United States General Accounting Office GAO Report to the Secretary of Education February 2003 FEDERAL STUDENT AID Timely Performance Plans and Reports Would Help Guide and Assess Achievement of Default Management Goals GAO-03-348 a February 2003 FEDERAL STUDENT AID Timely Performance Plans and Reports Highlights of GAO-03-348, a report to the Would Help Guide and Assess Secretary of Education Achievement of Default Management Goals During fiscal year 2002, an estimated 5.8 million people FSA’s default management goals were mostly to prevent defaults, increase borrowed about $38 billion in collections, and verify student eligibility, but the agency lacked a plan to federal student loans. Despite a guide its efforts. FSA had 39 default management goals for fiscal years 2000 dramatic reduction in annual through 2002. However, the goals changed significantly during this period default rates on those loans since and FSA did not annually prepare 5-year performance plans as required by fiscal year 1990 (from 22.4 to 5.9 the HEA. percent), the total volume of dollars in default doubled to nearly FSA met or exceeded most goals, but did not prepare timely performance $22 billion by fiscal year 2001 from reports. According to our analysis, FSA met or exceeded performance about $11 billion in fiscal year 1990. targets for 36 of its 39 default management goals during fiscal years 2000 During that same period, the total through 2002. However, FSA did not issue performance reports for fiscal student loans outstanding grew years 2000 and 2001, as required by the HEA. Instead, in December 2002, from $54.1 billion to $233.2 billion. FSA issued one report for both fiscal years that lists accomplishments, but does not clearly indicate the extent to which goals were or were not met. The Department of Education’s Office of Federal Student Aid Suggestions from survey respondents did not indicate the need for additional (FSA) manages the nation’s student goals. While about one-third of the 23 school officials who responded to our financial assistance programs survey made suggestions about ways that FSA could better assist them, none authorized under title IV of the of the suggestions indicated the need for additional default management Higher Education Act (HEA). In goals. FSA assisted all schools by sharing default management information 1998, Congress amended the HEA through symposiums and other media, and provided individual assistance to and established FSA as a some schools through visits and telephone calls. Most of the responding performance-based organization. officials were generally pleased with FSA’s assistance. The suggestions that Among other requirements, the HEA called for FSA to annually officials made did not indicate a need for additional goals because they develop 5-year plans, issue annual either related to existing goals or addressed operational issues. reports, and consult with stakeholders regarding their Table 1: Total Student Loan Portfolio and Amounts In Default for Fiscal Years 1990--2001 delivery system. GAO initiated a (nominal dollars in billions) review to assess FSA’s default Total Federal Family Education Loans (FFEL) and a management efforts and results. Federal Direct Student (Direct Loans) Defaults as a Percentage of Fiscal Year Outstanding Portfolio Defaults Outstanding Portfolio 1990 $54.1 $10.9 20.1 The Secretary of Education and 1991 57.5 12.5 21.7 FSA’s Chief Operating Officer 1992 62.0 13.6 21.9 should (1) produce a 5-year 1993 69.0 12.1 17.5 performance plan annually as 1994 80.0 12.5 15.6 required by the HEA and (2) 1995 95.6 20.6 21.5 prepare and issue reports to the 1996 113.9 18.5 16.2 Congress on FSA’s performance 1997 133.5 21.0 15.7 that are timely and clearly identify 1998 154.3 24.1 15.6 whether performance goals were 1999 176.9 25.8 14.6 met. 2000 202.9 21.5 10.6 www.gao.gov/cgi-bin/getrpt?GAO-03-348. 2001 233.2 21.8 9.4 To view the full report, including the scope Source: Department of Education. and methodology, click on the link above. Note: The Direct Loan program began disbursing loans in 1994. a For more information, contact Cornelia M. The total cumulative dollars in default for FFEL and Direct Loans consist of principal, interest, late Ashby at (202) 512-8403 or fees, and administrative charges. The totals also reflect the amounts collected during the fiscal firstname.lastname@example.org. year. Contents Letter 1 Results in Brief 2 Background 4 FSA’s Default Management Goals Were Mostly to Prevent Defaults, Increase Collections, and Verify Student Eligibility, but the Agency Lacked a Plan to Guide its Efforts 8 FSA Met or Exceeded Most Goals, but Did Not Prepare Timely Performance Reports 11 Surveyed School Officials’ Suggestions Did Not Indicate the Need for Additional Goals 12 Conclusions 15 Recommendations to the Secretary of Education 15 Agency Comments and Our Evaluation 16 Appendix I Scope and Methodology 18 Appendix II FSA’s Default Management Goals for Fiscal Years 2000-2002 22 Appendix III FSA’s Default Management Goals and Outcomes for Fiscal Years 2000-2002 24 Appendix IV Comments from the Office of Federal Student Aid 32 Appendix V GAO Contacts and Staff Acknowledgments 36 GAO Contacts 36 Staff Acknowledgments 36 Tables Table 1: Total Student Loan Portfolio and Amounts in Default by Type of Loan for Fiscal Years 1990--2001 (nominal dollars in billions) 7 Page i GAO-03-348 Federal Student Aid Table 2: Summary of Postsecondary Schools That Participated in Our Survey 21 Figures Figure 1: Fiscal Years 1990-2000 National Cohort Default Rates 6 Abbreviations COO Chief Operating Officer CDR cohort default rate FFEL Federal Family Education Loan Program FSA Office of Federal Student Aid HEA Higher Education Act HHS Department of Health and Human Services IFAP Information for Financial Aid Professionals IRS Internal Revenue Service NSLDS National Student Loan Data System PBO performance-based organization VFA Voluntary Flexible Agreement This is a work of the U.S. Government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. It may contain copyrighted graphics, images or other materials. Permission from the copyright holder may be necessary should you wish to reproduce copyrighted materials separately from GAO’s product. Page ii GAO-03-348 Federal Student Aid United States General Accounting Office Washington, DC 20548 February 14, 2003 The Honorable Roderick Paige Secretary of Education Dear Mr. Secretary: During fiscal year 2002, an estimated 5.8 million people borrowed about $38 billion in federal student loans to help meet their educational needs. This is more than triple the $11.7 billion borrowed in fiscal year 1990. Despite a dramatic reduction in annual default rates on those loans since fiscal year 1990 (from 22.4 to 5.9 percent), the total volume of dollars in default had grown to nearly $22 billion by fiscal year 2001 from about $11 billion in fiscal year 1990. During the same period, the total student loans outstanding grew from $54.1 billion to $233.2 billion. The Department of Education’s Office of Federal Student Aid (FSA) is responsible for managing and administering the nation’s student financial assistance programs authorized under title IV of the Higher Education Act (HEA) of 1965, as amended. In 1998, the Congress amended HEA to establish FSA as a performance-based organization (PBO) in order to address longstanding management weaknesses.1 Among other requirements, HEA called for FSA to annually develop 5-year plans that establish measurable goals and to issue annual reports on the extent to which the goals were met. The intent of this law was to provide among other things, a greater level of accountability for FSA’s administration of programs. Additionally, HEA requires FSA to seek the opinions and suggestions of postsecondary institutions and other stakeholders, such as lenders and borrowers, regarding their delivery system. Because of the 1 Because of concerns about fraud, waste, abuse, and mismanagement, we have included student financial aid programs on our high-risk list since 1990. The former Guaranteed Student Loan Program, now called the Federal Family Education Loan Program was included in our 1990 list; in 1995 we revised this designation to include all student financial aid programs included in Title IV of the Higher Education Act of 1965. U.S. General Accounting Office, High-Risk Series: Student Financial Aid, GAO/HR-95-10 (Washington, D.C.: Feb. 1, 1995); High-Risk Program: Information on Selected High-Risk Areas, GAO/HR-97-30 (Washington, D.C.: May 16, 1997); High-Risk Series: An Update, GAO/HR-99-1 (Washington, D.C.: Jan. 1, 1999); High-Risk Series: An Update, GAO-01-263 (Washington, D.C.: Jan. 1, 2001); and Major Management Challenges and Program Risks: Department of Education, GAO-03-99 (Washington, D.C.: Jan. 2003). Page 1 GAO-03-348 Federal Student Aid large volume of dollars at-risk, we undertook this study to determine (1) what FSA’s default management goals were for fiscal years 2000 through 2002, (2) whether FSA had achieved its stated performance goals, and (3) whether school officials from schools with large potential losses from defaults—schools with high default rates or a high volume of dollars in default—had suggestions that indicated the need for additional default management goals. To achieve our objectives, we reviewed HEA to identify FSA’s roles and responsibilities, interviewed FSA officials responsible for overseeing and administering student aid programs, and obtained and analyzed available data and reports on FSA’s performance goals and accomplishments for fiscal years 2000--2002. In addition, we interviewed FSA officials regarding assistance provided to schools, particularly, schools with high default rates and those with a high volume of dollars in default. We attempted to contact officials at 31 schools with high default rates or a high volume of dollars in default to ask them their views of the assistance provided by FSA and to obtain their suggestions on ways that FSA could better assist them. Officials from 23 of the 31 schools agreed to participate in our survey. We conducted our work between September 2002 and January 2003 in accordance with generally accepted government auditing standards. See appendix I for additional information about our scope and methodology. For fiscal years 2000 through 2002, FSA identified 39 default management Results in Brief goals designed primarily to prevent defaults, increase collections, or verify student eligibility. The default management goals included increasing students’ awareness of their repayment obligations, verifying family income by matching student records with Internal Revenue Service (IRS) tax records, and locating defaulted borrowers through a national new hires database. However, the goals changed significantly between fiscal years 2000 and 2002 and were not tied to an overall plan. Specifically, although 5 of the 39 goals were continued for each