United States General Accounting Office

GAO Report to the Ranking Minority Member,

Permanent Subcommittee on

Investigations, Committee on

Governmental Affairs, U.S. Senate

July 1995 STUDENT FINANCIAL

AID

Data Not Fully Utilized

to Identify

Inappropriately

Awarded Loans and

Grants

GAO/HEHS-95-89

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-261101 

July 11, 1995

The Honorable Sam Nunn

Ranking Minority Member

Permanent Subcommittee on Investigations

Committee on Governmental Affairs

United States Senate

Dear Senator Nunn:

The Department of Education provides loans and grants to students to

help finance their postsecondary education. Total student financial aid

funded during academic year 1993-94 was $29 billion. During this period,

the Department reported that the largest source of this aid (72 percent)

was the Federal Family Education Loan Program (FFELP),1

 which provided

over $21 billion in loans to 6.5 million students. The second largest source

was the Federal Pell Grant Program, which provided $5.6 billion in grants

to 3.7 million students.

During fiscal years 1983 through 1991, annual federal costs for FFELP loan

defaults increased over 700 percent, ranging from $445 million to

$3.6 billion as reported by the Department. But in the past 2 years loan

defaults have decreased. Nevertheless, according to Department records

the federal government paid out over $2.4 billion in fiscal year 1994 to

make good its guarantee on defaulted student loans. In 1993, we testified

on abuses in the Pell Grant Program.2

 Specifically, we reported on the use

of false documents to support both schools’ eligibility and students’

applications to participate in the Pell Grant Program. These schools

submitted documentation to the Department for (1) students who never

applied for grants, (2) individuals who never enrolled in or attended the

schools, and (3) students who were ineligible. Some schools also

misrepresented their academic programs and other eligibility criteria.

In response to your request, our report focuses on underlying problems

with the Department’s use of its FFELP and Pell Grant Program data to

promptly identify ineligible students. Specifically, you requested that we

(1) determine the extent to which the Department effectively used data on

student aid to ensure compliance with federal requirements and prevent

the recurrence of defaults and abuse and (2) assess the improvements that

1

FFELP was formerly called the Guaranteed and Stafford Student Loan Programs.

2

Student Financial Aid Programs: Pell Grant Program Abuse (GAO/T-OSI-94-8, Oct. 27, 1993).

Page 1 GAO/HEHS-95-89 Student Financial Aid
B-261101 

the Department plans or has made in its systems for identifying abuse in

its loan and grant programs.

The Department relies on schools to help ensure that students are eligible

for financial aid. It also relies on data provided by schools to ensure

compliance with federal requirements. To identify instances in which

Department systems were ineffectively used, such as preventing ineligible

students from receiving financial aid, we analyzed data provided to the

Department by schools, lenders, and guaranty agencies. The data we

analyzed are maintained in the Department’s student loan and grant

systems. Although the Department has had long-standing problems with

how timely and accurate its student loan data are, they were the only

relevant data available. We did not verify the data in our analyses nor

confirm that aid was actually provided to students that Department data

showed to be ineligible. But we did discuss our analyses with Department

staff. See appendix I for more details on our scope and methodology.

Results in Brief Although continuing to be faced with billions of dollars in annual

payments for defaulted student loans, the Department has, in general,

ineffectively used available student aid data to enforce compliance with

federal requirements.

For example, in fiscal years 1982 through 1992, Department data indicate

that 43,519 ineligible students apparently received 58,105 loans, totaling

over $138 million. Other data indicate that students may have received

loans in excess of their cost of attendance (COA).3

 During the same period,

more students could have received loans in excess of their COA because

about 8.6 million loan records in the FFELP database had no data entered

for COA.

Further, the Department has not effectively used other data that could

identify students who received (1) grants while attending two or more

schools concurrently or (2) additional financial aid despite being ineligible

because they had defaulted on previous loans.

For award years 1989 to 1993,4

 Pell Grant Program data showed that more

than 48,000 students may have received Pell grant overpayments and over

3

COA includes tuition, books, fees, supplies, and other living expenses and is estimated by the school,

within federal guidelines.

4

The award year begins on July 1 of 1 year and extends to June 30 of the next year. Funding for the Pell

Grant Program is provided on the basis of the award year.

Page 2 GAO/HEHS-95-89 Student Financial Aid
B-261101 

35,000 students may have inappropriately received grants while attending

two or more schools concurrently, which is prohibited under the program.

According to data in both the loan and grant systems, more than 101,000

students who had loans and subsequently became ineligible for additional

aid may have received 139,123 Pell grants totaling approximately

$200 million.

We found instances in which oversight responsibilities were divided and

data were ineffectively shared by units in the Office of Postsecondary

Education (OPE). In early 1995, these weaknesses were addressed when

the Department made improvements to its organizational structure that

were intended to address our concerns. While these improvements are a

move in the right direction, it is too early for us to determine their

effectiveness.

The Department has also initiated a series of improvements to its student

loan and grant systems. These include developing new systems,

implementing data controls in its existing systems, and strengthening

program reviews at schools. While the system improvements are also steps

in the right direction, we believe that it is too early to determine the

effectiveness of these new systems, such as the National Student Loan

Data System (NSLDS)—a national database on student loans and Pell

grants—because it is not fully operational. We also believe that the system

controls in place to prevent those students who had previously defaulted

on loans from obtaining additional aid are not sufficiently aimed at

prevention.

Background The Department of Education administers student financial aid programs

under title IV of the Higher Education Act of 1965, as amended (HEA).

Through these programs, students have access to billions of dollars for

postsecondary education each year.

The two major financial aid programs are FFELP and the Pell Grant

Program.5 FFELP is the largest program, providing student loans that are

guaranteed by state guaranty agencies and insured by the government. The

Pell Grant Program is the second largest student financial aid program.

For each of these programs, the Department keeps data in separate

5

The other student aid programs are the Federal Campus-Based Programs and the Federal Direct

Student Loan Program (FDSLP). The campus-based programs are (1) the Federal Work-Study

Program, (2) the Federal Perkins Loan Program, and (3) the Federal Supplemental Educational

Opportunity Grant Program.

Page 3 GAO/HEHS-95-89 Student Financial Aid
B-261101 

systems. See figure 1 for trends in FFELP and the Pell Grant Program over

the last 10 years.

Figure 1: FFELP and Pell Grant

Program Aid Awarded to

Postsecondary Students for Selected

Years

Billions (in Constant 1993 Dollars)

0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Academic Years

FFELP

Pell

Student’s Process for

Applying for Federal

Student Financial Aid

A student’s financial aid process begins with an application for aid. The

Free Application for Federal Student Aid (FAFSA) or the Renewal FAFSA6

 is

the single application used to establish eligibility for the Pell Grant

Program and FFELP. In completing FAFSA, the student certifies that he or

she is not in default on a student loan or has not received a student aid

overpayment.

During the student aid application process, the Department’s Central

Processing System (CPS)7

 performs data matches to determine whether the

student defaulted on a loan or received an overpayment in the Pell Grant

Program or FFELP. If the student defaulted on a loan or received a grant or

loan overpayment, CPS will print a comment about the possible

6

A Renewal FAFSA allows students to update or correct their previous year’s application data instead

of completing entirely new applications.

7

CPS is the Department’s processing facility for student aid applications.

Page 4 GAO/HEHS-95-89 Student Financial Aid
B-261101 

discrepancy on the student’s student aid report (SAR).8 The student is then

responsible for resolving the matter with either the school, lender,

guaranty agency, or the Department.

Schools are responsible for ensuring that students are eligible for financial

aid programs. Once the schools make this determination, funds are

disbursed to the student according to program requirements. Specifically,

for FFELP, the school is responsible for certifying the loan and ensuring that

the student is eligible to receive it. See appendix II for more details on the

process for applying for federal student aid.

Federal Family Education

Loan Program

Most FFELP loans are based on financial need. Typically, a student applies

for a loan, then the school verifies the student’s eligibility and determines,

based on family income and estimated COA, the amount of aid the student

is eligible to receive. The student receives the loan from a participating

lender. One of the state-designated guaranty agencies guarantees the loan

against default. The guaranty agency is the intermediary between the

Department and the lender, insuring the loan made by the lender to the

student and making certain that the lenders and schools meet program

requirements. The Department pays the interest due while the student is in

school. The student begins repaying the loan, including interest and

principal, within 6 months after leaving school. The Department also

reimburses guaranty agencies for most of the defaulted loans they paid to

lenders and for some of their administrative costs.

