oversight

NSLDS Can be Enhanced if Loan Principal and Interest Balances and Statutes are Updated with Lender Data.

Published by the Department of Education, Office of Inspector General on 1998-09-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

     NSLDS CAN BE ENHANCED IF LOAN
    PRINCIPAL AND INTEREST BALANCES
     AND STATUSES ARE UPDATED WITH
              LENDER DATA


                                 FINAL AUDIT REPORT




                                 Audit Control Number 06-70001
                                        September 1998




Our mission is to promote the efficient                          U.S. Department of Education
and effective use of taxpayer dollars                            Office of Inspector General
in support of American education                                 Dallas, TX
                UNITED STATES DEPARTMENT OF EDUCATION
                                   OFFICE OF INSPECTOR GENERAL
                                           1999 Bryan Street, Suite 2630
                                           DALLAS, TEXAS 75201-6817
                                                  214-880-3031




September 30, 1998

MEMORANDUM

TO        :     David Longanecker
                Assistant Secretary
                Office of Postsecondary Education

FROM       :    Daniel J. Thaens
                Western Area Manager
                Dallas, Texas

SUBJECT:        Final Audit Report--NSLDS CAN BE ENHANCED IF LOAN PRINCIPAL
                AND INTEREST BALANCES AND STATUSES ARE UPDATED WITH
                LENDER DATA
                Audit Control Number 06-70001

You have been designated primary action official for this report. Please provide the Office of the
Chief Financial Officer - Audit Follow-up Branch and the Office of Inspector General - Advisory
and Assistance Team, Student Financial Assistance with semiannual reports on corrective actions
until all such actions have been completed or continued follow-up is unnecessary.

In accordance with the Freedom of Information Act (Public Law 90-23), reports issued by the
Office of Inspector General are made available, if requested, to members of the press and general
public to the extent information contained therein is not subject to exemptions in the Act. Copies
of this audit report have been provided to the offices shown on the distribution list enclosed in the
report.

We appreciate the cooperation given us during our review. If you have any questions concerning
this report, please call me at 214-880-3031.




     OUR MISSION IS TO ENSURE EQUAL ACCESS TO EDUCATION AND PROMOTE EDUCATION EXCELLENCE THROUGHOUT THE NATION
                   TABLE OF CONTENTS

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

AUDIT RESULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

        Reliability of Loan Balance and Status Information
        Can Be Improved on NSLDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

        Substantial Progress Made in Data Reliability . . . . . . . . . . . . . . . . . . . . . . 2

        NSLDS’ Potential Can Be Expanded To Support
        Additional Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

        Why Some Loans Are Not Updated With
        Current Status or Balance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

        Unreliable FFEL Program Loan Status and Balance
        Information on NSLDS Remain a Significant Issue . . . . . . . . . . . . . . . . . . 5

        Loans Not Updated With Status and Balance
        Information Should Be Reclassified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

DEPARTMENT COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

AUDIT SCOPE AND METHODOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

STATEMENT ON MANAGEMENT CONTROLS . . . . . . . . . . . . . . . . . . . . . 12

APPENDIX

ATTACHMENT
                  EXECUTIVE SUMMARY
The Department of Education has made significant progress in improving the integrity of
NSLDS in the last 18 months. As data integrity improves, the Department can expand its
use of NSLDS to implement design functions and other useful management functions.
However, a significant number of the loan records which initially populated NSLDS have
not been updated with lender provided loan status, and principal and interest balance data.
About 3.7 million loan records totaling $10.7 billion, which represents about 14 percent of
all Federal Family Educational Loan (FFEL) Program loan records in repayment on
NSLDS, have not been updated with lender data. We are recommending that the
Department, in cooperation with the guaranty agencies, reclassify these loan records to
more accurately reflect the loans’actual status and principal and interest balances
increasing the usefulness of NSLDS. About 21 percent of these loan records totaling
about $1.8 billion should be reclassified to a new paid-in-full write-off (PW)1 status. The
remaining 79 percent of records with an outstanding principal balance of about $8.9
billion should be reclassified to a new uninsured other (UO)1 status. The Department
should also establish a routine process to ensure that loan records added since November
1994 are updated with current status and balance data on a periodic basis or reclassified
into the UO status.

