Department of Education's $127M student aid servicing contract awarded to Nelnet Servicing LLC

Contract Overview

Contract Amount: $126,939,910 ($126.9M)

Contractor: Nelnet Servicing LLC

Awarding Agency: Department of Education

Start Date: 2015-09-01

End Date: 2016-08-31

Contract Duration: 365 days

Daily Burn Rate: $347.8K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 4

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: IGF::CT::IGF / CRITICAL FUNCTION IDIQ: SERVICING OF TITLE IV STUDENT FINANCIAL AID. TASK ORDER: SERVICING OF TITLE IV STUDENT FINANCIAL AID, FROM 9/1/2015 THROUGH 8/31/2016. PROVIDES FUNDING FOR TITLE IV AID SERVICING THROUGH APPROXIMATELY 12/31/2015. PROVIDES FUNDING FOR THE DELINQUENCY REDUCTION COMPENSATION PROGRAM, IN A NOT-TO-EXCEED AMOUNT OF $500,000 PER QUARTER AND $2,000,000 ANNUALLY

Place of Performance

Location: LINCOLN, LANCASTER County, NEBRASKA, 68508

State: Nebraska Government Spending

Plain-Language Summary

Department of Education obligated $126.9 million to NELNET SERVICING LLC for work described as: IGF::CT::IGF / CRITICAL FUNCTION IDIQ: SERVICING OF TITLE IV STUDENT FINANCIAL AID. TASK ORDER: SERVICING OF TITLE IV STUDENT FINANCIAL AID, FROM 9/1/2015 THROUGH 8/31/2016. PROVIDES FUNDING FOR TITLE IV AID SERVICING THROUGH APPROXIMATELY 12/31/2015. PROVIDES FUNDING FOR THE … Key points: 1. Contract provides essential servicing for Title IV federal student financial aid programs. 2. Funding allocated for the Delinquency Reduction Compensation Program aims to mitigate student loan defaults. 3. Fixed Price with Economic Price Adjustment contract type may expose the government to cost increases. 4. The contract duration of 365 days suggests a short-term need or bridge to a larger procurement. 5. Awarded via full and open competition, indicating a potentially competitive bidding process. 6. The North American Industry Classification System (NAICS) code 522390 points to credit intermediation activities.

Value Assessment

Rating: fair

The total award amount of $126,939,909.83 for one year of student financial aid servicing appears substantial. Benchmarking against similar contracts for student loan servicing is difficult without more specific details on the scope of services and the number of students or loans managed. The fixed-price with economic price adjustment (FPEPA) contract type introduces a risk of cost escalation, which needs careful monitoring to ensure value for money. The contract's primary purpose is to ensure the continuity of critical student aid servicing operations.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, suggesting that multiple vendors had the opportunity to bid. The presence of 4 bidders (as indicated by 'no': 4) implies a degree of competition, which is generally favorable for price discovery and obtaining competitive pricing. However, the specific details of the bidding process, such as the number of proposals received and the evaluation criteria, are not provided, making a definitive assessment of the competition's effectiveness challenging.

Taxpayer Impact: Full and open competition generally benefits taxpayers by fostering a competitive environment that can lead to lower prices and better service quality. The presence of multiple bidders suggests that taxpayer funds are being utilized in a manner that seeks the best value through market forces.

Public Impact

Students and educational institutions relying on Title IV federal financial aid programs benefit from the uninterrupted servicing of these funds. The contract supports the operational continuity of critical student loan servicing functions for the Department of Education. The Delinquency Reduction Compensation Program aims to improve the financial health of federal student loan portfolios. The contract's impact is national, affecting students across the United States who participate in federal aid programs.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clause could lead to increased costs for taxpayers if market conditions fluctuate unfavorably.
Short contract duration (1 year) may indicate a stop-gap measure, potentially leading to higher costs in future, longer-term procurements.
Limited information on performance metrics makes it difficult to assess the contractor's efficiency and effectiveness beyond basic servicing.

Positive Signals

Awarded through full and open competition, suggesting a robust and fair bidding process.
Contract addresses a critical government function (student financial aid servicing), ensuring program continuity.
Inclusion of a Delinquency Reduction Compensation Program indicates a focus on mitigating financial risks associated with student loans.

Sector Analysis

This contract falls within the financial services sector, specifically focusing on credit intermediation and loan servicing. The market for federal student loan servicing is significant, with the Department of Education managing a vast portfolio. This contract represents a portion of the government's broader efforts to manage and service federal student debt. Comparable spending benchmarks would typically involve analyzing the cost per loan serviced or the cost per dollar managed by other federal or private loan servicers.

Small Business Impact

There is no indication in the provided data that this contract includes a small business set-aside. Furthermore, the data does not specify any subcontracting requirements for small businesses. The prime contractor, Nelnet Servicing LLC, is a large entity, suggesting that the primary focus of this award was not on direct small business participation, although they may engage small businesses as subcontractors.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of Education's contracting officers and program managers. The contract's performance would be monitored against the terms and conditions outlined in the award. While specific Inspector General (IG) jurisdiction is not detailed, the Department of Education's Office of Inspector General typically oversees federal spending to ensure accountability and prevent fraud, waste, and abuse.

Related Government Programs

Federal Student Loan Program
Title IV Student Financial Aid
Student Loan Servicing Contracts
Delinquency Reduction Programs

Risk Flags

Potential for cost escalation due to Economic Price Adjustment clause.
Short contract duration may lead to inefficiencies in long-term program management.
Lack of detailed performance metrics makes objective assessment challenging.

Frequently Asked Questions

What is this federal contract paying for?

