GAO Report Finds Potential for Fraud Among Borrowers in IDR Plans

By Joelle Fredman, NASFAA Staff Reporter

The Government Accountability Office (GAO) published a report Thursday that found the potential for fraud or error as borrowers self-report information for approval to enroll in income-driven repayment (IDR) plans, and urged the Department of Education (ED) to press Congress for access to data that would allow it to verify borrowers’ income, or use existing data to flag suspicious information.    

Monthly payments for IDR plans are based on income and family size. At the request of Reps. Virginia Foxx (R-NC) and Brett Guthrie (R-KY), who both sit on the House Committee on Education and Labor, GAO analyzed ED data on borrowers enrolled in IDR plans between Jan. 1, 2016, and Sept. 30, 2017 to determine whether indicators of potential fraud or error existed. GAO used the National Directory of New Hires (NDNH), which reports quarterly wage data for newly hired and existing employees, to match information for the borrowers during that period who reported no income. 

While GAO wrote that it found some borrowers “may have misrepresented or erroneously reported their income or family size,” it could not “determine whether fraud occurred through data matching alone.” 

Specifically, GAO found that about 76,200 unique borrowers enrolled in 95,100 IDR plans who reported zero income—which accounts for 11% of the plans analyzed—“potentially earned enough wages to make monthly student loan payments.” Of these plans, 34% were approved based on estimated incomes of $45,000 more, including some making $100,000 or more. These borrowers in total owe almost $4 billion. 

GAO cautioned, however, that there are flaws to matching ED and federal wage data. For example, it wrote that some borrowers may have accurately reported zero income—yet would appear to have an income in the federal wage data during that quarter—because the borrower may have earned money at the start or end of the quarter, but not when he or she enrolled in an IDR plan. 

GAO also found that about 40,900 IDR plans (1% of those analyzed) were approved for borrowers based on family sizes of nine or more, which GAO noted is “atypical for IDR plans.” Of those plans, about 3% were approved based on a family size of 16 or more, including two plans involing different borrowers with a reported a family size of 93. These borrowers together owe almost $2.1 billion.   

While borrowers must provide proof of income, such as tax returns, to enroll in an IDR plan, ED “generally accepts borrower reports of zero income and borrower reports of family size without verifying the information,” according to the report. 

ED does not currently have access to the federal sources used to verify borrowers’ reports of zero income. In 2016, ED created “a voluntary procedure for loan servicers to contact borrowers who report changes in family size of four or more from one year to the next,” the report said. However, servicers are not required to comply. GAO recommend that ED either pursue access to that information or obtain private data. GAO also charged ED with analyzing the data it has available to note abnormalities in income or family size, which can help flag cases for follow-up. 

Education Secretary Betsy DeVos wrote in a statement following the report that she is “again calling on Congress to provide [ED] the authority to independently verify income using IRS data.”

"As the GAO highlights, the lack of accountability built into these programs creates significant risk for taxpayers. That's why [ED] has already looked at ways to better verify income and family size for all borrowers enrolled in [IDR] programs. However, without congressional action, we are unable to partner with the [IRS] to independently verify this information,” she wrote. 

Until then, Devos wrote that ED “will work to be responsive to the GAO recommendations,” and that ED is working to identify cases of fraud to send to the Department of Justice. 

Last year, a group of bipartisan senators introduced the Faster Access to Federal Student Aid (FAFSA) Act of 2018, which permits taxpayer data sharing between ED and the IRS for the purpose of verifying income for applicants requesting or renewing eligibility for IDR plans.

“As stewards of the federal student aid programs, financial aid administrators are concerned anytime there is the potential for fraud or abuse that could compromise the integrity of the programs that faithfully serve millions of students each year,” NASFAA President Justin Draeger said. “However, any efforts to safeguard these programs must be carefully balanced against creating overly burdensome bureaucratic barriers that could prevent qualified borrowers from receiving the benefits to which they are entitled. The good news is that lawmakers have already introduced a solution that would eliminate the potential for significant fraud and simultaneously make it easier for many borrowers to obtain and stay enrolled in income based repayment.”

Draager added that NASFAA urges lawmakers “to pass this standalone legislation as soon as possible, to shore up our student aid programs, protect taxpayer investment, and pave the way for our nation’s students to reap the benefits of the student aid programs and postsecondary education.”


Publication Date: 7/26/2019

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