One factor that reduces the reliability of NSLDS loan status and balance data is that
guaranty agencies have not been able to update significant numbers of FFEL Program
loan records on NSLDS with current lender-provided data. Factors affecting the guaranty
agencies’ability to report current data include: (1) lenders are unwilling/unable to report
on loans that were paid-in-full prior to NSLDS and incorrectly loaded on NSLDS as
active loans in repayment, (2) lenders have not submitted loan level data to their
associated guaranty agency(s), and (3) guaranty agencies are unable to identify the current
holders of the loans. Lenders are required to update active FFEL Program records with
their associated guaranty agency(s) at least quarterly. The Department agreed with our
finding and recommendations.



        1
         Paid-in-full write-off and uninsured other loan statuses currently do not exist on NSLDS. These
are proposed statuses that would require modifications to the NSLDS contract.
Audit Control Number 06-70001                                                                 Page 2



                                   Results of Audit
The purpose of this report is to recommend actions that can be taken to improve the usefulness of
the data currently on the NSLDS. This report addresses some of the causes for loan records not
being updated with principal and interest balances and loan statuses on NSLDS. There are other
actions that can be taken to improve the reliability of NSLDS data. We plan to issue a report
addressing other issues at a later date. (See Audit Scope and Methodology section of this report
for additional information.)


   Reliability of Loan               The reliability of NSLDS can be enhanced if loan principal
   Balance and Status                and interest balances and statuses are updated with lender
  Information Can Be                 data. When loan records currently classified as in
                                     repayment are not updated by lenders, the loans should be
  Improved on NSLDS                  reclassified to a paid-in-full write-off or uninsured other
                                     status to more accurately reflect their actual status. For
                                     three guaranty agencies, we identified 722,544 loan records
                                     without updated balance and status information on NSLDS
                                     with an outstanding principal balance of approximately
                                     $2.35 billion. Based on historical data, approximately
                                     181,000 (6 percent) of these loans with an outstanding
                                     principal balance of approximately $481.5 million were
                                     paid-in-full before November 1994. Our analysis of the data
                                     for all guaranty agencies disclosed that NSLDS contains
                                     nearly 3.7 million loan records that have not been updated
                                     with lender data with an estimated $10.7 billion principal
                                     balance based on the application of criteria described later in
                                     this report.


 Substantial Progress                The 1986 Higher Education Act (HEA) Amendments
Made in Data Reliability             require that the NSLDS be structured to facilitate the
                                     collection of accurate information on student loan
                                     indebtedness and institutional lending practices and to
                                     improve compliance with repayment and loan limitation
                                     provisions. The Department responded to the mandates by
                                     designing and implementing NSLDS to receive and store
                                     student financial aid data from Title IV programs in one
                                     central database. In the past 18 months, the Department has
                                     made substantial progress in improving the quality of FFEL
                                     Program data in the system. Our recommendations build on
                                     the Department’s efforts to continuously improve the
                                     quality of data provided by guaranty agencies.
Audit Control Number 06-70001                                                                              Page 3



                                            The Department has and continues to work closely with the
                                            National Council of Higher Education Loan Programs
                                            (NCHELP) and the lender community to improve the
                                            accuracy and timeliness of data stored in NSLDS. The
                                            Department focused its initial efforts on improving the
                                            quality of NSLDS’FFEL Program data. One effort
                                            involved a one-time reconciliation of NSLDS with guaranty
                                            agency database information. In reconciling data with
                                            NSLDS, guaranty agencies have identified duplicate records
                                            on NSLDS, loans not in guaranty agencies’databases, and
                                            conversely loans in guaranty agency databases not in
                                            NSLDS. As a part of the reconciliation process, guaranty
                                            agencies identified loan records in their databases that have
                                            not been updated with lender data. The Department
                                            directed the guaranty agencies to report the outstanding
                                            principal balance of the loans that have not been updated as
                                            the amount of guarantee less cancellations less reported
                                            refunds. Reconciliation activities include continued efforts
                                            to obtain current information for the loans that have not
                                            been updated.


 NSLDS’Potential Can                        Because loan status, principal and interest balance data is
   Be Expanded To                           not current on some loans, NSLDS does not fully facilitate
  Support Additional                        some of the system’s intended design2 functions or potential
                                            additional functions that would increase FFEL Program
      Functions                             managers’capabilities. For example, the Department
                                            cannot rely on NSLDS to monitor the reasonableness of
                                            FFEL Program outlays to lenders, calculate trigger figures3
                                            which effect reinsurance rates for guaranty agencies, and
                                            monitor loan reserve ratios4.


