Recent changes to the system that tracks recovery performance in the Department of Education’s (ED) private student loan debt collection contract may have resulted in either overpayments or underpayments to the 23 collection agencies on the contract, according to a report from ED’s Office of the Inspector General.

The report, released last week and entitled “Federal Student Aid Paid Private Collection Agencies Based on Estimates,” blames a recent upgrade of the Debt Management and Collection System employed by ED’s Federal Student Aid (FSA) department. The system is now called DMCS2. Changes in the system meant that performance scores were based on the collection agencies’ estimates and not verified by supporting documentation.

The Office of the Inspector General explained in the report, “Before FSA transitioned to DMCS2 in September 2011, FSA prepared invoices using collection data from DMCS to calculate commissions for PCAs and used various other DMCS data to calculate CPCS scores to determine bonuses for qualifying PCAs. However, DMCS2 has been unable to produce the data necessary for FSA to calculate PCA commissions based on actual collections data and PCA bonuses based on actual CPCS scores. Therefore, during Fiscal Year 2012, FSA staff modified the contract to (1) require PCAs to submit to FSA invoices, without supporting documentation, that calculated estimated commissions and (2) pay estimated bonuses based on bonus payments made for the prior year.”

Performance results, called CPCS scores, are determined by a weighted average of contractors’ performance in total dollars collected; total accounts serviced, and total administrative resolutions. The other agencies are scored against the top performers in each category.

The OIG recommended that ED require FSA to calculate “any overpayments or underpayments of commissions and bonuses based on actual collections data,” and require agencies to return overpayments, with interest, to the department and for FSA to likewise address underpayments. The OIG also wants to require the collection agencies to “submit supporting documentation for all commissions invoiced since October 2011.”

In early April, FSA was given an opportunity to respond to the report before it was released. Their response was included in the public release.

FSA stated that CPCS scores for 2012 have been calculated and validated, and the bonus payment calculation for 2012 is in process. In addition, appropriate adjustments will be calculated in April 2013 and collection agencies will reimburse ED, with interest, for any overpayments.

The upgrade to the DMCS system has been fraught with delays and glitches for quite some time. The new system was one of the main culprits cited in ED’s long layoff from reporting quarterly performance results, the most recent of which came in January after more than a year.

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