of the 3 fiscal years and 6 others were continued for 2 years, 28 were single-year goals. Moreover, a majority of these single-year goals, 15 of the 28, were implemented in fiscal year 2002. FSA’s documents did not explain the basis for establishing, continuing, or ending goals from year to year nor did FSA prepare 5-year performance plans as required by HEA. On the basis of our analysis of FSA’s internal documents, we determined that 36 of its 39 default management goals were met or exceeded during the 3-year period. FSA met its goal to recover more previously defaulted dollars than it lost through new defaults; it recovered $4.87 billion Page 2 GAO-03-348 Federal Student Aid compared to $2.7 billion lost through new defaults. Also, FSA met its target to support the administration’s efforts to improve its data matching capabilities with the IRS by proposing changes to legislation that would authorize expanded use of tax data. The 3 unmet goals were to (1) provide the Congress with a report by the end of fiscal year 2002 explaining the impact of voluntary flexible agreements (VFAs);2 (2) implement a multiyear program during the 3-year period to reduce default rates over the life of the loan; and (3) prepare an analysis in fiscal year 2002 to identify improvements that could be made to the National Student Loan Data System (NSLDS)— a national database containing information on federal student loans and grants. Although FSA achieved nearly all of its default management goals, it did not provide to the Congress timely reports on its performance as required by HEA for fiscal years 2000 and 2001. In December 2002, FSA issued a single performance report for both fiscal years 2000 and 2001. The information in the report was not timely nor did it indicate whether or not the agency met established performance goals. As a result, the Congress does not know whether FSA achieved its goals for those years. While 7 of the 23 officials from schools with high default rates or a high volume of dollars in default who participated in our survey made suggestions about ways that FSA could better assist them, none of these suggestions indicated the need for additional default management goals. FSA provided similar assistance to all schools, irrespective of their default rates or dollars in default, primarily by sharing default management best practices at its National Default Prevention Day symposiums and hosting conferences to disseminate default management information. FSA also provided individual assistance to some schools through on-site visits and telephone calls to address specific default management concerns such as preparing default management plans. Although 16 of the 23 officials said that they were generally pleased with one or more services provided by FSA, nearly a third suggested ways that FSA could better assist schools. Their suggestions included improving the usefulness and access to loan information in NSLDS, holding default management training sessions in locations near them, and making it easier to identify and contact the right FSA program officials to address concerns. These suggestions did not 2 A Voluntary Flexible Agreement provides a guaranty agency—a state or nonprofit private institution or organization that administers the FFEL program—flexibility to implement new practices, including default prevention or collections activities, by waiving or modifying some requirements established under federal statutes that apply to other guaranty agencies. Page 3 GAO-03-348 Federal Student Aid indicate the need for additional default management goals because they either related to existing goals or addressed operational issues. To assure the public that FSA has developed long-term goals that set the direction for its default management program, we are recommending that the Secretary of Education and FSA’s Chief Operating Officer (COO) prepare and make available a 5-year performance plan annually, as required by HEA. In addition, to provide essential information to the Congress about FSA’s progress toward achieving its goals, we are recommending that the Secretary of Education and FSA’s COO prepare and issue performance reports to the Congress that are timely and clearly indicate whether established goals and performance targets were met. FSA provided written comments on a draft of this report. In commenting on the draft, FSA generally agreed with our findings and said it would take actions to address our recommendations. FSA’s written comments appear in appendix IV. Title IV of HEA authorized several student aid programs including the Background Federal Family Education Loan (FFEL) and the William D. Ford Direct Loan (Direct Loan) programs, the Federal Pell Grant program, and campus-based aid programs.3 The FFEL and Direct Loan programs are the largest source of aid for students. The FFEL program4 provides loans to eligible students and parents through participating private lenders that receive a federal guarantee of repayment if the borrower defaults. Under the Direct Loan program, eligible students and parents borrow funds directly from the federal government through participating schools. As of October 2002, about 6,400 schools participated in one or more of the title IV student aid programs. To be eligible to participate in the FFEL and Direct Loan programs, schools must manage their loan portfolios to keep the default rate for their loans below established limits. The national student loan default rate, also known as the national cohort default rate (CDR), is defined as the percentage of borrowers who enter 3 Campus-based programs consist of the Federal Work-Study Program, the Federal Perkins Loan Program, and the Federal Supplemental Educational Opportunity Grant Program. 4 The FFEL program comprises three loan programs: subsidized and unsubsidized Federal Stafford Loans (collectively referred to as Federal Stafford Loans) and Federal Supplemental Loans for Students (Federal SLS loans). Federal SLS loans have not been made since July 1, 1994. Page 4 GAO-03-348 Federal Student Aid repayment status in a certain fiscal year and default before the end of the next fiscal year on Federal Stafford Loans and, under certain circumstances, Federal SLS loans, and Direct Stafford Loans. For example, the fiscal year 2000 CDR of 5.9 percent represents the percentage of borrowers whose first loan repayments came due between October 1, 1999, and September 30, 2000, and who, as of September 30, 2001, had defaulted. The national CDR is an aggregate of all postsecondary institutional default rates. The CDR for schools with 30 or more borrowers in repayment is calculated based on the percentage of borrowers entering repayment on loans in a fiscal year and defaulting during that fiscal year or the following fiscal year.5 FSA issues draft CDRs and supporting data to schools in January or February of each year for review. A school may challenge the draft default rate information if it identifies inaccuracies in data. In addition, a school with CDRs of 25 percent or more for 3 consecutive years can appeal the draft rate if it can show that the number of students who obtained loans did not exceed approximately 3.8 percent of the total number of students at the school, while schools with CDRs over 40 percent in 1 year can appeal the draft rate if it can show that the number of students who obtained loans did not exceed approximately 6 percent of the total number of students at the school. FSA makes revisions as needed, and releases the final CDR to the schools and the public no later than September 30 of each year. Unless a school has 30 or fewer borrowers who entered repayment for the 3 most recent fiscal years, it could lose its eligibility to participate in some title IV student aid programs if its final CDR exceeds established thresholds. For example, under HEA, if schools have CDRs of 25 percent or more for 3 consecutive years, they face loss of eligibility to participate in the FFEL and Direct Loan programs. 6 A regulation imposes the same restriction on eligibility if schools have CDRs exceeding 40 percent in a given year. Additionally, schools that are ineligible to receive FFEL and Direct Loans due to CDRs of 25 percent or more for 3 consecutive years are also generally prohibited by statute from receiving Pell Grants. These schools are subject to suspension from title IV programs for the remainder of the fiscal year in which FSA notifies them of termination and the following 2 fiscal years. However, schools have appeal rights and retain 5 If a school has fewer than 30 borrowers entering repayment in a given fiscal year, the default rate is averaged over a 3-year period. 6 Previous default thresholds established under the HEA were 35 percent or higher for fiscal years 1991 and 1992 and 30 percent or higher for fiscal year 1993. Page 5 GAO-03-348 Federal Student Aid program eligibility while their appeals are pending. Schools may apply to be reinstated to participate in title IV loan and/or Federal Pell Grant programs after the later of the expiration of their suspension or 18 months after the effective date of their termination. Over the last decade, approximately 1,200 schools have been subject to suspension due to default rates above the 25 percent threshold for fiscal years 1998 through 2000.7 From fiscal year 1990 to fiscal year 1999, the national student loan default rate declined from 22.4 percent to 5.6 percent. In fiscal year 2000, the rate climbed slightly to 5.9 percent. Figure 1 shows the trend in national cohort default rates from fiscal years 1990 through 2000. Figure 1: Fiscal Years 1990-2000 National Cohort Default Rates 7 Schools included in this tally may have successfully appealed at a later date. FSA did not provide data on the number of postsecondary institutions that were subject to suspension as a result of default rates greater than 40 percent in a single year in time for our review. Page 6 GAO-03-348 Federal Student Aid Despite the overall progress made in reducing the national default rate, the cumulative student loan funds in default had doubled to almost $22 billion by fiscal year 2001 from their fiscal year 1990 level of nearly $11 billion. During this same time period, the total student loan portfolio grew by more than 400 percent from $54.1 billion to $233.2 billion and the defaults, as a percent of the total loan portfolio, declined from 20.1 percent to 9.4 percent. Table 1 shows the outstanding portfolio and defaulted loan balances for FFEL and Direct Loans as well as the total defaulted loans as a percentage of the total outstanding loan portfolio for fiscal years 1990 through 2001. Table 1: Total Student Loan Portfolio and Amounts in Default by Type of Loan for Fiscal Years 1990--2001 (nominal dollars in billions) Total Defaults as a Percentage FFEL Direct Loan Total of Total Fiscal Outstanding Outstanding Direct Loan Outstanding Outstanding Year Portfolio FFEL Defaults a Portfolio Defaults