Stafford Student Loans:

Millions of Dollars in Loans Awarded to Ineligible Borrowers

IMTEC-91-7: Published: Dec 12, 1990. Publicly Released: Jan 24, 1991.

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Pursuant to a congressional request, GAO evaluated the Department of Education's database on Stafford student loans and how Education could use such data to prevent loan abuses.

GAO found that: (1) about 32,000 students who had defaulted on loans totalling over $54 million later received new loans worth over $109 million; (2) Education may have made up to $5 million in loans to students in excess of the annual limit from September 1987 through August 1988, costing the federal government additional interest subsidies; (3) although data indicated that student loans exceeding federal limits had not yet become a significant problem, such abuse could continue and become worse if left unchecked; (4) Education's automated systems did not allow guaranty agencies to access the database on Stafford loans; and (5) inadequate monitoring and maintenance of Education's database made it difficult to determine the extent of abuse, since files had suspect or missing data.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Education stated that it has directed guaranty agencies to submit accurate and updated information to the Department. Education considered this recommendation closed as of December 23, 1991.

    Recommendation: The Secretary of Education should direct guaranty agencies to: (1) ensure that their student-loan data are as accurate and complete as practical, with special emphasis given to data on defaulted borrowers; and (2) provide updated information to Education.

    Agency Affected: Department of Education

  2. Status: Closed - Implemented

    Comments: In its annual assurance letter to the President and Congress, dated December 31, 1990, on the adequacy of the department's internal control and financial systems, Education reported the ability of ineligible borrowers to obtain loans as a material internal control weakness under FMFIA.

    Recommendation: The Secretary of Education should report the ability of ineligible borrowers to obtain loans as a material internal control weakness under the Federal Managers' Financial Integrity Act (FMFIA).

    Agency Affected: Department of Education

  3. Status: Closed - Implemented

    Comments: Tape dump cross-match reports for fiscal year (FY) 1990, based on FY 1990 tape dump submissions, are being mailed to guaranty agencies on an annual basis. Education also issued instructions to gurantee agencies on using this type of information. Education considered this recommendation closed as of September 20, 1991.

    Recommendation: The Secretary of Education should take immediate action to analyze the data it now has and, until the National Student Loan Data System is developed and implemented, provide to guaranty agencies on a periodic basis the data needed to prevent defaulters from obtaining new loans. This information should also be used to stop and recover federal interest payments on loans obtained by defaulted borrowers.

    Agency Affected: Department of Education

  4. Status: Closed - Implemented

    Comments: In October 1991, guaranty agencies were notified that they would receive a GSL national claims file containing claims data from the most current FY tape dump. They were advised to use the file to discover and resolve errors associated with the data through contact with other agencies, and to identify borrowers who are eligible to receive subsequent loans. The tapes were sent by November 27, 1991.

    Recommendation: The Secretary of Education should take immediate action to develop a more comprehensive annual report that gives guaranty agencies the data they need to more efficiently detect loan limit abuses. In addition, the Secretary of Education should require guaranty agencies to use the report.

    Agency Affected: Department of Education

  5. Status: Closed - Implemented

    Comments: Investigations have been closed or initiated on all 50 cases.

    Recommendation: The Office of Inspector General, Department of Education, should follow up on the data and documents GAO provided on defaulters who have obtained new loans and take appropriate action.

    Agency Affected: Department of Education: Office of Inspector General (ED)

 

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