GAO-03-348, Federal Student Aid: Timely Performance Plans and Reports Would Help Guide and Assess Achievement of Default Management Goals


This is the accessible text file for GAO report number GAO-03-348 
entitled 'Federal Student Aid: Timely Performance Plans and Reports 
Would Help Guide and Assess Achievement of Default Management Goals' 
which was released on February 14, 2003.



This text file was formatted by the U.S. General Accounting Office 

(GAO) to be accessible to users with visual impairments, as part of a 

longer term project to improve GAO products’ accessibility. Every 

attempt has been made to maintain the structural and data integrity of 

the original printed product. Accessibility features, such as text 

descriptions of tables, consecutively numbered footnotes placed at the 

end of the file, and the text of agency comment letters, are provided 

but may not exactly duplicate the presentation or format of the printed 

version. The portable document format (PDF) file is an exact electronic 

replica of the printed version. We welcome your feedback. Please E-mail 

your comments regarding the contents or accessibility features of this 

document to Webmaster@gao.gov.



Report to the Secretary of Education:



United States General Accounting Office:



GAO:



February 2003:



Federal Student Aid:



Timely Performance Plans and Reports Would Help Guide and Assess 

Achievement of Default Management Goals:



GAO-03-348:



GAO Highlights:



Highlights of GAO-03-348, a report to the Secretary of Education



Why GAO Did This Study:



During fiscal year 2002, an estimated 5.8 million people

borrowed about $38 billion in federal student loans. Despite a

dramatic reduction in annual default rates on those loans since

fiscal year 1990 (from 22.4 to 5.9 percent), the total volume of

dollars in default doubled to nearly $22 billion by fiscal year 2001 

from about $11 billion in fiscal year 1990. During that same period, 

the total student loans outstanding grew from $54.1 billion to $233.2 

billion.



The Department of Education’s Office of Federal Student Aid

(FSA) manages the nation’s student financial assistance programs

authorized under title IV of the Higher Education Act (HEA). In

1998, Congress amended the HEA and established FSA as a

performance-based organization. Among other requirements, the

HEA called for FSA to annually develop 5-year plans, issue annual

reports, and consult with stakeholders regarding their

delivery system. GAO initiated a review to assess FSA’s default

management efforts and results.



What GAO Found:



FSA’s default management goals were mostly to prevent defaults, 

increase collections, and verify student eligibility, but the agency 

lacked a plan to guide its efforts. FSA had 39 default management 

goals for fiscal years 2000 through 2002. However, the goals changed 

significantly during this period and FSA did not annually prepare 5-

year performance plans as required by the HEA.



FSA met or exceeded most goals, but did not prepare timely performance

reports. According to our analysis, FSA met or exceeded performance

targets for 36 of its 39 default management goals during fiscal years 

2000 through 2002. However, FSA did not issue performance reports for 

fiscal years 2000 and 2001, as required by the HEA. Instead, in 

December 2002, FSA issued one report for both fiscal years that lists 

accomplishments, but does not clearly indicate the extent to which 

goals were or were not met.



Suggestions from survey respondents did not indicate the need for 

additional goals. While about one-third of the 23 school officials who 

responded to our survey made suggestions about ways that FSA could 

better assist them, none of the suggestions indicated the need for 

additional default management  goals. FSA assisted all schools by 

sharing default management information through symposiums and other 

media, and provided individual assistance to some schools through 

visits and telephone calls. Most of the responding officials were 

generally pleased with FSA’s assistance. The suggestions that officials 

made did not indicate a need for additional goals because they

either related to existing goals or addressed operational issues.



Highlights Figure:



[See PDF for image]



[End of figure]



What GAO Recommends:



The Secretary of Education and FSA’s Chief Operating Officer

should (1) produce a 5-year performance plan annually as

required by the HEA and (2) prepare and issue reports to the

Congress on FSA’s performance that are timely and clearly identify

whether performance goals were met.



www.gao.gov/cgi-bin/getrpt?GAO-03-348.

To view the full report, including the scope

and methodology, click on the link above.

For more information, contact Cornelia M.

Ashby at (202) 512-8403 or

ashbyc@gao.gov.



Contents:



Letter:



Results in Brief:



Background:



FSA’s Default Management Goals Were Mostly to Prevent Defaults, 

Increase Collections, and Verify Student Eligibility, but the Agency 

Lacked a Plan to Guide its Efforts:



FSA Met or Exceeded Most Goals, but Did Not Prepare Timely Performance 

Reports:



Surveyed School Officials’ Suggestions Did Not Indicate the Need for 

Additional Goals:



Conclusions:



Recommendations to the Secretary of Education:



Agency Comments and Our Evaluation:



Appendix I: Scope and Methodology:



Appendix II: FSA’s Default Management Goals for Fiscal Years

2000-2002:



Appendix III: FSA’s Default Management Goals and Outcomes for Fiscal 

Years 2000-2002:



Appendix IV: Comments from the Office of Federal Student Aid:



Appendix V: GAO Contacts and Staff Acknowledgments:



GAO Contacts:



Staff Acknowledgments:



Tables:



Table 1: Total Student Loan Portfolio and Amounts in Default by Type of 

Loan for Fiscal Years 1990--2001 (nominal dollars in billions):



Table 2: Summary of Postsecondary Schools That Participated in Our 

Survey:



Figures:



Figure 1: Fiscal Years 1990-2000 National Cohort Default Rates:



Abbreviations:



COO: Chief Operating Officer:



CDRcohort default rate:



FFEL: Federal Family Education Loan Program:



FSA: Office of Federal Student Aid:



HEA: Higher Education Act:



HHS: Department of Health and Human Services:



IFAP: Information for Financial Aid Professionals:



IRS: Internal Revenue Service:



NSLDS: National Student Loan Data System:



PBO: performance-based organization:



VFA: Voluntary Flexible Agreement:



This is a work of the U.S. Government and is not subject to copyright 

protection in the United States. It may be reproduced and distributed 

in its entirety without further permission from GAO. It may contain 

copyrighted graphics, images or other materials. Permission from the 

copyright holder may be necessary should you wish to reproduce 

copyrighted materials separately from GAO’s product.



February 14, 2003:



The Honorable Roderick Paige

Secretary of Education:



Dear Mr. Secretary:



During fiscal year 2002, an estimated 5.8 million people borrowed about 

$38 billion in federal student loans to help meet their educational 

needs. This is more than triple the $11.7 billion borrowed in fiscal 

year 1990. Despite a dramatic reduction in annual default rates on 

those loans since fiscal year 1990 (from 22.4 to 5.9 percent), the 

total volume of dollars in default had grown to nearly $22 billion by 

fiscal year 2001 from about $11 billion in fiscal year 1990. During the 

same period, the total student loans outstanding grew from $54.1 

billion to $233.2 billion.



The Department of Education’s Office of Federal Student Aid (FSA) is 

responsible for managing and administering the nation’s student 

financial assistance programs authorized under title IV of the Higher 

Education Act (HEA) of 1965, as amended. In 1998, the Congress amended 

HEA to establish FSA as a performance-based organization (PBO) in order 

to address longstanding management weaknesses.[Footnote 1] Among other 

requirements, HEA called for FSA to annually develop 5-year plans that 

establish measurable goals and to issue annual reports on the extent to 

which the goals were met. The intent of this law was to provide among 

other things, a greater level of accountability for FSA’s 

administration of programs. Additionally, HEA requires FSA to seek the 

opinions and suggestions of postsecondary institutions and other 

stakeholders, such as lenders and borrowers, regarding their delivery 

system. Because of the large volume of dollars at-risk, we undertook 

this study to determine (1) what FSA’s default management goals were 

for fiscal years 2000 through 2002, (2) whether FSA had achieved its 

stated performance goals, and (3) whether school officials from 

schools with large potential losses from defaults--schools with high 

default rates or a high volume of dollars in default--had suggestions 

that indicated the need for additional default management goals.



To achieve our objectives, we reviewed HEA to identify FSA’s roles and 

responsibilities, interviewed FSA officials responsible for overseeing 

and administering student aid programs, and obtained and analyzed 

available data and reports on FSA’s performance goals and 

accomplishments for fiscal years 2000--2002. In addition, we 

interviewed FSA officials regarding assistance provided to schools, 

particularly, schools with high default rates and those with a high 

volume of dollars in default. We attempted to contact officials at 31 

schools with high default rates or a high volume of dollars in default 

to ask them their views of the assistance provided by FSA and to obtain 

their suggestions on ways that FSA could better assist them. Officials 

from 23 of the 31 schools agreed to participate in our survey. We 

conducted our work between September 2002 and January 2003 in 

accordance with generally accepted government auditing standards. See 

appendix I for additional information about our scope and methodology.



Results in Brief:



For fiscal years 2000 through 2002, FSA identified 39 default 

management goals designed primarily to prevent defaults, increase 

collections, or verify student eligibility. The default management 

goals included increasing students’ awareness of their repayment 

obligations, verifying family income by matching student records with 

Internal Revenue Service (IRS) tax records, and locating defaulted 

borrowers through a national new hires database. However, the goals 

changed significantly between fiscal years 2000 and 2002 and were not 

tied to an overall plan. Specifically, although 5 of the 39 goals were 

continued for each of the 3 fiscal years and 6 others were continued 

for 2 years, 28 were single-year goals. Moreover, a majority of these 

single-year goals, 15 of the 28, were implemented in fiscal year 2002. 

FSA’s documents did not explain the basis for establishing, continuing, 

or ending goals from year to year nor did FSA prepare 5-year 

performance plans as required by HEA.



On the basis of our analysis of FSA’s internal documents, we determined 

that 36 of its 39 default management goals were met or exceeded during 

the 3-year period. FSA met its goal to recover more previously 

defaulted dollars than it lost through new defaults; it recovered $4.87 

billion compared to $2.7 billion lost through new defaults. Also, FSA 

met its target to support the administration’s efforts to improve its 

data matching capabilities with the IRS by proposing changes to 

legislation that would authorize expanded use of tax data. The 3 unmet 

goals were to (1) provide the Congress with a report by the end of 

fiscal year 2002 explaining the impact of voluntary flexible agreements 

(VFAs);[Footnote 2] (2) implement a multiyear program during the 3-year 

period to reduce default rates over the life of the loan; and (3) 

prepare an analysis in fiscal year 2002 to identify improvements that 

could be made to the National Student Loan Data System (NSLDS)--a 

national database containing information on federal student loans and 

grants. Although FSA achieved nearly all of its default management 

goals, it did not provide to the Congress timely reports on its 

performance as required by HEA for fiscal years 2000 and 2001. In 

December 2002, FSA issued a single performance report for both fiscal 

years 2000 and 2001. The information in the report was not timely nor 

did it indicate whether or not the agency met established performance 

goals. As a result, the Congress does not know whether FSA achieved its 

goals for those years.