a Portfolio Total Defaults Portfolio 1990 $ 54.1 $ 10.9 -- -- $54.1 $10.9 20.1 1991 57.5 12.5 -- -- 57.5 12.5 21.7 1992 62.0 13.6 -- -- 62.0 13.6 21.9 1993 69.0 12.1 -- -- 69.0 12.1 17.5 1994 80.0 12.5 <$ 0.1 -- 80.0 12.5 15.6 1995 92.9 20.6 2.7 -- 95.6 20.6 21.5 1996 102.4 18.5 11.5 < $0.1 113.9 18.5 16.2 1997 112.4 20.9 21.2 0.1 133.5 21.0 15.7 1998 122.4 23.8 31.9 0.3 154.3 24.1 15.6 1999 132.6 25.1 44.4 0.7 176.9 25.8 14.6 2000 146.6 20.3 56.3 1.2 202.9 21.5 10.6 2001 160.0 19.5 73.2 2.3 233.2 21.8 9.4 Source: Department of Education. Note: the FFEL Program began disbursing loans in fiscal year 1966 and the Direct Loan program began disbursing loans in fiscal year 1994. Consequently, the earliest year that Direct Loans could have been in default was fiscal year 1996. a The total cumulative dollars in default for FFEL and Direct Loans consist of principal, interest, late fees, and administrative charges. The totals also reflect the amounts collected during that fiscal year. FSA manages and administers the federal student financial assistance programs and is responsible for default management. Since 1990, because of concerns about Education’s vulnerabilities to losses due to fraud, waste, abuse, and mismanagement, we have included student financial aid programs on our high-risk list. To address longstanding management weaknesses, the Congress amended HEA in 1998, establishing FSA as a Page 7 GAO-03-348 Federal Student Aid performance-based organization (PBO) to improve Education’s delivery of student financial aid services. As a PBO, FSA has increased flexibilities, subject to the direction of the Secretary of Education, in certain government operations, such as hiring and procurement, provided that it establish and operate according to a 5-year performance plan with measurable goals and specific annual performance targets. HEA also requires that FSA annually prepare and submit, through the Secretary of Education, a 5-year plan that is available to the public, and annual performance reports to the Congress. Furthermore, HEA requires FSA’s Chief Operating Officer (COO) to ask its stakeholders about the degree of satisfaction with the delivery system and to seek suggestions on improvements. FSA identified 39 default management goals for fiscal years 2000 through FSA’s Default 2002, which were mainly to prevent defaults, increase collections, or verify Management Goals student eligibility. However, FSA did not prepare annual 5-year performance plans required by HEA. Such plans would have helped set the Were Mostly to overall direction for FSA and guided its default management and other Prevent Defaults, agency goals. Increase Collections, and Verify Student Eligibility, but the Agency Lacked a Plan to Guide its Efforts FSA Identified 39 Default FSA goals aimed at preventing student loan defaults included such efforts Management Goals During as increasing students’ awareness of their repayment obligations through Fiscal Years 2000--2002 various publications, using voluntary flexible agreements with four guaranty agencies to prevent defaults, and pursuing default management strategies such as using software to assist schools in identifying delinquent Direct Loan borrowers at risk of default.8 FSA’s goals to increase collections focused on facilitating repayment for borrowers in good 8 A borrower is considered delinquent when at least one regularly scheduled payment has been missed. A borrower is generally considered in default for failing to make required payments within 270 consecutive days of entering loan repayment or otherwise violating the terms of the promissory note. Page 8 GAO-03-348 Federal Student Aid standing as well as aggressively pursuing those in default. For example, they planned to use tools such as Internet billing and on-line correspondence to facilitate repayment for borrowers in good standing and used administrative wage garnishments and federal tax refund recoveries to pursue borrowers in default. These collection goals included fostering competitive behavior among its private collection agencies to increase collections on defaulted loans, matching student loan records with federal databases such as the Health and Human Services (HHS) National Directory of New Hires database9 to locate defaulted borrowers, and using other available default recovery methods. The FSA goals to improve student eligibility included verifying students’ or their families’ income through a data match with Internal Revenue Service (IRS) records and apprising foreign postsecondary institutions about the rules and regulations for title IV assistance and the need to limit financial aid awards to eligible students only. Of FSA’s 39 default management goals during fiscal years 2000 through 2002, 5 were continued throughout the period and 6 more were continued for 2 of the 3 years. Specifically, the goals that continued for all 3 years were to maintain the cohort default rate, implement and monitor voluntary flexible agreements with a limited number of guaranty agencies, reduce default rates over the life of the loan,10 increase the recovery rate for defaulted loans, and increase the number of student aid applications filed electronically. As for those that continued for 2 years, they addressed (1) reports to the Congress on the progress and performance of VFAs, (2) student awareness publications, (3) use of the new hires database, (4) NSLDS data quality, (5) program monitoring and assistance to schools, and (6) eliminating fraudulent death and disability cases. Further, most of these goals began in 2001 and were continued in 2002. 9 The Department of Health and Human Services’ Office of Child Support Enforcement maintains the National Directory of New Hires (NDNH) database. Within 20 days of hire, employers must submit the names, addresses, and social security numbers of new employees to the State Directory of New Hires. This information is then submitted to the NDNH, which also includes quarterly wage data from every state and federal agency and unemployment insurance data from all state employment agencies. Although the database was originally used for child support enforcement, its authorized use was expanded to locate borrowers with defaulted student loans in 2001. 10 FSA recognizes that there are limitations to its cohort default rate, namely the relatively short time-frame within which the agency can monitor loan defaults. The lifetime default rate would expand the window of analysis from two years under the current measure to 15 years or the average life of a federal student loan. Page 9 GAO-03-348 Federal Student Aid However, 28 of the 39 goals were single year goals—6 were implemented in fiscal year 2000, another 6 were implemented in fiscal year 2001, and 16 more were implemented in fiscal year 2002. Such significant changes may reflect the fact that FSA did not have a long-term plan to direct its default management goals. Although agency officials stated that many of the goals were reached and did not need to be continued in the next year, some were discontinued for various other reasons. For example, agency officials indicated that a 2001 goal to implement a pilot program to track student enrollment at foreign schools in an effort to reduce the potential of loans being obtained through fraudulent means was completed. However, available documents show that the pilot program was discontinued because a key institution complained that the program requirements were too burdensome and withdrew from the pilot. Furthermore, it is not clear from available documentation whether this program will be revisited or continued in subsequent years, even though foreign schools collectively administer more than $225 million in federal student financial assistance. Recently, GAO reported11 that the agency certified a fictitious foreign school to participate in the FFEL program and approved loans for three fictitious students. As such, there continues to be a need for the agency to have a goal to reduce the potential for students at foreign schools to obtain loans through fraudulent means. Appendix II lists FSA’s default management goals for fiscal years 2000, 2001, and 2002. FSA Did Not Prepare a Although FSA prepared several internal planning documents that 5-Year Performance Plan identified its default management goals for each year, as we reported to Guide Its Efforts previously,12 Education failed to prepare annual 5-year performance plans as required by HEA to guide its default management and other agency goals. FSA prepared a performance plan for the 2000--2004 fiscal years, but the goals in that plan were only for fiscal year 2000. Additionally, FSA did not prepare performance plans for the periods covering fiscal years 2001 to 2005 or fiscal years 2002 to 2006. FSA officials stated that their interpretation of the law allowed them to release a plan every 5 years and operate with annual internal plans. 11 U.S. General Accounting Office, Guaranteed Student Loan Vulnerabilities, GAO-03-268R (Washington, D.C.: Nov. 21, 2002). 12 U.S. General Accounting Office, Federal Student Aid: Additional Management Improvements Would Clarify Strategic Direction and Enhance Accountability, GAO-02-255 (Washington, D.C.: Apr. 30, 2002). Page 10 GAO-03-348 Federal Student Aid FSA prepared internal documents that identified its default management goals for fiscal years 2001 and 2002. These documents listed the goals for each year separately, identified the responsible managers or units, specified the time frames involved, and sometimes described specific steps for implementation and expected outcomes. However, they did not explain the basis for changing the goals or relate them to longer-term agency goals. According to our analysis of FSA’s internal documents, we determined FSA Met or Exceeded that the agency met or exceeded performance targets for 36 of its 39 Most Goals, but Did default management goals during fiscal years 2000 through 2002. However, as previously reported, Education did not prepare timely reports Not Prepare Timely on FSA’s performance for fiscal years 2000, as required by HEA. FSA also Performance Reports did not issue a timely report for fiscal year 2001. FSA’s performance report for fiscal year 2002 was not due at the time of this review. FSA Met or Exceeded FSA met or exceeded nearly all of the performance targets related to its Performance Targets for 39 default management goals during fiscal years 2000 through 2002. For Most of Its Default example, FSA met its goal to ensure that default recoveries exceeded new defaulted dollars in fiscal year 2002 by recovering $4.87 billion compared Management Goals to the $2.7 billion that went into default. Also, FSA met its target to support the administration’s efforts to improve its data matching capabilities with the IRS by proposing changes to legislation that would authorize expanded use of tax data. Additionally, FSA met its fiscal year 2000 goal to expand its