oversight

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)

                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
 ashbyc@gao.gov.                                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




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          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.




(130183)
                  Page 36                                       GAO-03-348 Federal Student Aid
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