The U.S. Consumer Financial Protection Bureau, created in 2010 in the wake of the credit crisis, has proposed supervising the largest debt collectors to ensure they are complying with laws such as the Fair Debt Collection Practices Act. About 5 million federal education-loan borrowers are in default, generally meaning they have failed to make payments for 270 days or more.
"With student-loan defaults rising, we want to make sure borrowers clearly understand their loan-repayment options and debt collectors are following the law," Rohit Chopra, the agency's student-loan ombudsman, said in an e-mail.
'Reasonable And Affordable'
Federal-aid law requires collectors to offer "reasonable and affordable" payments, so debtors can "rehabilitate" their loans, repairing their credit and making good on what they owe taxpayers.
The law mandates no minimum payment for a borrower to enter a rehabilitation program, and collection companies may take borrowers' finances into account. The fair debt act forbids collectors from making "any false, deceptive or misleading representation."
Insisting that cash-strapped borrowers make minimum payments and then failing to disclose lower-cost options violates both federal-aid and fair debt-collection laws, according to Deanne Loonin, an attorney with the Boston-based National Consumer Law Center.
Debt collectors said they follow federal laws and use all available tools to recover money for taxpayers. The companies are helping to make sure that future college students have access to financial aid, said Mark Schiffman, spokesman for ACA International, a Minneapolis-based industry trade association.
$1 Billion Commissions
Debt-collection companies helped the Education Department recover $11.3 billion in defaulted loans during the year ended Sept. 30. The agency projects it will collect 85 cents on every dollar that defaults, factoring in collection costs and the time-value of money.
The debt collectors made out well, too. Based on a review of government contracts and Education Department data, the private companies -- working directly for the government and through state agencies -- received commissions of about $1 billion in the year through September.
Sallie Mae and the Education Department declined to answer questions about Campos's comments. The company cited privacy rules and the terms of its government contracts. Newark, Delaware-based Sallie Mae said it works with borrowers in financial difficulty and offers lower payments when appropriate.