Structure Is Complex The structure of FFELP has created the potential for significant abuse, given

the limited financial risks for the participants in the program—schools,

lenders, and guaranty agencies—as well as the unreliable student aid data,

as we reported in February 1995.9

 In addition, as we reported in our

financial audit of FFELP for fiscal years 1992 and 1993,10 we were unable to

provide an opinion on whether FFELP’s September 30, 1993, Statements of

(1) Financial Position, (2) Operations and Changes in Net Position, and

(3) Budgetary Resources and Actual Expenses were fairly stated. This is

because of unreliable loan data, which are generally provided by guaranty

8

SAR is the federal output document, which is used to document the family’s financial and other

information as reported by the student on FAFSA. A SAR also contains the information needed by the

school to determine the student’s eligibility.

9

High-Risk Series: Student Financial Aid (GAO/HR-95-10, Feb. 1995).

10Financial Audit: Federal Family Education Loan Program’s Financial Statements for Fiscal Years

1993 and 1992 (GAO/AIMD-94-131, June 30, 1994).

Page 5 GAO/HEHS-95-89 Student Financial Aid
B-261101 

agencies. We were, however, able to determine that the Statement of Cash

Flows presents fairly the cash flows of FFELP.

The Department has inadequate oversight of guaranty agencies and

lenders, and guaranty agencies have made little effort to verify the

accuracy of FFELP information before submitting it to the Department, as

we reported in 1993.11 At that time, the Department faced many challenges

in correcting student loan data that it received from guaranty agencies. We

recommended that the Department require guaranty agencies to correct

these data. The Department undertook a number of measures to try to

improve the quality of the data obtained from guaranty agencies, and we

discuss them on page 18.

FFELP functions through a complicated and cumbersome set of rules and

requirements involving millions of students and thousands of schools, as

well as lenders and other entities. The maze of responsibilities shared by

the participants is shown in figure 2.

11Financial Audit: Guaranteed Student Loan Program’s Internal Controls and Structure Need

Improvement (GAO/AFMD-93-20, Mar. 16, 1993).

Page 6 GAO/HEHS-95-89 Student Financial Aid
B-261101 

Figure 2: Federal Family Education Loan Program: A Complicated and Cumbersome Process

1

8

8

8

7

6 5

5

4

3

3

Student provides school with financial information and school determines loan eligibility and counsels student.

Student generally obtains loan application from lender, fills out his or her portion, and forwards it to school; school completes application and

forwards it to lender.

Lender provides information to guaranty agency; verifies student eligibility and agrees to guarantee loan; lender sends promissory note to

student; returns signed note to lender.

Lender issues check to be endorsed by both school and student.

School periodically confirms borrower’s continued student status.

Lender bills the Department of Education for interest subsidy, reports loan origination fees collected, and provides summary information on its

guaranteed loan portfolio.

Lender bills student when repayment starts, collects payments, and conducts statutory loan collection services if borrower becomes delinquent

or in default.

Guaranty agency reimburses lender for defaulted loans and receives reinsurance and an administrative costs allowance from the Department.

The agency also receives an insurance premium from students. The agency pays the Department a loan reinsurance fee, shares collections

on defaulted loans, and provides the Department with summary information of loans it guaranteed.

1

8

7

6

5

4

3

2

2

2

2

Department

of

Education

Guaranty

Agencies

Students

Lenders

(Includes Secondary

Markets and

Servicers)

Schools

Flow of Paper or Data

Flow of Funds

Page 7 GAO/HEHS-95-89 Student Financial Aid
B-261101 

Federal Pell Grant Program Pell grants, in accordance with federal requirements, are distinguished

from other financial aid in that students meeting eligibility criteria are

granted—not loaned—money. The Pell grant amount is determined, in

part, by the student’s financial need and COA. The Department, through a

student’s school, gives Pell grants to eligible students. The school,

however, must ensure that each (1) student meets federal eligibility

requirements for the grant and (2) eligible student is paid the full Pell grant

that he or she is eligible to receive. During award years 1984 through 1994,

Pell grants were awarded to about 32 million students, totaling over

$50 billion.

While not as complex to administer as FFELP, the Pell Grant Program has

experienced abuse. For example, we testified in 1993 on certain schools’

use of false documents to support both students’ Pell grant applications

and the schools’ eligibility to participate in the program.12 These schools

submitted documentation to the Department for (1) students who never

applied for grants, (2) individuals who never enrolled in or attended the

schools, and (3) students who were ineligible. Some schools also

misrepresented their academic programs and other eligibility criteria.

Systems Used to Monitor

FFELP and the Pell Grant

Program

To ensure that students are eligible for financial aid, the Department relies

on data provided by program participants—schools, lenders, and guaranty

agencies. For FFELP and the Pell Grant Program, the Department maintains

data in separate, stand-alone program systems.

As part of its monitoring of FFELP, the Department annually collected loan

data from guaranty agencies and consolidated them in the FFELP database.13

The FFELP data, which were the principal data available for the Department

to monitor FFELP, were used to, among other things, (1) calculate annual

student loan default rates for schools participating in FFELP; (2) assist in

conducting program reviews of schools, lenders, and guaranty agencies;

and (3) identify possible loan limit violations and ineligible borrowers.

These uses, however, were conducted after loans were awarded, as long as

a year afterward, in some cases. This timeliness issue, however, is not

expected to exist when NSLDS is properly implemented and fully

operational. NSLDS will provide on-line access to student loan data, which

will be updated monthly, as opposed to the annual updates in the FFELP

database.

12GAO/T-OSI-94-8, Oct. 27, 1993.

13As of November 1994, NSLDS replaced the FFELP database and the data in the FFELP database were

used to populate NSLDS.

Page 8 GAO/HEHS-95-89 Student Financial Aid
B-261101 

As part of its monitoring of the Pell Grant Program, the Department

collects student information from schools and consolidates it through the

Pell Grant Recipient and Financial Management System (PGRFMS). This

system is used to (1) track a school’s need for funds as the award year

progresses and adjust the school’s authorization on that basis and

(2) provide documentation to the school to reconcile the school’s total

expenditures at the end of the year with the records of the eligible

students who were paid by the school. Starting in the fall of 1995, NSLDS

will also contain Pell grant data that will be updated weekly. For more

information on the Department’s student financial aid systems, see

appendix III.

Some Department

Data Problems

Continue

Using the Department’s data, we found that ineligible students received

millions of dollars in aid and other students received more aid than

permitted under the law. Students are generally ineligible for additional

aid after defaulting on an earlier loan and are prohibited from receiving

funds in excess of the statutory limit or COA. Further, students are

prohibited from receiving Pell grants concurrently from two or more

schools. We realize that our findings represent a small percentage of the

total number of loans and grants in PGRFMS and the FFELP database;

however, our findings typify inaccurate and erroneous payments that may

have been made to students, some of whom were ineligible for any federal

student aid.

Before providing financial aid, a school is required to ensure that a student

has not received an overpayment or previously defaulted on a loan. In

order to make this determination, the Department relies on a requirement

that schools, before approving a student’s aid application, obtain a

financial aid transcript from each school the applying student was

previously enrolled in.14

Ineligible Students May

Have Obtained Aid and

Defaulted on Subsequent

Loans

We identified 43,519 students that the Department’s data showed may have

been ineligible for 58,105 loans, yet received over $138 million in loans. To

identify these students, we used student loan data in the Department’s

FFELP database for fiscal years 1982 through 1993. For example, one

student who obtained a loan defaulted on it in May 1992. This default

14The financial aid transcript, a form needed to monitor students’ eligibility for aid, includes

information such as (1) the student’s name and social security number, (2) whether the student is in

default on a loan or owes a repayment on a grant at that school, and (3) the total amount on any loans

received by the student. The transcript also tells the school how much aid a transfer student has

received from student aid programs at other schools.

