Perkins Student Loans:

Need for Better Controls Over Loans Recovered From Closed Schools

HRD-91-70: Published: Mar 27, 1991. Publicly Released: Mar 27, 1991.

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Pursuant to a congressional request, GAO reviewed the Department of Education's Perkins Student Loan Program, focusing on Education's policies, procedures, and practices for recovering Perkins loan fund assets from schools that go out of business.

GAO found that Education lacked: (1) adequate internal controls over Perkins fund assets obtained from closed schools; (2) adequate data and guidance for accurately determining the value of assets due from the schools; and (3) a system for calculating and reconciling the value of assets returned with the amounts due. GAO also found that: (1) Education's loan servicing backlog could increase defaults; and (2) 1990 legislative changes to the Higher Education Act could indirectly increase school closures and exacerbate the loan processing backlog.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: After interim guidelines were issued in September 1991, Education incorporated the new procedures in its campus-based program manual.

    Recommendation: To provide reasonable assurances that its Perkins Student Loan Program assets are being properly safeguarded from loss, the Secretary of Education should revise Education's policies and procedures to provide guidance for: (1) accurately determining the net federal investment in schools' Perkins loan funds; and (2) promptly reconciling the amount of each closed school's cash and outstanding loans with the net federal investment in the fund, as recorded by Education.

    Agency Affected: Department of Education

  2. Status: Closed - Implemented

    Comments: Education awarded a new contract on April 30, 1992, which will be effective on October 1, 1992, to process backlogged Perkins loans from closed schools.

    Recommendation: To provide reasonable assurances that its Perkins Student Loan Program assets are being properly safeguarded from loss, the Secretary of Education should increase Education's capacity for the timely processing of loans from closed schools.

    Agency Affected: Department of Education

 

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