Here is today's announcement and here are the firms selected to participate in phase II of this two phase process (in alphabetical order):
ACS Education Solutions, LLC (the current DL servicer)
AES/PHEAA (American Education Services, Pennsylvania Higher Education Assistance Agency
Great Lakes Educational Loan Services
This contract has taken on a greater importance in light of Obama's recent budget blueprint which envisions a 100% shift to Direct Lending in 2010-11. The process for this solicitation kicked off in January and was intended to help service the loans that the Department of Education will likely purchase through the Loan Purchase and Participation program (up to 20 million loans). As described below, the contract may be up to 10 years in length. This contract is the game-changer that will determine the landscape for student loans in the years to come.
In light of this, it is not surprising to see Sallie Mae come out
with the following announcement after Obama's budget plan was
"We also note that the budget proposal looks to obtain "high-quality services for students by using competitive, private providers to service loans." Sallie Mae is the largest and lowest-cost provider of student loan services, and we deliver the highest quality for students, schools and families."
The most interesting question to ponder is how many servicers the Department of Education will select to carry out this contract. Select too few and the potential for oligopoly exists, select too many and you may sacrifice the efficiencies and cost savings that come from outsourcing to the largest providers. 'One of the Q&As put out by the Department had an estimate of an April 1st selection date.
In order to make it to Phase II, these servicers were required to demonstrate the following (the evaluation factors listed below are listed in descending order of importance):
(1) Demonstrate the capacity to process a minimum of 500,000 additional student loan sales conversions annually and service at least 2,000,000 additional student loans, no later than August 31, 2009.
(2) Demonstrate the willingness to develop and/or enhance offeror system(s) to accommodate the additional volumes stated above, in compliance with all standards and constraints, at no cost to the Government, or an alternative business arrangement that limits the Government's liability.
(3) Estimated Cost to the Government (Estimated costs will be evaluated for realism.)
Here are some other details from the solicitation:
- The Need:
- Duration of the contract:
- Potential loans to be put to Department of Education:
Update: The value of this servicing contract will be diminished greatly should lenders en masse choose to sell their 2008-09 loans into the conduit plan proposed by the Department of Education (see here and here for posts describing this plan). The apparent advantage of selling into the conduit is that lenders would retain servicing rights on those loans.
- Direct loan servicer smackdown: Vying for the big prize
- Participate today in SLA Flash Survey on FFEL and Direct Lending Trends
About Student Lending Analytics
Student Lending Analytics (SLA) helps schools find the best lenders for their students. SLA employs an independent and analytically rigorous process augmented by proprietary customer surveys. We save our clients time while also ensuring the lender selection process meets or exceeds regulations. Read more about Student Lending Analytics on our website or testimonial page.
For additional information:
- Contact Tim Ranzeta at 650-218-8408 or email@example.com