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Financial Services Law Insights and Observations

Department of Education plans to use servicers, not private debt collectors, to assist delinquent borrowers

Federal Issues Department of Education Student Lending Debt Collection Servicing Consumer Finance

Federal Issues

On May 23, the Department of Education (Department) affirmed plans to begin using “‘enhanced servicers’ to assist delinquent borrowers prior to default” instead of private debt collection agencies. The affirmation was made in a reply brief supporting the Department’s motion to dismiss an action filed by collection agencies in the U.S. Court of Federal Claims that challenged the Department’s decision to award contracts to two private debt collectors. The Department argues in the reply brief that the challenge is moot because the Department cancelled the solicitation under which the contracts were awarded to pursue a new collection plan using “enhanced servicers.” According to the brief, the new collection approach will “place a greater emphasis on customer service and early outreach to address delinquencies with a full range of early options for borrowers.”

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