The National Consumer Law Center on Monday sued the U.S. Department of Education as a result of the agency refusing to hand over documents detailing how the federal government awards bonuses to collection agencies it hires to pursue defaulted student loans.
The Education Department, according to court documents, argues that it can keep the documents private under an exemption to the Freedom of Information Act that protects "trade secrets" and certain commercial or financial information. The law center charges in the lawsuit that the Education Department violated the Act by withholding records concerning the performance and incentive pay for the governments contracted debt collectors.
The law center had sought information about the departments methodology for evaluating and compensating the agencies and requested documents that show how individual debt collection companies have performed.
Debt collectors are the main point of contact between the Education Department and borrowers who have fallen behind on payments on their federal student loans. The collectors are supposed to give struggling borrowers accurate information about their options.
The private companies can earn 11% commissions if they can get a delinquent loan rehabilitated, but may receive only $150 if they get a borrower into a forgiveness program, said Persis Yu, an attorney at the law center.
In a statement, Yu added, "collection agencies routinely violate consumer protection laws and prioritize profits over borrower rights. Taxpayers and student loan borrowers have a right to information about the impact of the Education Departments policy of paying outside debt collectors on the rights of borrowers. We hear about a lot of different abuses with private debt collection agencies."
Borrowers and their attorneys complain, she said, that they were steered away from programs for which they qualified and pushed to bring loans current through rehabilitation.
"We do think that's tied to incentives on how debt collection agencies are paid," Yu said. "It's really weighted more toward how much money the collectors bring in."
The U.S. Government Accountability Office reported in March that it had found instances in which debt collectors "provided false or misleading information" to borrowers.
The GAO examined quarterly call review reports for six collection agencies, issued by the Department of Education from September 2011 to March 2013, and discovered the department could not provide documentation for 11 of the 42 call reviews that should have been performed. The GAO found that while the Department of Education provided feedback on call review results to each collection agency, it did not ensure that the agencies are taking corrective actions and it did not analyze the results.
The law center requested information about commissions paid to the collectors and the department's oversight efforts; the government responded with heavily redacted documents.
The suit was filed in federal court in Boston, where the law center is headquartered.