By Joelle Fredman, NASFAA Staff Reporter

The Department of Education (ED) was successful in reporting and implementing corrective actions to reduce improper payments for its aid programs and in hitting its mark for reducing improper payments for the federal Direct Loan program in 2017, according to a report released yesterday by ED's Office of Inspector General (OIG). The only target ED did not meet in 2017, however, was its improper payment reduction goal for the federal Pell Grant program.

According to the Improper Payments Elimination and Recovery Act (IPERA), federal agencies must review their programs susceptible to improper payments, publish performance reports on those programs, conduct risk assessments, reduce improper payments to less than 10 percent, and meet annual reduction targets, among other requirements. If an agency fails to meet one requirement, it is considered to have not complied with IPERA — which OIG found to be the case for ED according to yesterday's report.

Inspector General Kathleen Tighe has repeatedly found ED to be noncompliant with IPERA, testifying in the past that the Office of Federal Student Aid (FSA) failed to accurately estimate improper payments and arguing in a recent report that it would continue to be a difficult management issue for ED. NASFAA President Justin Draeger testified last year before the House subcommittees on government operations and intergovernmental affairs about ED's mishandling of improper payments, stating that a balance must be struck between coming down on improper payments and supporting aid programs.

"One of the greatest challenges in dealing with improper payments within the federal student aid programs is that, in our efforts to drive down improper payments, we don't simultaneously – and inadvertently – want to drive out the very students these programs are designed to help," Draeger said.

ED noted a similar issue in its response to this OIG report, noting that it faces a challenge to "strike the right balance between making timely and accurate payments and ensuring that controls put in place are not too costly or overly burdensome; and thereby, deter intended beneficiaries from obtaining funds they are entitled to receive."   

OIG, however, found that ED met almost all of the requirements outlined in IPERA for 2017. OIG reported that ED identified 25 "corrective actions" in 2017, 11 of which it implemented and 14 of which it planned to act on in the future, and recaptured more than double the amount of improper payments in 2017 than it did in 2016 — reclaiming $42.46 million in improper payments compared to $20.35 million. One corrective action ED implemented, for example, was permitting students and families to use "prior-prior year" tax data when filling out the FAFSA, which in turn allowed them to use the IRS Data Retrieval Tool and was widely supported by higher education advocates, including NASFAA. The fact that students and families could transfer their tax data directly from the IRS website to their online FAFSA "reduced the likelihood of misreported income on FAFSA," according to OIG.

OIG also determined that ED met its reduction target for the Direct Loan program because, while it did not technically reach its goal of 4.05 percent, it came within .1 percentage points of that figure at 3.98 percent.

OIG did report, however, that overall ED was not in compliance with IPERA because while it met every other requirement outlined in the regulation, it failed to reach its 7.85 reduction target for the Pell Grant program for 2017, seeing improper payments instead hit 8.21 percent. This marked the second consecutive year ED failed to meet its target for this program, which, according to the regulation, triggers a program review by the Office of Management and Budget (OMB) to determine whether to provide ED with additional funding to help it meet its goals and whether to implement additional requirements. OIG recommended that ED comply with OMB directives.

In its response, ED agreed that it did not meet its reduction target, but argued that had more precise, statistical estimates been used, its target would have fallen within the margin of error, which it determined to be 6.78 percent. ED wrote that it has "engaged contract support to finalize and implement a plan to develop a statistically valid improper payment estimate methodology."

With regard to assessing and fixing controls to help prevent improper payments in the future, ED noted that FSA has adjusted its verification selection algorithm for the 2019-20 FAFSA, which will be implemented October 1, 2018 and serve as a "much more accurate methodology for selecting applications for verification." ED previously made adjustments to its algorithm for the 2018-19 FAFSA, which, according to verbal guidance provided to NASFAA, should lead to a normalization in verification rates. Despite this measure, however, there are some institutions that have already reported more selected applications in the first few months into the processing year than they did during the entire 2016-17 application year. While NASFAA asked ED to implement a verification cap in response to this issue, it did not hear back from ED.      

ED also responded to the report that while it found that an estimated 96 percent of improper payments were made by external entities, such as federal, state, and private organizations and institutions, "nevertheless, the Department continues to focus on reducing improper payments." 

Publication Date: 5/11/2018

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