Up Front Costs Limit ED Contract Players

With over $40 billion dollars of defaulted federally-backed student loans in the Department of Education’s (ED) portfolio, there is little wonder why the opening of the General Services Administration (GSA) schedule for agencies to contract on behalf of ED has garnered so much attention.

The collection and rehabilitation of Federal Family Education loans (FFEL), for the successful collection agency, can represent a substantial opportunity. In 2007 alone, private collection agencies collected some $2.3 billion dollars, and the Department of Education paid out over $300 million to its agency contractors.

But while the opportunities inherent in being awarded an ED contract are obvious, some considerations should be kept in mind. Chief among these are substantial up-front capital requirement of participants.

In addition, recent changes made to the business of federally-backed student loans by the passage of the College Cost Reduction and Access Act of 2007 (CCRA), should also be considered by agencies interested in the student loan collection market.

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