Federal Student Aid Has Won its War with Private Debt Collectors

It appears the door has finally closed on any chance for large private collection agencies (PCAs) to compete directly for a Department of Education (ED) contract for post-default debt collection services. In a comprehensive yet succinct summary of the years’ long legal battle, Judge Wheeler of the Court of Federal Claims spared neither side in his review of the arguments - or lack thereof - as he puts this matter to bed.

Catch me up, please

This saga, which began in 2015, most recently had two intersecting matters in play.

First was the suit regarding ED’s May 2018 cancellation of its Solicitation for large PCA services; In September 2018, the court ruled in favor of the PCAs and permanently enjoined ED from canceling the Solicitation. The PCAs argued, however, that ED essentially ignored this order and proceeded with the cancellation. If you need a full recap, this story is a great place to start.

Second was the protest of ED’s (separate) Solicitation for services under its NextGen plan that would put all federal student loan servicers on a common technology platform with a single database. The PCAs’ complaint in this case was that ED had improperly bundled pre-and post-default servicing in the same procurement, which is a) illegal and b) makes it impossible for debt collectors to compete for work unless they can either a) provide all services required by the full student loan cycle (which, it’s argued, no company is capable of) or b) establish a viable teaming arrangement as a subcontractor (which, it’s argued, is both challenging and would cause a conflict of interest). The case is FMS Investment Corp., et al., v. United States; ConServe filed a complaint on the same day in October 2018 as FMS and their cases were consolidated. This article provides a great background on the twists and turns.

Okay, so what just happened?

Yesterday Judge Thomas Wheeler denied the PCAs’ motion for a permanent injunction and granted the Government’s cross-motion for judgment on the administrative record (MJAR). The first sentence of his 12-page decision reveals the punch line:

“There is no such thing as a perfect procurement, and the Department of Education’s (ED) years-long series of student loan servicing and debt collection solicitations typifies the axiom. But a flawed procurement is not necessarily an illegal one.”

This pretty much sums up Judge Wheeler’s prevailing position on this years’-long saga. He has repeatedly criticized the Government for failing to make compelling arguments, yet ruled in their favor in spite of it. As recently as July 17, 2019, Wheeler said the following during oral argument to Alexis Echols, an attorney for the Department of Education:

“Here's my sticking point, though, and you may have gotten this impression already, but what we have here is a rather serious restriction on competition that is occurring, which would be contrary to CICA, just looking at it at a 30,000 foot level. And what I'm getting as the reason for doing this restriction is a lot of general platitudes like it will be more efficient, we know that a holistic approach will work better. Well, that's great, but you're not giving me anything specific that I can point to and say, yeah, this obviously constitutes good reason for doing it.’

Notwithstanding this sticking point, the Court closed the door on this case, concluding that:

1. ED provided sufficient justification for combining loan servicing and default collection work;
2. NextGen did not per se violate federal and state laws governing debt collectors;
3. NextGen is not otherwise arbitrary and capricious; and
4. ED’s decision to cancel the PCA solicitation was not arbitrary and capricious. 

Judge Wheeler’s decision makes ED’s case more effectively than the Government did itself. He summarizes each argument made by the Plaintiffs and then proceeds to dismiss each one, concluding essentially that he owes ED the benefit of the doubt, and that ED is not required to argue a perfect case. The fact is, he clearly wasn’t impressed with either side, and this decision lets everyone know it.

One of the many examples (you can read them all for yourself here) include,

“Plaintiffs focus on CICA [the Competition in Contracting Act] and the laws governing debt collectors, but with their typical firehose approach to protesting ED procurements, they make several other points worthy of direct refutation.

For one, Plaintiffs stress that ED still has not conducted a legal analysis of NextGen. However, an agency is “not required to synthesize its thinking and its market research into a prelitigation written explanation of the rationale for each of [its] solicitation requirements.” (citations omitted) 

And another,

“Plaintiffs also accuse ED of manipulating and misrepresenting collections data to show that the smalls perform at least as well as the large PCAs. Plaintiffs cite to collections data in an attempt to argue that the large PCAs perform better than the smalls. The Government cites similar data in an attempt to argue the opposite.

None of the parties’ arguments on this point deserve much weight. Both sides draw--at best--weakly supported and self-serving conclusions from the data they present.”

Finally, he says,

“Although ED’s NextGen solicitations are far from procurement paragons, the Court will uphold even an agency action “of less than ideal clarity if the agency’s path may reasonably be discerned… ED and its NextGen solicitations have managed to clear this low bar.”

And. That’s that... unless the PCAs decide to appeal. Also, there's this case that was filed on July 16, 2019 -- just a few weeks ago. While it's possible the Judge would carry over his same reasoning to this case, there are some additional arguments that will need to be addressed.