While 7 of the 23 officials from schools with high default rates or a 

high volume of dollars in default who participated in our survey made 

suggestions about ways that FSA could better assist them, none of these 

suggestions indicated the need for additional default management goals. 

FSA provided similar assistance to all schools, irrespective of their 

default rates or dollars in default, primarily by sharing default 

management best practices at its National Default Prevention Day 

symposiums and hosting conferences to disseminate default management 

information. FSA also provided individual assistance to some schools 

through on-site visits and telephone calls to address specific default 

management concerns such as preparing default management plans. 

Although 16 of the 23 officials said that they were generally pleased 

with one or more services provided by FSA, nearly a third suggested 

ways that FSA could better assist schools. Their suggestions included 

improving the usefulness and access to loan information in NSLDS, 

holding default management training sessions in locations near them, 

and making it easier to identify and contact the right FSA program 

officials to address concerns. These suggestions did not indicate the 

need for additional default management goals because they either 

related to existing goals or addressed operational issues.



To assure the public that FSA has developed long-term goals that set 

the direction for its default management program, we are recommending 

that the Secretary of Education and FSA’s Chief Operating Officer (COO) 

prepare and make available a 5-year performance plan annually, as 

required by HEA. In addition, to provide essential information to the 

Congress about FSA’s progress toward achieving its goals, we are 

recommending that the Secretary of Education and FSA’s COO prepare and 

issue performance reports to the Congress that are timely and clearly 

indicate whether established goals and performance targets were met.



FSA provided written comments on a draft of this report. In commenting 

on the draft, FSA generally agreed with our findings and said it would 

take actions to address our recommendations. FSA’s written comments 

appear in appendix IV.



Background:



Title IV of HEA authorized several student aid programs including the 

Federal Family Education Loan (FFEL) and the William D. Ford Direct 

Loan (Direct Loan) programs, the Federal Pell Grant program, and 

campus-based aid programs.[Footnote 3] The FFEL and Direct Loan 

programs are the largest source of aid for students. The FFEL 

program[Footnote 4] provides loans to eligible students and parents 

through participating private lenders that receive a federal guarantee 

of repayment if the borrower defaults. Under the Direct Loan program, 

eligible students and parents borrow funds directly from the federal 

government through participating schools. As of October 2002, about 

6,400 schools participated in one or more of the title IV student aid 

programs. To be eligible to participate in the FFEL and Direct Loan 

programs, schools must manage their loan portfolios to keep the default 

rate for their loans below established limits.



The national student loan default rate, also known as the national 

cohort default rate (CDR), is defined as the percentage of borrowers 

who enter repayment status in a certain fiscal year and default before 

the end of the next fiscal year on Federal Stafford Loans and, under 

certain circumstances, Federal SLS loans, and Direct Stafford Loans. 

For example, the fiscal year 2000 CDR of 5.9 percent represents the 

percentage of borrowers whose first loan repayments came due between 

October 1, 1999, and September 30, 2000, and who, as of September 30, 

2001, had defaulted. The national CDR is an aggregate of all 

postsecondary institutional default rates. The CDR for schools with 30 

or more borrowers in repayment is calculated based on the percentage of 

borrowers entering repayment on loans in a fiscal year and defaulting 

during that fiscal year or the following fiscal year.[Footnote 5] FSA 

issues draft CDRs and supporting data to schools in January or February 

of each year for review. A school may challenge the draft default rate 

information if it identifies inaccuracies in data. In addition, a 

school with CDRs of 25 percent or more for 3 consecutive years can 

appeal the draft rate if it can show that the number of students who 

obtained loans did not exceed approximately 3.8 percent of the total 

number of students at the school, while schools with CDRs over 40 

percent in 1 year can appeal the draft rate if it can show that the 

number of students who obtained loans did not exceed approximately 6 

percent of the total number of students at the school. FSA makes 

revisions as needed, and releases the final CDR to the schools and the 

public no later than September 30 of each year.



Unless a school has 30 or fewer borrowers who entered repayment for the 

3 most recent fiscal years, it could lose its eligibility to 

participate in some title IV student aid programs if its final CDR 

exceeds established thresholds. For example, under HEA, if schools have 

CDRs of 25 percent or more for 3 consecutive years, they face loss of 

eligibility to participate in the FFEL and Direct Loan 

programs.[Footnote 6] A regulation imposes the same restriction on 

eligibility if schools have CDRs exceeding 40 percent in a given year. 

Additionally, schools that are ineligible to receive FFEL and Direct 

Loans due to CDRs of 25 percent or more for 3 consecutive years are 

also generally prohibited by statute from receiving Pell Grants. These 

schools are subject to suspension from title IV programs for the 

remainder of the fiscal year in which FSA notifies them of termination 

and the following 2 fiscal years. However, schools have appeal rights 

and retain program eligibility while their appeals are pending. Schools 

may apply to be reinstated to participate in title IV loan and/or 

Federal Pell Grant programs after the later of the expiration of their 

suspension or 18 months after the effective date of their termination. 

Over the last decade, approximately 1,200 schools have been subject to 

suspension due to default rates above the 25 percent threshold for 

fiscal years 1998 through 2000.[Footnote 7]



From fiscal year 1990 to fiscal year 1999, the national student loan 

default rate declined from 22.4 percent to 5.6 percent. In fiscal year 

2000, the rate climbed slightly to 5.9 percent. Figure 1 shows the 

trend in national cohort default rates from fiscal years 1990 through 

2000.



Figure 1: Fiscal Years 1990-2000 National Cohort Default Rates:



[See PDF for image]



[End of figure]



Despite the overall progress made in reducing the national default 

rate, the cumulative student loan funds in default had doubled to 

almost $22 billion by fiscal year 2001 from their fiscal year 1990 

level of nearly $11 billion. During this same time period, the total 

student loan portfolio grew by more than 400 percent from $54.1 billion 

to $233.2 billion and the defaults, as a percent of the total loan 

portfolio, declined from 20.1 percent to 9.4 percent. Table 1 shows the 

outstanding portfolio and defaulted loan balances for FFEL and Direct 

Loans as well as the total defaulted loans as a percentage of the total 

outstanding loan portfolio for fiscal years 1990 through 2001.



Table 1: Total Student Loan Portfolio and Amounts in Default by Type of 

Loan for Fiscal Years 1990--2001

(nominal dollars in billions):



Fiscal Year: 1990; FFEL Outstanding Portfolio: $ 54.1; FFEL Defaults[ 

A]: $ 10.9; Direct Loan Outstanding Portfolio: --; Direct Loan 

Defaults[ A]: --; Total Outstanding Portfolio: $54.1; Total Outstanding 

Portfolio: $10.9; Total Defaults: 20.1.



Fiscal Year: 1991; FFEL Outstanding Portfolio: 57.5; FFEL Defaults[ A]: 

12.5; Direct Loan Outstanding Portfolio: --; Direct Loan Defaults[ A]: 

--; Total Outstanding Portfolio: 57.5; Total Outstanding Portfolio: 

12.5; Total Defaults: 21.7.



Fiscal Year: 1992; FFEL Outstanding Portfolio: 62.0; FFEL Defaults[ A]: 

13.6; Direct Loan Outstanding Portfolio: --; Direct Loan Defaults[ A]: 

--; Total Outstanding Portfolio: 62.0; Total Outstanding Portfolio: 

13.6; Total Defaults: 21.9.



Fiscal Year: 1993; FFEL Outstanding Portfolio: 69.0; FFEL Defaults[ A]: 

12.1; Direct Loan Outstanding Portfolio: --; Direct Loan Defaults[ A]: 

--; Total Outstanding Portfolio: 69.0; Total Outstanding Portfolio: 

12.1; Total Defaults: 17.5.



Fiscal Year: 1994; FFEL Outstanding Portfolio: 80.0; FFEL Defaults[ A]: 

12.5; Direct Loan Outstanding Portfolio: <$ 0.1; Direct Loan Defaults[ 

A]: --; Total Outstanding Portfolio: 80.0; Total Outstanding Portfolio: 

12.5; Total Defaults: 15.6.



Fiscal Year: 1995; FFEL Outstanding Portfolio: 92.9; FFEL Defaults[ A]: 

20.6; Direct Loan Outstanding Portfolio: 2.7; Direct Loan Defaults[ A]: 

--; Total Outstanding Portfolio: 95.6; Total Outstanding Portfolio: 

20.6; Total Defaults: 21.5.



Fiscal Year: 1996; FFEL Outstanding Portfolio: 102.4; FFEL Defaults[ 

A]: 18.5; Direct Loan Outstanding Portfolio: 11.5; Direct Loan 

Defaults[ A]: < $0.1; Total Outstanding Portfolio: 113.9; Total 

Outstanding Portfolio: 18.5; Total Defaults: 16.2.



Fiscal Year: 1997; FFEL Outstanding Portfolio: 112.4; FFEL Defaults[ 

A]: 20.9; Direct Loan Outstanding Portfolio: 21.2; Direct Loan 

Defaults[ A]: 0.1; Total Outstanding Portfolio: 133.5; Total 

Outstanding Portfolio: 21.0; Total Defaults: 15.7.



Fiscal Year: 1998; FFEL Outstanding Portfolio: 122.4; FFEL Defaults[ 

A]: 23.8; Direct Loan Outstanding Portfolio: 31.9; Direct Loan 

Defaults[ A]: 0.3; Total Outstanding Portfolio: 154.3; Total 

Outstanding Portfolio: 24.1; Total Defaults: 15.6.



Fiscal Year: 1999; FFEL Outstanding Portfolio: 132.6; FFEL Defaults[ 

A]: 25.1; Direct Loan Outstanding Portfolio: 44.4; Direct Loan 

Defaults[ A]: 0.7; Total Outstanding Portfolio: 176.9; Total 

Outstanding Portfolio: 25.8; Total Defaults: 14.6.



Fiscal Year: 2000; FFEL Outstanding Portfolio: 146.6; FFEL Defaults[ 

A]: 20.3; Direct Loan Outstanding Portfolio: 56.3; Direct Loan 

Defaults[ A]: 1.2; Total Outstanding Portfolio: 202.9; Total 

Outstanding Portfolio: 21.5; Total Defaults: 10.6.



