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Summary: Use Of Third-Party Contractors to Perform Perkins Loan Billing and Collections Activities

Publication Date: April 24, 2008

Author: Jeff Baker, Director Policy Liaison and Implementation, Federal Student Aid

Summary: Use Of Third-Party Contractors to Perform Perkins Loan Billing and Collections Activities

Posted on 04-24-2008

A school that participates in the Federal Perkins Loan Program (Perkins) may contract with outside firms to perform required Perkins billing and collection functions. However, the regulations at 34 CFR 674.48(e) establish a set of restrictions to prevent conflicts of interest. A school that uses a billing service may not use a collection agency that owns or controls the billing service, is owned or controlled by the billing service, or is owned or controlled by the same entity that owns or controls the billing service.

It has come to our attention that a billing service and a collection agency that were originally separately owned and controlled are now owned and controlled by the same entity. Specifically, Outsourcing Solutions, Inc., the parent company of University Accounting Service, LLC (UAS), has been acquired by NCO Group. UAS performs billing services for schools that participate in the Federal Perkins Loan Program and NCO Group performs collection activities for approximately 25 schools serviced by UAS. This means that any school that uses both UAS and NCO Group as third-party servicers under 34 CFR 668.25 is in violation of 34 CFR 674.48(e) as a result of the acquisition of UAS by NCO Group.

The Department has allowed 90 days, from the April 9, 2008 date of a letter sent to UAS, for the resolution of the regulatory conflict of interest created by NCO Group’s acquisition of UAS, either by separating the ownership between the collection agency and the billing service or arranging for schools to reassign their Perkins Loans to a different, unrelated collection agency or billing service. During this 90-day period, the Department will not take any action against UAS or NCO Group, or any client schools for not complying with 34 CFR 674.48(e).

We requested UAS and NCO Group to directly notify its client schools on this matter and about the 90-day period in which all parties must resolve the conflicts of interest. If your school contracts with UAS and NCO Group to do your Perkins billing and collections functions, you must be in contact with these firms to resolve the conflicts of interest. Failure to resolve this issue within the 90-day period could result in the imposition of sanctions, including Limitation, Suspension, and Termination (L, S, & T) actions on the schools and on the third-party servicers.

If your school contracts with other firms to do Perkins billing and collection functions, you may find it prudent to contact those third-party servicers to make sure that the ownership of the billing servicers and collection agencies you use does not create a conflict of interest for your school that would violate 34 CFR 674.48(e).

Thank you for your attention to this very important matter. If you have any questions on this matter, please contact Harold McCullough of my staff at (202) 377-4030.

Last Modified: 04/23/2008