The Consequence of Collection Bans: Student Loan Collection Agency Lays Off ~250 Employees After ED Directive

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If regulators and other government officials were wondering what the consequence of a blanket ban debt collection looks like, this is the canary in the coalmine. On March 20, the Department of Education (ED), following President Trump's directive, announced it will grant a  60 forbearance to anyone who requests one and will waive interest. Now, the Star Tribune reports that a collection agency that collected these types of student loans filed notice with the state that it laid off 248 employees on March 22, just two days after the ED directive.

insideARM Perspective

insideARM learned that ED instructed its debt collection agencies to stop making outbound calls on its accounts. For many agencies, a large portion of the staff make outbound calls. These calls function as more than just an attempt to collect a debt—they allow collectors to proactively provide information to consumers about their accounts. If needed, the collector can set the consumer up with many hardship options, including but not limited to amending payment schedules, informing the creditor of the consumer's inability to pay due to unemployment or a medical issue, and file disputes. Without outbound calls, consumers have to proactively seek this information (rather than it coming to them). 

While we can all agree that relief should be extended to those who have suffered loss of employment or some other financial hardship from this crisis, there are many other consumers whose roles and companies have successfully transitioned to a work-from-home model and can continue on with their obligations. This latter population is being unfairly advantaged by blanket collection bans.

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And, as stated above, without outbound calls, collection agencies and firms simply do not have the means to keep call representatives on the payroll, which leads to layoffs as seen here. 

Putting two-and-two together: Blanket collection bans lead to people losing their jobs on the backs of others who are unfairly advantaged.