        2
         Refer to the Background section of this report for details regarding NSLDS design functions.

        3
          Trigger figures are essentially default rates for guaranty agencies used by the Department to determine
the percentage of reimbursement when a guarantee is paid for a defaulted loan. For example, a guaranty agency
with a trigger figure below 5% is reimbursed loan guaranty claims at the rate of 98% of the claim amount. A
guaranty agency with a trigger figure between 5% and 9% is reimbursed at the rate of 88% , and above 9% claims
are reimbursed at 78%.

        4
         Loan guaranty reserve levels represent the minimum amount of the Department’s cash reserves that a
guaranty agency must maintain for payment of loan claims. The loan reserve level is calculated as a percentage of
a guaranty agency’s loan principal balance outstanding at the end of the Federal fiscal year.
Audit Control Number 06-70001                                                          Page 4



                                Until NSLDS has current balances and statuses on FFEL
                                Program loans, the Department will need to continue to use
                                alternative methods to test the reliability of the data in ED
                                Forms 1130 and 1189. These guaranty agency reports are
                                used by the Department to calculate trigger figures and loan
                                reserve fund limits. NSLDS’potential can be enhanced if
                                the system contains current lender supplied data on all
                                FFEL Program loans.


 Why Some Loans Are             Loan records that have not been updated with loan status or
  Not Updated With              balance information exist on NSLDS because:
  Current Status or             C      Old loans that were paid-off or otherwise written-off
 Balance Information                   before November 1994 were loaded onto NSLDS as
                                       active loans from data submitted by guaranty
                                       agencies. Guaranty agencies have not been able to
                                       get lenders to update these records.

                                C      Lenders have been unwilling or unable to submit
                                       loan level data to their associated guaranty
                                       agency(s).

                                C      Guaranty agencies are unable to identify the current
                                       holder of a loan. For example, changes in the loan
                                       holder that occurred from loan sales, and financial
                                       institution mergers, acquisitions, etc. were not
                                       tracked by guaranty agencies prior to NSLDS. In
                                       addition, the ownership of loans taken into
                                       receivership by FDIC and RTC cannot be
                                       determined.




   Unreliable FFEL
 Program Loan Status
     and Balance
Information on NSLDS
Audit Control Number 06-70001                                                                                Page 5



  Remain a Significant                     In an attempt to locate and update loan statuses and
        Issue                              principal and interest balances, guaranty agencies have been
                                           providing lenders with listings of loans which have not been
                                           updated by the lenders and/or their servicers. We analyzed
                                           FFEL Program records on NSLDS associated with the
                                           loans guaranteed by three guaranty agencies including the
                                           Colorado Student Loan Program (CSLP), the Texas
                                           Guaranteed Student Loan Corporation (TGSLC), and the
                                           Illinois Student Aid Commission (ISAC). Our analysis
                                           demonstrated that although reconciliation resulted in
                                           updating a large number of loan records in repayment with
                                           lender data, a significant number of records that have not
                                           been updated remain on NSLDS. For example, the
                                           Colorado Student Loan Program has concluded
                                           reconciliation and approximately 39,000 loan records
                                           remain on NSLDS with a total outstanding principal balance
                                           of approximately $104.4 million that have not been updated
                                           by lenders.

                                           About 11 percent of CSLP’s records, about 14 percent of
                                           TGSLC’s records and about 40 percent of ISAC’s records
                                           in repayment had not been updated with lender data.6 We
                                           determined the status of the loan records that have not been
                                           updated using the criteria described below in the section
                                           captioned Loans Not Updated With Status and Balance
                                           Information Should Be Reclassified.




        6
        Additional details concerning the results of our analysis of the guaranty agencies’loan records on
NSLDS in repayment status are presented in the Appendix to this report.
Audit Control Number 06-70001                                                                      Page 6



                                As illustrated in the chart, about 6.3 percent of the three
                                agencies’loans in repayment would be categorized as PW
                                and 19 percent of the records as UO. In total, about 25.3
                                percent of these agencies’loan records in repayment with an
                                outstanding principal balance of $2.4 billion had not been
                                updated with lender data.


