Student Loan Debt Collection Market Attacked by Bloomberg

The Department of Education’s student loan debt collection contract is under fire today in a feature story published Sunday by Bloomberg Businessweek.

Using the anecdotal personal stories of two consumers and two former collectors, the 2,500 word article basically throws the entire ED debt collection contract under the bus, insisting that the 22 private debt collection agencies on the contract use a “boiler room” approach to collecting while preventing debtors from entering low-cost repayment plans.

The reporter, John Hechinger, hit all the typical soft spots apparently required for any story about debt collectors: a disabled consumer abused by collectors, a discussion about complaints against the ARM industry, and the use of autodialers to contact consumers. It is worth noting that–like every other hackneyed story about debt collection writ large–Hechinger trots out the same tired FTC complaints statistics that make his piece unique and special (just like everybody else’s writing on the subject).

He writes, “Debt collectors are the subject of more complaints to the Federal Trade Commission than any other industry–almost 181,000 last year.” The problem is that only a fraction of these complaints are related to student loan delinquencies and, as insideARM is coming to understand with greater clarity every day following a Freedom of Information Act request to the FTC that produced the actual complaints data (down to individual consumer complaints alleging statutory “violations” of federal debt collection laws “as reported” by government call center employees in the FTC’s data), these so-called complaints are in many cases neither violations of federal law nor related to the actions of third-party debt collectors at all. But why bother exploring subtlety when glossing over facts with shocking “statistics” is so much more uncomplicated?

As we’ve mentioned recently, insideARM is in the process of analyzing the raw FTC complaints data, and we’ll be publishing a major series on our findings later this spring.

But this piece goes a bit further, calling into question the amount of commissions the collection agencies keep for their work and dragging major financial institutions Sallie Mae and JP Morgan Chase into the fray as owners of two student loan collection agencies.