Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Faculty Loan Repayment Program - Making 
More Effective Use of Program Funds 
JANET REHNQUIST 
Inspector General 
JANUARY 2002 
OEI-12-01-00510  OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG) mandated by Public Law 95-452, as 
amended by Public Law 100-504, is to protect the integrity of the Department of Health and 
Human Services programs as well as the health and welfare of beneficiaries served by them.  This 
statutory mission is carried out through a nationwide program of audits, investigations, 
inspections, sanctions, and fraud alerts.  The Inspector General informs the Secretary of program 
and management problems and recommends legislative, regulatory, and operational approaches to 
correct them. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 
Inspector General.  It conducts short-term management and program evaluations (called 
inspections) that focus on issues of concern to the Department, the Congress, and the public.  The 
inspection reports provide findings and recommendations on the efficiency, vulnerability, and 
effectiveness of departmental programs. 
OEI's Headquarters Office prepared this report under the direction of Elise Stein, Director, Public 
Health and Human Services Division.  Principal OEI staff included: 
Headquarters 
Alan Levine, Program Specialist 
To obtain copies of this report, please call (202) 619-0480.

Reports are also available on the World Wide Web at our home page address:

http://oig.hhs.gov/oei/
 Janet Rehnquist

Inspector General

OIG Final Report:  Faculty Loan Repayment Program - Making More Effective Use of

Program Funds, OEI-12-01-00510

Betty James Duke

Acting Administrator

Health Resources and Services Administration

Purpose 
This memorandum addresses the requirement that academic institutions with faculty members 
who participate in the Faculty Loan Repayment Program (FLRP) contribute an amount that is 
equivalent to the payments made to the faculty members by the Health Resources and 
Services Administration (HRSA).  We conducted this study upon learning that this matching 
requirement was frequently being waived. 
Summary 
We found that the FLRP routinely waives an institutional matching requirement; such waivers 
have the potential impact of reducing the effectiveness of Federal funds. 
The program provides degree-trained health professionals from disadvantaged backgrounds 
with loan repayments of up to $20,000 per year.  In exchange, these individuals agree to 
serve as faculty members at academic medical or health related institutions for at least 2 
years.  Its goals include the development of a faculty that is diverse and that can serve as 
effective role models and mentors for disadvantaged students.  Under the statute, the 
academic institution is required to match the Federal loan repayment, unless they can 
demonstrate a financial hardship, in which case they can request a waiver.  We found that 
waivers are routinely granted without an in-depth review of the institutions financial 
condition.  Since institutional matching of Federal loan repayments has the potential of 
stretching Federal dollars, we recommended that HRSA develop detailed policy guidance 
for evaluating waiver requests.  The HRSA agreed with our recommendation. 
Background 
The Faculty Loan Repayment Program was enacted as part of Public Law 101-527, Section 
761 (November 6, 1990), the Disadvantaged Minority Health Improvement Act of 1990, and 
was codified in Section 738 (a) of the Public Health Service Act.  The FLRP is designed to 
attract disadvantaged health professionals into faculty positions in accredited health 
professions schools.  The program provides a financial incentive for degree-trained health   Page 2 - Betty James Duke 
professions personnel from disadvantaged backgrounds who will serve as members of the 
faculties of those schools.  The goals of the program include the development of a faculty 
that is diverse and that can serve as effective role models and mentors.  Eligible schools are 
public or nonprofit private accredited schools of medicine, nursing, pharmacy, podiatric 
medicine, optometry veterinary medicine, public health or schools that offer graduate 
programs in clinical psychology. 
Under Section 738 (a), the FLRP  provides eligible faculty members a loan repayment, for 
each year of service, toward the outstanding principal and interest on the individuals 
educational loans.  Individuals must agree to serve as faculty members for a minimum of 2 
years.  Schools are required to pay an equal amount, unless HRSA determines that the 
repayment will impose an undue financial hardship on the school.  The maximum amount of 
each Federal loan repayment is limited to $20,000 per year. 
Individuals who wish to apply for assistance must submit the following:  an application form, 
loan disclosure form, documentation demonstrating disadvantaged background, letter from 
employing school that states the school agrees to match the amount of the Federal loan 
repayment (unless the school requests a waiver).  Individuals are eligible for loan repayments 
if they are new faculty or long-term employees. 
