oversight

Reporting Requirements for the Ensuring Continued Access to Student Loans Act of 2008 Loan Purchase Programs Have Not Been Met

Published by the Department of Education, Office of Inspector General on 2010-06-04.

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

                                     UNITED STATES DEPARTMENT OF EDUCATION
                                                           OFFICE OF INSPECTOR GENERAL

                                                                                                                      AUDIT SERVICES



                                                                                   June 4,2010

FINAL ALERT MEMORANDUM

To:                   Carmel Martin
                      Assistant Secretary for Planning, Evaluation and Policy Development
                      Lead Action Official

                      William J. Taggart
                      Chief Operating Officer
                      Federal Student Aid

                      Daniel T. Madzelan
                      Delegated the Authority to Perform the Functions and Duties of the
                        Assistant Secretary for Postsecondary Education

From:                 Keith West lsi
                      Assistant Inspector General for Audit

Subject:              Reporting Requirements for the Ensuring Continued Access to Student Loans Act
                      of 2008 Loan Purchase Programs Have Not Been Met
                      Control Number ED-OIG/L03K0004

The purpose of this final alert memorandum is to inform you that reporting requirements for the
loan purchase programs i created by the U.S. Department of Education (Department) under
authority provided in the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA)
have not been met for fiscal years (FY) 2008 and 2009. During our audit of the Characteristics
of Loans Purchased Under ECASLA, Control Number ED-OIG/A03KOOOl, we found that the
Department did not prepare and issue required quarterly reports and annual purchase program
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cost estImates.

Section 459A(e) of the Higher Education Act, as amended (HEA), requires the Secretary to
prepare, transmit to the authorizing committees, and make available to the public, quarterly
reports and annual cost estimates on the loan purchase programs authorized under ECASLA.
The quarterly reports must-



I The loan purchase programs are the Loan Participation Purchase Program, the Loan Purchase Commitment
Program and the Asset Backed Commercial Paper (ABCP) Conduit Put Program.
2 On April 30, 2010, we issued an audit closure memorandum to Federal Student Aid. A copy of the memorandum
is available at http://www2.ed.gov/about/offices/listloig/auditreports/fy201 0/a03kOOO I.pdf.
      The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                        excellence and ensuring equal access.
Final Alert Memorandum
ED-OIG/L03K0004                                                                             Page 2 of4

    •    Include the total outstanding principal and accrued interest during the period,
         disaggregated by lender, and for each lender, disaggregated by category of institution and
         loan type; and

    •    Be issued no more than 60 days after the end of each quarter, beginning July 1, 2008.

Annual estimates of the costs associated with the loan purchase programs must-

    •    Be reported in a manner similar to the budget estimates provided in the President's
         annual budget submission, except that current and future administrative costs are to be
         included;

    •    Include an estimate of the gross and net outlays incurred by the Department for the loan
         purchase programs, including subsidy, administrative costs, and any other payments;

    •    Include a comparison of average gross and net outlays for each $100 of loans,
         disaggregated by loan type, with the average gross and net outlays to the Department for
         each $100 of comparable loans made under the FFEL Program and Direct Loan Program;
         and

    •    Be issued no later than February 15 of the fiscal years (FYs) following each of the
         FYs 2008,2009, and 2010.

The Department has not prepared, transmitted to the authorizing committees, or made available
to the public, these quarterly and annual reports. 3

On March 26, 2010, we discussed this issue with officials from Office of Planning, Evaluation
and Policy Development (OPEPD), Federal Student Aid (FSA), and the Office of Postsecondary
Education (OPE). The weekly ECASLA activities reports prepared by FSA and The Budget for
Fiscal Year 2010 (Appendix for the Department)4 prepared by the Office of Management and
Budget were cited as meeting the reporting requirements for the loan purchase programs. The
Director of the Cost Estimation and Analysis Division, Budget Service, stated that the weekly
ECASLA activity reports were submitted to Congress. However, we found that the weekly
ECASLA activity reports and The Budget for Fiscal Year 2010 did not include information
required by the HEA on the number of loans and total outstanding balances for such loans by
category of institution or by loan type. Also, the ECASLA activity reports cited by the
Department were not made available to the public.

Under the Loan Participation Purchase Program, the Department purchased more than
$33.3 billion in participation interests ofFFEL Program loans made for the 2008-2009 academic
year, and under the Loan Purchase Commitment Program, the Department purchased about
$48.5 billion of loans made for the 2008-2009 academic year. 5 In addition, the Department will
purchase billions of dollars in loans under these two programs for the 2009-2010 academic year

3 The annual purchase program cost estimate for FY 2009 was distributed to Department officials in draft form for
review on March 3, 2010 (Control No. 10-0142), and May 18,2010, (Control No. 10-0372).
4 The Budget/or Fiscal Year 2010 (Appendix for the Department) included the estimates of the purchase programs'
costs.
5 Of the $48.5 billion in loans purchased by the Department under the Loan Purchase Commitment Program, over
$31.2 billion were purchased from the Loan Participation Purchase Program.
Final Alert Memorandum
ED-OIG/L03K0004                                                                Page 3 of4
and under the ABCP Conduit Put Program. ECASLA requires programs established under its
authority to be priced to result in no net cost to the Federal Government. The required reporting
is needed to assess the programs' cost neutrality and to provide policymakers with the
information needed to assess the effectiveness of the programs.

