Why Dept. of ED Collection Contract Outperforms on Taxpayer ROI

Anyone in the debt collection industry with an email account knows the U.S. Department of Education (ED) represents the single largest contracting opportunity in the industry. It’s no surprise, since the U.S. government is the largest purchaser of goods and services on the planet.

But what is it about “the ED contract” (as it’s commonly known) that has, in my estimation, made it the gold standard for how a public entity can maximize the return on investment (ROI) it provides to taxpayers? What is it about the ED contract that has made it so competitive, one that sees so many good vendors go head to head each month and each quarter to try to gain a few points in ED’s performance rankings and get ahead of one another in those rankings? What is it about the contract that has fostered a cast of responsive companies eager to steer clear of the bad publicity that comes from the worst kind of consumer abuse, keep sensitive consumer data more secure than it’s ever been, and implement best practices that eventually filter down through the vendors’ overall operations?

It’s the money, right? Sure, that would be the easy answer. It’s also a superficial one.

Saying the motivation for profits is the only reason why the ED contract works so well would be like saying no one does anything except for money. I think anyone reading this with a passion, professional or otherwise, for anything other than financial gain would disagree. And I think that’s most people.

What do I mean when I call the ED contract the “gold standard” in public contracting? Do not take this to mean I think it’s perfect, by any stretch. Anyone with even a vague familiarity with ED’s snail-like attempts to complete a full system conversion over the last couple years knows better. But let’s not make the very good the enemy of the perfect. As someone who pays close attention to how public contracts are awarded and run all over the country through www.mygovwatch.com, I can tell you that, as a species, government officials involved in collections generally lack the imagination to enable their vendors to recover more for their constituents.

But ED management is the exception that proves the rule. All you have to do is consider how often ED engages its collection agencies in a formal setting for ideas and feedback to know how different management at ED is from the run-of-the-mill bureaucrat involved in collections in any other part of government, including at other Federal agencies. Another example is how ED generally incentivizes vendors to do what’s best for the consumer; case in point, the rehabilitation program. More than half of all dollars collected by ED’s vendors in FY 2011 resulted from this program, in which the vendor elicits a series of timely monthly payments from the borrower in exchange for reduced collection costs, removal of the delinquency from the borrower’s credit report, and more. This path toward resolving the consumer’s financial and social obligation outpaces other collection tools by three to one just about every year, to the benefit of the consumer and future borrowers. At ED, they get it, and it shows.

Why is that? I’d venture to say it’s very hard for people in government not to stay on their toes in front of an audience comprised of a couple hundred professional bill collectors, many of whom have staked more than just their name on doing a good job on the contract. The people in this cottage industry of collection agency professionals, whose careers are defined by the contract, do not lack for passion, creativity, or imagination. To see this, go to any ED meeting and listen to those who stand up and ask pointed question after pointed question (after pointed question, in a few cases).

There’s a reason ED receives this degree of dedication, attention, and engagement from its vendors. We’ll get back to that in a moment.