Live from ED: Contract a 'Different Kind of Collections'

Federal collection contract hopefuls filled a small auditorium in a U.S. Department of Education building in Washington, D.C. today eager to learn more about the multi-billion dollar federal student loan collection contract. Turnout exceed ED’s expectations as more seats were brought in to accommodate the overflow crowd. 

The crowd was fairly evenly split between large businesses, small businesses, and subcontracting hopefuls according to an informal census taken by Richard Galloway, contracting officer’s representative for ED’s Federal Student Aid department. But all were present to hear more about the contract some in the industry call the “holy grail.” (See "ED Snapshot: A Small Firm Prepares for the Big Time").

“We are very excited at the opportunity to work with the contractors,” said one subcontracting hopeful who runs a collection technique training system for government collection agencies. 

Galloway emphasized that this is a "different kind of collections." One of the main differences in ED approach to this contract and other jobs, according to Galloway, is the importance the agency places on rehabilitating accounts and helping troubled borrowers. “You have to treat the debtors with respect,” said Galloway, “otherwise, it will not work out.” 

ED also emphasizes the administrative resolution process – deleting accounts from the collection queue that cannot be worked. As an example, Galloway noted that incarcerated debtors will have their accounts suspended to collection activity. 

But contractors working on the contract also have tools at their disposal that other collectors cannot claim. ED collectors have access to administrative wage garnishment (AWG) of up to 15 percent of a debtor’s pay. The AWG does not require a judge and is handled through ED. Also collectors can intercept tax refund checks before they reach the debtor under a treasury offset program. Galloway said that for the 2008 contract, ED was also expanding the compromise authority given to collectors. 

Collectors are drawn to the ED contract due to the size of placements involved and the long duration of the contract. The 17 current collection vendors have been working the contract for 34 months and have collected nearly $3 billion for the department (“Agencies Collect $3 Billion on ED Contract,” Jan. 17). Among the large businesses, Arcade, N.Y.-based Pioneer Credit Recovery leads the pack with $410 million collected. Fairport, N.Y.-based Continental Service Group (ConServe) has collected $94 million so far to lead the small business collectors.

Besides opportunities for collection activity on the main contract, ED also allows for extensive use of subcontractors for many services, including legal collections and skip-tracing. A subcontractor faces a lighter certification process than firms on the main contract because the primary vendors take full responsibility for the subcontractors’ work.

The contract can also have a major impact on businesses that work on it. Of the five collection agencies that were awarded the contract under the small business set-aside, four have grown and no longer fit that classification, where a company must have annual average revenues of no more than $6.5 million over the past three years.

The new contractors are slated to be named in September of this year. Proposals are due by June 17. ED anticipates awarding between 10 and 14 contract spots to large businesses and three to seven under the small business set aside. The first accounts are scheduled to be forwarded to collection agencies in January 2009.