Washington -- Tbe U.S. Department of Education has been holding an on-again, off-again competition for an outside contractor to create a single "portal" for all federal student loan servicing. Whether the contract will be for a portal only, or if the winner will also get to determine who does the servicing, is one of the major questions surrounding the way the competition is being conducted. Congress has weighed in more than once on the competition. The contract at stake is one of the largest in the federal government outside the Department of Defense.
From a public policy standpoint, there are difficult questions that arise about contractor selection. Of the three remaining competitors, two are troubled to the extent that they might not be considered responsive and responsible bidders, if the Department of Education is paying attention.
Navient has been sued by the Consumer Financial Protection Bureau for "failing borrowers at every stage of repayment," and by several state attorneys general as well. Under these conditions, can the contract be given to Navient?
PHEAA has been sued by the Massachusetts attorney general and by many other parties for the same kinds of offenses. The Pennsylvania auditor general once described PHEAA as losing sight of its mission in favor of self-reward.
Additionally, PHEAA holds contempt for the U.S. Department of Education, which it has called "pathetic" and "weak-minded." Just this month one of its top officials, in open court, called Department efforts to curb PHEAA's past illegal claims a "joke." Who could blame the Department of Education from disqualifying this company from the competition?
Perhaps the only responsive and responsible bidder left in the competition is the combined bid of Great Lakes Student Loan Servicing and Nelnet. Great Lakes is a nonprofit servicer with a good reputation, which has not been tainted over the years like other servicers. The addition of Great Lakes to Nelnet's portal bid is a significant plus.
From a public policy standpoint, it might be better for the Department of Education to cancel the whole thing and start over, to allow other bidders with experience in loan servicing in areas such as credit cards and mortgages. Or even to move ahead quickly with a re-design of student loan servicing to emulate other countries' systems, which employ existing tax withholding and payment mechanisms.