                                         UPDATED RECORDS



                                                           74.7%




                                                                             19.0%


                                                                   6.3%
                                                                                        UNINSURED OTHER




                                                                          PAID-IN-FULL WRITE-OFF




  Loans Not Updated             Reclassifying loan records that have not been updated with
With Status and Balance         status or balance information will improve the loan data
Information Should Be           necessary to manage the FFEL Program’s financial and
                                compliance responsibilities. The new statuses will also
      Reclassified              allow later retrieval and analysis of the records if determined
                                necessary. Reclassifying the status of a loan on NSLDS
                                into one of the proposed loan statuses is dependent upon
                                the date the loan entered repayment.

                                       Paid-in-full Write-off- Loan records in
                                       repayment status with a date entered
                                       repayment more than 12 years ago and
                                       balance information that has not been
                                       updated.

                                Based on our analysis of historical data, a review of relevant
                                regulations, and communications with the Department’s
                                Office of Postsecondary Education staff, we
Audit Control Number 06-70001                                                            Page 7



                                concluded that the criteria for identifying loan records that
                                should be reclassified to a PW status are loans:

                                -      currently in a repayment status,
                                -      that have not been updated with lender-supplied data
                                       since the inception of the NSLDS reporting
                                       requirement, and,
                                -      with a date entered repayment of more than twelve
                                       years.

                                The proposed PW loan status should be used to reclassify
                                loans that the Department can logically assume to be
                                paid-in-full. We developed criteria that identified the loan
                                records that should be reclassified as PW by analyzing the
                                historical loan portfolio data files of the three guaranty
                                agencies for loans in a paid-in-full status in NSLDS. Our
                                analysis of the data disclosed that 99 percent of the loans
                                are paid-in-full within twelve years of entering repayment.
                                A review of historical data (paid-in-full loans) provided by
                                guaranty agencies corroborates the conclusion that loans in
                                repayment more than twelve years are paid-in-full.

                                       Uninsured, Other Open loan records in
                                       repayment status with a date entered
                                       repayment of 12 years or less and balance
                                       information that has not been updated.

                                Based on our analysis of the reporting requirements and
                                communications with NSLDS staff, we concluded the
                                criteria for identifying loan records that should be changed
                                to a UO loan status are loans :

                                -      currently in a repayment status,
                                -      that have not been updated with lender-supplied data
                                       since the inception of the NSLDS reporting
                                       requirement, and,
                                -      with a date entered repayment of twelve years or
                                       less.
Audit Control Number 06-70001                                                                Page 8



                                      The proposed UO loan status should be used to reclassify
                                      loans in repayment status that have not been updated with
                                      current principal and interest information. These records
                                      represent loans that have been in repayment status for 12
                                      years or less. Based on our analysis, the Department
                                      cannot assume these loans are paid-in-full. However, the
                                      current values for these loan records are incorrect. Lenders
                                      are required to report on active loans at least quarterly.
                                      Therefore, the Department could resolve the status of these
                                      loans by requiring the guaranty agencies to reclassify them
                                      as UO unless the lender updates the current values in a
                                      reasonable time period.

                                      We applied the above criteria to all FFEL Program loan
                                      records on NSLDS. Our analysis disclosed that about 3.7
                                      million loan records totaling about $10.7 billion which
                                      represents about 14 percent of the FFEL Program loan
                                      records in repayment, are currently on NSLDS without
                                      updated loan status and balance information. Application of
                                      our criteria to these loan records resulted in reclassifying
                                      about 760,000 records totaling about $1.8 billion in the
                                      proposed PW loan status (21 percent of the loan records
                                      that have not been updated with lender data since they were
                                      loaded in NSLDS) and about 2.9 million records totaling
                                      about $8.9 billion in the proposed UO loan status (79
                                      percent of the loan records).




                                RECOMMENDATIONS
The Department should in cooperation with the guaranty agencies, identify and reclassify loans on
NSLDS whose balances have not been updated by lenders as either paid-in-full write-off or
uninsured other. Loans in the uninsured other status should be reviewed by guaranty agencies
and lenders and updated if possible to the appropriate loan status. Finally, the Department should
establish a routine process to ensure that loan records added since November 1994, whose
balances or statuses that are not updated within a specific period, be reclassified into the new UO
status.
Audit Control Number 06-70001                                                                   Page 9



                        DEPARTMENT COMMENTS
The Department agreed with our finding and recommendations. A copy of the Department’s
comments are attached to this report.



