Student Loan Collection Agencies Sue Feds Over Canceled Contracts

Three collection agencies filed suit against the federal government this week over canceled contracts for student loans, a move the companies say was unjustified and came without warning, The Washington Post reported.

Earlier this month, the department announced plans to end contracts with five private collection agencies after finding they made "materially inaccurate representations" to struggling borrowers. An audit of the contracted private collection agencies found that the companies misled borrowers about the loan rehabilitation program, which enables borrowers to get out of default by making a series of on-time payments. The entities also provided deceptive information about the effect on borrowers' credit reports and the waiver of some collection fees.

Three of those collection agencies – Coast Professional, Enterprise Recovery Systems and National Recoveries – filed lawsuits against the government over the last few days, arguing that the department's evaluation was arbitrary and flawed. Meanwhile, a fourth company – Pioneer Credit Recovery, owned by Sallie Mae's former subsidiary Navient Solutions  is pleading its case for having the contract decision reversed to the U.S. Government Accountability Office.

A federal judge has consolidated all three lawsuits and scheduled oral arguments in the case for April 8.


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