Bloomberg News

Republicans Call for Congressional Probe of Student-Loan Program

March 28, 2012

House and Senate Republicans asked Congress’s investigative arm to examine the U.S. Education Department’s student-loan program, saying the agency may not be doing enough to help borrowers in default.

The Government Accountability Office should determine whether the Education Department’s loan program is “appropriately managing student debt,” according to a letter sent yesterday to the GAO signed by six Republicans, including John Kline of Minnesota, who chairs the House education committee.

With $67 billion of student loans in default, the Education Department has turned to private debt-collection companies to chase borrowers. The contractors, paid on commission, are facing growing complaints that they are violating federal laws by insisting on stiff payments even when borrowers’ incomes make them eligible for leniency, Bloomberg News reported March 26.

“We are increasingly concerned the department may not be appropriately managing student debt, particularly when helping borrowers who have defaulted on their loan payments,” the Republicans wrote in the letter, which was also signed by Michael Enzi of Wyoming, the ranking member of the Senate education committee; Representatives Virginia Foxx of North Carolina and Judy Biggert of Illinois; and Senators Lamar Alexander of Tennessee and Tom Coburn of Oklahoma.

‘Bureaucratic Problems’

The Republicans criticized “bureaucratic problems” after the Obama administration’s decision in 2010 to eliminate a program that let private lenders make student loans. The government now originates all student loans itself. The administration, citing the Congressional Budget Office, said at the time that the move would save the federal government $68 billion over 11 years.

The Education Department is “proud of the way we’ve managed the program,” Justin Hamilton, an agency spokesman, said in a phone interview late yesterday.

The letter and a statement on the House Education and the Workforce Committee’s website cited an unnamed borrower who couldn’t rehabilitate his credit to take advantage of better repayment options. The committee’s statement also cited the Bloomberg News report.

The Republicans have asked the GAO to examine whether the Education Department and collections contractors are informing borrowers about various repayment plans and effectively helping students rehabilitate defaulted loans. The GAO should also examine how debt-collection companies are paid and whether they are following the federal fair debt-collection law.

Debt-Collection Contracts

The Education Department has proposed requiring that debt collectors automatically offer payments based on income to defaulted borrowers who qualify. The agency is meeting this week with industry, government and consumer representatives about the regulation. The department has also said it is considering changing the commission structure in its debt-collection contracts.

“We’ve been taking a good, hard look at what we can do to make sure that we are serving students well who have hit on hard times,” Hamilton said.

To contact the reporter on this story: John Hechinger in Boston at jhechinger@bloomberg.net

To contact the editor responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net


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