Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JANET REHNQUIST 

Inspector General 

JANUARY 2002 

OEI-12-01-00510 

Faculty Loan Repayment Program - Making 

More Effective Use of Program Funds 
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 
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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 school’s 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 

school’s 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 institution’s 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 HRSA’s ability to “stretch” or maximize Federal funds is limited by 

institutions’ use of the waiver provision and HRSA’s inability to require institutions to 

provide matching funds. If more institutions matched HRSA’s 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 HRSA’s 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 HRSA’s response to our draft report is attached as Appendix A.