capabilities that allow students to edit and save changes to federal student aid applications on the Web. FSA exceeded most of its performance targets for defaulted loan collection goals. For example, FSA exceeded its 2002 goal to increase the combined recovery rate for guaranty agencies to 15 percent by 1.76 percentage points. The agency also exceeded its 2002 goal to collect $200 million in defaulted loans by $60 million through expanded use of the Department of Health and Human Services National Directory of New Hires database. FSA did not achieve three of its default management goals during the 3-year period. These goals were to (1) prepare a report to the Congress by the end of fiscal year 2002 on the voluntary flexible agreements, (2) implement a multiyear program in each of the three fiscal years to further reduce defaults over the life of the loan, and (3) analyze NSLDS to identify improvements that could be made in fiscal year 2002. While each of these goals was listed for at least 2 of the 3 fiscal years, FSA did not always provide information on why they were not achieved. Appendix III Page 11 GAO-03-348 Federal Student Aid lists the default management goals and indicates whether the goals were met. FSA’s Fiscal Years 2000 and FSA did not prepare performance reports that conform to the 2001 Performance Report requirements in HEA for fiscal years 2000 and 2001. HEA requires FSA to Was Not Timely and Did issue a performance report for each year that includes an evaluation of the extent to which the goals established in the prior year’s plan were met. In Not Indicate Whether December 2002, FSA issued a performance report that included its Goals Were Met accomplishments for both fiscal year 2000 and fiscal year 2001. Furthermore, although the report lists several accomplishments, it does not provide related performance goals. Therefore, the report does not clearly indicate the extent to which goals were or were not met. For example, the report points out that the collections on defaulted student loans increased from $191 million in fiscal year 1999 to $228 million in fiscal year 2000 to $230 million in fiscal year 2001. Although the increases are noteworthy, there is no information on the related goal, or whether or not the goals were actually met. Additionally, the report includes information on accomplishments that did not occur during fiscal years 2000 and 2001. For example, the report states that in early 2002 the Department delivered a report to the Congress on the VFAs, distributed a foreign schools handbook in May 2002, and piloted electronic billing and payment in the Direct Loan program in January 2002 and went into full production in March 2002. Education did not include the related fiscal year 2002 performance goals. Although nearly a third of the school officials that participated in our Surveyed School survey made suggestions about ways that FSA could better assist them, Officials’ Suggestions none of the suggestions indicated that FSA needed additional default management goals. FSA provided similar assistance to all schools by Did Not Indicate the sharing default management strategies and information through Need for Additional symposiums, workshops, and other media, and provided individual assistance to some schools through on-site visits and telephone calls. Goals Although officials from 16 of the 23 schools reported that they were pleased with one or more services provided by FSA, 7 of the 23 officials suggested ways that FSA could better assist them. Their suggestions included improving the usefulness and access to loan information in NSLDS, providing opportunities for more localized default management training, and making it easier to identify and contact the right FSA program officials to address technical concerns. However, these suggestions did not indicate a need for additional default management Page 12 GAO-03-348 Federal Student Aid goals because they either related to existing goals or addressed operational issues. FSA Provided General FSA provided general assistance to all schools, including those with high Assistance to All Schools default rates and those with a high volume of dollars in default, and and Individual Assistance provided individual assistance to some schools to assist with their default management efforts. According to FSA officials, one of its primary to Some methods of assisting schools is through its National Default Prevention Day symposium, a 1-day event to share default management best practices. In 2001 and 2002, FSA sponsored this event in 12 cities nationwide and invited officials from numerous entities, including schools participating in federal loan programs, lenders, and guaranty agencies. FSA also provided schools with default management information at various conferences and through its Information for Financial Aid Professionals (IFAP) Web site. For example, at a November 2002 FSA Electronic Access Conference, FSA officials provided information on the late-stage delinquency assistance initiative intended to help schools identify delinquent Direct Loan borrowers at risk of default. FSA also provided technical publications, regulations, and policy guidance on the administration of the federal student aid programs to schools through the IFAP Web site. FSA officials also said they provided individual assistance to some schools through on- site visits and telephone calls. FSA officials said during a typical on-site visit to a school, they presented information to school officials on the various aspects of default prevention and the advantages of forming a default management team comprised of representatives from various offices. They also helped schools establish individual default management plans, if the school did not want to use the standard one developed by FSA, and they helped assess the schools’ default management and prevention practices. A total of 16 of the 23 school officials reported that they were generally pleased with one or more services provided by FSA, with most commenting that the assistance was useful in helping them to keep their default rates and/or dollars in default low. Page 13 GAO-03-348 Federal Student Aid Suggestions From Survey The 11 suggestions made by officials at 7 of the 23 schools responding to Respondents Did Not our survey did not indicate the need for additional goals because either Indicate the Need for FSA already had goals related to them or the suggestions related to operational matters. Nonetheless, the suggestions could help FSA to better Additional Goals, But assist schools with their default management efforts. FSA had goals that Could Serve to Improve addressed, to some extent, five of the suggestions. Officials made FSA’s Assistance to 4 suggestions to improve the usefulness of loan data and access to the loan Schools information in NSLDS. One school official suggested that FSA could improve the usefulness of NSLDS data by allowing users to distinguish the principal amount borrowed, the accrued interest, and service charges. A second school official suggested that the data be updated more frequently to remove students that are no longer in default to help prevent schools from making unnecessary calls. Another school official suggested that FSA provide historical data detailing the breakout of dollars going into default. Besides these suggestions, a fourth school official suggested that FSA provide easier access to the system for guarantors and allow them to view school specific information on delinquent and defaulted borrowers. FSA had goals to improve the NSLDS in 2000 and 2002. FSA’s fiscal year 2000 NSLDS goal was to continue to work with guaranty agencies and lenders to maintain the quality of data in NSLDS and its fiscal year 2002 NSLDS goals were to analyze NSLDS data to identify students ineligible for federal aid. An official from a large public university with a high volume of dollars in default suggested that FSA provide a profile of the various demographic groups that make up the school’s CDR. In support of its continuing goal to keep the default rates low, FSA provides schools—at their request—with default rate analysis tools to assist them in identifying the defaulted student population. FSA typically shares information about default management tools at its National Default Prevention Day symposiums. This official attended the national default prevention day in 2001 but was still unaware of the analysis tool. This suggestion indicates that there may be a need for additional ways to disseminate information about default analysis tools. The remaining 6 suggestions addressed operational issues—where training is held, who to contact with questions, and when information is shared. Three school officials suggested that FSA hold default management training sessions in locations near them because they lacked funding to travel to FSA’s National Default Prevention Day symposiums and/or conferences held in larger cities, such as Washington, D.C., and San Francisco. Two of the officials were from small proprietary schools and the other was a large public university. Additionally, two officials suggested that FSA provide better ways to identify and contact appropriate program officials to address their default management Page 14 GAO-03-348 Federal Student Aid concerns. One official said that he and others have had difficulty getting FSA staff to return their telephone calls and finding the right FSA program official to address their concerns. This school official suggested that FSA develop a guide to identify appropriate program officials. The other school official expressed frustration that FSA staff was not always knowledgeable about the loan data for her school. This school official suggested that FSA make certain staff members responsible for knowing about information related to particular schools. Finally, one school suggested that FSA provide schools with updates on changes in federal student aid information at the beginning of the calendar year instead of during the fall enrollment season, which typically begins in August or September. While these suggestions do not indicate the need for additional goals, they indicate areas where school officials would like changes made. FSA has identified many default management goals and its internal Conclusions documents and reports indicate that it achieved most of its default management goals for fiscal years 2000 through 2002. Furthermore, school officials who responded to our survey did not offer suggestions that indicated FSA should have additional goals. However, neither the Congress nor the public can determine whether FSA’s default management or other program goals are in support of long-term program objectives or whether goals have been met because FSA has not prepared annual plans and issued performance reports as required by HEA. The legislation authorizing FSA as a PBO requires the agency to operate within the framework of a clear plan and to be