Recommendations:

We recommend that the Assistant Secretary for Planning, Evaluation and Policy Development
take immediate steps to-

       1.1     Prepare the quarterly reports and annual loan purchase program cost estimates as
               required by Section 459A(e) of the HEA for FYs 2008 and 2009.
       1.2     Transmit those reports and estimates to the authorizing committees and make
               them available to the public.

Department Comments

A draft of this memorandum was provided to the Department for comment. In its response to the
draft alert memorandum, the Department concurred with our recommendations to prepare and
transmit the reports for FY s 2008 and 2009. The Department stated that the reports will be
issued by June 7, 2010, and will be distributed to the appropriate congressional committees and
published on the Department's website. In addition, the Department stated that the number of
loans and total outstanding loan balances by category of institution and by loan type will be
consolidated into the reports and annual cost estimates. The response is included in its entirety
as an Attachment to this memorandum.

Alert memoranda issued by the Office of Inspector General (OIG) will be made available
to members of the press and general public to the extent information contained in the
memoranda is not subject to exemptions in the Freedom of Information Act
(5 U.S.C. § 552).

We conducted our work in accordance with the OIG quality standards for alert memorandums.

Corrective actions proposed (resolution phase) and implemented (closure phase) by your office
will be monitored and tracked through the Department's Audit Accountability and Resolution
Tracking System (AARTS). For further information, please contact Mr. Bernard Tadley,
Regional Inspector General for Audit, at (215) 656-6279.


Attachment

Electronic cc:
Ross Santy, Audit Liaison Officer, OPEPD
Marge White, Audit Liaison Officer, FSA
Janie Funkhouser, Audit Liaison Officer, OPE
Final Alert Memorandum
ED-OIG/L03K0004                                                                                                                  Page 4 of4
Attachment: Response from Office of Planning, Evaluation and Policy Development to the
Draft Alert Memorandum



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        TO                        Keith West
                                  Assistant In spector General for Audit

        FROM                      Carmel Martin
                                  Assistant Secretary for Plann ing, Evaluation , and Policy Development

        SUBJECT                   Response to DRAFT ALERT MEMORANDUM, Reporting Requ irements for the
                                  Ensuring Continued Access to Student Loans Act of 2008 Loan Purchase Programs
                                  Have Not Been Met

        Thank you for your alert memorandum of Apn122. 2010, on Reporting Requirements for the Ensuring Continued
        Access to Student Loans Act of 2008 Loan Purchase Programs, The Department is comm itted to the effective
        and transparp-nt t'lciministration of the ECASLA programs. While we believe the statutory reporting requ irements
        related to these progra ms were substantially met through the provision of data in the FY 2010 and FY 2011
        President's Budget and other materials , we concur with your recommendations to prepare and transm it formal,
        consolidated quarterly reports for FY 2008 and FY 2009 . These reports will be completed no later than Monday,
        June 7, and will be distributed to the appropriate committees and published on the Department's website, We
        have also formalized the process for preparing and distributing future re ports.

        As your memorandum noted, the Depa rtment is statutorily required to provide quarterly information related to
        the total outstanding prinCipal and accrued interest during the period. disaggregated by lender. and for each
        lender, dlsaggregated by category of institution and loan type. The Department has provided information related
        to the number of loans purchased. including total outstanding principal and accrued interest during the quarter.
        disaggregated by lender. Th is information is published in a weekly report that is produced in FSA and is
        circulated within the Department and to the Office of Management and Budget and the Congressional Budget
        Office,

        The Department does not dispute the OIG's finding that information related to loans purchased by lenders.
        disagg regated by category of institution and loan type , has yet to be provided. FSA and Budget Service are
        coordinating the transfer of data rel t'ltp-ci tn FY ?008 and 2009 and expect to have it ava ilable for review within
        th e next two weeks.

        Cost estimates, as the OIG report mentions , are to resemble the ann ual budget submission, and include current
        and future administrative costs. These estimates must also include an estimate of the gross and net outlays
        incurred by the Department for the loan purchase programs. including subsidy. administrative costs. and any
        other payments. This data was provided to both Congress and the public in the FY 2010 Budget Appendix
        submission . For th e ECASLA program, summary data can be found in th e "Programs Authorized Under the
        Ensuring Continu ed Access to Student Loans Acf table. Financing accou nts for each loan purchase program
        can also be found III the Budget Appendix.

        Additionally, th e cost estimates must also include a comparison of average gross and net outlays for each $100
        of loans, disaggregated by loan type, with the average gross and net outlays to the Department for each $100 of
        comparable loans made under FFEL and DL. These rates were also provided In the FY 2010 Budget Append iX
        submission Specifically, his data can be found in the table titled "Summary of Loan Levels . Subsidy Budget
        Authonty and Ou tlay s by Program. "

        The Department anticipates supplying the number of loans and total outstanding loan balances by catp-gory of
        institution and by loan type. This information will be consolidated into the quarterly reports and annual cost
        estimates .


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