Inventory Balances Shake Up ED Debt Collection Performance Rankings

Collection Technology Inc. (CTI) in October captured the top score for the seventh consecutive month among small businesses on the U.S. Department of Education’s private student loan debt collection contract. Performance volatility, however, reigned among unrestricted contractors in October as inventories changed because of account distributions in the first month of the fourth quarter.

Monterey Calif.-based CTI finished the month with a score of 96.62 points, well ahead of National Recoveries, which moved up one spot to finish second among small businesses with 81.47 points.  Delta Management Services finished third with 79.41 points.

“When you change the inventory you can expect changes in the scores of at least three or four points,” said Scott Daniels, CTI’s vice president. “The first month of every quarter is always going to have that.”

None of the top performers in the unrestricted group from last quarter finished among the top three in October. But the competition was tight with just 10 points separating the first and tenth place finisher, partly due to a recent change in the way ED calculates recoveries rates. Continental Service Group, Inc., d.b.a. ConServe, took first place with 96.66 points. GC Services LP came in second with 95.99 points and FMS Investment Corp. finished third with 93.41 points. NCO Group, which had finished first last quarter, was ranked 10th in October and second place finisher Van Ru Credit Corp. was ranked eighth.

ED performance scores are based on a weighted average of total dollars collected; total accounts serviced and total administrative resolutions. The top performer in each contractor group receives the maximum score for that category, and the other agencies are scored against the top performer. The department awards 70 points for dollars collected to the top performance, 20 points for total accounts serviced, and 10 points in the administrative resolution category.

Several ED contractors have told insideARM.com that they anticipate dramatic changes in the performance results throughout the life of the five year contract because of changes included in the October 2009 contract that affect distribution and inventories. The contract rewards performance by forwarding a greater number of new accounts to the top performing contractors during the quarter.

October scores also were affected by the Education Department’s decision to begin calculating contractors’ recovery rates using average inventory balances instead of current inventory balances. Contractors explained that using average inventory balances smoothes out spikes that impact recovery rates when rehabilitated loans are added to a contractor’s results and when non-performing loans closed are returned to ED. Rehabilitated loans are loans that have had payments for 10 consecutive months.

“Using the average inventory balance smoothes out that (recovery rate) statistic and gives a clearer picture of the overall inventory balance,” said Brian Davis, CEO of Coast Professional, Inc.

In the first year of the contract, Pioneer Credit Recovery – a subsidiary of student loan giant Sallie Mae — leads all debt collection contractors with nearly $35 million collected. CTI leads the small contractors with nearly $11.8 million collected.  All 22 collection agencies (17 unrestricted and five small business firms) have collected more than $483.7 million.

Performance Report for October 2010