Education Department botching loan-amnesty program: GAO review

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Thousands of people attempting to pay back student loans could be suffering because the Education Department can’t control its contractors in charge of the loans, a new watchdog report says.

Under an existing program, people who went into default with their loans could work with creditors to prevent harsh penalties. Those who made a “good faith effort” to repay their loans, including making nine payments on time within ten months, had the ‘default’ label removed from their account.

But since an October 2011 update to the system, people making regular payments haven’t been able to get out from being considered in default and haven’t been considered eligible to receive more federal aid, because of “limited planning and oversight” by the Education Department, said the Government Accountability Office, Congress’ watchdog arm.

“The federal government has an interest in ensuring that the loan rehabilitation process works well given the potential savings from returning defaulted loans to repayment,” said Melissa Emrey-Arras, the director of GAO’s office on Education, Workforce and Income Security.

The GAO estimates that about 11 percent of outstanding loan payments — roughly $94 billion — is currently in default.

As the old system for monitoring default became too costly, Education officials looked at ways to revamp it. But department leaders did little to ensure the new system would be effective, the GAO said.

“Education did not have plans in place for monitoring the upgrade, and we found limited evidence of oversight conducted,” investigators said.

The Education Department is working to correct the problem, GAO inspectors said, but in some cases the damage has already been done to people’s credit ratings and their access to other federal loans.

During the implementation of the new framework for processing claims, the review process completely broke down and the agency reviewed zero loan rehabilitation cases between September 2011 and March 2012. That left a huge backlog for officials to deal with, and the agency has so far only been able to assist less than 10 percent of the 80,000 people affected during that time, inspectors said.

But the GAO said Education rarely had a close eye on its contractors, including infrequently conducting planned quarterly reviews of each contractor and their dealing with loans and debt.

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