According to HRSA guidelines, a person is considered to be from a disadvantaged 
background if the individual comes from a family with an annual income below a level based 
on low-income thresholds published by the U.S. Bureau of Census and adjusted by the 
Secretary of HHS for use in health professions and nursing programs or comes from an 
environment that has inhibited the individual from obtaining the knowledge, skill, and abilities 
required to enroll in and graduate from a health professions school.  The HRSA policy 
provides the following examples: 
  An individual graduated from a high school with low per capita funding. 
	 An individual comes from a family that receives public assistance (Temporary 
Assistance for Needy Families, public housing, Medicaid, etc). 
	 An individual participated in an academic enrichment program funded by the 
Health Career Opportunity Program. 
  The individual was the first generation to attend college. 
Individuals find out about the FLRP from such places as school financial aid staff and national 
professional associations and societies.  Page 3 - Betty James Duke 
On November 13, 1998,  former President Clinton signed Public Law 105-392, the Health 
Professions Education Partnership Act of 1998.  This law made the following changes to the 
Faculty Loan Repayment program. 
  Part-time faculty are now eligible. 
  The range of eligible professions has been broadened to include, for example, 
dental hygiene and occupational and physical therapy. 
  Loan repayments are no longer limited to 20 percent of outstanding principal 
and interest. 
  The maximum amount of each Federal loan repayment is limited to $20,000 
per year. 
Funding for the program has been as follows:  FY 2000, $849,000; FY 2001, $1 million; FY 
2002, $557,000.  During Academic Year 2000-2001, HRSA had a total of 76 loan repayment 
contracts with individual faculty members. 
Waiver of Institutional Financial Responsibility and Determination of Loan 
Repayment Amount 
The FLRP authorizes HRSA to grant an academic institution a waiver of the matching 
requirements if HRSA determines that such a contribution will impose a financial hardship on 
the school. 
We reviewed the listing of Academic Year 2000-2001 contracts and found that almost 70 
percent of the institutions received a waiver.  Since the start of the program in 1992, a waiver 
request from a school has never been rejected. 
The legislative history of the FLRP shows that Congress expected HRSA to apply certain 
criteria when making waiver decisions.  House Report No. 101-804, page 41, states as 
follows: 
A...The Secretary may waive the requirement regarding equal loan payments if 
the Secretary determines that the requirement would impose an undue 
financial hardship on the school involved.  The Committee notes in particular 
that schools that have limited endowment funds, have experienced recent 
financial distress, or can otherwise document persuasively to the Secretary 
that such payments would constitute a hardship, would be eligible for such a 
waiver...  Page 4 - Betty James Duke 
A  January 29, 1997 Program Announcement (62 Federal Register 4312) outlined the waiver 
requirements for FY 1997 as follows: 
In the event of undue financial hardship to a school, the school may obtain 
from the Secretary a waiver of its share of payments while the participant is 
serving under the terms of the contract.  For purposes of this program, undue 
financial hardship, as seen by the Secretary, is based on a schools particular 
financial status as influenced by such circumstances as budget cutbacks. 
Decisions will be made on a case-by-case basis, and must be supported by the 
schools documentation of comparative yearly financial allocation of funds; or 
the most current certified public accounting audit, including the balance sheet 
and statement of Income and Expenses for the past several years... 
We reviewed a sample of 6 of the 55 school waiver  requests for faculty members funded 
during Academic Year 2000-2001 and found that none of the requests provided any 
documentation, e.g. audit report, financial statement. 
It should be noted that subsequent FLRP program announcements published in the HRSA 
Preview for FY 1998-2000 did not continue the January 29, 1997 documentation 
requirements for schools requesting a waiver.  Instead, the program has required that a 
school requesting a waiver of the matching requirement provide a letter explaining the 
circumstances which have created undue financial hardship.  For FY 2001, in response to the 
OIG inquiry, the FLRP program is requiring that each school provide financial documentation 
to support a request for a waiver of the matching requirement. 
According to the February 2000 The Chronicle of Higher Education  listing of college and 
university endowments, 5 of the 6 schools in our sample were in the top 20 with respect to 
endowments.  For our sample schools, endowments ranged from $2 billion to $14 billion. 
We recognize that endowment funds can be limited to specific purposes, and such limitations 
should be taken into account in consideration of an institutions financial viability when it 
