Senate Draft Bill Targets Private Collectors in Student Loan Market

Congress returns from its August recess around the same time millions of college students go back to school. While the 113th Congress will have a lot on its plate when it returns, Wes Huffman, Director of Research and Communications at Washington Partners LLC, writes that a draft bill from the Senate HELP Committee (Health, Education, Labor and Pensions) may ”embarrass [private collection agencies] en route to eliminating private sector collections from the federal student loan programs.”

The Higher Education Affordability Act, proposed by Sen. Tom Harkin (D-Iowa),would require the Department of Education to terminate contracts with private collection agencies if they violate the Fair Debt Collection Practices Act, or if they’re cited for Unfair, Deceptive or Abusive Acts and Practices (UDAAP). If a collection agency loses its contract, it would be shut out of bidding on the next award cycle and would be ineligible for any direct loan work with ED for two years. Furthermore, the bill calls for the Secretary of Education to create a study that evaluates “whether it is efficient and effective to contract with private entities…for the collection of loans made or purchased that are in default.”

“The proposed study must be treated as a serious threat, as it is clear evidence that several Democrats on the HELP Committee seriously question the need for PCAs and have decided a call for an obviously stacked report is the first step toward eliminating the private sector,” Huffman writes. “As reauthorization continues, the higher education collection industry is likely to be targeted to even greater scrutiny and attacks from the consumers bar and student advocates, often working with their allies on the Hill, at the Department, and at the CFPB.”

Ultimately, the odds of the Higher Education Affordability Act becoming law are slim to none. Huffman points out that the Republican-lead House of Representatives is unlikely to give this proposal the time of day. Also, Sen. Harkin has already announced that he’s retiring at the end of this year, and it’s unclear who would take up this cause in his absence. Still, the bill serves as a good barometer for how some politicians see the future of private student loan collections, especially since government involvement has grown in the past four years.

For a more comprehensive snapshot of the student loan industry, check out our new report Student Loans – a Primer. This primer, sponsored by Ontario Systems, helps collectors see where there is the greatest opportunity for growth in the market, and how compliance and “consumer first” thinking are mindsets that can ultimately boost ROI. As a special introductory offer, you can download the report this week for $129 – a 20 percent discount.

Whether you’re new to the market, or just trying to keep up with the quickly-changing landscape, this is a resource no collection agency should be without.