ED Working with Justice to Streamline Loan Default Litigation

Sep 28, 2026

Education Department officials planned coordinated strategies with the Justice Department to streamline loan default litigation and improve case handling. The Litigation Task Force was expected to propose procedural changes and potentially use private attorneys, while also developing methods to track cases, standardize default account identification, and reduce delays. The effort included tracking large backlogs, using IRS tax refund offsets, and studying causes of student defaults, including lender diligence and program accountability.

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ED WORKING WITH JUSTICE TO STREAMLINE LOAN DEFAULT LITIGATION

Referrals To Justice

Private Sector Help

Refund Offsets

NDSL Ripe For Study?

HIGHER EDUCATION DAILY Vol.14,No.20 # ED WORKING WITH JUSTICE TO STREAMLINE LOAN DEFAULT LITIGATION Education Department officials will meet with Justice Department staff in thenext few weeks to develop strategies to streamline loan default 1itigation,according to an Office of Management and Budget official. John Donahue,senior staff member of OMB's Credit Management and Debt Collec-tion Project,said the group,known as the Litigation Task Force,is expectedtó come up with a series of suggested changes in procedure and may move to con-tract out some default litigation to private attorneys. The task force was one of several debt collection ideas on both OMB and ED'sagendas for the coming months.Donahue and Richard Hastings,ED's director ofdebt collection and management assistance services,spoke on the task forcethis week at the Coalition of Higher Education Assistance Organization's(COHEAO)annual seminar in Arlington,Va. Referrals To Justice As part of its recent default crackdown,ED hasUnfortunately,according to Donahue,default cases often are not acted upon asexpeditiously as federal agencies would like.At the present time,between100,000 and 150,000 cases from various agencies are pending,he said. "The Litigation Task Force is really a reaction caused by a couple of years of1istening to the agencies and Justice complain about each other,"Donahue said. The task force will attempt to identify methods for tracking cases through thesystem,develop a consistent plan for identifying and numbering defaultaccounts and determine why some default referrals are returned to the agencieswithout action. Private Sector HelpHastings said contractual litigation using privateattorneys has the potential to be a boon to ED,where some 100,000 small stu-dent loan defaults are pending.Justice officials typically consider loan de-faults of less than s1,100 too small for them to litigate,said Hastings· Donahue emphasized that the task force is not a study group."We know theproblems,"he said."The job of the task force will be to identify solutions.Justice recognizes the problems as well--that is why they agreed to this taskforce." The task force is only the latest in a governmentwide effort to improve loandefault collections and management,Donahue said.The goal is to make thestudent loan programs more economically viable。"We are now at the stage of(more) (0 January 30,1986 # ED WORKING WITH JUSTICE TO STREAMLINE LOAN DEFAULT LITIGATION(Cont.) maturity"with the collection and management project,he explained."Thepieces are in place and now we are looking for performance from the agencies." ED,for example,is already beginning to see the benefits of the new InternalRevenue Service tax refund offset program for loan defaulters.The programcaused defaulters to send ED checks totaling $8 million in an attempt to avoidthe offset(HED,Jan.14)。That was only the beginning,Hastings said,as theIRS is scheduled to begin sending ED its offset funds in two weeks. In addition,ED officials are studying that most vexing of questions:Why dostudents default?A draft report on loan collections by state guaranteeagencies,scheduled for release in the next few weeks,wil1 indicate thatnearly half of all student loan defaulters begin repayment on their loanswithin six months after they went into default,Hastings noted. "The question is,why did the loans default in the first place?"Hastings said."I'm fairly convinced that it was a lack of due diligence on the part of thelender." Refund OffsetsThe report also says the use of tax refund offsets by8tates often does not cause the affected defaulters to change their withholdingor to quit filing returns,Hastings said.The IRS has been concerned that thiswill happen during the two-year federal offset program,he added. Donahue said OMB is studying a pilot program to sell off some of the nation'sloan assets,including a portion of ED's student loan portfolio,to privateinvestors."We'1l select a cro

FAQs

What is the Litigation Task Force intended to do?

It aims to propose solutions by improving tracking of cases, standardizing how default accounts are identified and numbered, and clarifying why some referrals are returned without action.

How does the IRS tax refund offset program relate to loan default collections?

It offsets refunds owed to defaulters, prompting some borrowers to send checks to avoid the offset, and the program is scheduled to begin sending offset funds to the Education Department.

What issues is the department studying beyond litigation procedures?

The department is examining why students default, including findings that many begin repayment within six months of default and concerns about lender due diligence, along with how tax refund offsets affect borrower behavior.

Sep 28, 2026

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