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FSA Annual Report Highlights Student Loan Repayment Pause and Cancellation, Calls for Reforms to Increase Equity

By Maria Carrasco, NASFAA Staff Reporter Hugh T. Ferguson, NASFAA Senior Staff Reporter

The Office of Federal Student Aid (FSA) on Monday released its annual performance report which included details on a wide range of topics, such as the student loan portfolio, employee engagement, data protection and cybersecurity, and updates on its major initiatives. 

In the introduction of the report, FSA Chief Operating Officer Richard Cordray noted that in fiscal year 2022, FSA provided about $111.6 billion in federal grants, loans, and work-study funds to more than 9.8 million students at approximately 5,500 participating postsecondary schools. Additionally, the federal student loan portfolio rose to $1.635 trillion, compared to last year’s $1.611 trillion. 

Cordray also took the opportunity to highlight President Joe Biden’s student loan cancellation plan, which would cancel up to $20,000 of federal student loans for eligible borrowers.

“Targeted student debt relief addresses the financial harms of the pandemic, helps smooth borrowers’ transition back to repayment, and helps borrowers at highest risk of delinquencies or default once payments resume,” Cordray wrote. “We are confident that our program is legal and have asked the Supreme Court to allow us to move forward with providing debt relief to tens of millions of eligible Americans.”

Cordray added that in 2022, the office launched the application to receive Biden’s student loan relief in two months and that in a survey, 97% of applicants described their experience applying as positive. In April, FSA announced the Fresh Start initiative, which which would enable defaulted borrowers to reenter repayment in good standing. Since that announcement, Cordray said FSA restored eligibility for federal student aid to more than 7 million borrowers.

In 2022, FSA processed 16.9 million FAFSAs and provided aid to 9.8 million students, totaling about $111.6 billion in federal grants, loans, and work-study funds, which is about $10.8 billion less in aid provided in 2018. 

Specifically, FSA disbursed about $83 billion in aid to students under the William D. Ford Federal Direct Loan Program — which is a 0.2% increase from 2021. Under federal grant programs, FSA disbursed about $27 billion in aid (a 2.2% decrease from 2021), with the Pell Grant program making up the largest share of grant aid disbursed at about $26 billion — which is also a 2.2% decrease from last year. The Federal Work-Study program accounted for about $1 billion of aid disbursed by FSA — a 5.1% increase from 2021. 

When it comes to the office’s annual performance, the report states that 21 of FSA’s 38 metrics were met or exceeded, nine metrics performed below the target, and one metric was “​​baselined or did not have an established target.” FSA noted that seven metrics were not able to establish a target “due to the COVID-19 administrative forbearance period.”

The 38 metrics fall under five of FSA’s strategic goals, which include to empower a high-performing organization; provide a world-class customer experience to the students, parents, and borrowers; increase partner engagement and oversight effectiveness; strengthen data protection and cybersecurity safeguards; and enhance the management and transparency of the portfolio. 

Some of the metrics that weren’t met by FSA include improving the Employee Engagement Index of the Federal Employee Viewpoint Survey score. FSA’s target score was between 75%-76%, but only reached 73%. FSA also fell short of its targeted number of customers submitting the FAFSA via a mobile platform, either on the myStudentAid mobile app or fafsa.gov website. FSA received 2.5 million FAFSA submissions via a mobile platform, which is about 500,000 short of its 3 million submission target. 

The office also struggled to meet consumer satisfaction targets in 2022. For example, FSA had aimed to reach a score between 72 and 74 on the American Customer Satisfaction Index Aid Lifecycle Survey, but only reached a score of 67.8. 

The reason for this score, FSA notes, is due to the score drop from the borrowers surveyed as part of the Multiple Servicer Survey associated with loan servicers. The score may have dropped, FSA said, due to large-scale loan transfers between servicers, the uncertainty around the loan payment pause and Biden’s student loan cancellation program, and the survey including previously excluded borrowers. The Multiple Servicer Survey accounts for a major part of FSA’s weighted ACSI, so if that score drops, it impacts FSA’s overall ACSI score more heavily, the report states. 

FSA also had a target goal to have the standard of the average speed to answer at all call centers be equal to or less than 60 seconds. However, its average speed to answer in 2022 was actually 334 seconds, which is about five and a half minutes. 

