Competition Intensifies on ED Collection Contract in Third Quarter

Another nail-biter is in the making for the private student loan collection agencies on the U.S. Department of Education’s private student loan collection performance competition.

As the quarter comes to a close this week, NCO Financial Systems and Pioneer Credit Recovery are battling for the first place ranking among unrestricted contractors, while Collection Technology, Inc. and Coast Professional spar for the top ranking among small contractors, according to performance scores through the end of August.

The agencies, however, cannot track their performance to date because ED is converting to a new computer system that may not be fully implemented until mid-October.  The agencies’ final performance results also may be delayed by the system conversion.

In August, NCO Group received 98.18 to overtake Pioneer Recover in for the top ranking among their peer group. But less than 1 point separated NCO from Pioneer, which earned 97.66 points. FMS Investment Corp., meanwhile, scored 92.10 to knock ERS out of third place. But ERS’s 91.31 points keeps it in the hunt for a top three finish in the quarterly performance results.

The winners of the quarter performance results in their peer group will receive the most new accounts when the ED distributes them for the following quarter.

The education department’s private collections performance results are determined by a weighted average of contractors’ performance in total dollars collected; total accounts serviced, and total administrative resolutions. The department awards 70 points to the top performer in the dollars collected category. Twenty points are awarded to the top performer in the total accounts serviced category, and the top performer in administrative resolutions receives 10 points. The other agencies are scored against the top performers in each category.

Although Sallie Mae subsidiary Pioneer Credit Recovery recovered the most dollars in August, NCO won the accounts serviced category and was a close second in the other two categories. Among its peers on the small business contract, Collections Technology easily won the dollars collected category and finished second in the accounts service category.

The third quarter is the last quarter that restricted contractors will be judged on their individual quarterly performance alone.  Come October 1, the education department said it will begin tallying the contributions of subcontractors.  ED has said that agencies that subcontract work will be eligible to earn up to five additional points during the quarterly competitive performance evaluation if their small business subcontractor is doing collection work based on the contract’s operational requirements.  It’s not clear, however, if the agencies will be penalized in any way for not using a subcontractor.

Currently, the operational procedures are still in development and subject to change. The ED plans to issue the final operational procedures for agencies participating in the unrestricted pool of this contract by the end of September.

Fourteen of the 17 unrestricted private collection agencies have established a sub-contracting arrangement with a small business to increase the education department’s collections on defaulted loans.

Collection Performance Scores for July-August 2011