H.R. 5268, A Bill To Authorize the Veterans Administration To Litigate Debts

Gao ID: 110836 November 8, 1979

Views were presented on proposed legislation to authorize the Veterans Administration (VA) to use its own legal counsel to pursue civil remedies for the collection of overpayments of educational assistance made to eligible veterans and dependents and defaulted education loans. Standard practice for handling such debts has been through referral to the Department of Justice (DOJ) of any outstanding balances over $600 which are not paid after VA has sent three computer-generated collection letters to the debtor. For several reasons, this system failed to bring the growing amount of outstanding debts under control. There was evidence that some veterans, aware of the dollar limit for referral to DOJ, simply did not pay any debt balances below that amount. There was little incentive to pay debts below $600 after receipt of the third collection letter because collection efforts were then terminated, no interest was assessed against the debt, and failure to pay such debts was not made a part of the debtor's permanent credit history. An examination of the credit ratings of a sampling of VA debtors revealed that the majority of those in default were financially able to pay their debts and had good credit ratings in the private sector. Revisions of the Federal Claims Collection Standards effective in April 1979 require agencies to report delinquent debts to commercial credit bureaus; however, VA did not believe it had the authority to report debtor information and proposed legislative amendments to applicable statutes to give it this authority. While GAO anticipated that this authority would lead to the payment of many delinquent debts, it was believed that many debtors would continue to ignore VA debts. In the belief that debts above and below $600 should be collected, GAO was asked to explore the feasibility of VA attorneys using generally accepted private-sector litigation techniques to obtain judgment in appropriate courts against debtors with debts under $600. Indications of success in this experiment led to a request for authorization from DOJ for VA attorneys to attempt to use these methods to collect larger debts as well. GAO believed that giving VA complete responsibility for collection of debts and charging interest on outstanding debts would result in more timely recovery action, help to prevent future overpayments, reduce loan defaults, cause VA to intensify its prelitigation debt collection efforts, and ultimately reduce VA debt collection problems.

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