Page 9 GAO/HEHS-95-89 Student Financial Aid
B-261101 

made the student ineligible for subsequent loans. According to

Department data, however, this student received five additional loans: one

in February 1993; two in July 1993; and two in September 1993. Another

student obtained a loan and defaulted on it in September 1986. This default

made the student ineligible; however, according to Department data, this

student received five additional loans: one in 1988; three in 1989; and one

in 1990—4 years after defaulting on the first loan.

Further, according to the Department’s data, as of September 30, 1992, of

the 43,519 students who were ineligible for additional loans, 20,210

students defaulted on 23,298 subsequent loans. The amount outstanding

on the subsequent loans (which included interest and principal) was over

$56 million. A list of the guaranty agencies that guaranteed these loans is

in appendix IV.

Through our analyses of both FFELP and PGRFMS data, we identified 101,327

students who previously defaulted on a student loan and were, therefore,

ineligible for federal student aid. Nevertheless, the data showed that they

may have received 139,123 Pell grants, totaling approximately $200 million.

Of these ineligible students, 73,934 received one grant; 19,838 received two

grants; and over 7,555 received three or more grants.

Students May Have

Received Loans Greater

Than Their Cost of

Attendance

The Department’s FFELP database showed that students received loans that

exceeded their COA. Specifically, according to data in the FFELP database,

since 1982, 2,111 students received loans for more than their COA. The

average amount of the overpayment was $1,200 and ranged from less than

$100 to over $13,000; the overpayments totaled $2.4 million.

The Department’s system used for tracking student loans—the FFELP

database—was not used to ensure that students receive financial aid equal

to or less than their COA, even though a COA data field is available for use.

Financial need and COA are determined at the beginning of the student aid

application process, a Department official said; therefore, the Department

relies on the schools to ensure compliance with the federal requirement.

When guaranty agencies submitted COA data, they did so after students

received aid. We also found that for the 1982 through 1992 period, out of

approximately 32 million loan records, about 8.6 million in the FFELP

database showed no data for COA. According to a Department official,

submitting COA information was not mandatory.

Page 10 GAO/HEHS-95-89 Student Financial Aid
B-261101 

To identify cases in which aid awarded exceeded COA, the Department

could collect and use COA data to stop these practices and collect funds

that were inappropriately awarded. COA data are currently used by schools

to determine the amount of aid a student is eligible for, and we found that

some schools are reporting these data. Therefore, collecting and reporting

these data to the Department should not be a major burden for schools.

Students May Have

Concurrently Received Pell

Grants From Two or More

Schools

According to the Department’s records, between award years 1989 and

1993, over 35,000 students may have received Pell grants while attending

two or more schools for the same enrollment period (see table 1). We

recognize that the number of erroneous awards make up a relatively small

portion of over 18 million grants made during this period, but these

students may have concurrently received grants from two or more

schools.

Table 1: Students Reported by Two or

More Schools With Concurrent

Enrollment Dates

Award year Number of students Number of grants

1993 7,305 4,100,000

1992 7,507 3,900,000

1991 6,670 3,500,000

1990 7,012 3,400,000

1989 6,739 3,300,000

Note: Determined from Department of Education PGRFMS data as of April 1994.

According to the PGRFMS data, these students attended two or more

schools and received Pell grants for their enrollment in these schools

during the same month and year. Pell grant awards to students attending

two or more schools may result from either concurrent or sequential

attendance, Department officials said. Since the inception of the program

in 1973, students have been limited to receiving Pell grants from only one

school, even if they concurrently attended multiple schools. Schools are

responsible for identifying students who are concurrently attending other

schools.

The Department, through PGRFMS, has data available to identify students

who may have received grants while concurrently attending two or more

schools. But the Department is not using PGRFMS for identification because

the data may be misleading. The Department cannot say how many

students in our analyses or in PGRFMS actually received Pell grants

concurrently from two or more schools, Department officials said,

Page 11 GAO/HEHS-95-89 Student Financial Aid
B-261101 

because PGRFMS records enrollment dates, not disbursement dates. The

officials gave the following example: A student attended school A and

school B concurrently during an award year. The student applied for

financial aid at the beginning of the year and is awarded a Pell grant. The

student received a portion of the grant from school A during the fall

semester, while also attending school B. But the student did not receive

any of the grant from school B. During the spring semester, however, the

reverse occurred—the student received the remaining portion of the Pell

grant from school B, while also attending school A. But the student did not

receive any of the grant from school A.

We used the PGRFMS data field for student’s enrollment date to identify

students who may have received grants while concurrently attending two

or more schools. In this field, we found a student received a Pell grant at

both school A and school B in the fall semester because the student

enrolled in both schools in the fall semester. But the student could have

received his or her grant at different times from the two schools.

Students May Have

Received Pell Grants in

Excess of Statutory Limits

The Department has a control in place to prevent Pell grant payments over

the statutory limit for students attending a single school. Using PGRFMS

data, for award years 1989 through 1993, we found no instance of such a

student receiving a Pell grant greater than the statutory limit. However, the

data showed that 48,010 students attending two or more schools received

Pell grants in excess of statutory limits (see table 2). For example, in 1993,

one student received grant funds totaling $5,640. The statutory limit in

award year 1993 was $2,400; therefore, the student received $3,240 over

the limit.

Table 2: Students Who Potentially

Received Pell Grant Awards in Excess

of Statutory Limits Award year

Number of

students

Amount in excess

of limits Number of grants

1993 9,922 $8,889,744 4,100,000

1992 9,061 7,928,645 3,900,000

1991 8,853 7,363,575 3,500,000

1990 9,535 8,566,068 3,400,000

1989 10,639 9,574,116 3,300,000

Note: Determined from Department of Education PGRFMS data as of April 1994.

For award years 1994 and 1995, the Department implemented a system

check in PGRFMS to identify students receiving more Pell grant funds than

Page 12 GAO/HEHS-95-89 Student Financial Aid
B-261101 

are allowed by law. If an overpayment is identified, the student should not

be able to obtain another Pell grant until the overpayment is resolved.

Because this system check was recently developed, it is too soon for us to

determine what effects it will have on the Department’s Pell Grant

Program. (See page 21 for more information on this system’s

enhancements.)

Department officials said that Department experience has shown that

these apparent overpayments generally occur because of school delays in

reporting award adjustments. Due to system limitations in prior years, they

said that some adjustments after the close of an award year were posted

as a lump sum to school accounts, rather than to student-level records.15

Thus, for either the Department or us to determine whether an actual

overpayment occurred, the data would have to be verified for each

student.

Student Financial Aid

Oversight and

Accountability Were

Ineffective

We found instances in which oversight responsibilities were divided and

data were ineffectively shared between units in OPE. In April 1991, the

Department and the Office of Management and Budget (OMB) jointly

reported on the results of their review of how the Department

administered student financial aid programs.16 They found that OPE’s

organizational structure was fragmented, complicating communication

and decision-making, dividing responsibility for compliance, and making

the coherent and effective use of resources and processes impossible. In

addition, OPE’s systems and controls were unreliable.

The report recommended that the Department reorganize OPE along

functional lines; evaluate the data needed to manage and plan the

implementation of FFELP; and provide better systems for accountability,

management control, and decision-making. The Department subsequently

reorganized OPE in 1992 and developed a series of initiatives to better

oversee FFELP. For example, all of OPE’s offices with monitoring and

gatekeeping responsibilities, which had been scattered among various OPE

units, were consolidated.17 Placing all these functions in one unit was

15In commenting on a draft of this report, the Department stated that it modified system edits, starting

with the 1993-94 award year, to record all adjustments at the student level.

16Administration Adopts Plan to Reorganize Student Financial Assistance Programs, U.S. Department

of Education and the Office of Management and Budget. Washington, D.C.: 1991.

17Gatekeeping generally refers to the Department’s procedures for determining which schools can

participate—and whether they should continue participating—in federal student aid programs.

Page 13 GAO/HEHS-95-89 Student Financial Aid
B-261101 

intended to provide better coordination and permit more effective

program management.

OPE’s Institutional Participation and Oversight Service (IPOS), the unit

responsible for monitoring schools and ensuring their eligibility to

participate in the programs, conducts on-site reviews at schools to ensure

they are meeting program requirements. These reviews, however, are

principally used to (1) identify violations and abuse after they occur and

(2) target and conduct subsequent reviews.

