ED Moves NextGen Procurement to Phase II; Changes Rules of the Game

In case you had not seen it, there is an update on the Department of Education’s (ED) Next Generation Financial Services Environment (NextGen). ED has completed Phase I, and has announced those vendors eligible to participate in Phase II of the procurement. insideARM readers will be primarily interested in those on the list for Components E/F, which covers Business Process Operations:

• Edfinancial Services LLC
• General Dynamics Information Technology Inc (GDIT)
• Missouri Higher Education Loan Authority (MOHELA)
• Nelnet Diversified Solutions, LLC
• Oklahoma Student Loan Authority (OSLA)
• Pennsylvania Higher Education Assistance Agency (PHEAA)
• Teleperformance
• Trellis Company
• Utah Higher Education Assistance Authority (UHEAA)

ED has also announced that for Phase II, Components E and F (Solutions 2.0 and 3.0 Business Process Operations) have been combined, and that in accordance with the Business Process Operations Phase II solicitation, the Past Performance volume shall be submitted by October 9, 2018. A final proposal due date for the remaining volumes may not be established until after the award of the NextGen Transitional Core Processing and Related Support Activities (previously referred to as Component D) and the Enterprise-Wide Digital Customer Care Platform (previously referred to as Components A & B). Offerors will be notified about the proposal due date(s) via a solicitation amendment. 

Debt collection contractors in the federal student loan space will be watching this procurement closely, as it has developed in parallel with on-going litigation over the delay, award, and cancellation of the Solicitation for Unrestricted Private Debt Collection Agencies.

The extremely short background that ties the Private Debt Collection contract to the NextGen contract

What began in 2009 as a 5-year contract for 17 large (unrestricted) and 5 small debt collection companies became a contract in 2014 for 11 small companies and a delay for the large firm awards. Eventually, in December 2016 seven large companies received awards, which launched dozens of protests from those who were left out, followed by a re-do, a whittling down to just 2 large companies, then more protests, and then... nothing. No large company awards at all. The whole thing was cancelled. ED’s justification for cancelling was:

"The solicitation will be cancelled due to a substantial change in the requirements to perform collection and administrative resolution activities on defaulted Federal student loan debts. In the future, ED plans to significantly enhance its engagement at the 90-day delinquency mark in an effort to help borrowers more effectively manage their Federal student loan debt. ED expects these enhanced outreach efforts to reduce the volume of borrowers that default, improve customer service to delinquent borrowers, and lower overall delinquency levels.”

So, this is where the current NextGen Solicitation comes in. Those who will be on this contract will be the ones to implement the “enhanced servicing” strategies that are meant to reduce defaults.

The even shorter background on NextGen

In June 2017 Secretary of Education Betsy DeVos announced the hiring of Dr. A. Wayne Johnson as Chief Operating Officer of the Office of Federal Student Aid (FSA), and said he would be in charge of modernizing the agency. Sixty days later, FSA announced a “Next Generation” plan that would drastically streamline systems and processes, and improve borrower service. It was unclear at the time exactly where defaulted accounts would fit in the realm of NextGen, but a diagram released in December 2017 (and revised in February 2018) did include “Default Servicing” and “Recovery” modules (though few details were released). The diagram did note the existence of “PCAs” in this stage.

Back to the present

The FSA team announced the results of NextGen Phase I last week, and introduced Phase II. What’s new in the introduction of Phase II that will interest insideARM readers are additional details and references to default servicing. Here are a few of the highlights:

• The award will be an indefinite-delivery indefinite-quantity contract. The Government anticipates a base ordering period of five years, with one five-year optional ordering period. FSA anticipates one or more awards for Business Process Operations.
• The Solution shall meet or exceed existing Federal rules, laws, regulations, agency guidelines or court mandates applicable to the FSA operating environment.
• Student aid lifecycle functions (e.g., application processing, repayment, consolidation, deferment, forbearance, specialty claims) impact Business Process Operations, among other existing and future solutions, and often relate to multiple constraints.
• Specialty programs (e.g., PSLF, TEACH Grants, TPD) and specialty claims (e.g., discharge, forgiveness) require special handling as well as specific and unique processing rules that impact the Solution, along with other existing and future solutions, and often relate to multiple constraints.
• Solution(s) shall provide tailored customer assistance throughout the life of the loan to ensure that no borrower ever becomes a defaulted borrower, to the maximum extent practicable. This may be accomplished by activities that include, but are not limited to: making targeted outbound calls to assist customers with resolving loan management/payment issues, frequent outbound calls, early engagement for delinquent borrowers, skip tracing, etc.
• Solution(s) will efficiently execute servicing and other back-office activities across the full student aid lifecycle, as assigned, especially those cannot be automated within other relevant solutions.
• Solution(s) shall provide processing capabilities as required by the Legacy Portfolio Platform and Future State Core Platform. This will include, but is not limited to, review, validation, and processing associated with enrollment, applications, and requests for various borrower programs and loan status adjustments such as:
  • All repayment plan processing (e.g., income-driven repayment), including application and eligibility review, income checks and payment calculations, and annual recertification activities;
  • Processing associated with military service members, including requests for deferment and forbearance,
  • SCRA benefits, and hostile pay benefits;
  • Deferment and forbearance application processing;
  • Loan consolidation origination applications and request processing;
  • Specialty programs (e.g., TEACH grants, TPD, PSLF) processing;
  • Specialty claims processing (e.g., discharge and forgiveness, based on bankruptcy, school closure, borrower defense, among others); and
  • Rehabilitation, Administrative Wage Garnishment (AWG), Treasury Offset Program (TOP), and other related processing.
• On average, over 350,000 loans are transferred from servicing to FSA’s Debt Management and Collection System (DMCS) each month.
• The evaluation will be based on a complete assessment of the Offeror’s proposal. The non-price factors are more important than price.

insideARM Perspective

Of note is that the only company on the list above that is experienced in post-default debt collection is Teleperformance, under the brand AllianceOne.

AllianceOne was not one of the PCAs on the 2009 unrestricted contract. They did bid on the 2014 contract and were selected to move to Phase 2 of that solicitation, however they did not ultimately receive an award, nor did they subsequently file a protest or lawsuit in the ensuing years of wrangling.

Recovery of federal student loans is a specialized function requiring knowledge, systems and training that enables adherence with both federal and state Fair Debt Collection Practices Acts. This is a key point being made by PCAs in response to ED’s claim that they plan to handle defaults in the future by 1) preventing them with enhanced servicing and 2) having their servicers manage the accounts.

AllianceOne does have extensive experience in court, government and education debt collection, among other markets. Should they ultimately receive a contract, they should be well-positioned to execute. Meanwhile, I suspect the other contenders will be seeking outsourcing relationships.

To be continued.