A federal judge on Wednesday cleared the way for the Education Department to stop using private debt collectors and revamp the way it handles overdue student loans, the Washington Post reported. Instead of having private collection agencies solely dedicated to recouping past-due education loans, the department wants to fold those duties into student loan servicing as part of a broader overhaul called the Next Generation Financial Services Environment, or NextGen. Bundling those functions would require companies competing for the business to provide a wide array of services or team up with other firms. Neither option is appealing to private debt collectors, who argue that the Education Department arbitrarily restricted competition and illegally canceled a contract solicitation they were vying to win. Last year, the courts barred the department from canceling the collection contract. But when the agency issued three new solicitations for loan servicers that included default collection duties, a group of debt collectors filed another lawsuit to block the NextGen request for proposals. On Wednesday, U.S. Court of Federal Claims Judge Thomas C. Wheeler said that the Education Department provided sufficient justification for consolidating loan servicing and default collection work. He said that the department was within its right to cancel the collection contract solicitation in light of its rollout of NextGen. Judge Wheeler pushed back against the argument that NextGen would create irreparable harm for the debt collectors, noting that they can team up with other companies for a slice of the business. Still, he criticized the Education Department’s messy bid for new contractors to manage its $1.5 trillion portfolio of student loans.
