The U.S. Department of Education, under fire for its lackluster oversight of student loan contractors, said Friday it will terminate its relationship with five debt collectors after accusing them of misleading distressed borrowers at “unacceptably high rates.”
The surprise announcement follows years of complaints about allegedly illegal debt-collection practices by Education Department contractors, the department’s seeming lack of interest in ensuring that borrowers are treated fairly, and the relative opacity of the entire operation.
The most prominent of the debt collectors, Pioneer Credit Recovery, is owned by Navient Corp., the student loan giant formerly known as Sallie Mae. Pioneer, under investigation by the Consumer Financial Protection Bureau, generated $127 million from the contract over the past two years, according to its annual report to investors on Friday. It has worked for the Education Department since 1997.
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The Education Department’s decision is likely to come as a shock to the debt collection industry and the financiers who bankroll the companies. Pioneer, Enterprise and Coast have been among the Education Department’s highest-ranking debt collectors, according to the department.
“After years of hearing complaints from borrowers of abusive treatment, we are relieved to hear that the Education Department has taken this first step to protect borrowers and hold the companies they contract accountable,” said Chris Hicks, an organizer who leads the Debt-Free Future campaign for Jobs With Justice, a Washington-based nonprofit.
