The Department of Education (ED) on Wednesday announced that significant improper payments within the federal Pell Grant and Direct Loan programs have spiked in the most recent fiscal year.
In its annual financial report, ED said that it miscalculated more than $2.2 billion in Pell Grants, and more than $3.8 billion in Direct loans during the 2016 fiscal year, the vast majority of which resulted in overpayments. Those error rates have increased significantly from the previous year – from 1.88 percent to 7.85 percent for Pell Grants, and from 1.30 percent to 3.98 percent for Direct loans.
Overall, ED said the underlying root cause of the improper payments was “failure to verify financial data and administrative or process errors made by other parties.” For example, root causes associated with failing to verify financial data could include incorrect self-reporting of an applicant’s income. Root causes associated with administrative or process errors could include incorrect processing in instances where satisfactory academic progress was not achieved, or student account data changes that were not applied or processed correctly.
Justin Draeger, president of NASFAA, added that a recent change to how students and parents e-sign the FAFSA appears to have resulted in fewer people importing their tax information directly into the application – which could have played a role in the increase of improper payments.
“The FSA ID process has proved difficult for many students to navigate, and if one of the main reasons for improper payments is income verification, much of that can hopefully be cleared up by moving more students over to using the IRS Data Retrieval Tool,” he said.
It should also be noted that ED received permission from the Office of Management and Budget (OMB) to use an alternative methodology for estimating improper payments for some programs beginning in the 2014 fiscal year. That methodology, ED said, was further refined in FY2015 and FY2016. The methodology, which does not use statistical sampling techniques, utilizes data from Federal Student Aid (FSA) Program Reviews. This methodology, ED said in the report, “provides for a more efficient allocation of resources by integrating the estimation methodology into core FSA monitoring functions,” rather than developing a statistical sampling methodology that could increase burden to schools.
The methodology was further updated for FY2016 to account for other factors, such as improper payments that result from recipients submitting inaccurate self-reported income on the FAFSA, those resulting from disbursements to students enrolled in ineligible programs, or those not identified in Program Reviews.
“The Department acknowledges that its alternative estimation methodology can lead to volatile improper payment estimates,” the report said.
Draeger said it’s unclear how much of the change in improper payments is due to a true increase or due to ED’s changes in methodology.
“Given the ever-increasing complexities of administering these programs, there are certainly improvements schools can make to ensure the right students get the right amount of dollars. Schools are more vested than anyone in ensuring integrity in the federal student aid programs,” Draeger said. “But I balk at the Department passing the proverbial buck on improper payments onto schools without doing some self-examination about their own processes that undermine our efforts, like the rollout of the FSA ID process and the continuous increase in complex regulations.”
Publication Date: 11/17/2016