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Washington D.C.—A debt collection program for federally-guaranteed and other student loans held out as a ringing success in support of a similar effort by the Internal Revenue Service (IRS) to pursue tax debts has come under congressional fire amid charges that lenders engaged in abusive and potentially illegal collection tactics.

Sen. Edward M. Kennedy (D-Mass.), chairman of the Senate Health, Education, Labor and Pensions Committee, has asked two student loan companies—including one known as Sallie Mae—for information concerning their collection practices and treatment by private lenders of borrowers in the Federal Family Education Loan Program.

Sallie Mae is the nation’s largest student loan company and is the parent organization of a private company awarded a contract last year by the IRS to collect tax debts. It handles both federally-funded and private—that is, non-federally-guaranteed—education loans.

The use of private sector debt collectors by the Department of Education was cited by IRS Commissioner Mark Everson in congressional testimony in support of the use by the IRS of private debt collectors.

“The IRS tax debt privatization program is built on a house of cards,” said NTEU President Colleen M. Kelley. “It seems that the IRS was holding up this program as a model while borrowers were allegedly being subjected to harassment and violations of the law. The only people who should be collecting federal tax debt are trained IRS employees.”

Under the IRS program, private debt collectors are paid a bounty of up to 25 percent of the money they collect. The IRS awarded three contracts last year—one of which it has chosen, for unspecified reasons, not to extend—and it has said it plans to award as many as ten more such contracts later this year.

On the Sallie Mae issue, Sen. Kennedy, in a letter to its leader, sought a wide range of information for use in the committee’s investigation. He wrote that he is “concerned that several private lenders may be engaging in harsh and inappropriate tactics…that are prohibited by federal law and regulation.”

Among other alleged abuses, the senator cited charges that collectors threatened a borrower’s spouse that the borrower would go to jail if he didn’t pay the loan; put a borrower in default who lost his home in a natural disaster and was living in a tent; attempted to collect debts not owed; sought to collect from deceased borrowers’ families and relatives; instructed employees not to provide full and adequate information to borrowers about their loans; intentionally sent loan payment notices to incorrect addresses so as to force borrowers into default; and other alleged abuses.

NTEU is the largest independent federal union, representing some 150,000 employees in 31 agencies and departments.