Thursday, June 18, 2009

Welcome the New Oligarchs of Student Loan Servicing

by Daniel L. Bennett

With the fate of FFELP seemingly decided, the Department of Education moved a step closer towards finalizing the deal to move all federal loans to the direct program yesterday by announcing the new student loan servicing oligarchs -- Pennsylvania Higher Education Assistance Agency, Great Lakes Education Loan Services, Nelnet and Sallie Mae. These four firms will provide all of the servicing of the Federal Government's current loan portfolio, as well as any loans that the government may acquire in the near future.

Losing out in phase 2 of the DoE's bidding process were Wells Fargo and ACS Educational Solutions. These were not the only losers though -- think of all the smaller loan companies. Of course the DoE will argue that it was a "full and open competition", as stipulated in the solicitation (and required by federal contracting law). However, it is safe to say that small loan service companies were implicitly barred from the bidding process from the get go, as the phase I solicitation specifically required bidders to
Demonstrate experience in processing a minimum of 500,000 student loan sales conversions annually and servicing at least 2,000,000 student loans.
The RFP did require bidders to submit a small business subcontracting plan, which requires that bidders provide, among other things:
(1) Separate percentage goals for using small business and women-owned small business concerns as subcontractors;
(2) A statement of the total dollars planned to be subcontracted and a statement of the total dollars planned to be subcontracted to small business;
(3) A description of the principal types of supplies and services to be subcontracted and an identification of types planned for subcontracting to small business, etc.
This does not preclude that smaller loan servicing companies will get a piece of the pie, as the subcontracting could be for indirect costs, such as janitorial services. While the newly minted oligarchs of student loan servicing will likely hire additional employees to manage their expanded portfolio, this announcement will likely subdue many smaller businesses and result in a stifling of the innovation and efficiency gains that competitive markets so often produce.

1 comment:

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