Twenty-three collection companies work directly for the Education Department. Most of the same outfits have contracts with state guarantee agencies that also chase student-loan borrowers on the government's behalf.
In the past 17 months, three companies have run afoul of federal and state investigators, though the Education Department said their inquiries didn't involve their government student- loan business.
Wrong Numbers
During this period, Minneapolis-based Allied Interstate Inc. and Atlanta-based West Asset Management Inc. paid $1.75 million and $2.8 million, respectively, to settle lawsuits alleging abusive debt collection filed by the Federal Trade Commission. The companies admitted no wrongdoing. In February, to resolve an investigation by 19 state attorneys general, NCO Group, majority-owned by JPMorgan Chase, agreed to pay $575,000 and provide up to $50,000 per state for consumers who can show wrongful collections. The companies admitted no wrongdoing.
Allied has taken steps to correct mistakes -- primarily repeated phone calls to wrong numbers -- and complaints have fallen, Robert Burke, vice president for marketing of iQor Inc., the company's parent, said in an e-mail.
West disagreed with the FTC's findings, Deputy General Counsel Greg Hogenmiller said in an e-mail. Consumers haven't made claims to NCO since the attorneys general settlement, and no wrongdoing was found, Ronald Rittenmeyer, chief executive officer of Horsham, Pennsylvania-based NCO, said in an e-mail.
Defaults Surge
The collection business is booming as defaults more than doubled since 2003, along with outstanding federal student loans, which totaled $848 billion as of Sept. 30, surpassing credit-card debt.
The U.S. loan program was born in 1965 as a "Great Society" initiative for lower-income students under President Lyndon Johnson. Today, with tuition soaring, two-thirds of college seniors graduate with loans, which average $25,000, according to the Institute for College Access & Success, an Oakland, California, nonprofit education and advocacy group.
Obama -- supported by Congress -- has pledged to give borrowers a break and make college more affordable.