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Student Loans: Education Should Proactively Manage Fraud Risks in Any Future Debt Relief Efforts

GAO-24-107142 Published: Nov 16, 2023. Publicly Released: Nov 16, 2023.
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Fast Facts

In October 2022, the Department of Education launched a student loan debt relief program that would provide up to $20,000 in relief to borrowers who had incomes below certain thresholds. Court orders caused Education to cease work on the program before discharging any debt, and in June 2023 the Supreme Court struck down the program.

We found that Education quickly approved borrowers for debt relief without applying key practices to prevent fraud. For example, it didn't verify certain borrowers' self-reported income before approving them for relief.

We made 3 recommendations that could help if Education implements a similar future effort.

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What GAO Found

The Department of Education approved borrowers for its student loan debt relief program without implementing key procedures for preventing fraud. The program would have provided up to $20,000 of debt relief to borrowers who met certain income thresholds if they received a Pell Grant in college, and up to $10,000 if they did not. However, Education ceased work in response to court orders and did not relieve any debt. Education designed its approval processes to prevent ineligible borrowers from receiving relief. However, underlying Education's efforts was its assessment that the program was at relatively low risk for fraud. Education officials said they prioritized approving eligible borrowers, but Education did not apply key processes to detect and prevent fraud. However, given the large scale of the program—an estimated $430 billion of relief for potentially over 31 million borrowers—leading practices indicate that Education should have proactively addressed risks through effective fraud risk management.

In June 2023, the U.S. Supreme Court held that the debt relief program was not authorized under the HEROES Act of 2003. As a result, Education was not able to implement the program. Education subsequently announced that the department will pursue a new effort to provide borrowers debt relief.

Before ceasing work on the original program, Education developed two processes to assess borrower eligibility, but each process had shortcomings at detecting and preventing fraud. The first process, which affected the majority of borrowers, relied on an application process. The second was an automatic process Education developed for borrowers who had recently reported income information to the department.

Application process. At the time it ceased work on the program, Education had approved an estimated 12 million-plus borrower applicants without evaluating the accuracy and outcomes of its application process. To assess applicants' incomes, Education used data associated with post-enrollment earnings and aggregate income data to estimate the likelihood that applicants exceeded the income thresholds. Certain applicants were approved, and others were selected for additional review and would have been required to submit tax documentation to verify their income. However, Education had not evaluated the outcomes of its application process for either the applicants it had selected for review or that it had approved. For example, Education had not collected or reviewed any income documentation from selected applicants at the time it ceased work on the program.

In addition, Education did not have procedures in place to evaluate the borrowers it had approved, including whether its approach for approving borrowers was an effective tool for preventing fraud. Education's documentation recognized the risk of potential errors, and federal internal control standards dictate that agencies should conduct evaluations to determine the effectiveness of their controls. Without evaluative checks in any future efforts, Education will be unable to ensure that its systems are effectively preventing ineligible borrowers from receiving relief.

Automatic Approvals. Education planned to automatically approve over 2 million borrowers for relief based solely on their self-reported income drawn from recent financial aid applications and enrollments in loan repayment plans. Education and GAO have both previously identified problems with people underreporting their income on these forms, but the department did not take any steps to verify incomes for these borrowers before automatically approving them for relief. Federal internal control standards state that managers should take steps to mitigate fraud risks, but Education did not deploy any tools to verify these borrowers' incomes or ensure they were eligible for relief.

Why GAO Did This Study

Fraud poses a significant threat to the integrity of federal programs and erodes public trust in government. Proactively managing fraud risks can help ensure that taxpayer dollars serve their intended purposes.

Education announced its original student loan debt relief program in August 2022, but little was known about how the department planned to prevent fraud. This report examines the extent to which Education's policies and procedures mitigated fraud risk in the relief program at the time Education ceased work on it. GAO analyzed documentation of Education's fraud risk assessments, assumptions, and procedures for verifying borrower income eligibility. GAO also interviewed Education officials with knowledge of the debt relief program and fraud risk management. GAO assessed the department's efforts against federal internal control standards related to fraud risk management, as well as leading practices in A Framework for Managing Fraud Risks in Federal Programs.


GAO is making three recommendations to Education if it pursues future debt relief, including to incorporate evaluations of fraud risk management before providing relief, implement all stages of its fraud risk management, and implement controls to avoid relying on self-reported data. Education partially concurred with each recommendation.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Education The Secretary of Education should incorporate robust evaluations of fraud risk management activities into any future debt relief efforts before approving borrowers for relief. This could involve partnering with IRS to cross-check incomes of approved borrowers. (Recommendation 1)
Education partially concurred with this recommendation. The department agreed with the need to incorporate robust evaluations of fraud risk management activities into any future debt relief efforts. However, Education noted that crosschecking incomes of approved borrowers was unnecessarily burdensome because it had incorporated similar assessments into its initial selection process for income verification. Yet, Education was unable to provide reasonable assurance that its approach for approving borrowers had worked as intended. Education did not provide us sufficient documentation to verify whether it executed its complex new processes for selecting borrowers for income verification accurately and effectively. Without assurance that its approach works as intended, an additional safeguard is necessary to determine if the borrowers Education approves actually have qualifying incomes. Education could work with IRS to quickly assess a sample of approved borrowers, to determine whether Education's fraud management processes are effective.
Department of Education The Secretary of Education should fully implement all stages of its fraud risk management plans for any future debt relief efforts before approving borrowers for relief. (Recommendation 2)
Education partially concurred with this recommendation. The department disagreed with our assertion that all of these stages needed to be in place before it began providing relief to borrowers. Our report noted that Education's fraud risk management process only works properly when all its major pillars are in place. However, Education was planning to provide relief to millions of borrowers before implementing the review stage, one of three primary stages in the department's application process. This review stage would have provided a critical check on the process as Education provided relief, and would have provided further assurance that Education's fraud management processes were working as intended. The department also said we suggest that it needed to review supplemental tax documentation from all selected high-risk applicants prior to approving any borrowers for relief. That was not the intent of this recommendation: Education should wait on providing relief until it has reviewed sufficient borrower documentation to have reasonable assurance its process for flagging borrowers is working. This would ensure that the review stage provides an effective and essential evaluative check on the program without being overly costly or time-intensive.
Department of Education The Secretary of Education should implement controls to avoid relying solely on self-reported data in any future debt relief efforts. (Recommendation 3)
Education partially agreed with this recommendation. Education stated that the debt relief program did not rely solely on self-reported data. While Education noted that affected borrowers were a small portion of eligible borrowers, given the program's size, we still found more than 2 million borrowers whom the department automatically approved based on their self-reported income. Applying the additional fraud mitigation tools Education designed for the application process-which approved most borrowers without the need to provide additional documentation-to borrowers who self-reported their income would present a minimal burden on the department and borrowers. Education also stated that as pandemic-related flexibilities for self-reporting expire, it plans to build capacity for future efforts by implementing data-related upgrades as part of the Fostering Undergraduate Talent by Unlocking Resources for Education Act. Although these efforts could potentially mitigate the risk of relying on self-reported data in future debt relief efforts, they do not affect the previously reported income data from 2020 and 2021, which Education relied on for its original relief program.

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