The Department of Education's Actions To Collect Defaulted Student Loans

Pursuant to a congressional request, testimony was given concerning the Department of Education's use of private collection agencies to collect defaulted student loans under the Federally Insured Student Loan Program and the National Direct Student Loan Program. GAO found that Education has taken steps to improve collections and has increased in-house and contract collections with less departmental staff available to carry out and oversee the collection functions. Because payments to contractors were made only when a collection was obtained, contractors were reluctant to expend funds to close accounts without collection which resulted in large numbers of unresolved loans. However, contractors kept better records and made greater efforts to collect; therefore, Education proposed contracts that contained more stringent requirements and provided more incentives for high performance. GAO also found that a substantial portion of the loans could not be litigated since they exceeded the 6-year statute of limitations for legal collection action. The Departments of Education and Justice have begun to expedite litigation on the defaulted loans, and legislation has been proposed in Congress to allow private attorneys to litigate debts owed to the federal government. GAO believes that the use of private counsel could be useful on a contingency basis.