The U.S. Department of Education's plan to wind down contracts with five private collection agencies that allegedly provided wrong information to borrowers is expected to result in 400 lost jobs at one of the agencies.

The five agencies losing the federal contract include: Coast Professional, Enterprise Recovery Systems, National Recoveries, West Asset Management and Pioneer Credit Recovery.

Pioneer Credit, based in Arcade, N.Y., said it will cut 400 jobs as a result of losing the contract. The company employs nearly 1,000. 

The timing of the job cuts at Pioneer Credit is uncertain. The contract termination immediately stops any new collections accounts from flowing to Pioneer, but the company still is able to work on collecting overdue debts from borrowers who already have been contacted.

The decision to terminate the contracts comes after the department's review of 22 private collection agency contracts. The review sought to ensure that the agencies were complying with contract terms, including assuring that the agencies would not engage in unfair or deceptive practices and would comply with relevant federal and state laws.The Education Department found that some collectors made inaccurate representations to borrowers about a loan rehabilitation program, an option that can create benefits to defaulted borrowers after they have made nine on-time payments in a period of 10 months. The five private collection agencies in question were found to have given inaccurate information at unacceptably high rates about those benefits. In particular, the agencies gave borrowers misleading information about the benefits to the borrowers' credit report and about the waiver of certain collection fees.

The Education Department will reassign accounts held by the five agencies that are not already in repayment to other agencies. It also will increase monitoring to ensure that the students who began rehabilitation under the five private collection agencies will be treated fairly as they complete the process. The department also will issue new guidance to all remaining private collection agencies under contract, increase internal training for the department’s Federal Student Aid staff, improve the private collection agency manual, expand monitoring for many issues and refine its internal escalation practices.

Officials with the agencies were not immediately available for comment but a Pioneer Credit official has said the agency is working with the Education Department to address concerns to allow it to retain the contract.Rep. Chris Collins, R-NY, said Pioneer Credit's contract loss stems from violations he described as “technicalities or possibly a breach of protocol” that the Education Department found in the way the agency performed collections work. Questions over whether the company overcharged some borrowers also surfaced during the Education Department’s review. 

Collins said the violations, including a disagreement over who should take credit for waiving fees for borrowers who repaid most of their debt, appear to be easily fixable and questions whether they should result in a contract termination. He also was surprised the contract loss would result in 400 lost jobs.

Pioneer Credit’s parent company, Navient, also has been under fire for allegations that it overcharged military members and hit borrowers with excessive fees. Several major unions and student organizations last year urged the education department not to renew Navient’s contract.

Navient had been one of 17 collection agencies working under contract with the Education Department. Federal officials indicated that Navient still is in consideration for a five-year student loan collections contract that is scheduled to be issued next month.

 

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.