collection agencies as a way to recover debt.
  • 88% of student loan debt sent to these collection agencies was either consolidated or rehabilitated.
  • Out of the remaining debt, 65% was taken directly from borrowers' wages, while the rest was surrendered voluntarily to the private collection agencies.
  • 650,000 direct student loan borrowers were transferred to these PCAs between July 2015 and March 2017.
  • The majority of consumer complaints filed about collection agencies discussed their controversial communication tactics, including excessive calls, failure to verify debt and continued attempts of contact for debt not owed or already paid.

How Much Debt Have Collection Agencies Recovered

The table below shows the 30 debt collection agencies that had been used by the Department of Education to collect overdue student loan payments between July 2015 and March 2017. In that time, these companies took on 650,000 direct student loan accounts in default. We compared the dollar amount of voluntary debt payments and wage garnishments recovered by PCAs to show how these agencies deal with repayment from borrowers. We found that the efforts of these agencies to collect debt owed resulted in a significant portion of loans taken directly from borrowers' wages.

Agency NameTotal Voluntary PaymentsTotal Wage Garnishments
Windham Professionals Inc.$64,002,532$102,778,808
Immediate Credit Recovery Inc.$42,598,550$74,877,455
Collecto Inc.C dba EOS-CCA$14,017,121$72,612,314
Progressive Financial Services Inc.$14,106,675$70,512,466
FMS Investment Corp.$62,442,971$70,027,867
Coast Professional Inc.$37,620,104$64,524,747
GC Services LP$68,270,062$60,714,253
NCO Financial Systems Inc.$19,495,456$59,800,568
West Asset Management Inc.$11,612,928$59,263,930
Allied Interstate Inc.$17,957,375$57,097,362
Van Ru Credit Corp.$15,322,184$48,752,886
CBE Group$15,766,385$46,224,853
Premiere Credit of North America LLC$10,351,071$45,154,634
Diversified Collection Services Inc.$12,919,175$43,159,653
Account Control Technology Inc.$51,737,623$42,232,291
Collection Technology Inc.$12,509,362$34,424,742
Financial Asset Management Systems Inc.$5,274,477$31,542,006
Pioneer Credit Recovery Inc.$6,751,604$30,190,017
National Recoveries Inc.$23,325,969$28,207,127
Delta Management Associates Inc.$8,389,533$21,424,089
Action Financial Services$13,864,372$3,584,664
Credit Adjustments Inc.$14,291,842$1,888,312
Central Research$9,653,049$1,846,768
National Credit Services$1,524,855$148,305
FH Cann and Associates$1,694,719$103,826
Reliant Capital Solutions$1,548,593$92,439
Bass and Associates$1,190,445$39,708
Professional Bureau of Collections of Maryland$1,808,289$39,607
Grand Total$636,995,902$1,181,342,875

As shown by the data, debt collection agencies recovered a total of $1.18 billion in wage garnishments and around $637 million in voluntary repayments. The amount of debt recovered by wage garnishments implies that the debt collection agency and borrower could not come up with a repayment plan and instead the debt was sent to the borrower's employer. Wage garnishment can jeopardize employment and withholds up to 15% of disposable pay and at most 25%, if multiple federal student loan holders are trying to collect payment from the borrower's wage.

Rehabilitated and Consolidated Student Loan Debt

It's important to note that around 74% of all loans sent to private collection agencies are rehabilitated and 14% are consolidated. Rehabilitation allows borrowers to remove their default status by making nine payments within a 10-month period, whereas through consolidation, the defaulted loan is paid off, leaving the borrower with a single loan that has a fixed interest rate and one monthly payment. However, these services can be carried out by loan servicers, and it has been reported that the government pays collection agencies more to encourage them to rehabilitate loans, because defaulting hurts borrowers' credit scores, making it more difficult to take out other loans and purchase homes or cars.

Consumer Complaints Filed About PCAs

To further our analysis on PCAs used by the Department of Education, we took a look at complaints filed with the Consumer Financial Protection Bureau (CFPB) between July 2015 and March 2017 to illustrate common issues that borrowers in default had and continue to have with these agencies.

IssueComplaints (n=1506)
Mistaken identity18%
Excessive Calls15%
Received incorrect or no information on debt9%
Debt was already repaid8%
Failure to verify debt8%
Problems paying off debt7%
Attempted to collect wrong amount or exempt funds7%
Contacted a third party about debt6%
Issues with customer service5%
Issues with fees charged3%
Inappropriate contact3%
Taking or threatening legal action3%
False statements or representation3%
Debt resulted from identity theft2%
Debt discharged into bankruptcy1%
Issues with credit reporting1%
Problems getting a loan<1%

Borrowers are commonly displeased with how PCAs handle communication regarding debt repayment. It has been reported by consumers that PCAs try to contact borrowers repeatedly, fail to verify the borrower's debt or continue to call after debt has been paid instead of guiding borrowers to form a reasonable repayment schedule. According to one CFPB report, these methods have the potential to push borrowers further into debt rather than helping them pay off the loan.

The Future of Debt Collection: Using Loan Servicers Instead of PCAs

The federal government is expected to replace private collection agencies with loan servicers. This is, in part, due to the continued scrutiny private debt collection agencies have received over their tactics that allegedly often don't result in positive resolution for borrowers. The Department of Education already ended contracts with a portion of its private collection agencies in February for providing inaccurate information to borrowers about their debt. Going forward, the department plans to discontinue the use of private agencies over an unspecified time.

Loan servicers currently handle billing, repayment plans and other services related to student loans. The Department of Education is planning to add the responsibility of recovering past-due student loans to loan servicers, while putting the focus on helping borrowers before they go into default. Servicers are different from collection agencies in that they are meant to help borrowers manage their loans with resources and support while loans being sent to collection agencies is a last-resort response to a borrower not making payments. This is expected to have a positive impact for borrowers, as the initiative is part of the department's effort to enhance engagement and help borrowers manage their federal student loan debt using consolidation and rehabilitation.


Madison is a former Research Analyst at ValuePenguin who focused on student loans and personal loans. She graduated from the University of Rochester with a B.A. in Financial Economics with a double minor in Business and Psychology.