                                    BACKGROUND
NSLDS contains data on the FFEL Program, Direct Student Loan Program (FDLP); Perkins
Loans; Federal Pell Grant Program; and overpayments from the Federal Supplemental
Educational Opportunity Grant Program (FSEOG). This data is provided by guaranty agencies
(FFEL Program), schools (Perkins Loans and FSEOG), the FDLP servicer, and the Department’s
Title IV systems. Dear Colleague Letter (95-L-177) requires lenders participating in the FFEL
Program to submit specific data to their associated guaranty agencies for inclusion in the agency’s
submissions to NSLDS. Thirty-six guaranty agencies provide FFEL Program data to NSLDS.
NSLDS contains detailed data on approximately 34 million students, 20,000 schools, 31,000
lenders/servicers, and 90 million loans, 85 percent of which are FFEL Program loans.

The HEA Amendments required the Secretary of Education to develop a national student loan
data system to ensure (1) the collection of accurate information on student loan indebtedness and
institutional lending practices and (2) improve compliance with repayment and loan limitation
provisions. The 1992 HEA Amendments expanded the scope of NSLDS by requiring the
Department to integrate NSLDS with the Pell grant applicant and recipient databases by January
1, 1994, and with any other databases containing information on student financial aid program
participation. In response to these legislative mandates, the Department awarded a contract for
the development and operation of NSLDS in January 1993. The NSLDS was initially populated
with the FFEL Program tape dump data in October 1994. In the following month, guaranty
agencies reported data on all open loans on their databases and loans closed on/after October 1,
1989. Guaranty agencies are responsible for submitting all FFEL Program data to NSLDS
monthly, including data that they must obtain from lenders. Dear Colleague Letter (95-L-177)
required lenders to report certain data to guaranty agencies at least once a quarter effective July 1,
1995 for the quarter ending September 30, 1995.

The Department relies in part on data in the NSLDS to administer the student financial aid
programs. Students have access to approximately $20 billion in FFEL Program loans annually for
postsecondary education. NSLDS was designed to provide the following functions -

#      Prescreening for Title IV Aid Eligibility. Prescreen applications for Title IV aid against
       data in NSLDS to identify individuals who are in default on an existing Title IV loan or
       who are otherwise ineligible to receive additional Title IV aid, and to assess applicant’s
       eligibility in relation to loan limits.

#      Default Rate Calculation. Using the established formula, calculate the FFEL Program
       cohort default rate for schools, lenders, and guaranty agencies, and provide backup data
       for each rate calculated.

#      Operations Support. Emcompass various uses of data in NSLDS for research, budget
       analysis and development, audit and program review planning, policy development,
Audit Control Number 06-70001                                                               Page 10



       monitoring lender and guaranty agency billings for reasonability, and loan program
       management.

#      Standardized Student Status Confirmation Reporting (SSCR). Up to six times per year,
       generate SSCR requests to schools in a standard format, receive school responses, update
       the NSLDS database and provide data to relevant guaranty agencies and FDLP servicers.

#      Borrower Tracking. Support individuals who are trying to locate borrowers whose loans
       are in collection or who are assisting borrowers in identifying the guaranty agency, lender,
       servicer, and/or school associated with their loans.

#      Pre-Claims Assistance (PCA)/Supplemental PCA. Based upon flags and dates received
       from guaranty agencies in their regular submissions, generate weekly lists of borrowers on
       whom PCA or Supplemental PCA has been requested and transmit these to schools.

#      Credit Reform Act Support. Track FFEL Program loans by loan program, cohort year,
       and risk category, in compliance with the Credit Reform Act, which requires agencies to
       track all Federally guaranteed loans.

#      Preparation of financial aid transcript (FAT) Information. Replace the current, manual
       generation of FATs by schools with an automatec process that will generate FAT
       information on individual students or on rosters of students.

The Department recognizes accuracy of data in the NSLDS is critical to the management of
Federal financial aid programs. The Department initiated a reconciliation project in December
1996 to improve FFEL Program data quality. Guaranty agencies are reconciling their records
with NSLDS. The Department has also been working on other initiatives to improve the quality
of data in NSLDS, which have included performing on-site support visits to guaranty agencies
and other data providers; working with NCHELP to conduct training workshops for guaranty
agencies, lenders and servicers; and by reviewing data quality issues with data providers and
making systematic improvements in the data provider process. All of these actions have resulted
in improved NSLDS data quality.
Audit Control Number 06-70001                                                             Page 11



                AUDIT SCOPE AND METHODOLOGY
The objective of our audit was to assess the administrative impact of FFEL Program loan records
that have not been updated with Lender data on NSLDS. To achieve our audit objective we (1)
assessed the magnitude of active loan records on NSLDS which have not been updated by lenders
since the inception of NSLDS, and (2) identified the effect of keeping loan records that do not
contain current status and balance information in an active status on NSLDS. We performed
fieldwork from February 1997 through August 1998 as described below.