Even though the Department has completed initiatives and has others

under way that address most of the recommendations in the joint OMB and

Department report, we continued to find instances of lax accountability in

which compliance responsibilities were divided among OPE units. For

example, at the time of our review, there was no OPE unit responsible for

overseeing all aspects of the Pell Grant Program. Responsibilities for

policy, accounting and financial management, as well as for program

systems, for example, were divided among three OPE units that did not

routinely share information with each other. OPE had, for example, an

office for functions of each student aid program’s systems and other

offices for functions of each program’s accounting and financial

management. According to a Department official, the office for Pell grant

systems had difficulty obtaining information from the office responsible

for the financial functions of the Pell Grant Program.

In early 1995, however, OPE reassigned personnel and made organizational

improvements that address our concerns about the dispersion of

responsibilities among units. For example, in January 1995, OPE

consolidated the Pell Grant and Applicants Systems Divisions into the

Application and Pell Processing Systems Division; in April 1995, it

consolidated the Pell Grant and Campus-Based Financial Management

Divisions into the Institutional Financial Management Division. Although

we did not have the time to evaluate these changes, they appear to provide

a better organizational framework for program oversight and

accountability. The organizational structure for OPE’s student financial aid

programs as of April 1995 is shown in figure 3.

Page 14 GAO/HEHS-95-89 Student Financial Aid
B-261101 

Figure 3: Organization of the Office of Postsecondary Education

Office of the

Deputy Assistant

Secretary

Policy,

Training, and

Analysis Service

Debt

Collection

Service

Accounting and

Financial

Management

Service

Institutional

Participation

and Oversight

Service

Program

Systems

Service

Regional

Operations

Division

FFELP

Systems

Division

Application and

Pell Processing

Systems Division

NSLDS

Division

FFELP

Financial

Management

Division

Institutional

Financial

Management

Division

Campus-Based

Programs Systems

Division

Analysis and

Forecasting

Division

Policy

Development

Division

Loans

Branch

Loans

Branch

Grants

Branch

Grants

Branch

Page 15 GAO/HEHS-95-89 Student Financial Aid
B-261101 

Department

Improvements Under

Way

During the past 2 years, the Department implemented a number of

initiatives to address problems in its student financial aid systems. We

found that the Department has managed to improve its (1) student aid

systems, including developing new systems, such as NSLDS, and

implementing changes to existing systems and (2) gatekeeping program,

by expanding the criteria for scheduling institutional program reviews.

These improvements have addressed many problems in Department

systems and controls. The Department must also continue to make

improvements to help ensure compliance with federal requirements and to

resolve problems such as those the Department’s data identified.

Developing NSLDS The Department developed NSLDS to be the first national source of current

loan and grant data on student financial aid participants. In part, the

development of NSLDS was a result of numerous ongoing problems in FFELP.

The system, which includes 14 functions, has been planned for design and

implementation through three phases.

NSLDS will provide the Department (1) on-line access to loan data on a

loan-by-loan basis and (2) more detailed current information on each

student with an FFELP loan. When fully implemented, NSLDS is expected to

provide an integrated view of the student financial aid programs. NSLDS will

include aid approval, disbursements, repayments, delinquencies, and

closures, and help ensure that improved and accurate information is

available on student loan indebtedness. The Department should be better

able to manage FFELP, for example, by ensuring that students who have

previously defaulted are not receiving new loans. NSLDS will be updated

monthly.

NSLDS functions and capabilities consist of:

1. Pre-screen for student financial aid eligibility

2. Calculate default rates

3. Monitor guaranty agency and lender billings for reasonability

4. Support research studies and policy development

5. Budget analysis and development

6. Audit and program review planning

7. Assessment of FFELP administration by guaranty agencies, schools, and

lenders

8. Refund/cancellation support

9. Borrower tracking

Page 16 GAO/HEHS-95-89 Student Financial Aid
B-261101 

10. Pre-claims assistance/supplemental pre-claims assistance

11. Loan transfer tracking

12. Student status confirmation report

13. Financial aid transcript

14. Credit reform act support

Phase I: NSLDS Basic System

Operations

Phase I of NSLDS began in 1993, and implemented functions 1 through 7.

According to Department officials, Phase I implementation—which

included populating NSLDS with data submitted by guaranty

agencies—became operational in November 1994. As a result, guaranty

agencies’ submissions of FFELP data tapes to the FFELP database ceased. In

addition, the FFELP database, which was used for our analyses, is no longer

updated. Some of the information in it will be included in NSLDS—which

will be updated with monthly data submitted by guaranty agencies.

According to Department officials, schools have begun using function 1,

pre-screening for student financial aid eligibility. Schools are able to

electronically receive data about an applicant’s prior student financial aid.

Schools can then use this information to determine (1) the eligibility of

students applying for aid and (2) whether they defaulted on an existing

loan or exceeded the maximum amount of aid allowed.

Phases II and III: NSLDS Future

Enhancements

Phases II and III of NSLDS are expected to be started by the summer of

1995. Functions 8 through 12 are scheduled for implementation in Phase II,

and functions 13 and 14 are scheduled for implementation in Phase III.

According to a Department official, selected Pell grant data will be entered

into NSLDS during Phase II. The Pell grant data entered will come from

PGRFMS.

Concerns About the Data

Entered Into NSLDS

In our March 1993 report, we expressed concerns that data to be entered

in NSLDS will be erroneous, thereby compromising its reliability.18 Further,

in our June 1994 report, we identified data quality problems with the

guaranty agencies’ data submissions to the Department. Examples of

student loan data inaccuracies we reported in 1994 are described below:19

• For 35 percent of the 662 students we randomly tested and found in the

Department’s annual FFELP database of student loan data, guaranty

agencies had submitted inaccurate information to the Department. For

example, 229 of the 662 had incorrect amounts reported in the data field

18GAO/AIMD-93-20, Mar. 16, 1993.

19GAO/AIMD-94-131, June 30, 1994.

Page 17 GAO/HEHS-95-89 Student Financial Aid
B-261101 

for “claims principal paid to lender.” Twenty-two of these 229 cases had

zero recorded in that data field, even though the Department had paid a

default claim. These data are key factors in determining the costs of

outstanding guaranteed loans.

• The Department’s reviews of 33 guaranty agencies between March 1992

and January 1993 identified similar problems with data accuracy. As noted

in our audit of fiscal year 1992 financial statements, the Department found

that the “date-entered-repayment” data field was incorrect for all 130 files

it reviewed at one of the largest guaranty agencies. The Department also

found discrepancies in the “date-entered-repayment” data field at 25 other

guaranty agencies. In addition, discrepancies were found in another key

data field, “enrollment-status-code,” at 27 of the 33 guaranty agencies

reviewed.

Since our 1993 report, the Department has been undertaking a number of

measures to try to make long-term improvements in the quality of the data

obtained from guaranty agencies. These measures include (1) screening

data that guaranty agencies and lenders send to NSLDS to ensure that they

are in a consistent format and (2) tracking errors to the data field after a

guaranty agency’s submission is entered into NSLDS. It should be noted,

however, that while these measures may screen out obvious errors and

inconsistences, they will not ensure that the data are valid and accurate.

In addition to the measures discussed above, a number of other activities

were performed before NSLDS implementation to help improve data quality.

For example, beginning in 1991, the Department (1) conducted data

quality reviews of each guaranty agency’s database and (2) identified

specific data problems and the corrections needed and then reported them

to the guaranty agencies for resolution.

The Department remains confident that NSLDS will overcome the concerns

that we have raised. But it is too early to determine the effectiveness of the

Department’s efforts because the Department has not completed

implementation of NSLDS.

An important factor to the success of NSLDS is how guaranty agencies

implement their systems to provide accurate and timely student loan data

to the Department. This enhancement to data quality information will be

required at a time when the guaranty agencies’ revenue base may be

declining as the Department is phasing in FDSLP.

Page 18 GAO/HEHS-95-89 Student Financial Aid
B-261101 

Department Efforts to

Strengthen System

Controls

To reduce the likelihood that (1) loans will be made to students who are

ineligible because they had previously defaulted on their student loans and

(2) students will receive grants over statutory limits, the Department has

strengthened controls in its student financial aid systems. These changes

include computer matches to identify students who defaulted and edits to

identify overpayments.

