NextGen Deadline Postponed Again, and ED Considers Selling Defaulted Loans

It’s been a while since my last update on the Department of Education’s (ED) NextGen solicitation. In January I reported that ED had released a three-part “re-do” of its original solicitation for technology and services to establish its new NextGen student loan servicing environment. Since then, the three parts have been tweaked and postponed several times. Earlier this week, on Tuesday April 30^th, ED announced that the latest due date (May 8th) for proposals under the “Optimal Processing Solution” (aka part three) will be changed to a future date, to be determined.

This third part of the NextGen environment is currently where the “permanent” post-default collection services reside; ED has said that the small private debt collection agencies (PCAs) on a prior contract will be providing post-default collections in the interim. What remains unclear is how private debt collection firms (PCAs) will be able to compete for this future contract, as it seems they can only do so as prime contractors if they can provide all of the services required in the RFP. This leaves PCAs to scramble for teaming partners, and to risk revealing their "secret sauce" to companies that may be competitors in the future.

Some background

If you need the full monty primer on how the old unrestricted PCA contract intersects with this new NextGen contract, start here. The following is a brief background on NextGen itself.

In August 2017 ED announced a “Next Generation Processing and Servicing” plan (NextGen) that would put all federal student loan servicers on a common technology platform with a single database in order to drastically improve customer support.

By February 2018, ED issued a Solicitation for Phase I of the NextGen project, including a diagram (you can see it in this story) showing that default servicing and recovery (including PCAs) are in the overall vision, but not part of the current solicitation. As a result, most PCAs did not bid on the contract (unless they were in a position to offer the pre-default services).

At the end of September 2018, ED announced it had completed Phase I, and had chosen a set of vendors who are eligible to participate in Phase II – which clearly spelled out requirements for post-default servicing and collection activities. In short, ED changed the scope mid-stream. PCAs cried foul (as did some of the Phase I winners) and filed lawsuits in the Court of Federal Claims (COFC).

The claims are explained in this story. In the end, the Court sided with the plaintiffs and urged ED to pursue corrective action. He gave the Department until December 14th.

And, on December 14, 2018, ED cancelled the procurement for three components of the original RFP (including those that cover business process operations and post-default collections), revoking the Phase I awards and saying it would issue a new solicitation by January 15, 2019, allowing for a “full and open competition.”

As ordered, on January 15 ED issued a new solicitation in the form of three RFPs:

RFP R00005 – Enhanced Servicing Solution (with proposals due February 25, 2019)

RFP R00008 – Business Process Operations Solution (proposal due date TBD, but bidders were required to complete a Past Performance Reference Questionnaire by March 1, 2019)

RFP R00007 – Optimal Processing Solution (with Questionnaire due by March 1 and proposals due March 25, 2019)

Updates begin…and continue

R00005 - Since January, ED announced a number of updates to the Enhanced Servicing Solution RFP, including moving the due date to March 27^th, and refining the requirements for post default collection activities. On March 26^th, ED posted responses to bidder questions but did not change the due date…except that the currently listed response date is (was) April 2, 2019.

R00008 – On February 20^th ED announced that the proposal due date would be posted after an award is made for R00005.

R00007 - The Optimal Processing Solution RFP has also been updated. On February 25^th, the March 1 due date for the Questionnaire was postponed. On March 15^th the March 25^th due date for proposals was postponed. On March 27^th, an amendment to the RFP was posted along with multiple attachments, including ED’s responses to various bidder questions. On April 30^th the latest due date of May 8^th was “postponed and will be changed to a future date, to be determined via a forthcoming amendment to the solicitation.”

Meanwhile, the pressure mounts

The pressure on ED Secretary Betsy DeVos to fix student loan servicing and collections is mounting from many sides.

On March 21, 2019 the White House issued an executive order about increasing transparency around the cost of an education at any given school, a student’s likelihood of being able to pay back loans required to get the education, and what happens when they can’t.

Also on March 21, 2019 The Washington Post published an article entitled, “Staffing shortage at Education Department’s loan default units frustrates struggling borrowers”.

On March 25, 2019, in response to the Washington Post article, U.S. Congresswoman Lauren Underwood issued a press release pressuring the Secretary to respond appropriately to borrowers in default.

And, under the heading of, “Nobody ever got fired for hiring IBM,” The Wall Street Journal reported yesterday that ED has hired management consulting firm McKinsey & Co. to study the portfolio, and to evaluate options for selling some or all of the accounts in default.

At the end of the Journal article, the authors speculate that the McKinsey study could have an additional motive – to gather fodder for efforts to pressure schools to take on some of the responsibility for out of control tuition and to pay off their graduates’ unpaid debts. I say, YES.