When it comes to strengthening data protection and cybersecurity, FSA failed to reduce the total number of FSA system assessment findings by 20% per year. In 2022, FSA had 19,252 system assessment findings when its target number was 2,240. Additionally, FSA did not decrease the number of “employee-related cybersecurity events associated with inappropriate use, distribution, or storage of Personally Identifiable Information (PII) and financial information” by 20% a year

FSA also did not meet one of its metrics under enhancing the management and transparency of the student loan portfolio. For example, the office did not meet its metric of initiating monthly reporting to the public through the FSA Data Center. 

Also included in the sprawling performance report was an overview from the Federal Student Aid Ombudsman, which noted that FSA received 101,516 cases for fiscal year 2022, more than double the number of cases it handled in fiscal year 2021. Cases may include complaints, disputes, general inquiries, suspicious activity, or unassigned cases. In fiscal year 2022, the vast majority of cases — nearly 90,000 — were complaints. The report explained that improved visibility of the complaint tool and record traffic to StudentAid.gov as a part of the student loan debt cancellation announcement were primary drivers of the increase.

Of the roughly 90,000 complaints FSA received the majority — 51,268 or roughly 57% — were related to issues with student loan repayment, such as the Public Service Loan Forgiveness (PSLF) program, general loan repayment issues, repayment when in default, and credit reporting. 

The second greatest complaint category — about 23% of complaints submitted — related to issues navigating the student aid application process, specifically with completing the FAFSA form and accessing users’ FSA ID.

With the expansion of the Second Chance Pell Experiment, FSA found that a number of complaints stemmed from logistical barriers faced by incarcerated individuals. One prominent issue is prohibitions placed on incarcerated individuals from using toll free numbers, which makes contacting FSA or servicers difficult. In 2022, FSA received more than 300 complaints that mentioned issues related to imprisonment.

During 2022, FSA received 6,326 cases related to schools, which covers a wide range of issues, from problems with federal student aid eligibility and disbursement to complaints about school operations once enrolled. 

The ombudsman report states that borrowers who attended for-profit schools disproportionately submit complaints about their schools relative to the share of Title IV aid funds disbursed for attendance at those schools. The sector accounts for 13% of annual aid volume but represents nearly three times — 38% — that share of FSA’s identified complaints. That’s compared to public and private non-profit schools that share 43% and 19% of complaints, respectively.

The report has several discussion topics for FSA, including college-sponsored accounts, bankruptcy, and Parent PLUS loans. The report highlights that data, including borrower complaints, shows that the student loan “safety net” — providing a financial bridge to complete their education, and eventual loan forgiveness in some cases — may not be meeting the needs of communities of color. The ombudsman argues that “at each stage of the student lifecycle, the higher education finance model disproportionately fails families of color.”

“Collectively, these failures perpetuate disparities in student and borrower outcomes and may ultimately widen the racial wealth gap,” the report said. “If policymakers wish to restore the promise of higher education and the pathway to the middle class for all, they should examine the student loan safety net through an equity lens and consider expanding existing programs to ensure more equitable outcomes for student loan borrowers.”

Under college-sponsored accounts, the ombudsman recommends that policymakers could ban disparate pricing models and fee structures across school sectors. Additionally, the Department of Education (ED) should enforce and examine whether college-sponsored accounts’ structures, features, or terms across school sectors are consistent with ED regulations.

The report also notes that bankruptcy protections are disproportionately exercised by people of color, especially among Black women — a population that struggles unequally during student loan repayment. The ombudsman states that the current treatment of student loans may leave bankruptcy filers, and especially borrowers of color, even further behind. As a recommendation, policymakers should consider “expressly counting time spent in bankruptcy towards PSLF and IDR loan forgiveness as a means to promote more equitable student loan outcomes while complying with bankruptcy stay requirements.”

The report also calls on reform over Parent PLUS loans. As an example, the ombudsman stated that relief similar to the limited PSLF waiver could be offered to Parent PLUS borrowers through the IDR adjustment — a change that was implemented after the ombudsman report was drafted in October 2022. Policymakers should also consider steps to address “the unaffordable options” parents face when trying to pay for their child’s postsecondary education.  

“Without additional robust interventions, the cycle of inequity in higher education finance is doomed to repeat itself generation after generation,” the report states. “The student loan safety net has the infrastructure to provide much-needed relief to borrowers and communities of color, but it must be expanded to effectively meet the needs of the intended beneficiaries. Until then, student debt will continue to drive disparities that negate the benefits of a college education.”

 

Publication Date: 1/27/2023


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