Judge Sides with Government in Student Loan Debt Collection Contract Dispute Ruling

A judge in the U.S. Court of Federal Claims Tuesday dismissed a complaint against the Department of Education brought by student loan debt collection contractors that disagreed with the agency’s decision to end its relationship with some collectors while expanding its business with others. But the decision was narrow and is likely to be appealed, with additional questions needing an answer before the matter is finally settled.

The court was hearing a challenge to ED’s decision to end its ties with five private debt collection agencies due to what it said were misrepresentations about credit reporting and the waiving of fees associated with ED’s student loan rehabilitation program. In conjunction with that decision, ED also extended its contract with five separate collection firms.

The five agencies that were let go by ED were slated to have accounts pulled from their businesses and forwarded to the five that got extensions, beginning next week. Four of the five agencies sued in federal court to stop that from happening.

Judge Francis M. Allegra Tuesday denied a motion for preliminary injunction that would have halted the account exchanges. He also ordered the clerk to dismiss the complaints from the four ARM firms, now consolidated into one case.

The order was filed under seal, fully viewable only to those involved in the case. The court may release a redacted version at some point.

Judge Allegra held oral arguments in the case last week. The arguments were originally scheduled for one day, then expanded to cover two days after more parties joined the suit. But the judge cancelled the second day of oral arguments after determining that his decision would be very narrow.

At issue was a contract extension slated to kick in on April 21 that will see five other collection agencies receive additional accounts after the contract expires. Those five agencies joined ED in the case as Defendant-Intervenors.

In conjunction with the dismissal of five collection agencies, ED said that it would award five other companies “Award Term” extensions, per the provisions of the contract. The four collection agency plaintiffs moved for an injunction to block that extension and prevent ED from distributing accounts on April 21, the day the current contract ends.

After dozens of filings on both sides, a clear point of contention was reached: is the Award Term extension part of ordinary contract administration, or does it represent a new task order and procurement process? In the world of federal contracts, the distinction is important.

Although the full text of the order is not available, it appears that Judge Allegra sided with ED in denying the motion for an injunction. The judge did not rule on the merits of the complaint, a fact underscored by one of the plaintiffs in the case.

“This decision was not based on the merits of the case but rather on jurisdictional issues,” said a spokesperson for Enterprise Recovery Systems in a statement. “The court allows for an appeals process which we intend to follow. We remain hopeful that we can find a path forward working through the legal process to help reaffirm our position that the Department of Education erred in its review process, resulting in an unfair decision.”

Another plaintiff in the case directly addressed the pivotal issue of contract extension vs. new procurement.

“We are disappointed with the Court’s decision,” said Brian Davis, CEO of Coast Professional. “We believe these were new contracts that the Department of Education awarded in an unfair and arbitrary process that did not allow all bidders to compete on a level playing field.”