NCO-OSI Deal May Create Conflict of Interest in Student Loan Collections

An association of student financial aid administrators Thursday said that NCO Group’s acquisition of Outsourcing Solutions, Inc. (OSI) may create a conflict of interest of the regulations that govern student loan billing and collection, but a spokesman for NCO said the company has already addressed the matter.

The National Association of Student Financial Aid Administrators (NASFAA), based in Washington, D.C., released a statement to its members Thursday explaining that one of OSI’s subsidiaries, student loan billing company University Accounting Service (UAS), would become part of collection agency NCO Group. As a result, schools that use UAS for billing would not be able to use NCO for collection services.

That’s because the regulations that govern the billing and collection of federal Perkins student loans do not allow a school to use a billing firm and a collection agency that are owned by the same company.

The financial aid association hadn't determined exactly how many schools would be impacted by the conflict, but said that NCO Group performs collection activities for approximately 25 schools serviced by UAS under the Federal Perkins Loan Program.

The U.S. Department of Education notified NCO and UAS on April 9 that they had 90 days to resolve the possible conflicts, according to the association. ED has recommended that NCO separate the ownership between the collection agency and the billing service or arrange for schools to reassign their Perkins Loans to a different, unrelated collection agency or billing service. ED said that it would not take any action against NCO or UAS, or the schools that use both, during the 90 day period.

But NCO’s vice president of financial reporting, Brian Callahan, told insideARM that NCO knew of the conflicts well before it bought OSI. Callahan said that NCO has been working with its clients on a one-by-one basis to resolve the matter, and that the concerns were addressed before it completed its takeover of OSI. Callahan could not comment on how many clients were moved from the billing or collection services, but he said that NCO would not be selling UAS.