Department of Education Announces Award of Student Loan Collections Contracts: the Latest Chapter in a Long-Running Saga

by Hinshaw & Culbertson LLP
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The Headlines

After much anticipation, on January 11, 2018, the Department of Education filed its Notice of Completion of Corrective Action. The filing announced its hotly contested award of unrestricted contracts for collection of federal student loans to two primary private collection agencies, Performant Recovery, Inc. and Windham Professionals, Inc. Several other small business contractors will also receive portions of the business.

According to the Department of Education, the total contract award amount for the base period and option period is not to exceed $400,000,000, and the base period of performance for this contract is January 11, 2018 through January 10, 2023.

The History

The procedural history of these consolidated cases reads like a good thriller, at least for legal buffs. The two year saga reached some level of clarity by order of a decisive new judge who took over the case not more than two months ago, requiring the Department to award the corrected contracts yesterday.  

The saga began in February 2015 when the Department of Education notified five contractors that it would issue Award Term Extensions but it would also wind down its contracts with other agencies due to pressure from the Government Accountability Office regarding the accuracy of information provided to student loan borrowers. Several of those affected contractors filed a lawsuit against the Department of Education. The Court of Federal Claims initially dismissed the case but was reversed on appeal. Meanwhile, in December 2016, the Department of Education awarded new unrestricted contracts, which immediately became the subject of separate protests and separate lawsuits filed by those whose contracts were not extended. Subsequently, the Department of Education agreed to take a corrective or remedial action regarding its decision not to issue contract extensions with respect to certain plaintiffs.

Eventually, the lawsuits over the Award Term Extensions and the unrestricted contracts were consolidated before Chief Judge Susan C. Braden. The litigation history of the consolidated cases is replete with motions, appeals, and various injunctive relief. In May, 2017, Judge Braden issued a temporary injunction preventing any accounts from being placed in an attempt to preserve the status quo, but resulted in more confusion and harm not only to the contractors but also to the student loan borrowers.

When Judge Thomas C. Wheeler took over the case just before Thanksgiving, he immediately scheduled a hearing in December for all the consolidated cases. At that hearing, attorneys for the various parties argued as to why they should be able to keep their contracts but not others, and why one outcome over another would lead to irreparable harm for their clients. The Department of Education advised Judge Wheeler that there was still no due date for when the corrective action could be completed. Within hours after the hearing, Judge Wheeler immediately issued an order directing the Department of Education to complete the correction action by January 11, 2018, and here is where the matter presently rests.

The Hustle

While many predicted that the corrective action would lead to more unrestricted contract awards, the result was just the opposite. It seems almost certain another round of protests will ensue—as is common in any large government contracting scenario. But, given the lengthy and drawn out process in the last round, many stakeholders (including, potentially, the courts) are likely to be interested in performance continuing as announced. Understandably, some entities are going to want to focus on moving their organization in a new strategic direction rather than incurring more spend on protests.

For those with contract awards, there is sure to be an operational challenge of handling a massive influx of accounts. While the entities chosen are experienced collectors and have likely been preparing for such an award, there will be no shortage of attention and scrutiny to the methods and practices they employ.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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