Federal Student Loans: Education Needs to Verify Borrowers' Information for Income-Driven Repayment Plans
Fast Facts
To ease the burden of federal student loans, borrowers can apply for Income-Driven Repayment plans. The plans use borrowers' taxable income and family size to determine an affordable payment rate. Monthly payments can be as low as $0 and still count toward potential loan forgiveness after the repayment period.
Our recommendations are for the Department of Education to do more to verify borrowers' income and family size because of potential error or fraud:
More than 76,000 borrowers making no monthly payments may have had enough income to pay something
More than 35,000 borrowers had approved plans with atypical family sizes of 9 or more
How family size affects payment amounts in some Income-Driven Repayment plans for a borrower with $40,000 in taxable income
Graphic showing that a single borrower's payment would be $182 but decreases to $74 with a family of 3 and $0 with a family of 5
Highlights
What GAO Found
GAO identified indicators of potential fraud or error in income and family size information for borrowers with approved Income-Driven Repayment (IDR) plans. IDR plans base monthly payments on a borrower's income and family size, extend repayment periods from the standard 10 years to up to 25 years, and forgive remaining balances at the end of that period.
Zero income. About 95,100 IDR plans were held by borrowers who reported zero income yet potentially earned enough wages to make monthly student loan payments. This analysis is based on wage data from the National Directory of New Hires (NDNH), a federal dataset that contains quarterly wage data for newly hired and existing employees. According to GAO's analysis, 34 percent of these plans were held by borrowers who had estimated annual wages of $45,000 or more, including some with estimated annual wages of $100,000 or more. Borrowers with these 95,100 IDR plans owed nearly $4 billion in outstanding Direct Loans as of September 2017.
Family size. About 40,900 IDR plans were approved based on family sizes of nine or more, which were atypical for IDR plans. Almost 1,200 of these 40,900 plans were approved based on family sizes of 16 or more, including two plans for different borrowers that were approved using a family size of 93. Borrowers with atypical family sizes of nine or more owed almost $2.1 billion in outstanding Direct Loans as of September 2017.
These results indicate some borrowers may have misrepresented or erroneously reported their income or family size. Because income and family size are used to determine IDR monthly payments, fraud or errors in this information can result in the Department of Education (Education) losing thousands of dollars of loan repayments per borrower each year and potentially increasing the ultimate cost of loan forgiveness. Where appropriate, GAO is referring these results to Education for further investigation.
Weaknesses in Education's processes to verify borrowers' income and family size information limit its ability to detect potential fraud or error in IDR plans. While borrowers applying for IDR plans must provide proof of taxable income, such as tax returns or pay stubs, Education generally accepts borrower reports of zero income and borrower reports of family size without verifying the information. Although Education does not currently have access to federal sources of data to verify borrower reports of zero income, the department could pursue such access or obtain private data sources for this purpose. In addition, Education has not systematically implemented other data analytic practices, such as using data it already has to detect anomalies in income and family size that may indicate potential fraud or error. Although data matching and analytic practices may not be sufficient to detect fraud or error, combining them with follow-up procedures to verify information on IDR applications could help Education reduce the risk of using fraudulent or erroneous information to calculate monthly loan payments, and better protect the federal investment in student loans.
Why GAO Did This Study
As of September 2018, almost half of the $859 billion in outstanding federal Direct Loans was being repaid by borrowers using IDR plans. Prior GAO work found that while these plans may ease the burden of student loan debt, they can carry high costs for the federal government.
This report examines (1) whether there are indicators of potential fraud or error in income and family size information provided by borrowers on IDR plans and (2) the extent to which Education verifies this information. GAO obtained Education data on borrowers with IDR plans approved from January 1, 2016 through September 30, 2017, the most recent data available, and assessed the risk for fraud or error in IDR plans for Direct Loans by (1) matching Education IDR plan data for a subset of borrowers who reported zero income with wage data from NDNH for the same time period and (2) analyzing Education IDR plan data on borrowers' family sizes. In addition, GAO reviewed relevant IDR policies and procedures from Education and interviewed officials from Education.