accountable by reporting annually on its progress. Without the required plans and timely and clear performance reports, neither the Congress nor the public can determine whether FSA, as a PBO, is operating within the spirit of the law and making progress toward achieving its goals. To ensure the public that FSA has established and sustained default Recommendations to management and other program goals that support long term objectives, the Secretary of we recommend that the Secretary of Education and FSA’s Chief Operating Officer (COO) produce a 5-year performance plan annually as required by Education HEA. To provide essential information to the Congress about its progress toward achieving default management and other agency goals during a given year, we recommend, as we did in 2002, that the Secretary of Education and FSA’s COO prepare and issue reports to the Congress on Page 15 GAO-03-348 Federal Student Aid FSA’s performance that are timely and clearly identify whether performance goals were met. We received written comments on a draft report from FSA. These Agency Comments comments are reprinted in appendix IV. FSA said that it would take and Our Evaluation actions to address our recommendations. FSA recognized the requirement to annually produce a 5-year plan and said it would revise the plan this spring. FSA also said that it would meet the deadline to finalize the fiscal year 2002 annual report. Additionally, FSA suggested that we include information on the total loan portfolio to provide a more balanced presentation of the dollar increase in the defaulted loan portfolio, which we have done. However, FSA disagreed with our assessment that its internal plans were not appropriate to guide its default management efforts. FSA stated that its results clearly demonstrate that its internal plans, coupled with Education’s strategic and annual plans, were appropriate to guide its efforts. As we have noted in this report, HEA requires FSA to prepare annual 5-year plans in consultation with the Congress, institutions of higher education, and other stakeholders. This planning process helps to increase accountability and ensure that the goals are relevant to stakeholders. Furthermore, Education’s annual and strategic plans only discuss default management goals in broad terms that are not specific enough to guide FSA’s default management efforts. Additionally, FSA questioned our assessment that its internal planning documents did not explain the basis for establishing, continuing, or ending goals from year to year. FSA stated that the fiscal year 2002 documentation was reasonable for explaining the basis for establishing, continuing, or ending projects. While the fiscal year 2002 documentation provided more detail than the documents for fiscal years 2000 and 2001, it did not explain why goals were established, continued, or ended from one year to the next. Further, FSA stated that we improperly indicated that the National Student Loan Data System (NSLDS) data quality effort was a goal for only two years. We reported this as a “2-year” goal based on the documentation FSA provided. The documentation listed NSLDS as a goal for fiscal years 2000 and 2002, but not for fiscal year 2001. We are sending copies of this report to the Secretary of Education, the Chief Operating Officer of Education’s Office of Federal Student Aid, the Page 16 GAO-03-348 Federal Student Aid Director of the Office of Management and Budget and appropriate congressional committees. Copies will also be made available to other interested parties upon request. Additional copies can be obtained at no cost from our Web site at www.gao.gov. If you or your staff should have any questions, please call me at (202) 512- 8403. The key contributors to this report are listed in appendix V. Sincerely yours, Cornelia M. Ashby Director, Education, Workforce and Income Security Issues Page 17 GAO-03-348 Federal Student Aid Appendix I: Scope and Methodology Appendix I: Scope and Methodology Overall, we obtained and reviewed several key documents, interviewed responsible officials, and surveyed officials from selected institutions of higher education. We reviewed HEA to identify FSA’s1 overall responsibilities and reporting requirements as a performance-based organization and to obtain background on the various types of student aid programs it authorizes. We also reviewed our prior reports and other documents to obtain background information and perspective on operational challenges faced by FSA. In addition, we obtained and analyzed fiscal year 1990 to 2001 trend data on the number of borrowers, default rates, and dollars in default for the guaranteed and Direct Loan programs. To determine what FSA’s default management goals were for fiscal years 2000 through 2002, we reviewed various FSA internal planning documents, including program plans for fiscal years 2000, 2001, and 2002. These documents listed the goals for all FSA programs, including the default management goals. Additionally, we reviewed FSA’s High-Risk Plan for fiscal year 2002, which summarized the major actions the agency planned to take with regard to default management and other issues in order to remove its student financial assistance programs from our high-risk list.2 We also interviewed FSA officials responsible for managing and administering student financial assistance programs in order to clarify which goals were related to default management. On the basis of these documents and information obtained from the interviews, we developed a summary of the default management goals for fiscal years 2000 through 2002. To determine whether FSA had achieved the performance targets for its default management goals, the second objective, we obtained and analyzed available data and reports related to the performance for fiscal years 2000, 2001, and 2002 goals. We discussed both the performance targets achieved and the performance targets missed during interviews with FSA officials. We determined whether a goal was met or not by 1 FSA was formerly known as the Office of Student Financial Assistance (SFA). The name of SFA was changed to Federal Student Aid on March 6, 2002. 2 In 1990, we initiated a High-Risk Program to highlight governmentwide high-risk areas including fraud, waste, abuse, and mismanagement. FSA’s student loan program has been on the high-risk list since 1990. The other student aid programs were included in the High Risk List in 1995. Page 18 GAO-03-348 Federal Student Aid Appendix I: Scope and Methodology reviewing the agency’s collective efforts over a 3-year period, where applicable. To determine whether school officials from schools with high default rates or high dollars in default had suggestions that indicated the need for additional default management goals, our third objective, we reviewed title IV school eligibility regulations, interviewed FSA officials, analyzed default data, and surveyed officials from selected schools. We identified and reviewed title IV eligibility criteria for program participation, including the cohort default rate (CDR),3 which is used to determine a school’s continued eligibility to participate in FFEL, Direct Loan, and Federal Pell Grant programs and procedures for reinstatement after schools are removed from the program. We interviewed FSA officials responsible for assisting schools with their default management efforts to determine the types of assistance provided to all schools, ascertain whether FSA provided additional assistance to schools at risk of losing their eligibility to continue participating in the student loan programs due to high default rates, and determine whether any additional assistance was provided to schools with high amounts of dollars in default. We participated in the 2002 National Default Prevention Day held in August 2002 in Washington, D.C., because this was one of the primary methods FSA officials use to provide default management information to schools. Additionally, we reviewed regional listings of school visits made by FSA during fiscal years 2000, 2001, and 2002. We obtained data on default rates for fiscal years 1999 and 2000 (about 6,000 schools) and dollars in default for fiscal year 2000 (about 5,000 schools) for all schools that participated in the Title IV programs. We analyzed fiscal year 1999 default rate data to identify those with default rates above the regulatory thresholds – default rates at or above 25 percent for 3 consecutive years or above 40 percent in one year. We determined that a total of 55 schools had default rates that exceeded regulatory thresholds, 46 of these were excluded from our review due to exceptional mitigating circumstances, such as having 30 or fewer borrowers in repayment on loans, and the remaining 9 schools were candidates for removal from the loan programs. FSA officials verified our analysis. We also obtained and analyzed data on default rates and dollars in default for 3 The cohort default rate is defined as the percentage of borrowers who enter a repayment status in a certain fiscal year and default before the end of the next fiscal year on certain FFEL and Direct Loans. Page 19 GAO-03-348 Federal Student Aid Appendix I: Scope and Methodology fiscal year 2000 to identify schools with default rates between 20 and 24 percent for 3 consecutive years or with default rates between 30 and 39 percent in 1 year—those at risk of removal from the program. We identified 26 of these schools. In addition, we obtained data from FSA officials on all schools with defaulted loans (about 4,000) and the amount of dollars in default for each school. We analyzed the data and identified 47 schools with at least $1 million in defaulted loans as of fiscal year 2000. We developed a survey designed to determine the extent that officials from schools with high default rates and schools with high volumes of dollars in default were knowledgeable about the methods used by FSA to assist them, had participated in any of the FSA conferences or used any of the tools provided by FSA. Additionally, the survey asked the officials about their views of the assistance provided by FSA and if they had suggestions about ways that FSA could better assist them. We focused on schools with high default rates because historically they were a significant factor contributing to high national cohort default rates, and schools with high dollars in default because they represent most of the total dollars in default. We selected and attempted to contact officials at 31 postsecondary schools, which included 4-year institutions, 2-year institutions, and non- degree institutions. Although the 31 schools are not statistically representative of the universe of postsecondary schools that receive title IV funds, we selected them to provide a cross-section of schools with high default rates and high dollars in default. Our sample included all 9 schools with default rates above regulatory thresholds based on fiscal year 1999 CDRs, the