Department of Education Posts Contract Pricing For Four Companies Awarded Title IV Servicing Business (Updated)

Update (6/29/09):  SLA has valued the contract at $1.3 to $1.5 billion over the initial 5 years (details posted here).

Here are the contract awards:

• Great Lakes
• Nelnet
• PHEAA
• Sallie Mae

Here is the common pricing for all four servicers that the Government has set for the contract (unit prices are based on number of borrowers by status per monthly billing period):

Status	Volume Low	Volume High	Unit Price
Borrowers In In-School Status	N/A	N/A	$1.05
Borrowers in Grace or Current Repayment Status	1	3,000,000	$2.11
	3,000,001	Up	$1.90
Borrowers in Deferment or Forbearance	1	1,600,000	$2.07
	1,600,001	UP	$1.73
Borrowers 31-90 Days Delinquent	N/A	N/A	$1.62
Borrowers 91-150 Days Delinquent	N/A	N/A	$1.50
Borrowers 151-270 Days Delinquent	N/A	N/A	$1.37
Borrowers 270+ Days Delinquent	N/A	N/A	$0.50

Other contract terms disclosed in these contracts include:

• Unit price adjustment:  Unit price will be adjusted annually by the amount that the Employment Cost Index (ECI) exceeds 3.0%. 
• Contract guarantees/minimums:  "The Government does guarantee a minimum dollar/ revenue amount of $5,000,000 over the base ordering period under this Indefinite Delivery, Indefinite Quantity contract, regardless of the number of loans serviced by a contractor."
  • Note that base ordering period is 5 years for this contract
• Split borrowers:  "The Government retains the unilateral right to resolve split-borrowers as deemed appropriate by the Government, at no additional cost to the Government."
  • As noted on the Sallie Mae call yesterday, since the pricing structure is on a per borrower basis rather than per loan, the government's incentive is to keep all of a borrower's loans with the same servicer and avoid split-servicing. 
• Limits on branding/marketing:  "Contractors may not solicit or promote other services/ products they, or their affiliates, offer while servicing Department of Education borrowers, or Federally held debt. This includes all communication channels and touchpoints, such as but not limited to: inbound and outbound calls/email, web pages, any mailings specific to the status of their account, direct personal and automated interaction, etc."
• Initial requirements of contract:  Need to be completed by 8/31/2009 (Attachment A-1 of contract)

A key question remaining is how the initial allocation of borrowers will occur.  As the Sallie Mae call made clear yesterday, servicers will continue to service any of the FFELP loans that they "put" (or sell) to the Department of Education.  The question is how FFELP loans not serviced by these four will be allocated among the four servicers.  An inquiry into the Department of Education today yielded this response:  "Before September is the best I can share today."

Starting in August 2010, the allocation will be determined based on the following five factors as outlined in the contract (page 60 of the PDF):

The allocation of ongoing volume will be determined based on the following factors:

1. Percentage of “In Repayment” Portfolio Dollars that go into default (as transferred to DMCS – 360+ days) – Measured as a percentage of the servicer’s current Federally held portfolio

a. Percentage at Public Schools
b. Percentage at Private Schools
c. Percentage at Proprietary Schools

2. Percentage of unique “In Repayment” Portfolio borrowers that go into default (as transferred to DMCS – 360+ days) – Measured as a percentage of the servicer’s current Federally held portfolio

a. Percentage at Public Schools
b. Percentage at Private Schools
c. Percentage at Proprietary Schools

3. Borrower Surveys

a. In School Borrowers
b. In Grace Borrowers
c. In Repayment Borrowers

4. School Surveys

a. Public Schools
b. Private Schools
c. Proprietary Schools

5. Survey of FSA personnel

More commentary coming this weekend...