Let’s first tally where we are.
Last Friday afternoon, The U.S. Department of Education's Office of Federal Student Aid (FSA) canceled a second of three solicitations that were part of its Next Generation Processing and Servicing Environment (NextGen) student loan servicing system overhaul. This cancellation is for Solicitation Number 91003119R0005, the Enhanced Processing Solution.
Back in early April, FSA canceled Solicitation Number 91003119R0007, the Optimal Processing Solution (OPS).
What’s left? Solicitation Number 91003119R0008, the Business Process Operations Solution. On June 24th FSA announced it had signed contracts with five companies through the NextGen Business Process Operations solicitation to correspond with customers and partners via phone, chat, social media, postal mail, and email and to support the back-office processing associated with those contacts. The five companies are: Edfinancial Services LLC, F.H. Cann & Associates LLC, MAXIMUS Federal Services Inc., Missouri Higher Education Loan Authority (MOHELA), and Texas Guaranteed Student Loan Corporation (Trellis Company).
A little context, please.
This January 2019 article provides details on the latest NextGen plan, with the three solicitations (there was actually an earlier plan which was canceled - you can read about that here and here). Here’s an overview:
RFP R00005 - Enhanced Servicing Solution (EPS) - This was the immediate term solution used by ED to justify its cancellation of the unrestricted PCA Solicitation. Proposals were due by February 25, 2019. This is the solicitation that was canceled last Friday.
RFP R00008 - Business Process Operations Solution (BPO) - FSA said that after the Enhanced Servicing Solution has been awarded, a timeline would be set for this Solicitation - there was no initial due date, except that bidders were required to complete a Past Performance Reference Questionnaire by March 1, 2019. This is the solicitation for which the five companies mentioned above received contracts in late June.
RFP R00007 - Optimal Processing Solution (OPS) - This was to be the long-term system solution that carried a two-year implementation period. The due date for bids was March 25, 2019. This is the solicitation that was canceled in April.
When the Optimal Processing Solution was withdrawn in April 2020, ED said it was necessary to enable the Department to rescope the solicitation’s requirements in order to allow it to “bring onboard technology that will appropriately implement the provisions in the Fostering Undergraduate by Unlocking Resources for Education Act (FUTURE Act) (H.R. 5363). The FUTURE Act will have a significant impact on federal student aid business processes through new data sharing agreements, technologies, and protocols with the Internal Revenue Service.”
What does FSA say about their cancellation of the Enhanced Processing Solution?
An FSA representative contacted insideARM last weekend, just after it posted the official cancellation, to say:
“After more than 12 weeks of good faith negotiations, the Department is unable to reach an agreement with the vendor selected following the rigorous contracting process to award a contract for the EPS solicitation. The Department continues its commitment to delivering on the vision and goals of Next Gen FSA. FSA has determined that a different acquisition strategy will be more effective in obtaining the desired servicing system solution. Accordingly, late this afternoon, we canceled the existing solicitation, #91003119R005. We’ll be introducing a new solicitation to continue the Next Gen strategy in the coming months.”
What else is going on?
As it relates to solicitation R0005, the Enhanced Processing Solution (EPS), insideARM has learned that the selected vendor was PHEAA (Pennsylvania Higher Ed). They have a loan servicing subsidiary that is a legacy loan servicer.
Current legacy contracts for loan servicing are extended to December 2021 while FSA revisits the drawing board.
EPS stated that the awarded vendor had 24 months to convert all the loans from the legacy loan servicing vendors to the new EPS system. If FSA ran a new competition for loan servicing in October, administered the submission, and made an uncontested award to a new servicing vendor, would the loan conversions from the legacy vendors be done before the legacy contracts expired?
As it relates to solicitation R0008, the Business Process Operations Solution, sources tell insideARM that more than the five awards were initially made. But the way this solicitation was structured, companies only learned the pricing once they received an award. Several turned down the contract, saying that the pricing was unrealistic for the services required.
Navient, one of the original awardees, filed a protest on June 29, 2020, over the way this process was handled. Here is a summary of their claims:
- FSA failed to amend the RFP after making material changes to the terms and conditions;
- FSA proffered a contract to Navient with terms that materially differed from the RFP terms;
- FSA unreasonably included in the proffered contract arbitrary and unconscionable terms that unduly restrict competition, exceed FSA's minimum needs, and failed to provide Navient with a reasonable time to respond; and
- FSA awarded contracts with the intent to make material changes after award, failed to conduct a reasonable price realism analysis for the awardees (or arbitrarily waived price realism for the awardees ), and otherwise treated offerers in a disparate manner.
What does all of this mean to borrowers?
We don’t know for sure. FSA’s goal is a good one: to provide a more efficient and effective customer experience to students, parents, and borrowers. Their stated intention is to require vendors to provide contact center operations and back-office processing activities encompassing the full student aid lifecycle, from disbursement to payoff, in a manner consistent with leading financial services providers and other industry leaders. What’s being questioned is the execution.
Given the little we know about pricing for the BPO contract from the Navient complaint, one wonders whether borrower servicing will be impacted. In other words, will the awardees be forced to modify services in order to not lose money on the contract?
Another potential issue is the loss of institutional knowledge held by the major servicers that did not end up with a contract. There are more than 50 repayment programs out there. And they are quite complicated. Even when Congress discontinues a program, borrowers already in the program still continue with it. So, servicers must continue to honor those programs, plus learn to handle the new ones. This is not a trivial consideration. Nothing about federal student loan servicing is simple and straightforward.
So, what does all of this mean to federal student loan debt collectors?
Well, following the long saga of litigation over the large Private Collection Agency (PCA) solicitation that concluded almost exactly one year ago with FSA coming out the winner, the small PCAs were left holding the whole bag. Many wondered whether NextGen would be the death knell of PCAs altogether, as FSA implemented its “enhanced servicing” plan primarily using loan servicers (like Navient) rather than PCAs.
The small PCAs received a 5-year contract extension in September 2019, so that ends in 2024. I suspect FSA will issue a new solicitation for small PCAs in 2022 or 2023 so that they are covered going forward.
Given the numerous restarts of NextGen, it’s unclear what the need will or won’t be by 2024. Under the best of circumstances, a systems project of this magnitude takes several years to complete. FSA had expected to be up and running in just two.
Also, if the November election brings significant change to Congress and/or the Administration, this could also bring a new approach to federal student loan servicing. For one, we know that Democrats have an interest in at least some form of student debt forgiveness.
Another also is that a “CARES Act 2” may potentially include an extension on federal student loan payment forbearance (the current forbearance expires September 30, 2020).
The CARES Act also prohibited Private Collection Agencies from sending collection letters or making outbound collection calls to defaulted federal student loan borrowers, which means PCAs may not reach out to borrowers to inform them of programs (like Income-Driven Repayment) and opportunities (like the ability to have $0 payments through September 30th count towards fulfilling repayment program requirements). The only way a borrower could learn about them is if they happen to read the FAQs on the Federal Student Aid website.
So, many of these small agencies are hanging on by a thread. They aren’t receiving new accounts. They’ve stopped nearly all outbound contact. They likely won’t receive new accounts for a while because of the forbearance on accounts not in default. Yet they are expected to remain ready to go indefinitely. These are not simple call center jobs to fill. They are complex roles requiring extensive training (remember the 50 repayment programs?). You can’t just turn the spigot on and off and expect the water to be clean and the flow to be strong.