Fiscal Year: 2001; FFEL Outstanding Portfolio: 160.0; FFEL Defaults[ 

A]: 19.5; Direct Loan Outstanding Portfolio: 73.2; Direct Loan 

Defaults[ A]: 2.3; Total Outstanding Portfolio: 233.2; Total 

Outstanding Portfolio: 21.8; Total Defaults: 9.4.



[End of table]



Source: Department of Education.



Note: the FFEL Program began disbursing loans in fiscal year 1966 and 

the Direct Loan program began disbursing loans in fiscal year 1994. 

Consequently, the earliest year that Direct Loans could have been in 

default was fiscal year 1996.



[A] The total cumulative dollars in default for FFEL and Direct Loans 

consist of principal, interest, late fees, and administrative charges. 

The totals also reflect the amounts collected during that fiscal year.



FSA manages and administers the federal student financial assistance 

programs and is responsible for default management. Since 1990, because 

of concerns about Education’s vulnerabilities to losses due to fraud, 

waste, abuse, and mismanagement, we have included student financial aid 

programs on our high-risk list. To address longstanding management 

weaknesses, the Congress amended HEA in 1998, establishing FSA as a 

performance-based organization (PBO) to improve Education’s delivery of 

student financial aid services. As a PBO, FSA has increased 

flexibilities, subject to the direction of the Secretary of Education, 

in certain government operations, such as hiring and procurement, 

provided that it establish and operate according to a 5-year 

performance plan with measurable goals and specific annual performance 

targets. HEA also requires that FSA annually prepare and submit, 

through the Secretary of Education, a 5-year plan that is available to 

the public, and annual performance reports to the Congress. 

Furthermore, HEA requires FSA’s Chief Operating Officer (COO) to ask 

its stakeholders about the degree of satisfaction with the delivery 

system and to seek suggestions on improvements.



FSA’s Default Management Goals Were Mostly to Prevent Defaults, 

Increase Collections, and Verify Student Eligibility, but the Agency 

Lacked a Plan to Guide its Efforts:



FSA identified 39 default management goals for fiscal years 2000 

through 2002, which were mainly to prevent defaults, increase 

collections, or verify student eligibility. However, FSA did not 

prepare annual 5-year performance plans required by HEA. Such plans 

would have helped set the overall direction for FSA and guided its 

default management and other agency goals.



FSA Identified 39 Default Management Goals During Fiscal Years 2000--

2002:



FSA goals aimed at preventing student loan defaults included such 

efforts as increasing students’ awareness of their repayment 

obligations through various publications, using voluntary flexible 

agreements with four guaranty agencies to prevent defaults, and 

pursuing default management strategies such as using software to assist 

schools in identifying delinquent Direct Loan borrowers at risk of 

default.[Footnote 8] FSA’s goals to increase collections focused on 

facilitating repayment for borrowers in good standing as well as 

aggressively pursuing those in default. For example, they planned to 

use tools such as Internet billing and on-line correspondence to 

facilitate repayment for borrowers in good standing and used 

administrative wage garnishments and federal tax refund recoveries to 

pursue borrowers in default. These collection goals included fostering 

competitive behavior among its private collection agencies to increase 

collections on defaulted loans, matching student loan records with 

federal databases such as the Health and Human Services (HHS) National 

Directory of New Hires database[Footnote 9] to locate defaulted 

borrowers, and using other available default recovery methods. The FSA 

goals to improve student eligibility included verifying students’ or 

their families’ income through a data match with Internal Revenue 

Service (IRS) records and apprising foreign postsecondary institutions 

about the rules and regulations for title IV assistance and the need to 

limit financial aid awards to eligible students only.



Of FSA’s 39 default management goals during fiscal years 2000 through 

2002, 5 were continued throughout the period and 6 more were continued 

for 2 of the 3 years. Specifically, the goals that continued for all 3 

years were to maintain the cohort default rate, implement and monitor 

voluntary flexible agreements with a limited number of guaranty 

agencies, reduce default rates over the life of the loan,[Footnote 10] 

increase the recovery rate for defaulted loans, and increase the number 

of student aid applications filed electronically. As for those that 

continued for 2 years, they addressed 

(1) reports to the Congress on the progress and performance of VFAs, 

(2) student awareness publications, (3) use of the new hires database, 

(4) NSLDS data quality, (5) program monitoring and assistance to 

schools, and (6) eliminating fraudulent death and disability cases. 

Further, most of these goals began in 2001 and were continued in 2002.



However, 28 of the 39 goals were single year goals--6 were implemented 

in fiscal year 2000, another 6 were implemented in fiscal year 2001, 

and 16 more were implemented in fiscal year 2002. Such significant 

changes may reflect the fact that FSA did not have a long-term plan to 

direct its default management goals. Although agency officials stated 

that many of the goals were reached and did not need to be continued 

in the next year, some were discontinued for various other reasons. For 

example, agency officials indicated that a 2001 goal to implement a 

pilot program to track student enrollment at foreign schools in an 

effort to reduce the potential of loans being obtained through 

fraudulent means was completed. However, available documents show that 

the pilot program was discontinued because a key institution complained 

that the program requirements were too burdensome and withdrew from the 

pilot. Furthermore, it is not clear from available documentation 

whether this program will be revisited or continued in subsequent 

years, even though foreign schools collectively administer more than 

$225 million in federal student financial assistance. Recently, GAO 

reported[Footnote 11] that the agency certified a fictitious foreign 

school to participate in the FFEL program and approved loans for three 

fictitious students. As such, there continues to be a need for the 

agency to have a goal to reduce the potential for students at foreign 

schools to obtain loans through fraudulent means. Appendix II lists 

FSA’s default management goals for fiscal years 2000, 2001, and 2002.



FSA Did Not Prepare a 5-Year Performance Plan to Guide Its Efforts:



Although FSA prepared several internal planning documents that 

identified its default management goals for each year, as we reported 

previously,[Footnote 12] Education failed to prepare annual 5-year 

performance plans as required by HEA to guide its default management 

and other agency goals. FSA prepared a performance plan for the 2000--

2004 fiscal years, but the goals in that plan were only for fiscal year 

2000. Additionally, FSA did not prepare performance plans for the 

periods covering fiscal years 2001 to 2005 or fiscal years 2002 to 

2006. FSA officials stated that their interpretation of the law allowed 

them to release a plan every 5 years and operate with annual internal 

plans.



FSA prepared internal documents that identified its default management 

goals for fiscal years 2001 and 2002. These documents listed the goals 

for each year separately, identified the responsible managers or units, 

specified the time frames involved, and sometimes described specific 

steps for implementation and expected outcomes. However, they did not 

explain the basis for changing the goals or relate them to longer-term 

agency goals.



FSA Met or Exceeded Most Goals, but Did Not Prepare Timely Performance 

Reports:



According to our analysis of FSA’s internal documents, we determined 

that the agency met or exceeded performance targets for 36 of its 39 

default management goals during fiscal years 2000 through 2002. 

However, as previously reported, Education did not prepare timely 

reports on FSA’s performance for fiscal years 2000, as required by HEA. 

FSA also did not issue a timely report for fiscal year 2001. FSA’s 

performance report for fiscal year 2002 was not due at the time of this 

review.



FSA Met or Exceeded Performance Targets for Most of Its Default 

Management Goals:



FSA met or exceeded nearly all of the performance targets related to 

its 39 default management goals during fiscal years 2000 through 2002. 

For example, FSA met its goal to ensure that default recoveries 
exceeded 

new defaulted dollars in fiscal year 2002 by recovering $4.87 billion 

compared to the $2.7 billion that went into default. Also, FSA met its 

target to support the administration’s efforts to improve its data 

matching capabilities with the IRS by proposing changes to legislation 

that would authorize expanded use of tax data. Additionally, FSA met 

its fiscal year 2000 goal to expand its capabilities that allow 

students to edit and save changes to federal student aid applications 

on the Web. FSA exceeded most of its performance targets for defaulted 

loan collection goals. For example, FSA exceeded its 2002 goal to 

increase the combined recovery rate for guaranty agencies to 15 percent 

by 1.76 percentage points. The agency also exceeded its 2002 goal to 

collect $200 million in defaulted loans by $60 million through expanded 

use of the Department of Health and Human Services National Directory 

of New Hires database.



FSA did not achieve three of its default management goals during the 

3-year period. These goals were to (1) prepare a report to the Congress 

by the end of fiscal year 2002 on the voluntary flexible agreements, 

(2) implement a multiyear program in each of the three fiscal years to 

further reduce defaults over the life of the loan, and (3) analyze 

NSLDS to identify improvements that could be made in fiscal year 2002. 

While each of these goals was listed for at least 2 of the 3 fiscal 

years, FSA did not always provide information on why they were not 

achieved. Appendix III lists the default management goals and indicates 

whether the goals were met.



FSA’s Fiscal Years 2000 and 2001 Performance Report Was Not Timely and 

Did Not Indicate Whether Goals Were Met:



FSA did not prepare performance reports that conform to the 

requirements in HEA for fiscal years 2000 and 2001. HEA requires FSA to 

issue a performance report for each year that includes an evaluation of 

the extent to which the goals established in the prior year’s plan were 

met. In December 2002, FSA issued a performance report that included 

its accomplishments for both fiscal year 2000 and fiscal year 2001. 

Furthermore, although the report lists several accomplishments, it does 

not provide related performance goals. Therefore, the report does not 

clearly indicate the extent to which goals were or were not met. For 

example, the report points out that the collections on defaulted 

student loans increased from $191 million in fiscal year 1999 to $228 

million in fiscal year 2000 to $230 million in fiscal year 2001. 

Although the increases are noteworthy, there is no information on the 

related goal, or whether or not the goals were actually met. 

Additionally, the report includes information on accomplishments that 

did not occur during fiscal years 2000 and 2001. For example, the 

report states that in early 2002 the Department delivered a report to 

the Congress on the VFAs, distributed a foreign schools handbook in May 

2002, and piloted electronic billing and payment in the Direct Loan 

program in January 2002 and went into full production in March 2002. 

Education did not include the related fiscal year 2002 performance 

goals.



Surveyed School Officials’ Suggestions Did Not Indicate the Need for 

Additional Goals:



Although nearly a third of the school officials that participated in 

our survey made suggestions about ways that FSA could better assist 

them, none of the suggestions indicated that FSA needed additional 

default management goals. FSA provided similar assistance to all 

schools by sharing default management strategies and information 

through symposiums, workshops, and other media, and provided individual 

assistance to some schools through on-site visits and telephone calls. 

