Federal student loan borrowers can apply for Income-Driven Repayment plans that 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 loan forgiveness after the repayment period.
We found that:
95,100 plans of the nearly 878,500 plans we looked at were held by borrowers who made no monthly payments—yet may have had enough income to pay something
New applications accounted for about two-thirds of the 95,100 plans
2 of the largest federal loan services administered more than 75% of the 95,100 plans
What GAO Found
In June 2019, 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. The Department of Education (Education) administers the William D. Ford Federal Direct Loan (Direct Loan) program and contracts with private loan servicers to handle billing and other tasks, including processing borrowers' applications for IDR plans.
Indicators of Potential Fraud or Error in Income Information
GAO's June 2019 report found about 95,100 approved IDR plans (11 percent of the nearly 878,500 IDR plans GAO analyzed) were held by borrowers who reported having zero income yet potentially earned enough wages to make monthly student loan payments. For this correspondence, GAO disaggregated data from this analysis for two variables—IDR application type and loan servicer—to examine whether indicators of potential fraud or error varied for borrowers with different repayment circumstances.
- IDR Application Type. New applications accounted for just over two-thirds of the approximately 95,100 plans held by borrowers who reported zero income yet may have had sufficient wages to make a student loan payment. The remainder of the plans were comprised of (1) recertification applications, which borrowers on IDR plans currently must submit annually, and (2) requests for monthly payment recalculations, which borrowers on IDR plans may voluntarily request at any time based on changes in their income or family size.
- Loan Servicer. Two of the eight loan servicers included in GAO's review (Great Lakes and Navient) accounted for more than three-quarters of the approximately 95,100 plans held by borrowers who reported zero income yet may have had sufficient wages to make a student loan payment. This is similar to the share for these loan servicers in the overall population of nearly 878,500 plans GAO analyzed.
Indicators of Potential Fraud or Error in Family Size Information
GAO's June 2019 report found about 40,900 of about 5 million IDR plans were approved based on family sizes of nine or more, which GAO considered atypical because they comprised about the top 1 percent of family sizes in Education's data. For this correspondence, GAO disaggregated these data for two variables: IDR application type and loan servicer.
- IDR Application Type. New applications accounted for more than one-half of the approximately 40,900 plans that were approved based on atypical family sizes of nine or more. Recertification applications accounted for just over one-third of these plans.
- Loan Servicer. Three of the eight loan servicers included in GAO's review (Great Lakes, Navient, and Nelnet) accounted for about 90 percent of the approximately 40,900 plans that were approved based on atypical family sizes of nine or more. This is similar to the share for these loan servicers in the overall population of approximately 5 million IDR plans GAO analyzed.
Why GAO Did This Study
As of March 2020, one-half of the $989 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 may carry high costs for the federal government.
GAO was asked to provide additional information about the findings and analyses in its June 2019 report—Federal Student Loans: Education Needs to Verify Borrowers' Information for Income-Driven Repayment Plans (GAO-19-347). This report examines the distribution of IDR plans analyzed in GAO's June 2019 report by type of application and loan servicer, and how GAO's findings about potential fraud or error varied by type of application and loan servicer. To address these issues, GAO analyzed Education data on borrowers with IDR plans approved from January 1, 2016 through September 30, 2017, the most recent data available at the time of the analysis for the June 2019 report. GAO also analyzed the results of a match it conducted using Education's data and national quarterly wage data obtained from the National Directory of New Hires, a federal dataset that contains quarterly wage data for newly hired and existing employees. Consistent with GAO's June 2019 report, all of the analyses exclude data reported by one of Education's loan servicers, the Pennsylvania Higher Education Assistance Agency, based on data reliability issues that GAO identified during that review.