latest data available at the time we drew the sample. We also randomly selected 12 schools with default rates near regulatory thresholds based on fiscal year 2000 CDRs, and 10 randomly selected schools with $1 million or more in defaulted loans as of fiscal year 2000. We limited the number of schools in the randomly selected groups in order to have the three groups of nearly equal size. In total, directors or financial aid administrators from 23 schools participated in our survey. The 23 schools consisted of 7 of the 9 schools with CDRs above regulatory thresholds, 6 of the 12 schools with CDRs near the regulatory thresholds, and all 10 of the schools with a high volume of dollars in default. Table 2 summarizes the postsecondary schools that participated in our survey. Page 20 GAO-03-348 Federal Student Aid Appendix I: Scope and Methodology Table 2: Summary of Postsecondary Schools That Participated in Our Survey High volume of CDRs above CDRs near dollars in default regulatory limitsa regulatory limitsb ($1 million or more) No. Participated No. Participated No. Participated 4-Year Institution —- —- 9 2-Year Institution 2 1 1 Non-Degree Institution 5 5 —- Total = 23 7 6 10 Source: GAO. a This included schools that had default rates of 25 percent or more for three consecutive years and schools with default rates of greater than 40 percent in a single year. b This included schools with default rates between 20 and 24 percent for three consecutive years and those with default rates between 30 and 39 percent in 1 year. Page 21 GAO-03-348 Federal Student Aid Appendix II: FSA’s Default Management Appendix II: FSA’s Default Management Goals for Fiscal Years 2000-2002 Goals for Fiscal Years 2000-2002 Goal Number Goal Description 2000 2001 2002 1. Demonstrate pursuit of improved default management and prevention strategies. X 2. Increase by 25 percent the number of visitors to the Direct Loan (DL) Servicing Web site. X 3. Implement improved DL servicing infrastructure to better support financial management X reporting and customer service. 4. Integrate the Debt Management Collection System (DMCS) into the common borrower X system. 5. 2002: Keep the loan program’s cohort default rate under 8 percent. X X X 2001: Keep the cohort default rate under 8 percent. 2000: Keep the cohort default rate under 10 percent. 6. 2002: Monitor the existing Voluntary Flexible Agreementsa (VFA) and provide operational X X X oversight. 2001: Implement and monitor at least four VFAs for program participation. Launch all four no later than March 2001. 2000: Enter into no more than six voluntary flexible agreements (VFAs). 7. 2002: Publish and release the VFA Report to the Congress. X X 2001: Submit a report to the Congress on the viability of expanding the VFA pilot. 8. Work with the guaranty agency community to establish common performance metrics X primarily in the areas of delinquency, default aversion and collections. 9. 2002: Implement a multi-year program to further reduce cohort and lifetime default rates. X X X 2001: Establish a program and multi-year goals to further reduce the cohort and lifetime default rates. 2000: Reduce the lifetime default rate. 10. Utilize the Financial Partners Data Mart as a basis to establish risk management X assessment ability of lenders, servicers, and guaranty agencies. 11. Identify institutions abusing FSA programs through data mining using student information. X 12. 2002: Publish and disseminate five new student aid awareness publications X X 2001: Create new product delivery approach that will increase student aid information to students and parents. 13. Implement Internet billing and online mailing for Direct Loan Servicing. X 14. Pilot data mining and analysis projects in DL Servicing Center aimed at improving regular X collections. 15. Ensure that default recovery totals exceed default claim totals for the year. X 16. Increase the number of lenders using electronic funds transfer for Direct Consolidation by X 100 percent, from 13 to 26. 17. 2002: Increase the default recovery rate to 15 percent. X X X 2001:Keep the default recovery rate at 10 percent or higher. 2000: Keep the default recovery rate at 10 percent or higher. 18. Improve default recovery rate to new goal of $914 million. X 19. 2002: Expand the use of the National Directory of New Hires database to recover $200 X X million in defaulted student loans. 2001: Implement the National Directory of New Hires database matching program. a A Voluntary Flexible Agreement (VFA) provides a guaranty agency flexibility to implement new practices, including default prevention or collections activities by waiving or modifying some requirements established under federal statutes that apply to other guaranty agencies. In fiscal year 2002, FSA had four such agreements. Page 22 GAO-03-348 Federal Student Aid Appendix II: FSA’s Default Management Goals for Fiscal Years 2000-2002 Goal Number Goal Description 2000 2001 2002 20. Continue use of performance-based default collections contracts. X 21. 2002: Support the administration’s efforts to improve the data match with the IRS. X X 2001: Analyze the results of IRS statistical study regarding electronic data match. 22. Demonstrate value of National Student Loan Data System (NSLDS) default match. X 23. 2002: Prepare annual NSLDS analysis of students who receive loans although they X X appear to be in default and identify improvements that can be made 2000: Continue to work with guaranty agencies and lenders to maintain the quality of data in NSLDS. 24. 2002: Increase the number of Free Applications for Federal Student Aid (FAFSAs) filed X X X electronically from 5 million last year to 5.5 million with 55 percent via the Web product. 2001: Increase the number of FAFSAs filed electronically from 4 million to 5 million with 50 percent via the Web product. 2000: Increase the number of FAFSAs filed electronically from 3 million to 4 million. 25. Use the Common Origination Disbursement System to institute an eligibility check for valid X Individual Student Information Record on file for all Direct Loan recipients. 26. 2002: Develop metrics to demonstrate that there is an appropriate balance between X X providing technical assistance to schools and program monitoring. 2001: Increase program reviews by 20 percent. 27. Increase the total number of borrowers repaying their Direct Loans through electronic X debiting to a minimum of 400,000 borrowers. 28. Provide Spanish language deferment and forbearance requests at DL Servicing Web site. X 29. Educate the foreign school community about FSA program requirements to reduce X noncompliance. 30. Implement a pilot program at foreign schools that would prevent false enrollments. X 31. Make a determination on the initial cohort of recertification applications for all foreign non- X medical schools eligible to participate in the Federal Family Education Loan Program. 32. 2001: Augment the continuing campaign to eliminate false death and disability. X X 2000: Reduce fraudulent death and disability cases below 1998 baseline. 33. Conduct and complete investigative analysis on the remaining 1,300 discharges of death X and disability cases identified from the Inspector General audit. 34. Expand FAFSA correction on the Web capabilities. X 35. Partner with National Student Loan Clearinghouse to eliminate mismatches in enrollment X information. 36. Try at least five new ways to make debt collection more effective, less costly, and more X customer-service oriented. 37. Increase by five, the number of guaranty agency partnerships with FSA designed to X improve portfolio management. 38. Expand current initiatives to help noncompliant schools and schools on reimbursement X prepare action plans to improve their management of title IV programs. 39. Increase the default recovery rate for loans in default held by guaranty agencies. X Source: Department of Education. Page 23 GAO-03-348 Federal Student Aid Appendix III: FSA’s Default Management Appendix III: FSA’s Default Management Goals and Outcomes for Fiscal Years 2000- 2002 Goals and Outcomes for Fiscal Years 2000- 2002 Goal/Strategy Goal a Goal Number Description Actions Outcomes met? 1. Demonstrate pursuit of Identify three risk elements that impact aIdentified the top three reasons Yes improved default borrower’s ability to pay. Also, link riskcontributing to delinquency in a management and review efforts across channels into sample of the direct loan prevention strategies. activities by Student Credit Management. portfolio: (1) 85 percent of borrowers did not have the advantage of a full 6-month grace period, (2) 76 percent had withdrawn from school, and (3) 57 percent had not been contacted. Also implemented several pilot initiatives to focus on the reasons identified for delinquency including increased borrower contact and other proactive activity. 2. Increase by 25 percent Increase visitors through continued Increased visitors by 186 Yes the number of visitors to enhancement of web functionality, percent. The DL Servicing Web the Direct Loan (DL) marketing, and making announcements site provides account Servicing Web site. by phone messaging and mail information for borrowers, online correspondence. account management and counseling for over 5.7 million active student loan borrowers with a total portfolio of $73 billion. 3. Implement improved DL Negotiate phase-out of contractor. Expected benefits of retiring old Yes servicing infrastructure to Modernization partner to assume financial reporting system: better support financial accounting functions under a share-in- projected net savings by fiscal management reporting savings arrangement. year 2005 of $8-11 million and and customer service. ongoing projected savings after fiscal year 2005 of $4 million per year; improved customer service by providing a single source of financial data; and, increased data integrity and employee satisfaction by reducing training requirements for new or transferred employees. 4. Integrate the Debt Look at the imaging services provided by Better system in place for Yes Management Collection three current partners to identify enhanced customer service. System (DMCS) into the commonalities that could be consolidated. Also, data mining activities and common borrower data integrity are strengthened. system. Page 24 GAO-03-348 Federal Student Aid Appendix III: FSA’s Default Management Goals and Outcomes for Fiscal Years 2000- 2002 Goal/Strategy Goal a Goal Number Description Actions Outcomes met? 5. 2000: Keep the cohort Provide training and technical assistance, The national CDR for 1998 was Yes default rate under 10 tools for interpreting student loan data, 6.9 percent, reported in 2000; percent. and default management plans. the national CDR for 1999 was 2001: Keep the cohort 5.6 percent, reported in 2001; default rate under 8 Host Student Loan Repayment and the national CDR for 2000 percent. symposium, National default Prevention was 5.9 percent, reported in 2002: Keep the loan Day and a number of forums. 