Protest challenging agency’s decision to cancel a solicitation for debt collection services and issue a new solicitation that combined debt collection with loan servicing is denied where (1) the combination of debt collection and loan servicing did not improperly consolidate separate procurement requirements in violation of the Competition in Contracting Act, and (2) small businesses could handle the agency’s debt collection needs until the combined debt-collection/servicing contracts were up and running.
The Department of Education (ED) issued a solicitation seeking student debt collection services. After trying and failing—due to multiple protests—to make an award for debt collection services, ED cancelled the debt collection solicitation. The agency then issued new solicitations, called the Next Generation Financial Services Environment (NextGen), that combined debt collection with loan servicing to create a “full-life cycle” student loan structure.
Several debt collectors protested the NextGen solicitations, claiming that combining debt collection and loan servicing restricted competition. The debt collectors also argued that the agency had erred in cancelling the earlier debt collection solicitation. All the parties moved for judgment on the administrative record.
As an initial matter, the debt collectors argued that combining the debt collection and loan servicing requirements violated the Competitions in Contracting Act by restricting competition. Specifically, they argued, the combination was an improper “bundling” or “consolidating” that conjoined two procurement requirements that had been previously handled as separate contracts. The court, however, found that ED had a rational basis for conjoining debt collections and loan servicing.
First, the court noted the ED had been directed by Congress as part of the 2019 Appropriations Act to issue student debt solicitations that provided for the full life cycle of student loans from disbursement to payoff. ED had reasonably interpreted this directive to mean that its new student loan servicing environment must combine loan servicing with collection work.
One of the debt collectors argued that ED could not rely on the 2019 Appropriations Act because the Act referred only to “loan servicers,” and that term does not include debt collectors. But the court found that the ordinary meaning of “full life-cycle” encompasses loan origination to payoff. This must also include any period the loan falls into default. Additionally, the court found, just because Congress used the term “loan servicer” does not mean it intended to exclude debt collectors. “Loan servicer” is an industry-specific term of art. Congress is not required to adhere to the industry’s definition of loan servicers.
The debt collectors also argued that ED could not rely on the 2019 Appropriations Act because the agency had consistently taken the position that default collection is separate from loan servicing. The only evidence offered in support of this argument, however, was language from another solicitation. The court found that this alone did not prove that ED’s decision to combine was irrational.
The court further found that ED’s decision to combine debt collection and loan servicing was supported by a letter the agency received from 12 U.S. Senators who had criticized the agency for prioritizing debt collection. Moreover, the court found the decision to combine was rational because separating debt collection from loan servicing confuses borrowers. It takes up to 60 days to transfer a defaulted loan to debt collector. Borrowers often don’t know where to send payments.
Next, the debt collectors argued that combining debt collection and loan servicing would violate debt collection laws. The court dismissed these arguments finding that under the presumption of regularity, it was required to give ED the benefit of the doubt that it would execute the NextGen solicitations in a way that complies with debt collection laws.
The debt collectors further contended that NextGen solicitation were too vague because ED does not intend to continue with its current debt collections pricing structure and it was not clear how future contracts would be priced. But the court found that the solicitations included detailed pricing worksheets. While the debt collectors may have been upset over losing contingency fees, this did not make the solicitations vague.
In addition to their objections to the combining of debt collection and loan servicing, the debt collectors complained about ED’s decision to cancel the prior debt collection solicitation when it issued the NextGen solicitations. ED claimed that it had small businesses under contract that could handle debt collection until the NextGen contracts were up and running. The debt collectors challenged the ability of small business to handle these loans.
The debt collectors argued that the small business could not handle with the loans without subcontracting. But the court found this argument irrelevant, noting that subcontracting is a valid way for small business to increase their capacity.
The debt collectors also argued that ED had misrepresented collections data to show that small debt collectors performed as well as large debt collectors. The court found that this argument was not entitled to much weight as both sides had drawn weakly-supported, self-serving conclusions from the collections data.
Finally, the debt collectors argued that by cancelling the debt collection solicitation, ED had ignored a mandate in the Debt Collection Improvement Act of 1996 that all agencies should seek to maximize collection of debts owed to the government. But the court found that the Congressional mandate in the 2019 Appropriations Act was more recent and more specific than the mandate in the 1996 Act and thus deserved more weight.
The court denied the debt collectors’ motion for judgment on the administrative record and their request for a permanent injunction. The court granted the government’s motion for judgment on the administrative record.
The plaintiff FMS Investment Corp. is represented by David R. Johnson, Tyler E. Robinson, and Ryan D. Stalnaker of Vinson & Elkins LLP. Plaintiff Continental Service Group is represented by Todd J. Canni, Richard B. Oliver, Alexander B. Ginsberg, J. Matthew Carter, Aaron S. Ralph, and Kevin R. Massuodi of Pillsbury Winthrop Shaw Pittman LLP. Plaintiff GC Services Limited Partnership is represented by William M. Jack, William C. MacLeod, David E. Frulla, Amba M. Datta, and Elizabeth C. Johnson of Kelley Drye & Warren LLP. The government is represented by Alexis J. Echols, David R. Pehlke, Jana Moses, Joseph H. Hunt, Robert E. Kirschman, Jr., and Patricia M. McCarthy of the U.S. Department of Justice as well as Tracey Sasser of the U.S. Department of Education.