Computer Matches to Identify

Defaulters

In January 1991, the Department implemented the Title IV Default Match.

This system matches a file containing students’ federal financial aid

applications against a file containing names of students who have

defaulted on student loans that have been assigned to the Department for

collection.

In response to an Office of Inspector General (OIG) recommendation, in

July 1992 the Department expanded its computer matching. Through the

Guaranty Agency Default Match, student aid applicant records are

matched against an FFELP database containing names of students who

defaulted on student loans held by guaranty agencies. Preventing ineligible

students from receiving FFELP loans or Pell grants—abuses that the two

computer matches were designed to prevent—should reduce program

costs $300 million annually, OIG reported.

From our analyses of data in the FFELP database, ineligible students

appeared to continue to receive loans after the data matches were

implemented. Specifically, according to the Department’s data, the number

of loans made to ineligible students increased from 10,450 in fiscal year

1990 (which was before the computer matches) to 12,134 in fiscal year

1993 (after both matches were implemented). The amount guaranteed on

these loans also increased, from about $24 million in fiscal year 1990 to

over $33 million in fiscal year 1993. As shown in table 3, for fiscal years

1989 through 1993, the number and amount of loans made to ineligible

students increased each year, despite the implementation of the data

matches.

Page 19 GAO/HEHS-95-89 Student Financial Aid
B-261101 

Table 3: Increase in the Number and

Amount of Loans to Ineligible Students Fiscal yeara Number of loansb Amount of loans

1993 12,134 $33,329,992

1992 11,833 29,496,011

1991 11,813 27,541,807

1990 10,450 24,012,225

1989 9,869 23,651,901

aThe Department began using the Guaranty Agency Default Match in July 1992 and the Title IV

Default Match in January 1991.

bThe total number of loans guaranteed for each year was 5.6 million in fiscal year 1993, 5.1 million

in 1992, 4.8 million in 1991, 4.5 million in 1990, and 4.7 million in 1989.

According to a Department official, the usefulness of the FFELP database

for the computer matches is limited because the data may not be current.

Although guaranty agencies reported loan data annually, some data were

as much as 18 months old when matches occurred; therefore, students

could have been provided aid before their previous loan defaults were

identified. As we stated earlier, this timeliness issue is not expected to

exist when NSLDS, if implemented properly, is fully operational. NSLDS is to

provide on-line access to student loan data, which will be updated

monthly, as opposed to the annual updates in the FFELP database.

CPS performs these two data matches during the application process. If the

student defaulted on a loan or received a grant or loan overpayment, CPS

will print a comment on the student’s SAR. The student is then responsible

for resolving the matter with (1) the school or guaranty agency, if the

student was identified during the Guaranty Agency Default Match, or

(2) the Department, if the student was identified during the Title IV Default

Match.

The two matches are limited because they only identify students who

previously defaulted. The school is responsible for ensuring that financial

aid is not awarded to ineligible students. According to Department

officials, NSLDS, as currently being implemented, will only identify

ineligible students, it will not prevent them from receiving aid. Even with

NSLDS, the school is still responsible for ensuring compliance.

Department officials confirmed that for the 1996 award year NSLDS will

only identify ineligible students and will not prevent them from receiving

aid. For the 1997 award year, however, officials state that the Department

is considering a change to NSLDS that would require guaranty agencies to

Page 20 GAO/HEHS-95-89 Student Financial Aid
B-261101 

update NSLDS to indicate that a student has made satisfactory arrangements

for repayment before a student can receive additional aid.

We found that ineligible students received 12,134 loans in fiscal year 1993.

They had already defaulted on 9,614 of their loans as of September 30,

1992. Of these loans,

• 558 (6 percent) contained a loan status code that would have required the

student to reconcile the matter with the Department before he or she

received any additional loans and

• 9,055 (94 percent) contained a loan status code that would have required

the student to reconcile the matter with the school or guaranty agency or

both.

We brought these findings to the attention of OIG officials. They were

concerned that the matches did not prevent subsequent loans from being

made to ineligible students. They agreed to determine if (1) the data

matches were failing to identify subsequent loans to ineligible students,

and (2) ineligible students received the monies.

Edits to Identify Overpayments Beginning in January 1991, the Department, through CPS, added edits to

student data to identify Pell grant overpayments. For example, a student

with a Pell grant overpayment who subsequently submits a student aid

application will be informed (1) that the application cannot be processed

because of the overpayment and (2) that he or she is ineligible for

additional federal aid until the full amount owed is repaid. For award years

1993 and 1994, the Department began informing schools of the identity of

students who received Pell grant overpayments. The schools are now

researching and resolving the potential overpayments as well as returning

certifications to the Department for resolution.

Further, for award years 1994 and 1995, the Department implemented an

edit in PGRFMS designed to identify students receiving more Pell grant

funds than are allowed by law. If an overpayment is identified, the student

will not be able to obtain another Pell grant until the overpayment is

resolved. This check should enable the Department to prevent students

from receiving (1) Pell grant funds in excess of what they are entitled to

and (2) concurrent grants at two or more schools, but only if the total

amount they receive exceeds the statutory limit for that year. However,

this check will not identify those students concurrently attending two or

more schools and receiving funds at or under the authorized grant limit for

the award year.

Page 21 GAO/HEHS-95-89 Student Financial Aid
B-261101 

Expanding Criteria for

Program Reviews

The major strategy of IPOS is to target more program reviews of schools

with (1) significant increases in loan and grant volume and (2) high default

rates for student loans. IPOS is responsible for

• managing the oversight of approximately 8,500 domestic and foreign

postsecondary schools, which includes certifying that the schools are

administratively capable and financially responsible to properly handle

program funds;

• verifying that, as part of determining that schools are eligible and certified

to participate in federal student financial aid programs, accrediting

organizations have determined that schools allowed to participate in

federal programs have been properly approved and have met program

requirements;

• contracting with State Postsecondary Review Entities (SPRE) to review

schools for participation in federal financial aid programs;

• approving organizations that accredit schools and overseeing systems and

controls for monitoring school compliance; and

• processing compliance and financial audits for schools participating in the

programs.

Furthermore, in part as a result of the Permanent Subcommittee on

Investigations’ October 1993 hearing and recommendations in a 1993 OIG

audit report,20 IPOS revised and expanded its criteria for selecting schools

for program reviews. For fiscal year 1993 program reviews, the

Department had 8 criteria for identifying schools for review. The number

of criteria increased to 25 beginning in fiscal year 1994. Examples of IPOS’

review criteria include reviewing schools with

• 10 or more students receiving more than one Pell grant per payment

period (if the number of students exceeds 2 percent or more of the

school’s Pell recipients) during the most recently completed award year,

• 10 or more students receiving Pell grants for more than 6 years (if the

number of students exceeds 2 percent of Pell recipients), and

• a significant increase in FFELP loans (30 percent or greater) and loan

volume of $500,000 and greater.

Even with the increase in the number of selection criteria for program

reviews, the Department continues to lack (1) sufficient monitoring or

examination of the amount of federal aid awarded to individual students

and (2) reasonable assurance that no federal aid will be given to ineligible

20Report on the Effectiveness of the Regional Institutional Review Branches’ Monitoring of Institutions

Participating in the Student Financial Assistance Programs, Audit Control Number 05-20075, U.S.

Department of Education. Washington, D.C.: 1993.

Page 22 GAO/HEHS-95-89 Student Financial Aid
B-261101 

students. The Department relies on IPOS review findings to identify

patterns of noncompliance or abuse, which are then used to target and

conduct subsequent reviews. The Department’s primary control

mechanism is to rely on individual schools to verify students’ eligibility.

In an effort to improve data sharing, IPOS formed a task force to develop a

system that allows program reviewers, before undertaking a school

review, to (1) access data from OPE’s systems and (2) obtain the most

current information on the federal funds received by a school and its

students. Because most of these IPOS initiatives were recently

implemented, it is too soon for us to determine what effect they may have

on improving compliance with federal requirements for the Department’s

student financial aid programs.

