Federal Student Aid Paid Private Collection Agencies Based on Estimates

FSA paid $448 million in commissions and $8.3 million in bonuses to Private Collection Agencies (PCAs) based on estimates because DMCS2 could not provide the information necessary to calculate actual commissions and bonuses. During FY 2012, FSA had individual contracts with 23 PCAs to perform collection services on defaulted student loans. PCAs are paid commissions based on successfully collecting on defaulted loans, and a PCA qualifies for bonuses based on its performance relative to other PCAs. Before it transitioned to DMCS2 in September 2011, FSA used its previous system to calculate PCA commissions and bonuses based on actual collections data contained in the system. However, as DMCS2 has been unable to produce the data necessary to calculate commissions and bonuses, FSA required PCAs to submit invoices, without supporting documentation that calculated estimated commissions, and paid estimated bonuses based on bonus payments made in previous years. We recommended that FSA calculate any overpayments or underpayments of PCA commissions and bonuses based on actual data, require PCAs to return any overpayments to the Department, address any underpayments, and require PCAs to submit supporting documentation for all commissions invoiced since October 2011.