Recommendations
GAO recommends that Education (1) obtain data to verify income information for borrowers who report zero income on IDR plan applications, (2) implement data analytic practices and follow-up procedures to verify borrower reports of zero income, and (3) implement data analytic practices and follow-up procedures to verify borrowers' family size. Education generally agreed with our recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Office of Federal Student Aid | The Chief Operating Officer of Federal Student Aid should obtain data in order to verify income information for borrowers reporting zero income on IDR applications. For example, Education could pursue access to federal data sources or obtain access to an appropriate private data source. (Recommendation 1) |
Open – Partially Addressed
The Department of Education generally agreed with and has partially addressed this recommendation in GAO's June 2019 report. Section 3 of the Fostering Undergraduate Talent by Unlocking Resources for Education Act (FUTURE Act), enacted in December 2019, provided Education with statutory authority to access certain Internal Revenue Service (IRS) data for the purpose of determining eligibility for Income-Driven Repayment (IDR) plans, among other things (Pub. L. No. 116-91, ? 3, 133 Stat. 1189, 1189-92 (Dec. 19, 2019)). The Congressional Budget Office estimated that use of this authority to verify eligibility for IDR plans could result in over $2 billion in savings from 2020 through 2029. Education reported that in July 2023 it established a direct data exchange with the IRS and a new IDR application to implement the law. Borrowers who apply for an IDR plan can now provide their consent for Education to automatically obtain income and family size information from their latest IRS tax return via the direct data exchange. As of December 31, 2023, Education reported that about 3.7 million borrowers (71 percent of those applying for IDR plans since the new application was implemented) have provided this approval. Beginning March 1, 2024, borrowers who do not provide this approval must submit alternative documentation of their income or self-certify they do not have any taxable income. We will close this recommendation when Education demonstrates how it is using these or other data to verify income information for borrowers who report they do not have any taxable income.
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| Office of Federal Student Aid | The Chief Operating Officer of Federal Student Aid should implement data analytic practices, such as data matching, and follow-up procedures to review and verify that borrowers reporting zero income on IDR applications do not have sources of taxable income at the time of their application. (Recommendation 2) |
Open – Partially Addressed
The Department of Education agreed with and has partially addressed this recommendation in GAO's June 2019 report. In January 2020, it initiated a pilot program with three of its loan servicers to conduct additional verification of income or family size information on IDR plan applications for a random sample of borrowers each month. The pilot focused on IDR borrowers who self-certified that they had no income or who reported certain family sizes. According to Education, selected borrowers were asked to provide documentation to their servicers to support the income or family size reported on their IDR application. If errors were identified, servicers would work with the borrowers to update their applications. If these reviews resulted in changes to a borrower's monthly payment amount, the borrower would be expected to begin paying the new amount within the next 60 days. As of March 2020, participating servicers selected 48,855 borrowers for verification according to Education. In response to the COVID-19 pandemic, Education implemented student loan relief for borrowers under the CARES Act and executive actions that, from March 2020 through August 2023, suspended student loan payments due, interest accrual, and involuntary collections for Direct and Federal Family Education Loans held by Education (Pub. L. No. 116-136, ? 3513, 134 Stat. 281, 404-05 (March 27, 2020)). According to Education, the Department suspended all IDR recertifications during this period and put its verification pilot on hold indefinitely. In January 2024, Education officials said their focus in 2024 is helping borrowers successfully transition back into repayment now that monthly payments have resumed, and they plan to implement this recommendation in 2025. GAO will continue to track Education's progress in implementing data analytic practices and follow-up procedures to review and verify income information for borrowers reporting zero income on IDR applications. Doing so could help Education reduce the risk of using fraudulent or erroneous information to calculate IDR payments.
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| Office of Federal Student Aid | The Chief Operating Officer of Federal Student Aid should implement data analytic practices, such as data mining, and follow-up procedures to review and verify family size entries in IDR borrower applications. For example, Education could review and verify all borrower reports of family size or a subset identified as being most susceptible to fraud or error. (Recommendation 3) |
Open – Partially Addressed
The Department of Education agreed with and has partially addressed this recommendation in GAO's June 2019 report. In January 2020, it initiated a pilot program with three of its loan servicers to conduct additional verification of income or family size information on IDR plan applications for a random sample of borrowers each month. The pilot focused on IDR borrowers who self-certified that they had no income or who reported certain family sizes. According to Education, selected borrowers were asked to provide documentation to their servicers to support the income or family size reported on their IDR application. If errors were identified, servicers would work with the borrowers to update their applications. If these reviews resulted in changes to a borrower's monthly payment amount, the borrower would be expected to begin paying the new amount within the next 60 days. As of March 2020, participating servicers selected 48,855 borrowers for verification according to Education. In response to the COVID-19 pandemic, Education implemented student loan relief for borrowers under the CARES Act and executive actions that, from March 2020 through August 2023, suspended student loan payments due, interest accrual, and involuntary collections for Direct and Federal Family Education Loans held by Education (Pub. L. No. 116-136, ? 3513, 134 Stat. 281, 404-05 (March 27, 2020)). According to Education, the Department suspended all IDR recertifications during this period and put its verification pilot on hold indefinitely. In January 2024, Education officials said their focus in 2024 is helping borrowers successfully transition back into repayment now that monthly payments have resumed, and they plan to implement this recommendation in 2025. GAO will continue to track Education's progress in implementing data analytic practices and follow-up procedures to review and verify family size entries provided by borrowers on IDR applications. Doing so could help Education reduce the risk of using fraudulent or erroneous information to calculate IDR payments.
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