Department of Education cuts ties with 'misleading' student debt collection agencies

The US Education Department is cutting ties with five debt collection agencies – Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery and West Asset Management –saying they were providing inaccurate information to student loan borrowers.

The U.S. Education Department is cutting ties with five debt collection agencies, saying they were providing inaccurate information to student-loan borrowers.

Over the past several months, the department reviewed contracts with 22 private agencies that were working with the Federal Student Aid program. It will stop working with Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery and West Asset Management.

“Federal Student Aid borrowers are entitled to accurate information as they make critical choices to manage their debt,” department Under Secretary Ted Mitchell said in a news release. “Every company that works for the Department must keep consumers’ best interests at the heart of their business practices by giving borrowers clear and accurate guidance.”

The five collection agencies were found to have been giving misleading information about a loan rehabilitation program, which can provide some benefits to borrowers who have defaulted on their loans.

Specifically, the agencies “gave borrowers misleading information about the benefits to the borrowers’ credit report and about the waiver of certain collection fees,” according to the release.

The Education Department will reassign borrowers who had been assigned to those five agencies. It also plans to implement enhanced monitoring and guidance for the remaining private agencies that collect student debt to police for unfair, deceptive or abusive practices.

The release says there also will be extra monitoring for students, or former students, who began loan rehabilitation under those five agencies to make sure they are treated fairly going forward.

The department’s move was welcomed by consumer advocates.

“This move illustrates a commitment to responsible lending practices and is a strong step to protect consumers and taxpayers,” Maura Dundon, senior policy analyst with the Center for Responsible Lending, said in a news release. “No matter what type of debt owed, consumers have the right to be treated fairly and in accordance with the law.”

Doug Gross is a staff writer covering personal finance for NerdWallet. Follow him on Twitter@doug_gross and on Google+.