At least two private debt collection agencies have filed notices with their states notifying officials that they will be forced to lay off employees in the wake of the U.S. Department of Education’s announced winding down of collection contracts with five of its vendors. Separately, President Obama today is unveiling a Student Aid Bill of Rights that may further impact the student loan collection market.

Two student loan collection agencies, previously under contract with ED, have filed WARN notices with state labor departments. Coast Professional filed its notice last week in New York telling state officials that as many as 260 jobs will be cut between two call centers effective late last week. Coast expects those layoffs to continue into April and it may be forced to close one of its offices.

National Recoveries, Inc. also filed a notice with Minnesota labor officials warning of layoffs, but it did not specify how many jobs could be impacted.

When news first broke of ED’s decision to end the contracts, there was speculation that Pioneer Credit Recovery could also lose several hundred jobs. WGRZ noted that as many as 400 jobs could be at stake, although the company said in a statement that it has plenty of work for all current employs. Pioneer, nor parent company Navient, has filed a notice with New York.

As if the contract upheaval isn’t enough to shake up the student loan collection market, President Obama Tuesday announced a Student Aid Bill of Rights and directed several agencies to help Americans repay their student loan debt.

The Student Aid Bill of Rights states:

  1. Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
  2. Every student should be able to access the resources needed to pay for college.
  3. Every borrower has the right to an affordable repayment plan.
  4. And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

One of the largest changes proposed is the creation of a new complaint system specifically for student loans and managed by ED. The Secretary of Education will create a new web site by July 1, 2016, to give students and borrowers a simple and straightforward way to file complaints and provide feedback about federal student loan lenders, servicers, collections agencies, and institutions of higher education.

The President also announced a series of steps to improve customer services and help borrowers repay their direct student loans, including enhanced disclosures for borrowers and directing ED to mandate to its servicing contractors to apply prepayments first to loans with the highest interest rates unless the borrower requests a different allocation.

Directly addressing student loan collection agencies, the President will have ED “raise standards for student loan debt collectors to ensure that they charge borrowers reasonable fees and help them return to good standing.” The specific language used by President Obama references the loan rehabilitation program within ED’s Federal Student Aid office, the same program that caused issues with the five collectors that recently had their contracts pulled.

In a conference call Monday, Sarah Bloom Raskin, deputy secretary of the U.S. Treasury, once again mentioned that Treasury would begin a pilot program to work directly with student loan borrowers in default, a job usually handled by collection agencies under contract with ED. Raskin explicitly noted, however, that the plan was not to take over post-default student loan collections from private contractors.

The pilot will allow Treasury to put our toe in the water – to acclimate ourselves to the particular challenges involved in collecting student debt,” she said. Raskin noted this way, officials could get a better idea of what kind of additional rules might be necessary to ensure fairness.

The President is also directing the CFPB to study whether consumer protections recently applied to mortgages and credit cards — such as notice and grace periods after loans are transferred among lenders and a requirement that lenders confirm balances to allow borrowers to pay off the loan — should also be afforded to student loan borrowers and improve the quality of servicing for all types of student loans.

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