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Education Department Cuts Ties With Student Loan Debt Collection Agencies

The department has been sharply criticized in the past for what some allege is a troubling partnership with the private companies it pays to collect student loans .

Posted on February 27, 2015, at 9:15 p.m. ET

Andrew Burton / Reuters

The Education Department announced late Friday that it had cut ties with five debt collection agencies that it says have been providing inaccurate information to student borrowers. One of those agencies is Pioneer Credit Recovery, a massive subsidiary of the publicly traded Navient Corporation, which is among the department's largest debt collectors.

The Education Department has been sharply criticized in the past for what some allege is a troubling partnership with debt collection agencies, which the government pays $1 billion each year to chase after student borrowers who are delayed on their loans.

A report by the National Consumer Law Center found that Navient's Pioneer Credit Recovery had among the highest levels of complaints from borrowers, but had received a performance bonus of more than $2.5 million from the government. Navient split from the student loan giant Sallie Mae last year. A 2012 Bloomberg article revealed that Pioneer Credit had used ruthless tactics to extract payments from borrowers, even those who were eligible for relief.

A review of 22 debt collections agencies, the Department of Education said, found that Pioneer Credit and four others had given borrowers inaccurate information about the department's loan forgiveness program at "unacceptably high rates." Because of incentive-pay structures, debt collectors made less money for students who entered loan forgiveness programs than for those who made payments, according to the National Consumer Law Center Report.

Navient Corp. generated $65 million in revenue from collecting on student debt in 2014, according to earning reports. The company's stock was down 10% on Monday morning.

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