Cleveland, June 10, 2018:

The cancellation of the Department of Education (ED) defaulted student loan contract was a shock felt through large and small business alike in the ARM industry. For those unfamiliar with the situation, the Department of Education has long been a member of the top five Federal agencies awarding contracts in the collections industry. The prized contract, at one point valued as not to exceed $400,000,000, has been the center of a long evolving story of contract awards, bid protests, and litigation. From the initial delegation to 22 firms in 2009, to the ultimate demise with the cancellation of the Department of Education contract completely in May of 2018; Private Collection Agency’s (PCA’s) have been holding their breath awaiting the final outcome.

Simultaneously, the Department of Education has been working on implementing the NextGen plan to restructure the handling of the Federal Student Aid platform; with phase one of the solicitation being released in 2016. The new system has a consistent message of customer focus. NextGen aims to streamline processes throughout the lifecycle of student aid with mobile technology, a focus on customer service, and less confusion for borrowers. “Default” is acknowledged in the lifecycle stages, which only leaves PCA’s questioning, where do they fit in? Diagrams provided in the solicitation currently represent a place for PCA’s in the NextGen process, but there is no clear definition, as of yet, how large of a roll they may play.

This ED saga has taught the ARM industry one important lesson; be prepared for anything. Department of Education may, once the dust settles, issue another open unrestricted solicitation and revive the sought after defaulted loan contract. The NextGen solicitation contains diagrams featuring PCAs in both current and future plans. Although, the new version of the plan drops the total number of PCAs from 16 to 9.

Department of Education has been consistently tapering its use of large PCAs and expressing the importance of small business spending. In 2009, 17 unrestricted and 5 small firms were awarded the contract. PCA’s were required to sub out at least 31% of their total contract value to small firms, in a solicitation released in 2013.  In 2014, a small set aside contract was issued to 11 small business firms. Then, in 2016, the number of unrestricted contract awards was reduced to 7. ED’s corrective action in January of 2018 further reduced that number to 2 before ultimately canceling the solicitation completely.

ED indicates a smaller reliance on PCAs to help students out of default, as NextGen is meant to assist borrowers at risk prior to falling into default. The 2017, the Small Business Procurement Scorecard gave the Department of Education an A+ rating. ED met its overall small business spending with a total of $657.6 M and was 3% higher than the 2017 goal of 22.5%. A large portion of that spending is derived from the defaulted loan contract. It seems reasonable to believe ED will continue with its support of small business spending, as it has made meeting this goal a priority. So, what does this mean for the PCAs? How can they evolve to meet the changing contract?

To be continued…. look for Part 2: Are you ready? How to be prepared.