Department of Education Cancels Two Debt Collection Contracts
Last week, the Department of Education filed a claim in federal court saying it would cancel debt collection contracts previously offered to Windham Professionals Inc. and Performant Financial Corp. This decision was announced shortly after it was revealed that Education Secretary Betsy DeVos previously had financial ties to Performant Financial Corp, The Washington Post reported.
Attorneys for the department offered few details as to how this decision was reached. But they did say that the department plans to make changes to their requirements for how they collect and process federal student loan debts, so the contracts were deemed no longer necessary.
Thirteen companies currently manage debt collection for the Department of Education. According to the court filing, these companies will manage all new accounts while the department makes these changes.
The department has been trying to minimize the number of contractors managing their portfolio for the past two years. This has led to protests and court battles that prevented the department from taking on new accounts. One month, the department estimated that a litigation battle resulted in $640,000 in lost debt collections, according to the Post.
In December, a federal judge ordered the Department of Education to choose the loan collectors for a new contract. The department selected Windham and Performant for contracts that were valued at nearly $400 million each. But almost immediately after the department made the selection, several overlooked companies took legal action and raised questions about Secretary DeVos’ financial ties to Performant.
Performant has ties to LMF WF Portfolio, a company that DeVos once invested in. DeVos did divest from LMF when she was confirmed as Secretary of Education. However, many Democrats still expressed concerns about DeVos’ ties to LMF and other companies.
Education Department spokesman Nathan Bailey stated that DeVos had no knowledge of or involvement with the Windham and Performant contracts. And Performant was quick to deny having any contact with Secretary DeVos.
A similar situation occurred in August when the department canceled a contract that would have allowed a single company to manage the trillion dollar federal student loan portfolio. The department claimed that this decision was based on a plan to overhaul the way student loans are serviced, known as NextGen.
NextGen is a project being led by the Office of Federal Student Aid. The goal is to create a single online platform that will streamline the way student loans are collected and processed. The department is hopeful that NextGen will simplify the process of managing student loan debt for borrowers, resulting in fewer defaults overall.