Department of Education awarded $126.9 million to NELNET SERVICING LLC. IGF::CT::IGF / CRITICAL FUNCTION IDIQ: SERVICING OF TITLE IV STUDENT FINANCIAL AID. TASK ORDER: SERVICING OF TITLE IV STUDENT FINANCIAL AID, FROM 9/1/2015 THROUGH 8/31/2016. PROVIDES FUNDING FOR TITLE IV AID SERVICING THROUGH APPROXIMATELY 12/31/2015. PROVIDES FUNDING FOR THE DELINQUENCY REDUCTION COMPENSATION PROGRAM, IN A NOT-TO-EXCEED AMOUNT OF $500,000 PER QUARTER AND $2,000,000 ANNUALLY

Who is the contractor on this award?

The obligated recipient is NELNET SERVICING LLC.

Which agency awarded this contract?

Awarding agency: Department of Education (Department of Education).

What is the total obligated amount?

The obligated amount is $126.9 million.

What is the period of performance?

Start: 2015-09-01. End: 2016-08-31.

What is the historical spending pattern for student financial aid servicing by the Department of Education, and how does this contract compare?

The Department of Education has historically spent billions of dollars on servicing federal student loans, as it manages a massive portfolio of student debt. This specific contract, valued at approximately $127 million for a one-year period, represents a component of that larger spending. Historical data indicates that student loan servicing contracts can range from tens of millions to hundreds of millions of dollars annually, depending on the scope, duration, and number of loans managed. This award appears to be within the expected range for a significant servicing task order, particularly given its focus on critical functions and delinquency reduction. Analyzing trends in servicing costs over time, including the impact of different contract vehicles and vendor performance, is crucial for understanding the overall efficiency of the federal student aid system.

What is Nelnet Servicing LLC's track record with federal student loan servicing contracts?

Nelnet Servicing LLC is a major player in the federal student loan servicing landscape and has a long-standing track record with the Department of Education. They have been awarded numerous contracts over the years to service federal student loans, manage loan portfolios, and provide customer support to borrowers. Their experience spans various aspects of loan administration, including billing, payment processing, default prevention, and borrower assistance. While specific performance details for every contract are not publicly available, their continued awards suggest a generally satisfactory performance history in meeting the Department's requirements. However, like any large contractor, they may have faced scrutiny or challenges on specific contracts, which would be detailed in performance reviews or IG reports if publicly accessible.

How does the pricing structure (Fixed Price with Economic Price Adjustment) of this contract compare to industry standards for loan servicing?

The Fixed Price with Economic Price Adjustment (FPEPA) pricing structure is not uncommon in long-term government contracts where input costs (like labor or inflation) can fluctuate significantly. For loan servicing, standard industry practices often involve a mix of fixed fees per loan, per dollar serviced, or performance-based incentives. An FPEPA structure in this context means the base price is fixed, but adjustments are made based on pre-defined economic indicators, such as the Consumer Price Index (CPI) or specific labor cost indices. While this protects the contractor from unforeseen cost increases, it introduces risk for the government. Competitively bid contracts often aim for fixed-price or firm-fixed-price structures to maximize cost certainty for the government. The use of FPEPA here suggests that the Department of Education deemed it necessary to account for potential economic volatility over the contract period, but it warrants close monitoring to ensure the adjustments remain reasonable and do not inflate costs beyond market norms.

What are the key performance indicators (KPIs) used to measure the success of this student aid servicing contract?

While the specific KPIs for this contract are not detailed in the provided data, typical performance indicators for federal student loan servicing contracts include metrics related to operational efficiency, borrower satisfaction, and financial performance. Key metrics often monitored by the Department of Education include: loan default rates (and the effectiveness of delinquency reduction programs), call center performance (e.g., average wait time, first-call resolution rate), accuracy of payment processing, timeliness of reporting, and compliance with federal regulations. For this specific contract, the 'Delinquency Reduction Compensation Program' suggests that metrics related to reducing delinquency and default rates would be paramount. The success of the contractor would be evaluated based on their ability to meet or exceed targets in these areas, ensuring the smooth functioning of Title IV aid and responsible management of federal student debt.

What is the potential risk associated with the 'Delinquency Reduction Compensation Program' funded under this contract?

The 'Delinquency Reduction Compensation Program' aims to incentivize the contractor to actively work towards reducing the number of borrowers who become delinquent on their federal student loans. The potential risk lies in how this compensation is structured and measured. If the program is not carefully designed with clear, objective, and verifiable metrics, there's a risk of 'gaming the system' or focusing on easily resolved delinquencies while neglecting more complex cases. Additionally, the compensation amount ($500,000 per quarter, $2,000,000 annually) needs to be benchmarked against the actual cost savings realized by the government through reduced defaults and the overall impact on the federal student loan portfolio. Ensuring that the compensation is directly tied to demonstrable, long-term improvements in borrower repayment behavior and a reduction in actual loan write-offs is critical to mitigating financial risk and ensuring taxpayer value.

Industry Classification

NAICS: Finance and Insurance › Activities Related to Credit Intermediation › Other Activities Related to Credit Intermediation

Product/Service Code: SUPPORT SVCS (PROF, ADMIN, MGMT) › MANAGEMENT SUPPORT SERVICES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY

Offers Received: 4

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT (K)

Evaluated Preference: NONE

Contractor Details

Address: 121 S 13TH ST STE 201, LINCOLN, NE, 68508

Business Categories: Category Business, Limited Liability Corporation, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $126,939,910

Exercised Options: $126,939,910

Current Obligation: $126,939,910

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Parent Contract

Parent Award PIID: EDFSA09D0013

IDV Type: IDC

Timeline