Although officials from 16 of the 23 schools reported that they were 

pleased with one or more services provided by FSA, 7 of the 23 

officials suggested ways that FSA could better assist them. Their 

suggestions included improving the usefulness and access to loan 

information in NSLDS, providing opportunities for more localized 

default management training, and making it easier to identify and 

contact the right FSA program officials to address technical concerns. 

However, these suggestions did not indicate a need for additional 

default management goals because they either related to existing goals 

or addressed operational issues.



FSA Provided General Assistance to All Schools and Individual 

Assistance to Some:



FSA provided general assistance to all schools, including those with 

high default rates and those with a high volume of dollars in default, 

and provided individual assistance to some schools to assist with their 

default management efforts. According to FSA officials, one of its 

primary methods of assisting schools is through its National Default 

Prevention Day symposium, a 1-day event to share default management 

best practices. In 2001 and 2002, FSA sponsored this event in 12 cities 

nationwide and invited officials from numerous entities, including 

schools participating in federal loan programs, lenders, and guaranty 

agencies. FSA also provided schools with default management information 

at various conferences and through its Information for Financial Aid 

Professionals (IFAP) Web site. For example, at a November 2002 FSA 

Electronic Access Conference, FSA officials provided information on the 

late-stage delinquency assistance initiative intended to help schools 

identify delinquent Direct Loan borrowers at risk of default. FSA also 

provided technical publications, regulations, and policy guidance on 

the administration of the federal student aid programs to schools 

through the IFAP Web site. FSA officials also said they provided 

individual assistance to some schools through on-site visits and 

telephone calls. FSA officials said during a typical on-site visit to a 

school, they presented information to school officials on the various 

aspects of default prevention and the advantages of forming a default 

management team comprised of representatives from various offices. They 

also helped schools establish individual default management plans, if 

the school did not want to use the standard one developed by FSA, and 

they helped assess the schools’ default management and prevention 

practices. A total of 16 of the 23 school officials reported that they 

were generally pleased with one or more services provided by FSA, with 

most commenting that the assistance was useful in helping them to keep 

their default rates and/or dollars in default low.



Suggestions From Survey Respondents Did Not Indicate the Need for 

Additional Goals, But Could Serve to Improve FSA’s Assistance to 

Schools:



The 11 suggestions made by officials at 7 of the 23 schools responding 

to our survey did not indicate the need for additional goals because 

either FSA already had goals related to them or the suggestions related 

to operational matters. Nonetheless, the suggestions could help FSA to 

better assist schools with their default management efforts. FSA had 

goals that addressed, to some extent, five of the suggestions. 

Officials made 

4 suggestions to improve the usefulness of loan data and access to the 

loan information in NSLDS. One school official suggested that FSA could 

improve the usefulness of NSLDS data by allowing users to distinguish 

the principal amount borrowed, the accrued interest, and service 

charges. A second school official suggested that the data be updated 

more frequently to remove students that are no longer in default to 

help prevent schools from making unnecessary calls. Another school 

official suggested that FSA provide historical data detailing the 

breakout of dollars going into default. Besides these suggestions, a 

fourth school official suggested that FSA provide easier access to the 

system for guarantors and allow them to view school specific 

information on delinquent and defaulted borrowers. FSA had goals to 

improve the NSLDS in 2000 and 2002. FSA’s fiscal year 2000 NSLDS goal 

was to continue to work with guaranty agencies and lenders to maintain 

the quality of data in NSLDS and its fiscal year 2002 NSLDS goals were 

to analyze NSLDS data to identify students ineligible for federal aid. 

An official from a large public university with a high volume of 

dollars in default suggested that FSA provide a profile of the various 

demographic groups that make up the school’s CDR. In support of its 

continuing goal to keep the default rates low, FSA provides schools--at 

their request--with default rate analysis tools to assist them in 

identifying the defaulted student population. FSA typically shares 

information about default management tools at its National Default 

Prevention Day symposiums. This official attended the national default 

prevention day in 2001 but was still unaware of the analysis tool. This 

suggestion indicates that there may be a need for additional ways to 

disseminate information about default analysis tools.



The remaining 6 suggestions addressed operational issues--where 

training is held, who to contact with questions, and when information 

is shared. Three school officials suggested that FSA hold default 

management training sessions in locations near them because they lacked 

funding to travel to FSA’s National Default Prevention Day symposiums 

and/or conferences held in larger cities, such as Washington, D.C., and 

San Francisco. Two of the officials were from small proprietary schools 

and the other was a large public university. Additionally, two 

officials suggested that FSA provide better ways to identify and 

contact appropriate program officials to address their default 

management concerns. One official said that he and others have had 

difficulty getting FSA staff to return their telephone calls and 

finding the right FSA program official to address their concerns. This 

school official suggested that FSA develop a guide to identify 

appropriate program officials. The other school official expressed 

frustration that FSA staff was not always knowledgeable about the loan 

data for her school. This school official suggested that FSA make 

certain staff members responsible for knowing about information related 

to particular schools. Finally, one school suggested that FSA provide 

schools with updates on changes in federal student aid information at 

the beginning of the calendar year instead of during the fall 

enrollment season, which typically begins in August or September. While 

these suggestions do not indicate the need for additional goals, they 

indicate areas where school officials would like changes made.



Conclusions:



FSA has identified many default management goals and its internal 

documents and reports indicate that it achieved most of its default 

management goals for fiscal years 2000 through 2002. Furthermore, 

school officials who responded to our survey did not offer suggestions 

that indicated FSA should have additional goals. However, neither the 

Congress nor the public can determine whether FSA’s default management 

or other program goals are in support of long-term program objectives 

or whether goals have been met because FSA has not prepared annual 

plans and issued performance reports as required by HEA. The 

legislation authorizing FSA as a PBO requires the agency to operate 

within the framework of a clear plan and to be accountable by reporting 

annually on its progress. Without the required plans and timely and 

clear performance reports, neither the Congress nor the public can 

determine whether FSA, as a PBO, is operating within the spirit of the 

law and making progress toward achieving its goals.



Recommendations to the Secretary of Education:



To ensure the public that FSA has established and sustained default 

management and other program goals that support long term objectives, 

we recommend that the Secretary of Education and FSA’s Chief Operating 

Officer (COO) produce a 5-year performance plan annually as required by 

HEA.



To provide essential information to the Congress about its progress 

toward achieving default management and other agency goals during a 

given year, we recommend, as we did in 2002, that the Secretary of 

Education and FSA’s COO prepare and issue reports to the Congress on 

FSA’s performance that are timely and clearly identify whether 

performance goals were met.



Agency Comments and Our Evaluation:



We received written comments on a draft report from FSA. These comments 

are reprinted in appendix IV. FSA said that it would take actions to 

address our recommendations. FSA recognized the requirement to annually 

produce a 5-year plan and said it would revise the plan this spring. 

FSA also said that it would meet the deadline to finalize the fiscal 

year 2002 annual report. Additionally, FSA suggested that we include 

information on the total loan portfolio to provide a more balanced 

presentation of the dollar increase in the defaulted loan portfolio, 

which we have done.



However, FSA disagreed with our assessment that its internal plans were 

not appropriate to guide its default management efforts. FSA stated 

that its results clearly demonstrate that its internal plans, coupled 

with Education’s strategic and annual plans, were appropriate to guide 

its efforts. As we have noted in this report, HEA requires FSA to 

prepare annual 5-year plans in consultation with the Congress, 

institutions of higher education, and other stakeholders. This planning 

process helps to increase accountability and ensure that the goals are 

relevant to stakeholders. Furthermore, Education’s annual and strategic 

plans only discuss default management goals in broad terms that are not 

specific enough to guide FSA’s default management efforts.



Additionally, FSA questioned our assessment that its internal planning 

documents did not explain the basis for establishing, continuing, or 

ending goals from year to year. FSA stated that the fiscal year 2002 

documentation was reasonable for explaining the basis for establishing, 

continuing, or ending projects. While the fiscal year 2002 

documentation provided more detail than the documents for fiscal years 

2000 and 2001, it did not explain why goals were established, 

continued, or ended from one year to the next.



Further, FSA stated that we improperly indicated that the National 

Student Loan Data System (NSLDS) data quality effort was a goal for 

only two years. We reported this as a “2-year” goal based on the 

documentation FSA provided. The documentation listed NSLDS as a goal 

for fiscal years 2000 and 2002, but not for fiscal year 2001.



We are sending copies of this report to the Secretary of Education, the 

Chief Operating Officer of Education’s Office of Federal Student Aid, 

the Director of the Office of Management and Budget and appropriate 

congressional committees. Copies will also be made available to other 

interested parties upon request. Additional copies can be obtained at 

no cost from our Web site at www.gao.gov.



If you or your staff should have any questions, please call me at (202) 

512-8403. The key contributors to this report are listed in appendix V.



Sincerely yours,



Signed by Cornelia M. Ashby:



Cornelia M. Ashby

Director, Education, Workforce

 and Income Security Issues



[End of section]



Appendix I: Scope and Methodology:



Overall, we obtained and reviewed several key documents, interviewed 

responsible officials, and surveyed officials from selected 

institutions of higher education. We reviewed HEA to identify 

FSA’s[Footnote 13] overall responsibilities and reporting requirements 

as a performance-based organization and to obtain background on the 

various types of student aid programs it authorizes. We also reviewed 

our prior reports and other documents to obtain background information 

and perspective on operational challenges faced by FSA. In addition, we 

obtained and analyzed fiscal year 1990 to 2001 trend data on the number 

of borrowers, default rates, and dollars in default for the guaranteed 

and Direct Loan programs.



To determine what FSA’s default management goals were for fiscal years 

2000 through 2002, we reviewed various FSA internal planning documents, 

including program plans for fiscal years 2000, 2001, and 2002. These 

documents listed the goals for all FSA programs, including the default 

management goals. Additionally, we reviewed FSA’s High-Risk Plan for 

fiscal year 2002, which summarized the major actions the agency planned 

to take with regard to default management and other issues in order to 

remove its student financial assistance programs from our high-risk 

list.[Footnote 14] We also interviewed FSA officials responsible for 

managing and administering student financial assistance programs in 

order to clarify which goals were related to default management. On the 

basis of these documents and information obtained from the interviews, 

we developed a summary of the default management goals for fiscal years 

2000 through 2002.



