“The Crisis Has Become Pandemic” – System To Collect Defaulted Student Loans Is No Longer Functioning

Sunday, May 7, 2017
By Paul Martin

by Tyler Durden
ZeroHedge.com
May 7, 2017

The system used by the Dept. of Education to collect on defaulted student loans came to a standstill in the last month, leaving an estimated 91,000 accounts in limbo, when the agency ordered debt collectors under contract to stop making collections on accounts.

As Consumerist’s Ashlee Kieler reports, consumers who expected their student loan payments to be deducted from their bank accounts this month have reportedly found the funds untouched, and their calls to the companies unanswered thanks to a Department of Education’s order prohibiting the debt collection companies from working on default accounts in response to two lawsuits against the agency.

The strange turn of events began with a lawsuit filed by two debt collection companies, who claim they were unfairly were fired by the Obama-era Education Department for poor performance. On March 29, the judge issued a temporary restraining order that prevented any new defaulted borrowers from being assigned to debt collectors and put into rehabilitation programs. Instead, the borrowers have piled up inside the department’s system, waiting.

On April 21, the government ordered the debt collectors involved in the suit to stop work altogether on defaulted accounts: no phone calls, no withdrawals from student accounts, nothing.

The Education Department and the Justice Department are partly to blame for “unnecessarily” throwing a wrench into the entire defaulted loan system, one attorney with knowledge of the case told BuzzFeed News, because they’ve been unable to come to a resolution that allows the loan system to kick back into gear. “There’s no fix in sight.”

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