When the Department of Education (ED) announced its student debt relief plan in 2022, it quickly approved borrowers for relief without implementing practices that would have prevented fraud, a new report from the Government Accountability Office (GAO) found.
The report assessed ED’s policies and procedures of preventing fraud in the Biden administration’s initial student debt relief plan, which would have canceled up to $20,000 in student loan debt for eligible borrowers. However, the administration’s plan was ultimately struck down by the U.S. Supreme Court in June, after it was initially paused due to pending litigation last November. And now, the administration is working on a new debt relief plan through the negotiated rulemaking process of the Higher Education Act.
A main finding of the report was that while ED developed two processes to assess borrower incomes and account for fraud risks, it did not implement “key procedures” to further identify and prevent potential fraud. One example GAO pointed out is that ED approved millions of applicants for debt relief before fully implementing processes to review and evaluate fraud risk. Examples of that could be collecting income information from the other borrowers it had selected for verification or assessing the borrowers it had approved, GAO wrote.
“In addition, the department automatically approved some borrowers based on self-reported data, without conducting any additional assessment of borrower risk,” GAO wrote in the report. “Education approved certain borrowers without implementing key procedures for mitigating fraud, which heightened the risk that the program could provide relief to ineligible borrowers.”
GAO noted that ED did implement some fraud prevention components through its application process, which used attestation from borrowers about their eligibility, income verification for some applicants, and a review process. Additionally, another fraud prevention strategy was ED’s use of income information from borrowers who recently filed a FAFSA or applied for an income-driven repayment (IDR) plan, which ED used to automatically provide relief.
In future student debt relief plans, GAO recommended that ED conduct “robust evaluations” of fraud risk before borrowers apply, such as partnering with the IRS to check incomes of approved borrowers. Additionally, GAO recommended that ED fully implement all stages of its fraud risk management plans, and implement controls so it doesn’t rely on self-reported data in future debt relief efforts.
Concluding the report, GAO noted that the size of Biden’s student debt relief plan — an estimated $430 billion of relief for over 31 million borrowers — “rendered it inherently at risk for fraud and necessitated effective fraud risk management.” GAO urged ED to take more fraud prevention measures in its next iteration of student debt relief.
“Since Education is in the earliest stages of the process that will develop a new debt relief program, it is crucial that the department commit to fraud risk management in any future program it pursues,” GAO wrote. “The department should broadly apply lessons learned from the original program, and implement robust risk-based controls before providing relief to any borrowers.”
Federal Student Aid Chief Operating Office Richard Cordray responded to the report, writing that the student loan debt relief program “inherently had an extremely low risk of fraud.” He added that the department couldn’t build on its fraud prevention measures because of the legal challenges to the plan.
“This process has been ongoing and, like much of the student loan debt relief program, was still evolving and being implemented when activity on this program was suspended due to the court orders,” Cordray wrote. “Faulting the Department’s implementation of its fraud risk management strategy as incomplete, when federal court orders prevented the Department from continuing to work on any aspect of the program, mischaracterizes those efforts.”
Sen. Bill Cassidy (R-La.), ranking member of the Senate Committee on Health, Education, Labor, and Pensions (HELP), responded to Thursday’s report, writing that the Biden administration “was prepared to transfer $430 billion in student loan debt onto taxpayers.”
“It is unconscionable that the Biden administration was willing to shift hundreds of billions of dollars of student debt onto taxpayers with no accountability,” Cassidy said in a statement. “Americans who did not go to college or paid off their loans should not be stuck paying the bill for those who went to college to make more money after graduation.”
Publication Date: 11/17/2023