Conclusions FFELP and the Pell Grant Program, as the largest government programs for

student financial aid, provide money that is vital to many students’

education. According to data in these programs’ data systems, the vast

majority of aid is awarded in accordance with federal requirements. But in

some instances, these systems have apparently not been used effectively

to enforce compliance with federal requirements in administering student

loan or grant programs.

Over the past few years, the Department has initiated several

improvements that have strengthened program controls and systems used

in administering its student financial aid programs, while minimizing loan

defaults and program abuse. Although we believe that these efforts show a

commitment by the Department to improve its management of the

programs, program weaknesses still exist. For example, data matches have

not effectively prevented ineligible students from getting additional aid,

according to the Department’s data. Instead, the matches are aimed only at

identifying these students. Further, according to Department officials,

NSLDS, as currently being implemented, will also only identify students, it

will not prevent them from receiving aid. The problems that we identified

have been long-standing and are likely to continue unless the Department

takes further action.

The Department’s reliance on schools to ensure compliance with program

requirements also needs to be strengthened. While recognizing its need to

rely on schools as the first line of enforcement for federal requirements,

the Department must better use its student aid data to validate schools’

performance.

Page 23 GAO/HEHS-95-89 Student Financial Aid
B-261101 

Recommendation We recommend that the Secretary of Education take actions to improve

the accuracy and completeness of student financial aid data, such as

continuing to screen data entered into NSLDS to ensure that they are in a

consistent format, and testing the accuracy and validity of data in NSLDS.

Further, we recommend that the Secretary analyze student aid data more

closely to identify patterns of noncompliance with federal requirements,

such as following up on students identified as ineligible in the data

matches, and take appropriate corrective actions.

Agency Comments

and Our Evaluation

On June 8, 1995, the Department of Education provided us written

comments on a draft of our report. (See app. V.) The Department did not

agree with our recommendations regarding the accuracy and

completeness of its student financial aid data and its use of these data to

identify patterns of noncompliance with federal requirements. The

Department believes that (1) the implementation of NSLDS is a major

milestone toward improving the accuracy and completeness of its student

financial aid data and (2) NSLDS, along with the Postsecondary Education

Participants System (PEPS), should allow it to use quality data to operate

better data systems and enhance its ability to identify patterns of

noncompliance in student financial aid programs.

We agree that properly implementing these systems could help the

Department accomplish these objectives. However, these systems are just

becoming fully operational. Furthermore, the success of NSLDS is

dependent on the accuracy and validity of the data it maintains. Therefore,

because whether NSLDS and PEPS will increase the accuracy and

completeness of student financial aid data and, thus, enhance the

Department’s ability to identify patterns of noncompliance cannot be

known for some time, we believe that our recommendations are still valid.

The Department raised concerns about the accuracy of the data we used in

our analyses, the 10-year time period covered by our study, and the

adequacy of coverage we gave to the actions the Department initiated to

improve the problems that exist in its student financial aid systems. We

recognized when developing our study methodology that some of the

Department’s data were inaccurate and incomplete, but one aspect of our

work was to evaluate the data that the Department had available and was

using in operating FFELP and the Pell Grant Program. We selected the

10-year period for our analyses to compensate for possible 1 year program

abnormalities and purposely did not select samples that would project our

findings to imply that problems may have been more widespread than we

Page 24 GAO/HEHS-95-89 Student Financial Aid
B-261101 

identified. We also provide extensive coverage of the Department’s

corrective actions, and evaluated these efforts to the extent that we could,

throughout this report.

The Department also raised concerns about the materiality of our findings

when compared with the volume of aid provided to students. We recognize

that the Department has provided approximately 32 million loans to

borrowers during fiscal years 1982 through 1992, and over 18 million

grants to students during award years 1989 through 1993. Although the

problems we discuss may not be significant in comparison to the total

number of loans and grants, our findings, which are based on the

Department’s data, illustrate that hundreds of millions of dollars may have

been awarded or loaned to students who may have been ineligible for any

federal student aid.

As agreed with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 7 days from the

date of this letter. At that time, we will send copies to the Secretary of

Education, appropriate congressional committees, and other interested

parties. We also will make copies available to others on request.

The work for this report was carried out under the direction of Joseph J.

Eglin, Jr., Assistant Director, Education and Employment Issues, who can

be reached on (202) 512-7009 if you or your staff have any questions. Major

contributors to this report are listed in appendix VI.

Sincerely yours,

Cornelia M. Blanchette

Associate Director, Education and

 Employment Issues

Page 25 GAO/HEHS-95-89 Student Financial Aid
Contents

Letter 1

Appendix I 

Scope and

Methodology

28

Identifying FFELP Abuses 28

Identifying Pell Grant Abuse 30

Appendix II 

Process for Applying

for Federal Student

Financial Aid

32

Appendix III 

Student Financial Aid

Systems

33

Central Processing System 33

Stafford Loan Tape Dump 33

Multiple Data Entry Systems 33

National Student Loan Data System 33

Pell Grant Recipient and Financial Management System 33

Postsecondary Education Participants System 33

Appendix IV 

Guaranty Agencies

That Guaranteed

Loans to Ineligible

Students Who Had

Already Defaulted on

Subsequent Loans

(Fiscal Years 1982-92)

34

Appendix V 

Comments From the

Department of

Education

36

Page 26 GAO/HEHS-95-89 Student Financial Aid
Contents

Appendix VI 

GAO Contacts and

Staff

Acknowledgments

44

Related GAO Products 48

Tables Table 1: Students Reported by Two or More Schools with

Concurrent Enrollment Dates

11

Table 2: Students Who Potentially Received Pell Grant Awards in

Excess of Statutory Limits

12

Table 3: Increase in the Number and Amount of Loans to

Ineligible Students

20

Figures Figure 1: FFELP and Pell Grant Program Aid Awarded to

Postsecondary Students for Selected Years

4

Figure 2: Federal Family Education Loan Program: A

Complicated and Cumbersome Process

7

Figure 3: Organization of the Office of Postsecondary Education 15

Abbreviations

COA cost of attendance

CPS central processing system

EFC expected family contribution

FAFSA Free Application for Federal Student Aid

FDSLP Federal Direct Student Loan Program

FFELP Federal Family Education Loan Program

HEA Higher Education Act

IPOS Institutional Participation and Oversight Services

NSLDS National Student Loan Data System

OIG Office of Inspector General

OMB Office of Management and Budget

OPE Office of Postsecondary Education

PEPS Postsecondary Education Participants System

PGRFMS Pell Grant Recipient and Financial Management System

SAR student aid report

SPRE State Postsecondary Review Entity

USAF United States Aid Fund

Page 27 GAO/HEHS-95-89 Student Financial Aid
Appendix I 

Scope and Methodology

To achieve our objectives, we reviewed documentation related to the

Department’s FFELP student loan database and PGRFMS. We relied

extensively on computer-processed data contained in these systems. Our

review of these data showed problems (for example, unreliable data) that

cast doubt on the systems’ validity. However, when these data are viewed

in context with other available evidence, we believe the opinions,

conclusions, and recommendations in this report are valid.

We reviewed our prior reports, those of the Department’s OIG, and

Department reports that identified deficiencies in its information systems.

We also reviewed the Department’s 1993 Federal Managers’ Financial

Integrity Act report. We analyzed FFELP loan and Pell grant records to

identify potential abuses, such as ineligible students obtaining federal

financial student aid.

We did our review from December 1993 through April 1995 in accordance

with generally accepted government auditing standards. We carried out

our work at the Department of Education’s headquarters in Washington,

D.C.

The following is our methodology for identifying abuse in FFELP and the

Pell Grant Program.

Identifying FFELP

Abuses

To identify ineligible FFELP students who may have obtained subsequent

loans, we obtained and analyzed data from the Department’s fiscal year

1993 computerized database for FFELP loans. This database is a cumulative

record of the active loans guaranteed by each guaranty agency since the

inception of the program—November 1965. The Department requires

guaranty agencies to update the database annually. We used the database

as of September 30, 1993, because it contained the latest information

available.