We conducted interviews of contractor and Department staff including individuals assigned to
Guarantor and Lender Oversight Service (GLOS), NSLDS, Accounting and Financial
Management Services, and Raytheon/E-Systems. The interviews were performed to gain a better
understanding of the environment in which NSLDS operates. We also examined NSLDS
reporting directives, Federal laws and regulations, the Department’s financial statements and
related audit reports, NSLDS operational reports, and data verification studies .

We participated in a GLOS review at CSLP, Denver, Colorado in February 1997 to obtain
information on the NSLDS reporting process as well as the results of the guaranty agency’s
reconciliation with NSLDS. We participated in two NSLDS - NCHELP training workshops.
One workshop was for guaranty agencies held in Denver, Colorado in March 1997. The other
workshop was held for lenders in Dallas, Texas in July 1997.

To obtain information on the guaranty agency-lender/lender servicer NSLDS data exchange
process, we made site visits to two additional guaranty agencies. We participated in a GLOS
review at ISAC, Deerfield, Illinois in June 1997 and completed our field work at this agency in
July 1997. We made site visits to the TGSLC, Austin, Texas in May and August 1997. We
selected and visited five lenders associated with TGSLC and five lenders associated with ISAC to
complete our evaluation of the data exchange process in June and July 1997. Additional follow-
up information was obtained from the guaranty agencies, lenders and NSLDS after leaving the
audit sites through August 1998.

Three independent sources of evidence were used to identify the magnitude of FFEL Program
loan records that have not been updated with Lender data. resident on NSLDS. For one source
of evidence, we requested NSLDS to prepare a series of data files containing selected elements of
data for the entire portfolio of loan records for three guaranty agencies. We evaluated both
current and historical NSLDS data to develop criteria to reclassify these records. For the second
source of evidence, we reviewed several analytical programs (queries) developed by GLOS to
identify loan records with balance and status data that has not been updated on NSLDS. The
third and final source of evidence was internal management reports prepared by NSLDS and
guaranty agencies, which identify the loan records that have not been updated on their databases.
Audit Control Number 06-70001                                                               Page 12



In the conduct of this audit, we relied on loan data extracted from NSLDS. Our testing was
limited to verifying the output of the computer processing steps used to extract and sort the
NSLDS loan records. We also compared data in guaranty agency and NSLDS benchmark reports
to the results of our analysis. Based on the results of the tests described, we concluded that the
computerized data was sufficiently reliable to formulate conclusions associated with the objectives
described above.

Our audit was conducted in accordance with generally accepted government auditing standards
appropriate to the limited scope of the audit described above, and in the Statement on
Management Controls Section below.



        STATEMENT ON MANAGEMENT CONTROLS
As a part of our audit, we assessed the management controls applicable to detecting and
correcting erroneous FFEL Program data loaded onto NSLDS at start-up. Our review disclosed
that the Department has established procedures to detect and correct these errors. However,
additional procedures are needed to correct all significant categories of erroneous data. Because
of inherent limitations, a study and evaluation made for the limited purpose described above
would not necessarily disclose all material weakness which could adversely affect FFEL Program
data in NSLDS. However, this report describes additional procedures necessary to increase the
effectiveness of management controls.
                                      Appendix
GUARANTY AGENCIES’LOAN RECORDS ON NSLDS THAT HAVE NOT BEEN UPDATED WITH
LENDER-PROVIDED DATA: RECLASSIFIED INTO ONE OF TWO PROPOSED LOAN STATUSES

                      COLORADO STUDENT LOAN PROGRAM
                                                                                   Colorado Student Loan Program has
                                                                    TOTAL
                                                    UPDATED       RECORDS IN       concluded reconciliation with
                  RECORDS NOT UPDATED               RECORDS       REPAYMENT        NSLDS. Our analysis of loan
                                                                                   records in repayment on NSLDS
                     PW              UO                                            disclosed that 39,427 of the records
                                                                                   with an outstanding principal balance
 Number
 of Loan
                                                                                   of $104,359,855 have not been
 Records                7,001          32,426          309,321          348,748    updated with lender-provided data.
                                                                                   The table at left demonstrates the
 OPB1             $15,904,758     $88,455,097    $1,007,391,606   $1,111,751,461   effect of reclassifying these records
                                                                                   into one of the two proposed loan
 Percent of
                                                                                   statuses on NSLDS.
 Total
 Records
 in RP2                2.01%            9.30%           88.69%            100%

