DOE Offers Contracts to Expand Student Loan Capacity

U.S. Secretary of Education Anne Duncan announced that four companies were awarded contracts to service a portion of the approximately $550 billion outstanding federal student loan portfolio held by the Department of Education (DOE).
 
Major ABS student loan issuers Nelnet and Sallie Mae Corp.  were awarded contracts under the Title IV Student Loan Management/Servicing procurement. AES/PHEAA of Harrisburg, Pennsylvania as well as Great Lakes Education Loan Services of Madison, Wisconsin were also awarded contracts.
 
The award of these contracts provides the DOE with the needed capacity to support anticipated increases in the number of loans it owns and ensures borrowers receive the assistance they need to effectively manage their federal student loan obligations. The selected contractors will also service future loans originated by and sold to the DOE.
 
The new performance-based contracts gives the DOE the capability to manage all types of Title IV student aid obligations including, but not limited to, servicing and consolidation of outstanding debt. The contracts have a base ordering period of five years with an optional five-year ordering period.
 
The minimum contract award for compliant and performing firms is valued at $5 million, with a maximum assignment to service up to 50 million student loan borrowers over the five-year ordering period. The  revenues generated under these contracts will be driven by contractor performance as measured by customer satisfaction and default aversion.
 
This year, the DOE financed over 60% of the loans issued by private lenders through the authority granted by Congress to the Secretary under the Ensuring Access to Student Loans Act. In addition, the number of loans originated under the DOE's own Direct Loan Program has grown by 63% above the prior award year primarily as a result of schools choosing to switch to the Direct Loan Program.
 
Because of the state of the credit markets and subsequent passage of the Ensuring Continued Access to Student Loans Act, the DOE will be acquiring a large volume of federally guaranteed loans in the coming months. Additionally, the President's full-year 2010 budget proposes originating all new federal student loans through the Direct Loan Program starting in 2010.