2002. A total of 1,500 schools program’s cohort default participated in National Default rate (CDR) under 8 Help schools to identify borrowers at risk Prevention Day, which percent. of default through the Late Stage familiarized schools with FSA Delinquency Assistance Program promoted default management software such as Late Stage Delinquency Assistance Provide loan data to schools to aid in Program. counseling. 6. 2000: Enter into no more Accept proposals from guaranty agencies. FSA received eight VFA Yes than six voluntary flexible Establish VFAs for guaranty agencies or proposals. One proposal was agreements (VFAs).b provide greater operating flexibility. approved and awaited public 2001: Implement and Use performance measures developed in comment. Three others were monitor at least four VFAs conjunction with guaranty community to pending. no later than March 2001. monitor compliance and performance. Agreements signed with 2002: Monitor the existing guaranty agencies in Wisconsin, four VFAs and provide Texas, Massachusetts, and oversight. California. Common general indicators used to evaluate performance of four VFAs in comparison to other guaranty agencies. 7. 2001: Submit a report to Provide a report to the Congress Interim report released because No the Congress on the consistent with 1998 authorizing of insufficient time to draw final viability of expanding the legislation on the current status of the conclusions on effectiveness of VFA pilot. VFAs. VFAs. 2002: Publish and release Use data from indicators, input from As of January 10, 2003, FSA’s VFA Report to the guaranty agency community as well as draft had not received clearance Congress departmental offices to draft report. for release by the secretary.. 8. Work with the guaranty Develop performance measures with Common general indicators Yes agency community to community workgroup, including VFAs created to evaluate the establish common and other guaranty agencies to gain performance of each VFA performance metrics consensus. Regional staff will perform performance and with guaranty primarily in the areas of validation with program reviews. agencies not participating in the delinquency, default agreements. The measures aversion and collections. include: analyzing the dollar ratio of lender held loans, utilizing a trigger rate, and determining effectiveness at collection recoveries 9. 2000: Reduce the lifetime Convene “Student Loan Repayment Strategies from symposium No default rate. Symposium”. used in repayment publication. 2001: Establish a Use “best-in business” models as Created reports identifying program and multi-year templates for improvements. Develop “buckets” of delinquency, goals, to reduce the tools to better predict default rates and identifying basic characteristics cohort and lifetime default risk analysis. of delinquent borrower. rates. Use “best-in business” models as Implemented a pilot using credit Page 25 GAO-03-348 Federal Student Aid Appendix III: FSA’s Default Management Goals and Outcomes for Fiscal Years 2000- 2002 Goal/Strategy Goal a Goal Number Description Actions Outcomes met? 2002: Implement a multi- templates for improvements. Develop modeling to prioritize due year program to further tools to better predict default rates and diligence efforts. reduce cohort and lifetime risk analysis. Not provided. default rates.c 10. Utilize the Financial Utilize a modified version of the system Improvements made include: Yes Partners Data Mart as a development life cycle methodology used access for guaranty users, basis to establish risk to construct the data mart. Use the creation of an initial risk management assessment existing product designed to augment scorecard to assess partner ability of lenders, extracts to the system and link to current performance and elimination of servicers, and guarantee operating systems. contractor dependent reports. agencies. 11. Identify institutions Run interim update on Common Information from Social Security Yes abusing FSA programs Origination and Disbursement (COD). Administration death match, through data mining using Use data mining to target noncompliant proper interest rates in the DL student information. schools. servicing system, early identification of noncompliant schools, improvements to COD to ensure that upfront matches are in effect for DL originations. 12. 2001: Create new product Use print and electronic media to provide Publications produced on Yes delivery approach that will greater access to student aid information. finding free scholarships, increase student aid Obtain input from specified groups. obtaining loan forgiveness information to students Translate materials. programs for teachers, and and parents. Solicit information from individuals and avoiding student scams. 2002: Publish and organizations to determine the Student aid information in disseminate five new appropriate content for targeted audience, different languages, formats student aid awareness the clarity of materials and the best tool aimed at targets audiences publications. for information dissemination. including 11 “one-pagers,” a default management brochure for NDPD, a financial aid poster for Native American college- bound youth, aid information in Spanish, publications in Braille/audio media. Information to be distributed via high school counselors and others in contact with targeted audience as well as published in newsletters and magazines. 13. Implement Internet billing Initiate at least one paper to electronic Direct Loan model for Electronic Yes and online mailing for service conversion process. Electronic Bill Presentment and Payment Direct Loan Servicing. servicing will provide borrowers a state of (EBPP): implemented 3/22/02. the art tool for making payments, Web self-service (online receiving bills and obtaining other correspondence: implemented correspondence. 5/10/02). Aggregator Model for EBPP: implemented 7/29/02. An extensive communications and adoption strategy plan is being implemented to let borrowers know services are available. Page 26 GAO-03-348 Federal Student Aid Appendix III: FSA’s Default Management Goals and Outcomes for Fiscal Years 2000- 2002 Goal/Strategy Goal a Goal Number Description Actions Outcomes met? 14. Pilot data mining and Develop and implement Credit The CMDM currently contains Yes analysis projects in Direct Management Data Mart (CMDM) to demographic and financial data Loan Servicing Center conduct data mining and portfolio for all direct loan borrowers and aimed at improving analysis. Utilize Late Stage Delinquency will include borrowers in default regular collections. Assistance. Refine due diligence tactics. for all loan obligations held by Study the correlation between credit score the Department. Increased and delinquency. borrower contact efforts with higher balance loans. A study underway to determine if a correlation exists between a borrower’s credit score and delinquency relationship. 15. Ensure that default Increase effectiveness of available Estimated default claims: $2.7 Yes recovery totals exceed collection tools: private collection billion. Estimated default default claim totals for the agencies, treasury offsets, combined recoveries: $4.87 billion. Default year regular collections and loan recovery rate 7.6 percent rehabilitations. Utilize new tools where without consolidation. Default possible. recovery rate 16.8 percent with consolidations. 16. Increase the number of Educate lenders about the time and cost 76 lenders participating (292 Yes lenders using electronic savings benefits of EFT. Technical percent enrollment); 3 additional funds transfer (EFT) for assistance is provided to lenders in the lenders in process of enrolling. Direct Consolidation by enrollment and other phases of the Allows FSA to renegotiate the 100 percent from 13 to process. loan consolidation contract for a 26. potential savings of $10 million in fiscal year 2002. 17. 2000: Keep the default Shorten procurement process for private Total collections: $3.22 billion. Yes recovery rate at 10 collection agencies. Use available Recovery rate 11.7 percent. percent or higher. collections tools such as Treasury offsets, Combined recoveries were 2001: Keep the default administrative wage garnishments to $5.102 billion. recovery rate at 10 pursue recover defaulted loans. Exceeded goal by 1.5 percent or higher. Utilize available collection methods. Refer percentage points, total 2002: Increase the default eligible accounts to private collection collected $4.87 billion. recovery rate to 15 agencies for collection. percent. Focus on existing collection methods to improve on past results. Provide excellent customer service to make collections process user-friendly. 18. Improve default recovery Focus on existing collection methods to Collected $924.7 million Yes rate to new goal of $914 improve on past results. million. 19. 2001: Implement the Establish procedures and a mechanism to Collections totaled $150 million. Yes National Directory of New match collections records again Health New information obtained for Hires database-matching and Human Services database. over 690,000 accounts. program. At close of quarter, transmit two files FSA collections through August: 2002: Expand use of the (containing FSA and GA defaulted loan $269 million. GA/FSA combined National Directory of New data) to Health and Human Services for collections exceeded $500 Hires (NDNH) database comparison with NDNH files. million. to recover $200 million in defaulted loans. Page 27 GAO-03-348 Federal Student Aid Appendix III: FSA’s Default Management Goals and Outcomes for Fiscal Years 2000- 2002 Goal/Strategy Goal a Goal Number Description Actions Outcomes met? 20. Continue use of Track and rank order performance based By driving private collection Yes performance-based on collection totals. agencies (PCAs) to perform default collections competitively, agency was able contracts. to increase recoveries and reduce costs. 21. 2001: Analyze the results Compare income data that students and Data helped FAFSA to identify Yes of IRS statistical study parents report on 2000-2001 FAFSAs error-prone applicants and regarding electronic data with income reported to the IRS for 1999 minimize the amount of federal match. calendar year. student aid dollars that are 2002: Support the Work with Treasury to draft legislative erroneously awarded to administration’s efforts to language that allows Education to students each year. improve the data match implement an effective income verification Legislative language sent to with the IRS. match with the IRS. FSA will work with Joint Committee on Taxation IRS to test a “Consent for the IRS to and House and Senate Disclose Taxpayer Information” Web site. leadership. FSA and IRS launched website on October 7, 2002. Eight postsecondary institutions participating in pilot. IRS agreement to permit 600 students and parents access to website for verification of 2001 tax data. 22. Demonstrate value of Perform analysis of students that have Latest computations of NSLDS Yes National Student Loan been identified erroneously as ineligible default and other matches Data System (NSLDS) for funds. indicate that FSA has averted default match. an amount equivalent to $300 million a year in potential improper payments. 