                                                                                   Texas Guaranteed Student Loan
                TEXAS GUARANTEED STUDENT LOAN CORPORATION
                                                                                   Corporation has not completed the
                                                                    TOTAL          reconciliation process. Since
                                                    UPDATED       RECORDS IN       beginning reconciliation, TGSLC
                  RECORDS NOT UPDATED               RECORDS       REPAYMENT        reports a significant decline in the
                                                                                   number of records in its database that
                     PW              UO                                            have not been updated with lender
 Number                                                                            data. Our analysis of loan records in
 of Loan                                                                           repayment on NSLDS disclosed that
 Records               24,254         154,725         1,086,226        1,265,205   178,979 of the records with an
                                                                                   outstanding principal balance of
 OPB1             $57,134,240    $387,823,941    $4,021,510,565   $4,466,468,746   $444,958,181 have not been updated
 Percent                                                                           with lender-provided data. The table
 Of Total                                                                          at left demonstrates the effect of
 Records                                                                           reclassifying these records into one of
 in RP2                1.92%           12.23%            85.85            100%     the two proposed loan statuses on
                                                                                   NSLDS.

                       ILLINOIS STUDENT AID COMMISSION                             Illinois Student Aid Commission
                                                                    TOTAL          reported in June 1997 initiating a
                                                    UPDATED       RECORDS IN       process to identify loan records on its
                  RECORDS NOT UPDATED               RECORDS       REPAYMENT        database that had not been updated
                                                                                   with lender-provided data. For the
                     PW              UO                                            quarter ending September 1997,
 Number
                                                                                   NSLDS benchmark data disclosed
 of Loan                                                                           that approximately 50 percent of this
 Records             149,739          354,399          732,902         1,237,040   agency’s loan records in repayment
                                                                                   status on NSLDS had not been
 OPB1            $408,473,844   $1,393,182,374   $1,967,063,282   $3,768,719,500   updated with lender-provided data.
                                                                                   Our analysis of loan records in
 Percent of
 Total
                                                                                   repayment on NSLDS disclosed that
 Records                                                                           504,138 of the records with an
 in RP2               12.10%           28.65%           59.25%            100%     outstanding principal balance of
                                                                                   $1,801,656,218 have not been
                                                                                   updated with lender-provided data.
Legend:
                                                                                   The table at left demonstrates the
           1.       Outstanding Principal Balance
                                                                                   effect of reclassifying these records
           2.       Repayment
                                                                                   into one of the two proposed loan
                                                                                   statuses on NSLDS.
                                 DISTRIBUTION SCHEDULE
                                 Audit Control Number 06-70001
                                                                   Copies

Action Official

         David A. Longanecker, Assistant Secretary
         Office of Postsecondary Education
         Department of Education
         ROB-3, Room 4082
         7th and D Streets, SW
         Washington, DC 20202-5101                                    1

Other ED Offices

         Diane Rogers, Deputy Assistant Secretary for
          Student Financial Assistance Programs, OPE                  1

         Larry Oxendine, Service Director
         Guarantor and Lender Oversight Service, OPE                  1

         Linda Paulsen, Service Director
         Accounting and Financial Management Service, OPE             1

         Lynn Alexander, Director
         NSLDS, OPE                                                   1

         Secretary’s Regional Representative, Region VI               1

OIG
         Inspector General (A)                                        1
         Deputy Inspector General (A)                                 1
         Assistant Inspector General for Audit (A)                    1
         Assistant Inspector General for Investigation                1
         Assistant Inspector General for Operations Western Area      1
         Special Counsel to IG                                        1
         Director, Postsecondary Education Audit Branch               1
         Regional Inspector General for Investigation                 1
         RIGA Regions 2, 3, 4, 5, 7, 9                                6

Others

         Jamienne S. Studley, General Counsel (A)
         Office of General Counsel
         Department of Education
         600 Independence Ave. SW
         Room 5400
         Washington, DC 20202-2100                                    1