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The Department of Education told a federal judge Thursday that it would terminate a January contract award to two debt collection firms as it reassesses its strategy for serving borrowers in default on their federal student loans.
The department said in the filing that it plans to start “significant engagement” with borrowers as early as 90 days after they become delinquent on their student loans. Borrowers are considered to be in default when they go more than 270 days without making a payment on their federal student loans.
Those as yet unspecified outreach efforts would reduce the volume of borrowers in default, improve service to delinquent borrowers, and lower delinquency levels as well, the department argued.
In January, the department said in another court filing that it would award contracts to collect on defaulted student loans to two firms, Performant Recovery Inc. and Windham Professionals. The same week, it issued notices terminating collection contracts for seven firms originally issued in December 2016. Those awards, made under the Obama administration, set off a protracted legal fight that’s continued for more than a year.
The contract awards to Performant and Windham could be valued at as much as $400 million.
"The current private collection agencies (PCA) under contract with ED have sufficient capacity to absorb the number of accounts expected to need debt collection services while the process for transitioning to the new approach is developed and implemented," the department said in its court filing Thursday. "Therefore, additional PCA contract work is not currently needed."