To determine whether FSA had achieved the performance targets for its 

default management goals, the second objective, we obtained and 

analyzed available data and reports related to the performance for 

fiscal years 2000, 2001, and 2002 goals. We discussed both the 

performance targets achieved and the performance targets missed during 

interviews with FSA officials. We determined whether a goal was met or 

not by reviewing the agency’s collective efforts over a 3-year period, 

where applicable.



To determine whether school officials from schools with high default 

rates or high dollars in default had suggestions that indicated the 

need for additional default management goals, our third objective, we 

reviewed title IV school eligibility regulations, interviewed FSA 

officials, analyzed default data, and surveyed officials from selected 

schools. We identified and reviewed title IV eligibility criteria for 

program participation, including the cohort default rate 

(CDR),[Footnote 15] which is used to determine a school’s continued 

eligibility to participate in FFEL, Direct Loan, and Federal Pell Grant 

programs and procedures for reinstatement after schools are removed 

from the program. We interviewed FSA officials responsible for 

assisting schools with their default management efforts to determine 

the types of assistance provided to all schools, ascertain whether FSA 

provided additional assistance to schools at risk of losing their 

eligibility to continue participating in the student loan programs due 

to high default rates, and determine whether any additional assistance 

was provided to schools with high amounts of dollars in default. We 

participated in the 2002 National Default Prevention Day held in August 

2002 in Washington, D.C., because this was one of the primary methods 

FSA officials use to provide default management information to schools. 

Additionally, we reviewed regional listings of school visits made by 

FSA during fiscal years 2000, 2001, and 2002.



We obtained data on default rates for fiscal years 1999 and 2000 (about 

6,000 schools) and dollars in default for fiscal year 2000 (about 5,000 

schools) for all schools that participated in the Title IV programs. We 

analyzed fiscal year 1999 default rate data to identify those with 

default rates above the regulatory thresholds - default rates at or 

above 25 percent for 3 consecutive years or above 40 percent in one 

year. We determined that a total of 55 schools had default rates that 

exceeded regulatory thresholds, 46 of these were excluded from our 

review due to exceptional mitigating circumstances, such as having 30 

or fewer borrowers in repayment on loans, and the remaining 9 schools 

were candidates for removal from the loan programs. FSA officials 

verified our analysis. We also obtained and analyzed data on default 

rates and dollars in default for fiscal year 2000 to identify schools 

with default rates between 20 and 24 percent for 3 consecutive years or 

with default rates between 30 and 39 percent in 1 year--those at risk 
of 

removal from the program. We identified 26 of these schools. In 
addition, 

we obtained data from FSA officials on all schools with defaulted loans 

(about 4,000) and the amount of dollars in default for each school. We 

analyzed the data and identified 47 schools with at least $1 million in 

defaulted loans as of fiscal year 2000.



We developed a survey designed to determine the extent that officials 

from schools with high default rates and schools with high volumes of 

dollars in default were knowledgeable about the methods used by FSA to 

assist them, had participated in any of the FSA conferences or used any 

of the tools provided by FSA. Additionally, the survey asked the 

officials about their views of the assistance provided by FSA and if 

they had suggestions about ways that FSA could better assist them. We 

focused on schools with high default rates because historically they 

were a significant factor contributing to high national cohort default 

rates, and schools with high dollars in default because they represent 

most of the total dollars in default.



We selected and attempted to contact officials at 31 postsecondary 

schools, which included 4-year institutions, 2-year institutions, and 

non-degree institutions. Although the 31 schools are not statistically 

representative of the universe of postsecondary schools that receive 

title IV funds, we selected them to provide a cross-section of schools 

with high default rates and high dollars in default. Our sample 

included all 9 schools with default rates above regulatory thresholds 

based on fiscal year 1999 CDRs, the latest data available at the time 

we drew the sample. We also randomly selected 12 schools with default 

rates near regulatory thresholds based on fiscal year 2000 CDRs, and 10 

randomly selected schools with $1 million or more in defaulted loans as 

of fiscal year 2000. We limited the number of schools in the randomly 

selected groups in order to have the three groups of nearly equal size. 

In total, directors or financial aid administrators from 23 schools 

participated in our survey. The 23 schools consisted of 7 of the 9 

schools with CDRs above regulatory thresholds, 6 of the 12 schools with 

CDRs near the regulatory thresholds, and all 10 of the schools with a 

high volume of dollars in default. Table 2 summarizes the postsecondary 

schools that participated in our survey.



Table 2: Summary of Postsecondary Schools That Participated in Our 

Survey:



[See PDF for image]



[End of figure]



[End of table]



Source: GAO.



[A] This included schools that had default rates of 25 percent or more 

for three consecutive years and schools with default rates of greater 

than 40 percent in a single year.



[B] This included schools with default rates between 20 and 24 percent 

for three consecutive years and those with default rates between 30 and 

39 percent in 1 year.



[End of section]



Appendix II: FSA’s Default Management Goals for Fiscal Years 2000-2002:



[See PDF for image]



[End of figure]



[End of table]



Source: Department of Education.



[End of section]



Appendix III FSA’s Default Management Goals and Outcomes for Fiscal 

Years 2000-2002:



Goal Number: 1.; Goal/Strategy Description: Demonstrate pursuit of 

improved default management and prevention strategies.; Actions: 

Identify three risk elements that impact a borrower’s ability to pay. 

Also, link risk review efforts across channels into activities by 

Student Credit Management.; Outcomes: Identified the top three reasons 

contributing to delinquency in a sample of the direct loan portfolio: 

(1) 85 percent of borrowers did not have the advantage of a full 6-

month grace period, (2) 76 percent had withdrawn from school, and (3) 

57 percent had not been contacted. Also implemented several pilot 

initiatives to focus on the reasons identified for delinquency 

including increased borrower contact and other proactive activity.; 

Goal met?[A]: Yes.



Goal Number: 2.; Goal/Strategy Description: Increase by 25 percent the 

number of visitors to the Direct Loan (DL) Servicing Web site.; 

Actions: Increase visitors through continued enhancement of web 

functionality, marketing, and making announcements by phone messaging 

and mail correspondence.; Outcomes: Increased visitors by 186 percent. 

The DL Servicing Web site provides account information for borrowers, 

online account management and counseling for over 5.7 million active 

student loan borrowers with a total portfolio of $73 billion.; Goal 

met?[A]: Yes.



Goal Number: 3.; Goal/Strategy Description: Implement improved DL 

servicing infrastructure to better support financial management 

reporting and customer service.; Actions: Negotiate phase-out of 

contractor. Modernization partner to assume accounting functions under 

a share-in-savings arrangement.; Outcomes: Expected benefits of 

retiring old financial reporting system: projected net savings by 

fiscal year 2005 of $8-11 million and ongoing projected savings after 

fiscal year 2005 of $4 million per year; improved customer service by 

providing a single source of financial data; and, increased data 

integrity and employee satisfaction by reducing training requirements 

for new or transferred employees.; Goal met?[A]: Yes.



Goal Number: 4.; Goal/Strategy Description: Integrate the Debt 

Management Collection System (DMCS) into the common borrower system.; 

Actions: Look at the imaging services provided by three current 

partners to identify commonalities that could be consolidated.; 

Outcomes: Better system in place for enhanced customer service. Also, 

data mining activities and data integrity are strengthened.; Goal 

met?[A]: Yes.



Goal Number: 5.; Goal/Strategy Description: 2000: Keep the cohort 

default rate under 10 percent.; 2001: Keep the cohort default rate 

under 8 percent.; 2002: Keep the loan program’s cohort default rate 

(CDR) under 8 percent.; Actions: Provide training and technical 

assistance, tools for interpreting student loan data, and default 

management plans.; ; Host Student Loan Repayment symposium, National 

default Prevention Day and a number of forums.; ; Help schools to 

identify borrowers at risk of default through the Late Stage 

Delinquency Assistance Program; ; Provide loan data to schools to aid 

in counseling.; Outcomes: The national CDR for 1998 was 6.9 percent, 

reported in 2000; the national CDR for 1999 was 5.6 percent, reported 

in 2001; and the national CDR for 2000 was 5.9 percent, reported in 

2002. A total of 1,500 schools participated in National Default 

Prevention Day, which familiarized schools with FSA promoted default 

management software such as Late Stage Delinquency Assistance Program.; 

Goal met?[A]: Yes.



Goal Number: 6.; Goal/Strategy Description: 2000: Enter into no more 

than six voluntary flexible agreements (VFAs).[B]; 2001: Implement and 

monitor at least four VFAs no later than March 2001.; 2002: Monitor the 

existing four VFAs and provide oversight.; Actions: Accept proposals 

from guaranty agencies.; Establish VFAs for guaranty agencies or 

provide greater operating flexibility.; Use performance measures 

developed in conjunction with guaranty community to monitor compliance 

and performance.; Outcomes: FSA received eight VFA proposals. One 

proposal was approved and awaited public comment. Three others were 

pending.; Agreements signed with guaranty agencies in Wisconsin, Texas, 

Massachusetts, and California.; Common general indicators used to 

evaluate performance of four VFAs in comparison to other guaranty 

agencies.; Goal met?[A]: Yes.



Goal Number: 7.; Goal/Strategy Description: 2001: Submit a report to 

the Congress on the viability of expanding the VFA pilot.; 2002: 

Publish and release VFA Report to the Congress; Actions: Provide a 

report to the Congress consistent with 1998 authorizing legislation on 

the current status of the VFAs.; Use data from indicators, input from 

guaranty agency community as well as departmental offices to draft 

report.; Outcomes: Interim report released because of insufficient time 

to draw final conclusions on effectiveness of VFAs.; As of January 10, 

2003, FSA’s draft had not received clearance for release by the 

secretary..; Goal met?[A]: No.



Goal Number: 8.; Goal/Strategy Description: Work with the guaranty 

agency community to establish common performance metrics primarily in 

the areas of delinquency, default aversion and collections.; Actions: 

Develop performance measures with community workgroup, including VFAs 

and other guaranty agencies to gain consensus. Regional staff will 

perform validation with program reviews.; Outcomes: Common general 

indicators created to evaluate the performance of each VFA performance 

and with guaranty agencies not participating in the agreements. The 

measures include: analyzing the dollar ratio of lender held loans, 

utilizing a trigger rate, and determining effectiveness at collection 

recoveries; Goal met?[A]: Yes.



