- 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 Name||Total Voluntary Payments||Total 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|
|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|
|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|
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.
|Received incorrect or no information on debt||9%|
|Debt was already repaid||8%|
|Failure to verify debt||8%|
|Problems paying off debt||7%|
|Attempted to collect wrong amount or exempt funds||7%|
|Contacted a third party about debt||6%|
|Issues with customer service||5%|
|Issues with fees charged||3%|
|Taking or threatening legal action||3%|
|False statements or representation||3%|
|Debt resulted from identity theft||2%|
|Debt discharged into bankruptcy||1%|
|Issues with credit reporting||1%|
|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.