Ineligible FFELP Students The Department directed guaranty agencies to classify FFELP loan students

who have defaulted on their loans as either (1) defaulted, unresolved;

(2) defaulted, written off or compromised; (3) defaulted, paid in full; or

(4) defaulted, in repayment. Each one of these classifications is identified

by a loan status code, such as DF for defaulted, unresolved. Because

federal regulations do not clearly state whether students whose defaulted

loans were classified as written off or compromised are ineligible to obtain

new loans, and because students who have repaid or are repaying their

Page 28 GAO/HEHS-95-89 Student Financial Aid
Appendix I 

Scope and Methodology

defaulted loans are generally eligible to obtain new loans, we excluded

these loans from our analyses on defaulted FFELP loan students. As a

result, our analyses only included those students whose loans were

classified as defaulted, unresolved. Guaranty agencies classify a loan as

defaulted, unresolved if the guaranty agency has paid a default claim to the

lender and no arrangement has been made with the student to repay the

defaulted amount to the guaranty agency.

FFELP students classified with the following loan statuses are also ineligible

to receive additional aid: (1) permanently assigned to the Department21

and (2) death. We included these in our ineligible category. Our analysis

included data on students who became ineligible for additional loans

between 1982 and 1993. The Department does not change the loan status

in the database for those loans that have been permanently assigned to the

Department but have been paid off by the defaulter. The Department

maintains these updated records in a separate debt collection system.

Ineligible FFELP Students

Obtained Loans

After we built our database of ineligible students, we used students’ social

security numbers to identify other FFELP loans these students may have

also obtained. Then, using the loan guaranteed dates for those other loans,

we identified all students who had obtained subsequent loans after they

were declared in default or classified as dead. From this process we

identified 43,519 students who may have obtained 58,105 new loans.

Already, 20,210 of these students, who became ineligible after receiving

their first loan, have obtained and defaulted on or died while in possession

of their subsequent loans.

Problems Related to

Questionable Student Loan

Data

The number of students who defaulted and obtained new loans could be

different than indicated by the Department’s data. According to the data,

for 6,416 records, the loan status date fields contained inadequate data.

Specifically, the Department’s data showed that for 5,796 records, the date

fields were in error because they contained zeros, and 620 had dates that

were before the enactment of HEA in 1965. Therefore, we could not

determine whether the loans were obtained before or after the students

became ineligible.

In June 1994, we reported that (1) the FFELP database consists of data that

are at least 6 to 9 months old and are only updated on an annual basis,

21Guaranty agencies classify loans as permanently assigned to the Department if the loan has defaulted

and been permanently assigned to the Department.

Page 29 GAO/HEHS-95-89 Student Financial Aid
Appendix I 

Scope and Methodology

(2) guaranty agencies made little effort to verify the accuracy of FFELP data

before they were submitted to the Department, and (3) some of the data

were clearly wrong (some data indicated that students defaulted before

the date that their loans were made and other data showed that loans were

made before initiation of FFELP in 1965).22 As a result of data quality

problems identified during our audit, we were unable to express an

opinion on whether the fiscal year 1993 Statements of (1) Financial

Position, (2) Operations and Changes in Net Position, and (3) Budgetary

Resources and Actual Expenses were fairly stated.

Identifying Pell Grant

Abuse

To identify the number of students who received (1) Pell grants in excess

of maximum award amounts, (2) two or more concurrent grants from

more than one school, and (3) grants after defaulting on their loans, we

analyzed PGRFMS data.

Students Reported by Two

or More Schools With

Concurrent Enrollment

Dates

For award years 1989 through 1993, we analyzed PGRFMS records with the

following data fields: (1) social security number; (2) reporting campus;

(3) attended campus; (4) assumed enrollment date; (5) assumed amount

paid; and (6) assumed remaining amount to be paid. “Assumed” in a

PGRFMS record indicates that the data in this field have been accepted by

the Department as the final total for that field in the system. The assumed

amount paid plus the assumed remaining amount to be paid is equal to the

total amount paid to a student for that year.

To determine the number of students who concurrently received grants

from two or more schools, we matched a student’s social security number,

reporting campus, and enrollment date to all the records in the PGRFMS

universe. If a hit occurred, that is, if a match occurred between students

with the same social security number and enrollment date but different

reporting campuses, we considered this to be an instance where a student

concurrently received grants from two or more schools.

Students Potentially

Received Grants in Excess

of Maximum Amounts

To determine the number of students who received grants in excess of

maximum amounts, we analyzed PGRFMS data from award years 1989

through 1993. The fields we used to identify the students who had received

Pell grants in excess of maximum amounts included: (1) social security

number, (2) reporting campus, (3) attended campus, (4) assumed amount

paid, and (5) assumed remaining amount to be paid.

22GAO/AIMD-94-131, June 30, 1994.

Page 30 GAO/HEHS-95-89 Student Financial Aid
Appendix I 

Scope and Methodology

We selected only those cases that had total amount paid greater than the

authorized amount for each award year. We found no cases of an excess

payment having been distributed to a student at a single school. In other

words, students who received a payment over the maximum amount

attended two or more schools in that award year. The Department’s

PGRFMS contained edits to ensure that overpayments did not occur at a

single school.

Students May Have

Received Grants After

Defaulting on a Loan

We also matched PGRFMS data against FFELP loan data from award years

1983 through 1992. To determine those students who received one or more

Pell grants after they had defaulted on a loan, we used the following data

fields from PGRFMS: (1) social security number, (2) enrollment date,

(3) reporting campus, (4) attended campus, (5) assumed amount paid, and

(6) assumed remaining amount to be paid.

The student loan data used in our analyses were made up of all students

who were classified as having loans that were defaulted, unresolved, or

permanently assigned to the Department, and loans for students who were

dead. We used the following student loan fields to conduct our matches:

(1) social security number, (2) loan status date, (3) loan status code, and

(4) net amount guaranteed.

Using a student’s social security number, we compared the PGRFMS data to

the FFELP data and if a student’s Pell enrollment date was after the loan

status date of the student’s defaulted loan we considered this a successful

match. Because disbursement dates for each Pell grant are not recorded

by the Department, officials told us that we should use enrollment dates as

the disbursement date.

Page 31 GAO/HEHS-95-89 Student Financial Aid
Appendix II 

Process for Applying for Federal Student

Financial Aid

1. The student (and parents of a dependent student) submits a FAFSA (or

Renewal FAFSA) to an application processor.

2. The application processor enters data from the application and

transmits the data to CPS.

3. CPS calculates the expected family contribution (EFC) figure and

performs database matches and edits (to ensure that needed information

is included) before transmitting the data back to the application processor.

4. The application processor prints the results of EFC calculation on an

output document called SAR (which contains the results of the database

matches) and mails it to the student.

5. The student takes or mails SAR to the school.

6. The school requests any necessary supporting documents needed to

verify application data, determine the student’s eligibility, or both.

7. The school establishes the student’s COA and determines the student’s

need.

8. The school determines the student’s eligibility for the different programs

and constructs an award package of available types of aid.

9. The student either accepts the aid or declines all or part of the aid

package.

10. Funds are disbursed to the student according to the student financial

aid program requirements.

Page 32 GAO/HEHS-95-89 Student Financial Aid
Appendix III 

Student Financial Aid Systems

Central Processing

System

Supports title IV applications and the determination of Pell grant

eligibility, matches other databases for applicant eligibility, makes

corrections to the records, and produces statistical analysis tables, student

data rosters, and tapes for schools and state agencies.

Stafford Loan Tape

Dump

Referred to as the FFELP database in this report (a subsystem of the

Guaranty Agency System) this system processed individual loan status and

loan history information annually from tapes created by guaranty

agencies. The Department used this information to consolidate loan data

and monitor default rates of lenders, schools, and guaranty agencies.

Multiple Data Entry

Systems

Collect student applications and determine eligibility for title IV programs

in accordance with legislative stipulation and transfer student loan data to

CPS.

National Student Loan

Data System

Contains information regarding loans made, insured, or guaranteed under

title IV, and selected Pell grant information. Its purpose is to (1) ensure

accurate and complete data on student loan indebtedness and institutional

lending practices are available, (2) screen applications to identify prior

loan defaults and grant overawards, (3) provide a database to research and

identify trends and patterns, (4) support audits and program reviews, and

(5) calculate default rates.

Pell Grant Recipient

and Financial

Management System

Receives, evaluates, and processes student payment data as the basis for

obligations to schools. This system processes about 7 million transactions

annually.

