On February 27, the Department of Education announced it will end its contracts with five private collection agencies: Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery and West Asset Management. According to the Department, these private collection agencies made "materially inaccurate" representations to borrowers about opportunities to rehabilitate their loans. It's good that the Education Department is cracking down, but much more needs to be done to hold collection agencies accountable for unfair or deceptive practices.
Borrowers, when they feel that they have been misled, can defend themselves against these practices with tools provided by the Consumer Financial Protection Bureau (CFPB). You can file complaints about abusive federal student loan debt collectors here. And if you're a borrower in default on federal student loans, you should use the Repay Student Debt tool to help you understand your options.
But it can't all fall to the borrowers -- it's important for policymakers to keep in mind the scope and severity of the student debt crisis, and to proactively look for solutions. The Federal Reserve Bank of New York reports that 90-day student loan delinquencies have increased ever since they began collecting data in 2003. Student loans have had the highest delinquency rate of any form of household credit since 2012, and have not declined appreciably. This is because student loan borrowers continue to default and -- since student loans can't be discharged in bankruptcy -- remain stuck with the debt.
Reinstating the ability to discharge student loans through the normal bankruptcy process would lower the amount of delinquent student debt and ease the student debt crisis. This is particularly important for private loans. The CFPB has reported that the lack of bankruptcy options for private student loan borrowers creates no incentive for lenders to be flexible in developing repayment plans with borrowers and has recommended Congress consider changing the 2005 changes to the bankruptcy code. In the meantime, borrowers who need repayment flexibility can try tools created by the CFPB, including a sample letter to request lower monthly payments, information on available repayment plans, and a sample financial worksheet
Borrowers with federal student loans have more options -- unfortunately, they are not always ideal. The predominant response of Congress and the administration to rising delinquencies and defaults (other than relying on private collection agencies) has been to create and promote an ever-growing array of income-driven repayment plans like Income-Based Repayment and Pay As You Earn. These plans allow borrowers to only pay 10 or 15 percent of their income on their student loans.
Income-driven repayment plans help many borrowers avoid delinquency and default, and we support them (you can read how they work in our free e-book). But these plans are not perfect solutions. The low monthly payments they provide also mean many borrowers take longer to pay off their loans and pay more overall. As the New York Fed and others have reported, this is causing millennials to stay home with their parents, delay marriage, and put off home ownership -- and stalling economic growth.
These plans do provide taxable forgiveness after 20 or 25 years. To free borrowers from the burden of student debt earlier -- and to allow them to invest in the economy, which will benefit all of us -- Congress should allow borrowers who consistently pay at least 10 percent of their income to have their debt forgiven tax-free in 15 years.
We can all agree that this would be a huge investment in education for the country, and might mean the Department of Education would actually stop profiting off student loans. But it's an investment that would help grow the economy. And it's a loss that would perhaps spur the government to look for solutions to the ongoing rise in the cost of college that is causing students to borrow more.
Isaac Bowers is Associate Director for Law School Engagement & Advocacy, overseeing the Student Debt, Student Engagement, and Law School Relations programs. He was previously responsible for the organization's educational debt relief initiatives. In that capacity, he wrote a weekly blog for U.S. News; conducted monthly webinars for a wide range of audiences; advised employers, law schools and professional organizations; and worked with Congress and the Department of Education on Federal legislation and regulations. Prior to joining Equal Justice Works, he was a Fellow at Shute, Mihaly & Weinberger LLP in San Francisco, where he represented citizen groups and local agencies in environmental litigation and land use and planning issues. Isaac received his J.D. from New York University School of Law.