Rehabilitated Loans Shake Up ED Collection Performance Rankings

NCO Group held onto the top ranking in August among unrestricted contractors in the U.S. Department of Education’s student loan contract performance report.

NCO, the world’s largest accounts receivables management company, won with an overall score of 98.40.  Van Ru Credit finished second with a score of 95.78 and Pioneer Credit Recovery, a subsidiary of student loan giant Sallie Mae, dropped to third place with a score of 94.89.

ED’s performance scores are based on a weighted average of total dollars collected, total accounts serviced and administrative resolutions. The top performer in each category receives the maximum score for that category, and the other agencies are scored against the top performer. The department awards 70 points for dollars collected to the top performance, 20 points for total accounts serviced, and 10 points for administrative resolutions.

Pioneer actually outscored NCO in the total accounts serviced category, and collected $100,000 more than NCO in August. But Pioneer began the period with a higher average inventory balance because of previous first place wins that earned the Arcade, N.Y.-based firm a greater amount of new accounts when the quarter began (“Dept. of Ed. Releases Important Collections Performance Report,” April 29).  As a result, Pioneer’s recovery rate for dollars collected was lower at 1.62 percent when compared with NCO’s 1.72 percent recovery rate, which allowed NCO to earn the full 70 points. 

In the small business category, Collection Technology Inc. outscored Coast Professional 96.83 to 82.78 for the top ranking by servicing more accounts and collecting more money.  National Recoveries finished a distant third with 59.65 points.

The point spread is the largest ever between the small business contractors, largely due to the impact of rehabilitated loans. Rehabilitated loans are accounts that have nine qualifying payments over 10 consecutive months. The Department of Education said that July results included a fraction of rehabilitated loans for some contractors, but significantly more rehabilitated loans were included in the August results.

Scott Daniels, CTI’s vice president, said the company fell behind in rehabilitated loans during the previous ED contract and had a difficult time recovering.  The company learned from the mistake and in the 2009 contract gave rehabbed loans greater priority, Daniels said. He credits success in the rehabilitated loan category with giving CTI an edge in the latest performance rankings.

“(Efforts) that started 10 months ago are starting to come into play,” Daniels said. “In the month of August we had $2.2 million added to our collections based on the rehab funding.”

Without the additional dollars from rehabilitated loans added to its collection balance, CTI would have posted around $630,000, Daniels said.

Now that rehabilitated loans are being added to dollars collected balances, contractors could add millions more each month to their regular collections, helping contractors who get delinquent borrowers back on track and hurting those who have struggled in the area.

Inventory balances also will play a significant role, challenging contractors with larger balances to maintain recovery rates.

“The way (the contract) is set up, to stay ahead you have to keep moving forward because the inventory balances everything out,” Daniels said.  

During the first 10 months of the contract, all 22 contractors (17 unrestricted and five small firms) have collected nearly $242.5 million.

Contract Performance Scores for July-August 2010 Period