We’ve officially reached the end of an era. The Department of Education private debt collection contract is over. Large companies, small companies, all of them. According to sources, during a meeting that was held yesterday with the remaining Private Collection Agencies (PCAs), all accounts were recalled and contracts were terminated. This brings to a close a decades-long chapter that included the rise and fall of companies and jobs, and that was fraught with shifting policy, litigation and controversy almost from the start.
Some way-back history
In 2012 insideARM published a feature called The Big Issues: Student Loan Collections. One of the articles included in the feature was from Don Taylor, then Sr. Vice President of Sales for Array Services Group, Inc. He described the watershed moment of 1993 and its effect on student loan collections.
“The Omnibus Budget Reconciliation Act of 1993, which included language that was previously introduced as the Student Loan Reform Act, significantly amended the Higher Education Act of 1965 (HEA). This legislative change affected the recovery of defaulted student loans by introducing loan consolidation and Administrative Wage Garnishment (AWG). The law also retroactively eliminated the statute of limitations for federally-guaranteed student debt. Borrowers with loans originated as far back as the 1960’s were contacted to repay or face AWG.
Taylor also shared some insight into the relationship between the Department of Education (ED) and the private loan collectors, and ED’s evolving policies.
“For the past 20 plus years, ED has always closely monitored the private collection agencies (PCAs) for adherence to the contract requirements and complaint volume. At the same time, ED has either changed or facilitated modifications in their policies and procedures often benefiting the student borrower. While some of these are mandated from amendments to the HEA, ED effectively manages the program balancing the needs to help borrowers and collecting on debts owed to the Federal Government.
One key provision ED implemented on their PCA contracts several years ago was rewarding borrowers with the waiver of the collection cost balance upon successful rehabilitation. In most cases, this would result in the amount waived being greater than the total of the nine monthly payments to qualify for the program. This incentive to complete rehabilitation often saves borrowers from hundreds to thousands of dollars.
Today, student borrowers who default on their loans have more options for repayment than ever before. However, the one action most student borrowers could do to help themselves is proactively communicate early and often to their schools, lenders or servicers. There may be consequences for missing payments, but borrowers who openly communicate ultimately have more options than those who do not.”
Some more recent history
From 2017-2019 insideARM closely covered the renewal process of the large PCA contracts. It was a debacle. It was so complicated that we divided it into chapters to try to make the details digestible.
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Chapter 1 began in 2014 when the five-year 2009 ED contract for debt collectors ended. New small business contracts were awarded on schedule, but the large-firm contracts were delayed. More than 40 large collection agencies entered the two-phase process. After ED made its initial cut, formal protests were launched by some of the companies not making it to phase two. Generally, the protests challenged the selection criteria. Finally, in December 2016 contracts were awarded to seven large companies (down from 17 on the previous contract). This led to dozens of protests by firms that believed the process was flawed and unfair.
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So began Chapter 2 of the matter, with a VERY LENGTHY “re-do” of the solicitation, which resulted in awards to just two large companies, in January 2018.
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This led to Chapter 3, with more protests, more litigation, and finally… nothing. No large…
Read More: ED Officially Ends all Collection Agency Contracts; Recalls Accounts