Posted Date:December 21, 2015
| Author: | Mark LaVia, Executive Director, Servicing, Federal Student Aid |
Subject: Federal Student Aid Releases Quarterly Default Recoveries Report
Today, Federal Student Aid posted its first quarterly default recoveries report to the FSA Data Center, the centralized online source for Federal Student Aid data. The Default Recoveries by Private Collection Agency report details the dollar amount recovered by each private collection agency during the quarter ending September 30, 2015.
Going forward, this report will be updated as part of the quarterly Data Center release. In the coming year, Federal Student Aid plans to enhance this data set to include additional data elements such as private collection agency compensation.
Key Findings
During the quarter ending September 30, 2015, the Department recovered nearly $1.9 billion in defaulted student loans through its private collection agencies.
Three-fourths of the total recoveries were due to rehabilitations. Defaulted borrowers can rehabilitate their loans by voluntarily making at least nine payments of an agreed-upon amount over a 10-month period.
Eleven percent of recoveries were due to consolidations. Borrowers may combine all of their federal student loans, including defaulted loans, into a new Direct Consolidation Loan, usually after making at least three consecutive, voluntary, and on-time payments on their defaulted loans or after providing the required income verification documents to repay under an income-driven repayment plan.
Nine percent of the recovered dollars were due to wage garnishments. These are involuntary payments sent by the defaulted borrower’s employer.
Five percent of total dollars were voluntary payments by borrowers. These payments include checks, money orders, or credit card payments.
Items to Note While Reviewing This Report
To accurately interpret the data, please note the following items:
This report includes only those loans currently placed with private collection agencies. It does not include the entire defaulted portfolio owned by the Department. Most of the remaining defaulted loans are handled in-house by Federal Student Aid.
Although Federal Student Aid also collects on defaulted student loans through the Treasury Offset Program (TOP), this information is excluded from this report as private collection agencies are not involved in the TOP process.
In the most recent quarter, five private collection agencies received new volume as a result of a 2009 contract award extension. The Department will be onboarding additional private collection agencies in the future.
Earlier this year, the Department announced it was winding down its contracts with five private collection agencies and at the time, Federal Student Aid began to remove non-paying accounts from these agencies. However, they retain borrower accounts in active repayment to avoid disruption to borrowers. As a result of this change in inventory, the recovery rate for the impacted private collection agencies appears to be much higher than other agencies.
Federal Student Aid proactively posts information to the FSA Data Center in support of open government initiatives to help ensure consistency, increase transparency, and establish self-service opportunities for customers. The release of this report also complies with Section 3a, “Raising Standards for Student Loan Debt Collectors,” of the Student Aid Bill of Rights.