ED Student Loan Debt Collection Contract Mess Moves to the Courts

As expected, the fallout from the Department of Education’s decision to end its relationship with five student loan debt collection agencies has moved into the federal court and government adjudication system. Four of the five contractors have filed either formal protests or lawsuits in the U.S. Court of Federal Claims.

Education publication Inside Higher Ed first reported the development.

On Wednesday, a judge in the Court of Federal Claims – the court that hears monetary claims against the U.S. government – consolidated three suits filed against ED by companies that lost the debt collection contract: Coast Professional, Enterprise Recovery Systems, and National Recoveries.

The consolidated action asks the court for a preliminary injunction that would prevent ED from distributing accounts to the other collection agencies that did not have their contracts terminated pending the outcome of a formal protest.

The suits were filed under seal, but Inside Higher Ed did obtain a redacted copy of Coast’s action. The judge in the case set a date of April 8 to hear oral arguments in Washington, DC on the matter.

Taking a different tack, Pioneer Credit Recovery filed a formal protest with the Government Accountability Office (GAO) against ED’s decision, its parent company Navient revealed in an SEC filing this week. The due date for GAO adjudication on the issue is June 17.

Navient also revealed that the five collection agencies named by ED in its announcement will begin the formal contract wind-down process as early as next week. On Tuesday, Navient said that ED “instructed Pioneer to prepare accounts that are not enrolled in payment programs or that are not actively working towards resolution for transfer back to the Department. Transfers of these accounts will occur on March 19, 2015 or April 17, 2015, depending on account activity. Accounts in active repayment will not be part of this recall process.”

The fifth collection agency set aside by ED, West Asset Management, does not appear in any docket within GAO or the Court of Federal Claims as of Friday. But WAM’s situation is somewhat complicated. BPO giant Alorica completed a transaction just last week for much of West Corp.’s agent business, including the ARM unit WAM. Alorica, likewise, does not yet appear in GAO protest or court searches.

Protests are nothing new for ED’s student loan debt collection contract. The GAO currently has at least two other protests currently open under the contract, not including Pioneer’s, and eight other protests have been resolved in the past year alone.

Those protests, along with other issues, have led to the significant delay in the awarding of new student loan collection contracts in ED’s unrestricted category. ED announced contract awards to small business collection vendors in October of last year.

Interestingly, two of the companies awarded small business contracts in October were among the five dismissed by ED recently. An anonymous ED official told Inside Higher Ed that “the agency had not yet decided what action it would take regarding the companies’ 2014 contracts.”