Goal Number: 9.; Goal/Strategy Description: 2000: Reduce the lifetime 

default rate.; 2001: Establish a program and multi-year goals, to 

reduce the cohort and lifetime default rates.; 2002: Implement a multi-

year program to further reduce cohort and lifetime default rates.[C]; 

Actions: Convene “Student Loan Repayment Symposium”.; Use “best-in 

business” models as templates for improvements. Develop tools to better 

predict default rates and risk analysis.; Use “best-in business” models 

as templates for improvements. Develop tools to better predict default 

rates and risk analysis.; Outcomes: Strategies from symposium used in 

repayment publication.; Created reports identifying “buckets” of 

delinquency, identifying basic characteristics of delinquent borrower. 

Implemented a pilot using credit modeling to prioritize due diligence 

efforts.; Not provided.; Goal met?[A]: No.



Goal Number: 10.; Goal/Strategy Description: Utilize the Financial 

Partners Data Mart as a basis to establish risk management assessment 

ability of lenders, servicers, and guarantee agencies.; Actions: 

Utilize a modified version of the system development life cycle 

methodology used to construct the data mart. Use the existing product 

designed to augment extracts to the system and link to current 

operating systems.; Outcomes: Improvements made include: access for 

guaranty users, creation of an initial risk scorecard to assess partner 

performance and elimination of contractor dependent reports.; Goal 

met?[A]: Yes.



Goal Number: 11.; Goal/Strategy Description: Identify institutions 

abusing FSA programs through data mining using student information.; 

Actions: Run interim update on Common Origination and Disbursement 

(COD). Use data mining to target noncompliant schools.; Outcomes: 

Information from Social Security Administration death match, proper 

interest rates in the DL servicing system, early identification of 

noncompliant schools, improvements to COD to ensure that upfront 

matches are in effect for DL originations.; Goal met?[A]: Yes.



Goal Number: 12.; Goal/Strategy Description: 2001: Create new product 

delivery approach that will increase student aid information to 

students and parents.; 2002: Publish and disseminate five new student 

aid awareness publications.; Actions: Use print and electronic media to 

provide greater access to student aid information. Obtain input from 

specified groups. Translate materials.; Solicit information from 

individuals and organizations to determine the appropriate content for 

targeted audience, the clarity of materials and the best tool for 

information dissemination.; Outcomes: Publications produced on finding 

free scholarships, obtaining loan forgiveness programs for teachers, 

and avoiding student scams.; Student aid information in different 

languages, formats aimed at targets audiences including 11 “one-

pagers,” a default management brochure for NDPD, a financial aid poster 

for Native American college-bound youth, aid information in Spanish, 

publications in Braille/audio media. Information to be distributed via 

high school counselors and others in contact with targeted audience as 

well as published in newsletters and magazines.; Goal met?[A]: Yes.



Goal Number: 13.; Goal/Strategy Description: Implement Internet billing 

and online mailing for Direct Loan Servicing.; Actions: Initiate at 

least one paper to electronic service conversion process. Electronic 

servicing will provide borrowers a state of the art tool for making 

payments, receiving bills and obtaining other correspondence.; 

Outcomes: Direct Loan model for Electronic Bill Presentment and Payment 

(EBPP): implemented 3/22/02. Web self-service (online correspondence: 

implemented 5/10/02). Aggregator Model for EBPP: implemented 7/29/02. 

An extensive communications and adoption strategy plan is being 

implemented to let borrowers know services are available.; Goal 

met?[A]: Yes.



Goal Number: 14.; Goal/Strategy Description: Pilot data mining and 

analysis projects in Direct Loan Servicing Center aimed at improving 

regular collections.; Actions: Develop and implement Credit Management 

Data Mart (CMDM) to conduct data mining and portfolio analysis. Utilize 

Late Stage Delinquency Assistance. Refine due diligence tactics. Study 

the correlation between credit score and delinquency.; Outcomes: The 

CMDM currently contains demographic and financial data for all direct 

loan borrowers and will include borrowers in default for all loan 

obligations held by the Department. Increased borrower contact efforts 

with higher balance loans. A study underway to determine if a 

correlation exists between a borrower’s credit score and delinquency 

relationship.; Goal met?[A]: Yes.



Goal Number: 15.; Goal/Strategy Description: Ensure that default 

recovery totals exceed default claim totals for the year; Actions: 

Increase effectiveness of available collection tools: private 

collection agencies, treasury offsets, combined regular collections and 

loan rehabilitations. Utilize new tools where possible.; Outcomes: 

Estimated default claims: $2.7 billion. Estimated default recoveries: 

$4.87 billion. Default recovery rate 7.6 percent without consolidation. 

Default recovery rate 16.8 percent with consolidations.; Goal met?[A]: 

Yes.



Goal Number: 16.; Goal/Strategy Description: Increase the number of 

lenders using electronic funds transfer (EFT) for Direct Consolidation 

by 100 percent from 13 to 26.; Actions: Educate lenders about the time 

and cost savings benefits of EFT. Technical assistance is provided to 

lenders in the enrollment and other phases of the process.; Outcomes: 

76 lenders participating (292 percent enrollment); 3 additional lenders 

in process of enrolling. Allows FSA to renegotiate the loan 

consolidation contract for a potential savings of $10 million in fiscal 

year 2002.; Goal met?[A]: Yes.



Goal Number: 17.; Goal/Strategy Description: 2000: Keep the default 

recovery rate at 10 percent or higher.; 2001: Keep the default recovery 

rate at 10 percent or higher.; 2002: Increase the default recovery rate 

to 15 percent.; Actions: Shorten procurement process for private 

collection agencies. Use available collections tools such as Treasury 

offsets, administrative wage garnishments to pursue recover defaulted 

loans.; Utilize available collection methods. Refer eligible accounts 

to private collection agencies for collection.; Focus on existing 

collection methods to improve on past results. Provide excellent 

customer service to make collections process user-friendly.; Outcomes: 

Total collections: $3.22 billion. Recovery rate 11.7 percent. Combined 

recoveries were $5.102 billion.; Exceeded goal by 1.5 percentage 

points, total collected $4.87 billion.; Goal met?[A]: Yes.



Goal Number: 18.; Goal/Strategy Description: Improve default recovery 

rate to new goal of $914 million.; Actions: Focus on existing 

collection methods to improve on past results.; Outcomes: Collected 

$924.7 million; Goal met?[A]: Yes.



Goal Number: 19.; Goal/Strategy Description: 2001: Implement the 

National Directory of New Hires database-matching program.; 2002: 

Expand use of the National Directory of New Hires (NDNH) database to 

recover $200 million in defaulted loans.; Actions: Establish procedures 

and a mechanism to match collections records again Health and Human 

Services database.; At close of quarter, transmit two files (containing 

FSA and GA defaulted loan data) to Health and Human Services for 

comparison with NDNH files.; Outcomes: Collections totaled $150 

million. New information obtained for over 690,000 accounts.; FSA 

collections through August: $269 million. GA/FSA combined collections 

exceeded $500 million.; Goal met?[A]: Yes.



Goal Number: 20.; Goal/Strategy Description: Continue use of 

performance-based default collections contracts.; Actions: Track and 

rank order performance based on collection totals.; Outcomes: By 

driving private collection agencies (PCAs) to perform competitively, 

agency was able to increase recoveries and reduce costs.; Goal met?[A]: 

Yes.



Goal Number: 21.; Goal/Strategy Description: 2001: Analyze the results 

of IRS statistical study regarding electronic data match.; 2002: 

Support the administration’s efforts to improve the data match with the 

IRS.; Actions: Compare income data that students and parents report on 

2000-2001 FAFSAs with income reported to the IRS for 1999 calendar 

year.; Work with Treasury to draft legislative language that allows 

Education to implement an effective income verification match with the 

IRS. FSA will work with IRS to test a “Consent for the IRS to Disclose 

Taxpayer Information” Web site.; Outcomes: Data helped FAFSA to 

identify error-prone applicants and minimize the amount of federal 

student aid dollars that are erroneously awarded to students each 

year.; Legislative language sent to Joint Committee on Taxation and 

House and Senate leadership. FSA and IRS launched website on October 7, 

2002. Eight postsecondary institutions participating in pilot. IRS 

agreement to permit 600 students and parents access to website for 

verification of 2001 tax data.; Goal met?[A]: Yes.



Goal Number: 22.; Goal/Strategy Description: Demonstrate value of 

National Student Loan Data System (NSLDS) default match.; Actions: 

Perform analysis of students that have been identified erroneously as 

ineligible for funds.; Outcomes: Latest computations of NSLDS default 

and other matches indicate that FSA has averted an amount equivalent to 

$300 million a year in potential improper payments.; Goal met?[A]: Yes.



Goal Number: 23.; Goal/Strategy Description: 2000: Continue to work 

with guaranty agencies and lenders to maintain the quality of data in 

NSLDS.; 2002: Prepare annual NSLDS analysis of students who receive 

loans although they appear to be in default and identify improvements 

that can be made.[D]; Actions: Analyze loan and repayment data within 

NSLDS.; Identify improvements that can be made to NSLDS.; Outcomes: 

Reporting burden of guaranty agencies reduced.; Not on track due to 

other priorities.; Goal met?[A]: No.



Goal Number: 24.; Goal/Strategy Description: 2000: Increase the number 

of Free Application for Federal Student Aid (FAFSAs) filed 

electronically from 3 million to 4 million.; 2001: Increase the number 

of FAFSAs filed electronically to 5 million with 50 percent via Web 

product.; 2002:Increase the number of FAFSAs filed electronically 5.5 

million with 55 percent via Web product.; Actions: Increase user-

friendliness of website. Introduce features such as incremental save to 

allow users to retain data input if unable to complete all at once.; 

Make improvements to Web site. Increase visibility of Web product.; 

Redesign web products and increase publicity. FSA staff to work closely 

with TRIO personnel and others who work with low-income students.; 

Outcomes: A little over 4 million FAFSAs filed electronically.; 

5,364,223 applications filed electronically. Over 61 percent of all 

electronic submissions used Web.; 7.27 million filed electronically, 

5.37 million filed via the web. Enhanced and increased the types of 

FAFSA on the Web Toolkit materials that financial aid administrators, 

counselors and other who work directly with students and their 

families.; Goal met?[A]: Yes.



Goal Number: 25.; Goal/Strategy Description: Use the Common Origination 

Disbursement (COD) system to institute eligibility check for valid 

Individual Student Information Record (ISIR) for Direct Loan 

recipients.; Actions: Implement eligibility check that is modeled on an 

existing check performed by the Pell system for eligible applicants.; 

Outcomes: Launched the COD system as part of FSA Integration Plan, 

integrating the Pell and Direct Loan processes. Schools no longer have 

to ensure valid ISIR data is on file for direct loan recipients.; Goal 

met?[A]: Yes.