23. 2000: Continue to work Analyze loan and repayment data within Reporting burden of guaranty No with guaranty agencies NSLDS. agencies reduced. and lenders to maintain Identify improvements that can be made Not on track due to other the quality of data in to NSLDS. priorities. NSLDS. 2002: Prepare annual NSLDS analysis of students who receive loans although they appear to be in default and identify improvements that can be made.d Page 28 GAO-03-348 Federal Student Aid Appendix III: FSA’s Default Management Goals and Outcomes for Fiscal Years 2000- 2002 Goal/Strategy Goal a Goal Number Description Actions Outcomes met? 24. 2000: Increase the Increase user-friendliness of website. A little over 4 million FAFSAs Yes number of Free Introduce features such as incremental filed electronically. Application for Federal save to allow users to retain data input if 5,364,223 applications filed Student Aid (FAFSAs) unable to complete all at once. electronically. Over 61 percent filed electronically from 3 Make improvements to Web site. Increase of all electronic submissions million to 4 million. visibility of Web product. used Web. 2001: Increase the Redesign web products and increase 7.27 million filed electronically, number of FAFSAs filed publicity. FSA staff to work closely with 5.37 million filed via the web. electronically to 5 million TRIO personnel and others who work with Enhanced and increased the with 50 percent via Web low-income students. types of FAFSA on the Web product. Toolkit materials that financial 2002:Increase the aid administrators, counselors number of FAFSAs filed and other who work directly with electronically 5.5 million students and their families. with 55 percent via Web product. 25. Use the Common Implement eligibility check that is modeled Launched the COD system as Yes Origination Disbursement on an existing check performed by the part of FSA Integration Plan, (COD) system to institute Pell system for eligible applicants. integrating the Pell and Direct eligibility check for valid Loan processes. Schools no Individual Student longer have to ensure valid ISIR Information Record (ISIR) data is on file for direct loan for Direct Loan recipients. recipients. 26. 2001: Increase program Conduct 163 on-site reviews at 163 program reviews Yes reviews by 20 percent. institutions. completed, seven institutions 2002: Develop metrics to Hold discussions between the Schools referred to IG for demonstrate that there is Channel and the Management noncompliance. an appropriate balance Improvement Team. Development for FY Preliminary measures between providing 2003 Performance Plan. developed. First calculations will technical assistance to take place in fiscal year 2003. schools and program monitoring. 27. Increase the total Increase the presence of electronic debit EDA reduced mailing costs (by Yes numbers of borrowers accounts (EDA) via mailers and allowing $1,196,414) and provided repaying their Direct convenient enrollment at Web site. borrower with an efficient Loans through electronic method of payment. debiting to a minimum of 400,000 borrowers. 28. Provide Spanish Develop Spanish website utilizing a Spanish speaking borrowers are Yes language deferment and translator from American Translators able to access and download forbearance requests at Association. deferment and forbearance DL Servicing Web site. forms in Spanish. 29. Educate the foreign Partner with guaranty agencies to provide Training provided in first quarter Yes school community about training to foreign schools to schools in the United FSA program Kingdom and Canada. A focus requirements to reduce group was formed and noncompliance. developed a foreign schools handbook. Also, conducted several demonstrations on electronic application to participate in title IV programs. Page 29 GAO-03-348 Federal Student Aid Appendix III: FSA’s Default Management Goals and Outcomes for Fiscal Years 2000- 2002 Goal/Strategy Goal a Goal Number Description Actions Outcomes met? 30. Implement a pilot program Implement pilot program that enables FSA has submitted Yes at foreign schools that foreign schools to enter enrollment data recommendations for legislative would prevent false on the Web and guaranty agencies to and regulatory changes that enrollments. verify data before loan funds are would require lenders to verify disbursed. student enrollment prior to disbursements. 31. Make a determination on Recertify the initial cohort of foreign Eligibility determinations for all Yes initial cohort of schools. low-volume foreign schools recertification applications completed in February 2001, for all foreign non-medical high volume foreign institutions schools eligible to recertified by May 31, 2001. participate in the FFEL Program. 32. 2000: Reduce fraudulent Revise forms currently in use. Pilot Implemented three actions to Yes death and disability cases centralized processing of disability claims strengthen initial screening below 1998 baseline. for four guaranty agencies. Conduct process: (1) revise forms, (2) 2001:Augment continuing periodic audits of NSLDS and credit one-year pilot centralized false death and disability bureau information. Follow-up on processing with four guaranty campaign. Inspector General (IG) estimates. agencies, and (3) conduct Implement pilot that will serve as test run periodic audits using both for regulations that go into effect in 2002. NSLDS and credit bureau data. Further analysis conducted on 20,817 files with income within first year of discharge. Pilot successfully implemented in September 2001. 33. Conduct and complete Validate outcomes and disposition of the Comprehensive report on Yes investigative analysis on remaining 1,300 claims identified as outcomes of 1,300 discharges remaining 1300 “discharged.” issued in April 2001 and discharges identified from forwarded to Inspector General. Inspector General audit. 34. Expand FAFSA None provided. Popularity of this new function Yes Correction on the Web resulted in FSA having to capabilities. increase its server capacity. 35. Partner with the National Enter into a partnership with NSLC based Clearinghouse school student Yes Student Loan on successful implementation of data enrollment data received by Clearinghouse (NSLC) to exchange. Direct Loan Servicer up to 90 eliminate mismatches in days earlier. Significant enrollment information. reduction (25 percent) in the percentage of in-school deferment forms required for completion by students. 36. Try at least five new ways Implement a process that will allow social Implemented standard Yes to make debt collection security number discrepancies to be procedures at all service more efficient, less costly, easily resolved. Automate data transfer centers, automated data and more customer with Justice. Shorten timeframe of wage transfer process, improved call service oriented. garnishment hearings. Improve answer rate to 95 percent, among other call rate for Debt Collection Service. activities. Streamline the ability-to-benefit discharge review process. Page 30 GAO-03-348 Federal Student Aid Appendix III: FSA’s Default Management Goals and Outcomes for Fiscal Years 2000- 2002 Goal/Strategy Goal a Goal Number Description Actions Outcomes met? 37. Increase by five, the Publish agency rankings and other Partnerships formed with USA Yes number of guaranty statistical data. Increase presence at Group, Texas Guaranteed agencies partnered with industry meetings. Develop joint initiatives Student Loan Corporation, FSA. with guaranty agencies Nebraska Student Loan Program, Oklahoma Student Loan Program, and South Dakota EAC. Agency rankings published for first time since fiscal year 1996, statistical data published through year, increased presence of department at industry association meetings and development of joint initiatives. 38. Expand current initiatives Develop a welcome package for new title Reduced the percentage of Yes to help noncompliant and IV eligible schools. Establish baseline for school on reimbursement and/or reimbursement schools new schools that will be analyzed at end cash monitoring by 30 percent. prepare action plans to of first year to provide feedback. improve their management of title IV programs. 39. Increase the default Increase emphasis placed in on guaranty Overall recovery rate: 18.13 Yes recovery rate for loans in initiatives. percent, up from 15.52 percent default held by guaranty in previous year. agencies. Source: Department of Education. a Our determination of whether or not a goal was met was based on our analysis of FSA’s internal documents and considered the agency’s collective efforts during the period in which the goals were in effect. b As of March 2001, FSA entered into four VFAs with guaranty agencies. c FSA continued its goal to establish a program to further reduce cohort and lifetime default rates in fiscal years 2000 through 2002. However, it is not clear what progress has been made on this goal beyond the initial success of the Repayment Symposium held in 2000. d While FSA achieved an interim goal in fiscal year 2000 to improve the quality of NSLDS data, it failed to achieve its most recent goal to prepare an analysis of NSLDS data that would explain why some borrowers who are classified as defaulters continue to receive federal student aid. Page 31 GAO-03-348 Federal Student Aid Appendix IV: Comments from the Office of Appendix IV: Comments from the Office of Federal Student Aid Federal Student Aid Page 32 GAO-03-348 Federal Student Aid Appendix IV: Comments from the Office of Federal Student Aid Page 33 GAO-03-348 Federal Student Aid Appendix IV: Comments from the Office of Federal Student Aid Page 34 GAO-03-348 Federal Student Aid Appendix IV: Comments from the Office of Federal Student Aid Page 35 GAO-03-348 Federal Student Aid Appendix V: GAO Contacts and Staff Appendix V: GAO Contacts and Staff Acknowledgments Acknowledgments Carolyn M. Taylor (202) 512-2974 GAO Contacts Mary A. Crenshaw (202) 512-7053 Lisa Lim and Carla Craddock made significant contributions to this report. Staff In addition, James Rebbe provided legal support, Carolyn Boyce provided Acknowledgments assistance in selecting schools for our survey, and Susan Bernstein and Barbara W. Alsip provided writing assistance. 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Federal Student Aid: Timely Performance Plans and Reports Would Help Guide and Assess Achievement of Default Management Goals
Published by the Government Accountability Office on 2003-02-14.
Below is a raw (and likely hideous) rendition of the original report. (PDF)