Dec. 3, 2013
“The basic purpose of [the Freedom of Information Act] is to ensure an informed citizenry, vital to the functioning of a democratic society, needed to check against corruption and to hold the governors accountable to the governed.” Justice Thurgood Marshall, NLRB v. Robbins Tire and Rubber Co. (1978)
President Obama has committed his administration to achieving new levels of openness in government. Unfortunately, time and again, the U.S. Department of Education has failed to live up to this promise, and instead has protected the interests of the private debt collectors it hires to collect from borrowers who have defaulted on their federal student loans.
In April, we at the National Consumer Law Center’s Student Loan Borrower Assistance Project published an article on Higher Ed Watch describing the challenges we faced getting the Department to respond to our Freedom of Information Act (FOIA) requests. Since then, the Department has spoken (on one of our requests at least) and it doesn’t seem to think the American public has a right to know how its student loan collection agencies perform or get paid.
We sent a FOIA request to the Department in March requesting its evaluation of the debt collectors with which it contracts. In response, we received 17 pages that were completely redacted, and eight pages with all but the debt collectors’ names redacted. Really??? We are not entitled to any information? NCLC has appealed this decision.[pullquote]Regardless some of the Department’s redactions seem to be less about preventing borrowers from circumventing the law and more about saving face.[/pullquote]
In response to an earlier FOIA request that we filed in August 2012, the Department provided a heavily redacted version of its Private Collection Agency manual, even though this document used to be publicly available on the Department’s own website. The Department claims that it is allowed to redact the document because it is a law enforcement agency, and revealing this information would allow borrowers to circumvent the law.
You may be wondering how the Department is a law enforcement agency, and we are too. Regardless some of the Department’s redactions seem to be less about preventing borrowers from circumventing the law and more about saving face. For example, the Department has redacted every mention of its policy that improperly entices student loan collection companies to demand excessive payments from borrowers to “rehabilitate” their loans. Under this policy, the department pays higher commissions to collectors that demand larger payments from borrowers, despite the fact that the law requires the companies to set the payments at a level borrowers can afford. This program has caused the Department much embarrassment in the press and will be illegal when the Department’s new regulations take effect in July (and arguably under existing law as well).
Legal arguments aside, this is information that the public has a right to know. The private collection agencies have been contracted to collect, on the federal government’s behalf, over $30 billion of defaulted federal student loans from financially distressed borrowers. They are paid by taxpayers who expect them to uphold the law. We should know not just about the amount they collect, but how they collect, and how much they are paid in commissions and bonuses.
According to the Federal Trade Commission, in fiscal years 2011 and 2012, consumers filed almost 10,000 complaints against the 22 companies that contract with the Department of Education. How many of these complaints are based upon student loan accounts is unknown and the Department has a spotty record (at best) of soliciting these complaints on its own. [Up until recently, the Department did not have any way for borrowers to report complaints directly to it (see our 2012 report and the 2013 follow-up).] According to Bloomberg News, these 22 student loan collection companies receive about $1 billion in commissions each year and get paid bonuses based upon their performance. Last March, we requested the actual amount of the bonuses each company received in 2012 and the evaluations on which these bonuses were based. The Department denied this request.
While increased transparency will not solve all student debt problems, improvement in these areas can help restore the balance between borrower rights and the government’s extraordinary collection powers. The government has nearly unlimited authority to collect student loans. At a minimum, the government must be accountable to the public about how it uses this power and how much it costs all of us in the long run.
Persis Yu is a staff attorney with the National Consumer Law Center and works in the center's Student Loan Borrower Assistance Project. She focuses on consumer credit issues generally and more specifically on student loans and the Fair Credit Reporting Act. She is a contributing author of NCLC's publication "Student Loan Law.” Her views are her own and do not necessarily reflect those of the New America Foundation."