Goal Number: 26.; Goal/Strategy Description: 2001: Increase program 

reviews by 20 percent.; 2002: Develop metrics to demonstrate that there 

is an appropriate balance between providing technical assistance to 

schools and program monitoring.; Actions: Conduct 163 on-site reviews 

at institutions.; Hold discussions between the Schools Channel and the 

Management Improvement Team. Development for FY 2003 Performance Plan.; 

Outcomes: 163 program reviews completed, seven institutions referred to 

IG for noncompliance.; Preliminary measures developed. First 

calculations will take place in fiscal year 2003.; Goal met?[A]: Yes.



Goal Number: 27.; Goal/Strategy Description: Increase the total numbers 

of borrowers repaying their Direct Loans through electronic debiting to 

a minimum of 400,000 borrowers.; Actions: Increase the presence of 

electronic debit accounts (EDA) via mailers and allowing convenient 

enrollment at Web site.; Outcomes: EDA reduced mailing costs (by 

$1,196,414) and provided borrower with an efficient method of payment.; 

Goal met?[A]: Yes.



Goal Number: 28.; Goal/Strategy Description: Provide Spanish language 

deferment and forbearance requests at DL Servicing Web site.; Actions: 

Develop Spanish website utilizing a translator from American 

Translators Association.; Outcomes: Spanish speaking borrowers are able 

to access and download deferment and forbearance forms in Spanish.; 

Goal met?[A]: Yes.



Goal Number: 29.; Goal/Strategy Description: Educate the foreign school 

community about FSA program requirements to reduce noncompliance.; 

Actions: Partner with guaranty agencies to provide training to foreign 

schools; Outcomes: Training provided in first quarter to schools in the 

United Kingdom and Canada. A focus group was formed and developed a 

foreign schools handbook. Also, conducted several demonstrations on 

electronic application to participate in title IV programs.; Goal 

met?[A]: Yes.



Goal Number: 30.; Goal/Strategy Description: Implement a pilot program 

at foreign schools that would prevent false enrollments.; Actions: 

Implement pilot program that enables foreign schools to enter 

enrollment data on the Web and guaranty agencies to verify data before 

loan funds are disbursed.; Outcomes: FSA has submitted recommendations 

for legislative and regulatory changes that would require lenders to 

verify student enrollment prior to disbursements.; Goal met?[A]: Yes.



Goal Number: 31.; Goal/Strategy Description: Make a determination on 

initial cohort of recertification applications for all foreign non-

medical schools eligible to participate in the FFEL Program.; Actions: 

Recertify the initial cohort of foreign schools.; Outcomes: Eligibility 

determinations for all low-volume foreign schools completed in February 

2001, high volume foreign institutions recertified by May 31, 2001.; 

Goal met?[A]: Yes.



Goal Number: 32.; Goal/Strategy Description: 2000: Reduce fraudulent 

death and disability cases below 1998 baseline.; 2001:Augment 

continuing false death and disability campaign.; Actions: Revise forms 

currently in use. Pilot centralized processing of disability claims for 

four guaranty agencies. Conduct periodic audits of NSLDS and credit 

bureau information. Follow-up on Inspector General (IG) estimates.; 

Implement pilot that will serve as test run for regulations that go 

into effect in 2002.; Outcomes: Implemented three actions to strengthen 

initial screening process: (1) revise forms, (2) one-year pilot 

centralized processing with four guaranty agencies, and (3) conduct 

periodic audits using both NSLDS and credit bureau data. Further 

analysis conducted on 20,817 files with income within first year of 

discharge.; Pilot successfully implemented in September 2001.; Goal 

met?[A]: Yes.



Goal Number: 33.; Goal/Strategy Description: Conduct and complete 

investigative analysis on remaining 1300 discharges identified from 

Inspector General audit.; Actions: Validate outcomes and disposition of 

the remaining 1,300 claims identified as “discharged.”; Outcomes: 

Comprehensive report on outcomes of 1,300 discharges issued in April 

2001 and forwarded to Inspector General.; Goal met?[A]: Yes.



Goal Number: 34.; Goal/Strategy Description: Expand FAFSA Correction on 

the Web capabilities.; Actions: None provided.; Outcomes: Popularity of 

this new function resulted in FSA having to increase its server 

capacity.; Goal met?[A]: Yes.



Goal Number: 35.; Goal/Strategy Description: Partner with the National 

Student Loan Clearinghouse (NSLC) to eliminate mismatches in enrollment 

information.; Actions: Enter into a partnership with NSLC based on 

successful implementation of data exchange.; Outcomes: Clearinghouse 

school student enrollment data received by Direct Loan Servicer up to 

90 days earlier. Significant reduction (25 percent) in the percentage 

of in-school deferment forms required for completion by students.; Goal 

met?[A]: Yes.



Goal Number: 36.; Goal/Strategy Description: Try at least five new ways 

to make debt collection more efficient, less costly, and more customer 

service oriented.; Actions: Implement a process that will allow social 

security number discrepancies to be easily resolved. Automate data 

transfer with Justice. Shorten timeframe of wage garnishment hearings. 

Improve answer call rate for Debt Collection Service. Streamline the 

ability-to-benefit discharge review process.; Outcomes: Implemented 

standard procedures at all service centers, automated data transfer 

process, improved call rate to 95 percent, among other activities.; 

Goal met?[A]: Yes.



Goal Number: 37.; Goal/Strategy Description: Increase by five, the 

number of guaranty agencies partnered with FSA.; Actions: Publish 

agency rankings and other statistical data. Increase presence at 

industry meetings. Develop joint initiatives with guaranty agencies; 

Outcomes: Partnerships formed with USA Group, Texas Guaranteed Student 

Loan Corporation, Nebraska Student Loan Program, Oklahoma Student Loan 

Program, and South Dakota EAC. Agency rankings published for first time 

since fiscal year 1996, statistical data published through year, 

increased presence of department at industry association meetings and 

development of joint initiatives.; Goal met?[A]: Yes.



Goal Number: 38.; Goal/Strategy Description: Expand current initiatives 

to help noncompliant and reimbursement schools prepare action plans to 

improve their management of title IV programs.; Actions: Develop a 

welcome package for new title IV eligible schools. Establish baseline 

for new schools that will be analyzed at end of first year to provide 

feedback.; Outcomes: Reduced the percentage of school on reimbursement 

and/or cash monitoring by 30 percent.; Goal met?[A]: Yes.



Goal Number: 39.; Goal/Strategy Description: Increase the default 

recovery rate for loans in default held by guaranty agencies.; Actions: 

Increase emphasis placed in on guaranty initiatives.; Outcomes: Overall 

recovery rate: 18.13 percent, up from 15.52 percent in previous year.; 

Goal met?[A]: Yes.



[End of table]



Source: Department of Education.



[A] Our determination of whether or not a goal was met was based on our 

analysis of FSA’s internal documents and considered the agency’s 

collective efforts during the period in which the goals were in effect.



[BAS OF MARCH 2001, FSA ENTERED INTO FOUR VFAS WITH GUARANTY AGENCIES.]



[C] FSA continued its goal to establish a program to further reduce 

cohort and lifetime default rates in fiscal years 2000 through 2002. 

However, it is not clear what progress has been made on this goal 

beyond the initial success of the Repayment Symposium held in 2000.



[D] While FSA achieved an interim goal in fiscal year 2000 to improve 

the quality of NSLDS data, it failed to achieve its most recent goal to 

prepare an analysis of NSLDS data that would explain why some borrowers 

who are classified as defaulters continue to receive federal student 

aid.



[End of section]



Appendix IV: Comments from the Office of Federal Student Aid:



UNITED STATES DEPARTMENT OF EDUCATION STUDENT FINANCIAL ASSISTANCE 

WASHINGTON, D.C. 20202-5132:



CHIEF OPERATING OFFICER:



Cornelia M. Ashby:



Director, Education, Workforce, and Income Security Issues United 

States General Accounting Office Washington, DC 20548:



FEB 5 2003:



Dear Ms. Ashby,



Thank you for the opportunity to review and comment on your draft 

report, Federal Student Aid: Timely Performance Plans and Reports Would 

Help Guide and Assess Achievement of Default Management Goals (GAO-03-

99). We appreciated the professionalism and responsiveness of you and 

your staff as we provided information, responded to questions, and 

worked through issues.



We are pleased with your conclusions that the Office of Federal Student 

Aid (FSA) met or exceeded almost all of its default management goals. 

We also agree with the report comments regarding the need to: (i) 

provide more timely performance reports that clearly identify whether 

performance goals are met, and (ii) update our five-year plan. However, 

our results clearly demonstrate that the plans we had in place were 

appropriate to guide our efforts in the default management area, 

particularly when coupled with the Department’s FY 2002-FY 2007 

Strategic and FY 2002-2003 Annual Plans. The following chart shows the 

success of our strategies - while the outstanding portfolio grew 

significantly, the outstanding default portfolio identified in GAO’s 

report fell as a percent of the outstanding portfolio:



Defaulted Loan Portfolio Compared to Outstanding Loan Portfolio:



[See PDF for image]



[End of figure]



We recognize the challenge we face to continue to keep the default 

portfolio to a small share of the outstanding portfolio, as the economy 

has much to do with our success. Providing billions of dollars of 

loans, through thousands of intermediaries to millions of students, who 

may not be credit-worthy, is inherently risky. However, we will 

continue to aggressively manage this challenge. We will continue to use 

the Debt Collection Improvement Act and programmatic tools at our 

disposal effectively to reduce defaults and improve collections.



Our fiscal year 2003 Annual Plan is finalized and our priority goals 

for the year established. We prioritized this year’s project efforts 

not only with the important mandates of the PBO legislation as guiding 

principles, but with our program integrity goals of obtaining and 

maintaining an unqualified financial statement audit opinion, and of 

permanent removal from the GAO High Risk list. Other key priorities 

include our continued efforts to integrate our remaining legacy systems 

and migrate them to newer technology solutions, as appropriate. 

Managing student loan defaults is an important FSA initiative that 

continues to be an integral part of this plan as well as the 

Department’s Strategic and Annual Plans.



