GAO Releases Data to Support Report Identifying Potential for Fraud Among Borrowers in IDR Plans

By Owen Daugherty, NASFAA Staff Reporter

As the prevalence of income-driven repayment (IDR) plans continues to rise, new data released by the Government Accountability Office (GAO) shed some light on emerging trends, how the plans are being utilized, and what type of borrowers are taking advantage of them.

IDRs use borrowers' taxable income and family size to determine an affordable payment rate, with some borrowers qualifying for as low as $0 monthly payments that still count toward loan forgiveness within a certain time frame.

The GAO report including additional data comes after the office in June of 2019 identified the potential for fraud or error as borrowers self-report information. And while GAO wrote at the time 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.” GAO has now released supplemental data to further drill down to analyze the potential for fraud.

When assessing indicators for potential fraud based on errors in self-reporting income information, GAO disaggregated data for two variables — IDR application type and loan servicer.

Of the nearly 878,500 plans it examined, 95,100 plans were held by borrowers who made no monthly payments — yet may have had enough income to pay something. Of the 95,100 plans identified, GAO found roughly two-thirds of them were new applications.

The remainder of the plans were made up of recertification applications, which borrowers on IDR plans must submit annually, and requests for monthly payment recalculations, which borrowers on IDR plans may voluntarily request at any time based on changes to their family size or income.

Two of the eight loan servicers included in GAO's review — Great Lakes and Navient — accounted for more than three-quarters of the approximately 95,100 plans held by borrowers who reported zero income yet may have had sufficient wages to make a student loan payment, according to GAO.

“This is similar to the share for these loan servicers in the overall population of nearly 878,500 plans GAO analyzed,” GAO said.

Additionally, GAO analyzed indicators of potential fraud or error in family size information, finding that approximately 40,900 of roughly 5 million IDR plans were approved based on family sizes of nine or more, which GAO deems atypical since they comprised about the top 1% of family sizes in the Department of Education’s (ED) data. For this correspondence, GAO again disaggregated these data for two variables: IDR application type and loan servicer.

New applications accounted for more than one-half of the approximately 40,900 plans that were approved based on atypical family sizes, GAO’s review of the data found. Recertification applications accounted for just over one-third of these plans.

Again, GAO noted that proportion is similar to the share for these loan servicers in the overall population of approximately 5 million IDR plans.

GAO noted the fact that ED has not systematically implemented other data analytic practices, such as using data it already has to detect anomalies in income and family size that may indicate potential fraud or error, is a weakness that could be addressed.

It recommends ED obtain additional data to verify income information for borrowers who report zero income on IDR applications, and implement data analytic practices and follow-up procedures to verify both borrower reports of zero income as well as borrowers’ family size.

Notably, ED generally agreed with the recommendations and has taken steps to implement them, according to GAO.

Part of the solutions center around data sharing between ED and the Internal Revenue Service (IRS), which is now allowed under the recently passed Fostering Undergraduate Talent by Unlocking Resources for Education (FUTURE) Act.

However, as of August, ED’s plans to implement more oversight measures through a verification pilot have been on hold so ED can prioritize implementation of student loan relief measures enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

While ED in its response to GAO’s findings said it “holds itself accountable for minimizing fraud and abuse, and acknowledged that borrowers and third-parties have provided incorrect information that has resulted in some borrowers paying less than they should according to their actual earnings and family size,” it also asserted that Federal Student Aid data and the

results of an ED Office of Inspector General (OIG) review found that examples of fraud are not as widespread as initially indicated in GAO’s June 2019 report.

GAO pushed back on ED’s categorization of its 2019 report, noting that its work “relied on data matching to identify indicators of potential fraud or error, and as stated in that report and this report, it is not possible to determine whether fraud or error occurred through data matching alone.”

“As a result, we did not attempt to quantify the extent of fraud or error in IDR plan information in either the June 2019 report or this report,” GAO stated. “We do not believe it is possible to draw generalizable conclusions about the extent of fraud or error in borrowers’ income or family size information on IDR applications based on this information since ED’s OIG’s review is ongoing.”


Publication Date: 10/5/2020

Ben R | 11/11/2020 3:5:38 PM

From a lending standpoint, the real fraud is allowing IDR without graduate lending caps for degrees of little value. Borrow $250,000 for multiple online graduate degrees, then pay $50/month based on predictably low earnings. Where is the accountability and common sense?

IDR also makes no distinction between those who are on a altruistic path for a noble cause and those who are clearly abusing the student loan system with no intent to repay the loan in full. In either case, it rewards the borrower greater the more and longer they borrow, whether the overborrowing was innocent and "accidental" or intentional.

Renee M | 10/11/2020 9:4:41 PM

Why is the collection and verification of this information more important in the IDR process than in the FAFSA process? They should be equally important. If a family reports zero income on the FAFSA, it isn't scrutinized nor verified. Presumably, the same information is collected using the IRS Data Retrieval Tool in both processes. Just thinking out loud...

David S | 10/5/2020 10:30:01 AM

Gee, if only the same federal government that funds, makes and oversees the collection of student loans had another agency within it that collected mandatory, official documentation that shows borrowers' income and at least a proxy for household size. That sure could minimize the potential for fraud, but alas...

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