applies for a waiver. 
The HRSA officials acknowledge that they have never denied a waiver, primarily because 
they have had no leverage with an institution to require a match, and they have not wanted to 
make an otherwise eligible faculty applicant ineligible merely because the institution does not 
match the HRSA award.  To make the best of this problem, and leverage as much matching 
money as possible, HRSA has implemented a preference of funding an eligible applicant 
whose employing institution would commit to matching the Federal award.  Under this 
preference, applicants at schools that match receive funding before applicants at schools that 
request a waiver of the match.  Page 5 - Betty James Duke 
Although the funding preference has been partially successful in leveraging institutional 
matches,  the number of approved waivers is still high. 
In 1994, the United States House of Representatives voted to remove the matching 
requirement.  The House Report on the legislation, Minority Health Improvement Act of the 
1994, House Report No. 103-501, May 11, 1994, noted as follows:  ...the Committee 
amendment removes the requirement that schools contribute matching ..funds to defray the 
loan repayment costs of faculty members.  The Committee has learned that the Department 
has historically granted waivers of the matching requirement, thereby negating the effect of 
the current...provision.....  The amendment was  passed by the House, but was not passed 
by the Senate before the 103rd session of Congress ended. 
According to HRSA staff,  the amount of Federal loan repayment to individual applicants is 
apportioned, based on the following considerations:  the maximum amount of Federal 
repayment is limited (by law) to $20,000 per year; HRSA tries to assure that each approved 
applicant obtains a reasonable amount; each approved applicant gets approximately the same 
percentage of their total eligible student loan indebtedness. 
While HRSA gives preference to applicants from institutions that provide a match, it makes 
no such distinction in determining the actual amount of loan repayment available to each 
individual. 
We believe that institutional matching payments have the potential to maximize the use of 
Federal funding and that HRSAs ability to stretch or maximize Federal funds is limited by 
institutions use of the waiver provision and HRSAs inability to require institutions to 
provide matching funds.  If more institutions matched HRSAs awards, then HRSA would be 
able to ensure that eligible faculty receive more loan repayment funds.  In addition, the use of 
institutions funds combined with HRSAs funds would allow the program to provide loan 
repayments to more applicants by stretching or leveraging the Federal dollars with the 
institutions funds.  For example, if a faculty member is eligible to receive a loan repayment of 
$20,000 and the institution commits to a $10,000 award, HRSA could utilize the saved 
$10,000 to provide additional loan repayment funds for current applicants or, for additional 
applicants. 
Recommendation 
We recommended that HRSA utilize the 1997 FLRP Program Guidance as a basis for 
developing a more detailed policy and process for evaluating waiver requests.  Such a policy 
should include guidance on what documentation should be submitted.  As part of this 
guidance, HRSA may want to provide more precise and practical definition(s) of what  Page 6 - Betty James Duke 
constitutes financial hardship, perhaps including examples of circumstances that might 
warrant requesting a waiver.  We believe that adherence to such requirements will allow 
HRSA to more effectively leverage Federal funds to promote the hiring and retention of 
teachers from disadvantaged backgrounds.  In doing so, current participants may be able to 
receive more funding, and there is the potential for the program to serve additional eligible 
faculty by providing them with loan repayment funds through the program. 
In developing policy guidance, HRSA should consult with representative stakeholders, such 
as the American Association of Medical Colleges, National Association of College and 
University Business Officers, Association of American Universities, etc.  Such discussions 
should address institutional commitment to this program and the need to make the most 
effective use of Federal funding, particularly since appropriations for this program have 
recently declined significantly. 
Agency Response 
The agency agreed with our recommendation to consider developing policy guidance on 
defining financial hardship for institutions requesting a waiver of the requirement to match 
a Federal award to an eligible applicant.  However, HRSA disagreed with the OIG conclusion 
that this has the potential for stretching Federal dollars to assist more disadvantaged faculty 
applicants. 
OIG Response 
We are pleased that HRSA concurred with our recommendation to develop policy guidance 
for reviewing waiver requests.  We continue to believe that the effect of using these criteria 
would be to maximize the reach of Federal dollars available for this program. 
A copy of HRSAs response to our draft report is attached as Appendix A.