We recognize, too, the requirement for FSA to produce annually a five-

year plan to better enable Congress and other stakeholders to determine 

that performance goals were met. This spring we plan to revise our 

five-year plan to align more closely with our current priorities. This 

will include giving even greater emphasis to program integrity, a key 

component of our annual plans. Although much of the current FSA Five 

Year Plan is still relevant, we recognize that it is important to 

Congress and the community that we update the plan to reflect the 

emphasis of program integrity and make other necessary changes.



Regarding the timeliness of our annual report, we will meet our 

deadline to finalize our FY 2002 Annual Report. Our annual financial 

statement audit report, which is an integral part of the annual report, 

is complete. We received an unqualified opinion on our FY 2002 

financial statements. The final annual report will include this opinion 

as well as appropriate information on our performance goals and 

activities that address your suggestions.



Additional comments on specific sections of the report are contained in 

an Appendix to this letter. Again, I wish to thank you and your staff 

for your professionalism on this engagement and look forward to 

continuing to work with you on these and other important issues.



Sincerely,



Signed by Theresa S. Shaw:



Theresa S. Shaw:



Appendix:



Additional specific comments on the GAO report entitled Federal Student 

Aid. Timely Performance Plans and Reports Would Help Guide and Assess 

Achievement of Default Management Goals (GAO-03-99):



1. GAO Highlights -:



Why GAO Did This Study - This section discusses the default volume 

doubling from approximately $11 billion to nearly $22 billion from 1990 

to 2001. During that same period the loan portfolio more than 

quadrupled from $54 billion to $233 billion. We believe that 

information also needs to be included in this section to provide 

important context and balance.



What GAO Found - We believe that a chart similar to the one included in 

our response provides a more balanced picture of the effectiveness of 

FSA’s default management strategies as well as a clearer picture of the 

portfolio as a whole. If Table 1 is used, it should include information 

on the loan portfolio outstanding at the end of each period. Including 

these amounts, would at least allow the reader to put the default 

portfolio identified by GAO in perspective.



2. Page 1, first paragraph -:



Again, the loan portfolio balances should be included in this paragraph 

to provide a more balanced presentation of the dollar increase in the 

default loan portfolio.



3. Page 2, Results in Brief, first paragraph -:



Although GAO notes that documents presented by FSA did not explain the 

basis for establishing, continuing, or ending projects, the 

documentation in FY 2002 of additional actions supporting default 

strategies is reasonable. As your report notes, those strategies were 

to prevent defaults, increase collections and verify student 

eligibility. To support this annual plan action item, ongoing projects 

were identified that supported the strategies. Many of these projects 

had existed in prior years, but had not specifically been included in 

prior years formal planning documents. In addition, several of these FY 

2002 “one year goals” are actually actions that are continuing into 

future years.



The FSA Five Year Plan and the annual plans supporting default 

management strategies focused on indicators of success and major 

projects. The goals of lowering defaults and improving collections are 

documented clearly in the FSA Five Year Plan. The measures of keeping 

the default at or below a certain rate, and keeping the default 

recovery rate at or above a certain rate, were measures that were 

identified and formalized in FSA’s annual plans each year. In addition, 

the default recovery rate was included as a goal in the recent 

Department strategic and annual plans. And we have met the goals we 

have established: the cohort default rate was reduced to an all time 

low of 5.6% and our default recovery rate increased to 16.76%, 

reflecting collections of $4.87 billion dollars.



4. Page 7, Table 1 -:



As previously stated, the chart included in this response would provide 

a more balanced picture as it includes information on the outstanding 

loan portfolio in relation to the defaults. At the very least, Table 1 

should also include information on the loan portfolio amounts at the 

end of each period to put the default loan portfolio identified by GAO 

in perspective.



5. Page 9, first full paragraph -:



This paragraph improperly indicates that the NSLDS data quality effort 

was a goal that had been in existence for only two years. Improving the 

quality of the NSLDS data has been a project that has been on going 

since 1994, even though it was not covered in the FY 2000 Annual Plan. 

In addition, the particular project identified in FY 2002 as an NSLDS 

default management project had been performed on an ongoing basis 

(about every other year) for the last six years.



[End of section]



Appendix V: GAO Contacts and Staff Acknowledgments:



GAO Contacts:



Carolyn M. Taylor (202) 512-2974

Mary A. Crenshaw (202) 512-7053:



Staff Acknowledgments:



Lisa Lim and Carla Craddock made significant contributions to this 

report. In addition, James Rebbe provided legal support, Carolyn Boyce 

provided assistance in selecting schools for our survey, and Susan 

Bernstein and Barbara W. Alsip provided writing assistance.



FOOTNOTES



[1] Because of concerns about fraud, waste, abuse, and mismanagement, 

we have included student financial aid programs on our high-risk list 

since 1990. The former Guaranteed Student Loan Program, now called the 

Federal Family Education Loan Program was included in our 1990 list; in 

1995 we revised this designation to include all student financial aid 

programs included in Title IV of the Higher Education Act of 1965. U.S. 

General Accounting Office, High-Risk Series: Student Financial Aid, 

GAO/HR-95-10 (Washington, D.C.: Feb. 1, 1995); High-Risk Program: 

Information on Selected High-Risk Areas, GAO/HR-97-30 (Washington, 

D.C.: May 16, 1997); High-Risk Series: An Update, GAO/HR-99-1 

(Washington, D.C.: Jan. 1, 1999); High-Risk Series: An Update, 

GAO-01-263 (Washington, D.C.: Jan. 1, 2001); and Major Management 

Challenges and Program Risks: Department of Education, GAO-03-99 

(Washington, D.C.: Jan. 2003).



[2] A Voluntary Flexible Agreement provides a guaranty agency--a state 

or nonprofit private institution or organization that administers the 

FFEL program--flexibility to implement new practices, including default 

prevention or collections activities, by waiving or modifying some 

requirements established under federal statutes that apply to other 

guaranty agencies.



[3] Campus-based programs consist of the Federal Work-Study Program, 

the Federal Perkins Loan Program, and the Federal Supplemental 

Educational Opportunity Grant Program.



[4] The FFEL program comprises three loan programs: subsidized and 

unsubsidized Federal Stafford Loans (collectively referred to as 

Federal Stafford Loans) and Federal Supplemental Loans for Students 

(Federal SLS loans). Federal SLS loans have not been made since July 1, 

1994. 



[5] If a school has fewer than 30 borrowers entering repayment in a 

given fiscal year, the default rate is averaged over a 3-year period.



[6] Previous default thresholds established under the HEA were 35 

percent or higher for fiscal years 1991 and 1992 and 30 percent or 

higher for fiscal year 1993. 



[7] Schools included in this tally may have successfully appealed at a 

later date. FSA did not provide data on the number of postsecondary 

institutions that were subject to suspension as a result of default 

rates greater than 40 percent in a single year in time for our review.



[8] A borrower is considered delinquent when at least one regularly 

scheduled payment has been missed. A borrower is generally considered 

in default for failing to make required payments within 270 consecutive 

days of entering loan repayment or otherwise violating the terms of the 

promissory note.



[9] The Department of Health and Human Services’ Office of Child 

Support Enforcement maintains the National Directory of New Hires 

(NDNH) database. Within 20 days of hire, employers must submit the 

names, addresses, and social security numbers of new employees to the 

State Directory of New Hires. This information is then submitted to the 

NDNH, which also includes quarterly wage data from every state and 

federal agency and unemployment insurance data from all state 

employment agencies. Although the database was originally used for 

child support enforcement, its authorized use was expanded to locate 

borrowers with defaulted student loans in 2001.



[10] FSA recognizes that there are limitations to its cohort default 

rate, namely the relatively short time-frame within which the agency 

can monitor loan defaults. The lifetime default rate would expand the 

window of analysis from two years under the current measure to 15 years 

or the average life of a federal student loan.



[11] U.S. General Accounting Office, Guaranteed Student Loan 

Vulnerabilities, GAO-03-268R (Washington, D.C.: Nov. 21, 2002). 



[12] U.S. General Accounting Office, Federal Student Aid: Additional 

Management Improvements Would Clarify Strategic Direction and Enhance 

Accountability, GAO-02-255 (Washington, D.C.: Apr. 30, 2002).



[13] FSA was formerly known as the Office of Student Financial 

Assistance (SFA). The name of SFA was changed to Federal Student Aid on 

March 6, 2002. 



[14] In 1990, we initiated a High-Risk Program to highlight 

governmentwide high-risk areas including fraud, waste, abuse, and 

mismanagement. FSA’s student loan program has been on the high-risk 

list since 1990. The other student aid programs were included in the 

High Risk List in 1995.



[15] The cohort default rate is defined as the percentage of borrowers 

who enter a repayment status in a certain fiscal year and default 

before the end of the next fiscal year on certain FFEL and Direct 

Loans.



GAO’s Mission:



The General Accounting Office, the investigative arm of Congress, 

exists to support Congress in meeting its constitutional 

responsibilities and to help improve the performance and accountability 

of the federal government for the American people. GAO examines the use 

of public funds; evaluates federal programs and policies; and provides 

analyses, recommendations, and other assistance to help Congress make 

informed oversight, policy, and funding decisions. GAO’s commitment to 

good government is reflected in its core values of accountability, 

integrity, and reliability.



Obtaining Copies of GAO Reports and Testimony:



The fastest and easiest way to obtain copies of GAO documents at no 

cost is through the Internet. GAO’s Web site ( www.gao.gov ) contains 

abstracts and full-text files of current reports and testimony and an 

expanding archive of older products. The Web site features a search 

engine to help you locate documents using key words and phrases. You 

can print these documents in their entirety, including charts and other 

graphics.



Each day, GAO issues a list of newly released reports, testimony, and 

correspondence. GAO posts this list, known as “Today’s Reports,” on its 

Web site daily. The list contains links to the full-text document 

files. To have GAO e-mail this list to you every afternoon, go to 

www.gao.gov and select “Subscribe to daily E-mail alert for newly 

released products” under the GAO Reports heading.



Order by Mail or Phone:



The first copy of each printed report is free. Additional copies are $2 

each. A check or money order should be made out to the Superintendent 

of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. 

Orders should be sent to:



U.S. General Accounting Office



441 G Street NW,



Room LM Washington,



D.C. 20548:



To order by Phone: 	



	Voice: (202) 512-6000:



	TDD: (202) 512-2537:



	Fax: (202) 512-6061:



To Report Fraud, Waste, and Abuse in Federal Programs:



Contact:



Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov



Automated answering system: (800) 424-5454 or (202) 512-7470:



Public Affairs:



Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.



General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.



20548: