GAO: Congress Should Strengthen Schools’ Accountability for Default Rates

By Joelle Fredman, NASFAA Staff Reporter

Congress should strengthen schools’ accountability for student loan defaults, as well as require that the information schools, alongside their consultants, provide to students about repayment and postponement options is accurate, according to a new report from the Government Accountability Office (GAO).

In response to a request to examine schools’ efforts to reduce student defaults, which now account for $149 billion of the $1.4 trillion of student loan debt, GAO found that some consultants hired by schools pushed students to choose forbearance as a way to avoid defaulting on their loans over “other potentially more beneficial options for helping borrowers avoid default, such as repayment plans that base monthly payments on income.”

For example, GAO found that a borrower with $30,000 loans would pay an additional $6,742 in interest if the borrower was to spend the first three years of repayment in forbearance — a 17 percent increase.

Further, GAO argued that “borrowers in long-term forbearance defaulted more often in the fourth year of repayment, when schools are not accountable for defaults, suggesting it may have delayed—not prevented—default.”

Additionally, GAO wrote that four out of the nine consultants it examined, which serve about 800 students in 1,300 schools, gave “inaccurate or incomplete” information on repayment options to students, and that the Department of Education (ED) claims it does not have the “explicit statutory authority” to require that the information be accurate. And because ED does not disclose the number of schools sanctioned for their poor default rates, GAO said it “limits transparency about the 3-year default rate’s usefulness for Congress and the public.”

“The fact that some schools could pursue strategies that simply push out an inevitable default highlights a policy shortcoming that must be tackled by lawmakers: that relying solely on cohort default rates is a poor proxy for institutional quality,” said NASFAA President Justin Draeger in a statement released yesterday. Draeger pointed out that the administrative hurdles to qualify for forbearance are much less than qualifying for and remaining eligible for income-driven repayment plans, a disparity that should be corrected.  

“The best time for schools to help students with loan debt is before they borrow even a single dollar,” said Draeger, reiterating NASFAA’s support to give schools the authority to limit borrowing or mandate additional counseling.

GAO concluded, with support from ED, that Congress should institute “statutory changes to strengthen schools' accountability,” require that information disseminated to students be accurate, and that ED increase its transparency with regards to default rate sanctions.

“We look forward to working with lawmakers to determine how default rates, repayment rates, and other student outcomes can be taken into account—fairly and equitably—when determining student aid eligibility,” Draeger said. 

 

Publication Date: 4/27/2018


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