Postsecondary

Education

Participants System

Formerly known as the Institutional Data System, this system provides

demographic and monitoring information on the universe of schools and

lending institutions and funding information for student aid programs.

Page 33 GAO/HEHS-95-89 Student Financial Aid
Appendix IV 

Guaranty Agencies That Guaranteed Loans

to Ineligible Students Who Had Already

Defaulted on Subsequent Loans (Fiscal

Years 1982-92)

Guaranty agency

Amount

guaranteed Loans

Remaining

amount

duea

Higher Education Assistance Foundation,

Minnesotab $11,479,155 5,036 $15,699,783

Puerto Rico Higher Education Assistance

Corporationc 10,665,845 4,841 10,140,877

California Student Aid Commission 4,696,200 1,918 4,684,511

Higher Education Assistance Foundation,

Kansasb 3,430,451 1,475 4,591,466

United States Aid Fund, Incorporated 4,152,914 1,980 3,934,626

Nebraska Student Loan Program 3,700,172 1,639 3,519,471

Texas Guaranteed Student Loan Corporation 3,043,971 1,391 3,010,862

New York State Higher Education Services 2,805,466 1,209 2,650,149

Pennsylvania Higher Education Assistance

Agency 2,188,308 905 2,127,834

Great Lakes Higher Education Corporation 2,328,798 974 1,935,916

Illinois Student Assistance Commission 1,385,361 610 1,393,650

Massachusetts Higher Education Assistanced 1,184,151 470 1,176,327

Higher Education Assistance, District of

Columbiab 795,398 336 1,140,097

Connecticut Student Loan Foundation 1,210,832 553 1,005,057

Virginia State Education Assistance Authority 968,708 431 986,446

Higher Education Assistance Foundation, West

Virginiab 608,589 271 810,238

Michigan Higher Education Assistance Authority 670,597 299 672,303

Colorado Guaranty Student Loan Program 658,663 290 656,374

Coordinating Board for Higher Education,

Missouri 631,408 276 609,124

Tennessee Student Assistance Corporation 585,635 258 600,326

Governor’s Special Commission of Education 664,185 308 578,768

Ohio Student Loan Commission 532,791 236 544,076

Maryland Higher Education Loan Services 541,476 224 532,636

Arizona Educational Loan Programe 542,087 248 523,502

Oklahoma Guaranteed Student Loan Program 481,453 251 486,876

New Jersey Higher Education Assistance

Authority 393,944 158 398,479

Mississippi Guaranty Student Loan Agencyf 266,965 127 267,380

State Student Assistance Commission of Indiana 242,800 116 249,566

Higher Education Assistance Foundation,

Nebraskab 171,851 84 244,407

Northwest Education Loan Association 235,858 98 206,687

(continued)

Page 34 GAO/HEHS-95-89 Student Financial Aid
Appendix IV 

Guaranty Agencies That Guaranteed Loans

to Ineligible Students Who Had Already

Defaulted on Subsequent Loans (Fiscal

Years 1982-92)

Guaranty agency

Amount

guaranteed Loans

Remaining

amount

duea

Iowa College Student Aid Commission 179,047 78 187,050

Georgia Higher Education Assistance 191,638 91 173,349

Utah Higher Education Assistance 192,053 96 171,936

Alabama Commission on Higher Education 126,749 62 130,191

Kentucky Higher Education Assistance Authority 112,991 62 120,484

Student Loan Guaranty Foundation, Arkansas 114,526 66 112,831

Pacific Islands Educational Loan Program 88,109 36 88,733

Oregon State Scholarship Commission 63,732 27 74,508

North Dakota Guaranty Student Loan Program 38,835 23 45,533

Guaranteed Student Loan Program, Montana 40,773 20 43,396

South Dakota Education Assistance Corporation 39,962 22 42,183

Vermont Student Assistance Corporation 36,441 18 36,681

NORTHSTAR Guaranty Incorporated, Minnesota 30,977 13 33,765

New Mexico Student Loan Guaranty Corporation 29,856 15 29,004

Rhode Island Higher Education Assistance

Authority 26,226 12 26,928

Student Loan Fund of Idaho, Incorporatedg 28,574 12 25,868

Higher Education Assistance Foundationb 13,011 7 19,197

New Hampshire Higher Education Assistance 13,950 5 14,254

South Carolina Loan Corporation 12,775 6 12,629

North Carolina State Education Assistance

Authority 11,849 4 10,192

Finance Authority of Maine 9,256 4 10,049

Florida Student Financial Assistance Foundation 994,076 422 h

aIncludes interest and principal.

bAgency no longer exists.

cNow part of Great Lakes Higher Education Corporation in Madison, Wisconsin.

dNow American Student Assistance.

eThe United States Aid Fund Incorporated (USAF) in Indianapolis, Indiana, is now the designated

guaranty agency.

f

Replaced by USAF.

gNow part of Northwest Education Loan Association.

hThe information was not available in the FFELP database.

Page 35 GAO/HEHS-95-89 Student Financial Aid
Appendix V 

Comments From the Department of

Education

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 36 GAO/HEHS-95-89 Student Financial Aid
Appendix V 

Comments From the Department of

Education

See comment 1.

See comment 1.

See comment 1.

See comment 2.

Page 37 GAO/HEHS-95-89 Student Financial Aid
Appendix V 

Comments From the Department of

Education

See comment 3.

See comment 4.

Page 38 GAO/HEHS-95-89 Student Financial Aid
Appendix V 

Comments From the Department of

Education

See comment 5.

Page 39 GAO/HEHS-95-89 Student Financial Aid
Appendix V 

Comments From the Department of

Education

See comment 6.

Page 40 GAO/HEHS-95-89 Student Financial Aid
Appendix V 

Comments From the Department of

Education

Page 41 GAO/HEHS-95-89 Student Financial Aid
Appendix V 

Comments From the Department of

Education

The following are GAO’s comments on the letter from the Department of

Education dated June 8, 1995.

GAO Comments 1. We did not address these efforts in this report because they were not

subject to our review, which primarily focused on the Department’s

student loan and grant data in its systems. We did, however, address these

efforts in our 1995 high-risk report.23

2. We are aware of the Department’s Quality Assurance Program and have

obtained information from its office during our review. According to a

Department official, the Department plans to expand the scope and size of

the program and is in the process of recruiting additional institutions into

the program, as well as including additional areas of the student financial

aid program administration (such as institutional and program eligibility,

general administrative and fiscal practices, and others). Because the

Department is in the process of expanding its Quality Assurance Program,

we did not have the opportunity to evaluate this effort.

3. We do not disagree that the Department should rely on schools and

guaranty agencies to help prevent ineligible students from obtaining aid.

Rather, we believe that the Department can use the data in its loan and

grant systems to help ensure compliance, identify patterns of ineligible

students receiving aid, and prevent abuses from occurring. We are not

recommending a restructuring of how the Department relies on schools

and guaranty agencies. We are, however, stating that the Department can

complement its current procedures by better using its student aid data to

validate compliance with federal requirements.

4. Federal requirements state that federal student financial aid must not

exceed students’ COA. We recognize that it was not mandatory for guaranty

agencies to submit COA data to the FFELP database, although some agencies

provided such data. According to Department officials, COA data are not a

requirement in NSLDS. Because schools use COA data to determine the

amount of aid students are eligible for, and the data are available, its use

provides another tool for evaluation.

5. We did not analyze Pell grant data to determine if students received

grants over their scheduled award amount. Scheduled awards are based

upon several factors, such as the student’s EFC and COA—information that

is maintained at schools and was not readily available. Therefore, we

23GAO/HR-95-10, Feb. 1995.

Page 42 GAO/HEHS-95-89 Student Financial Aid
Appendix V 

Comments From the Department of

Education

analyzed the Department’s Pell grant data to identify students who may

have received Pell grants over the annual statutory limits. In this report,

we state that the Department has checks in place to identify students who

may have received overpayments.

6. The Department’s analyses of the 30 students we identified as ineligible

and receiving loans after the data matches were in place showed that 19

students were eligible in NSLDS as of June 1995—2 years after the last FFELP

database was available. The students may be eligible now but, according

to the Department’s data, they were not eligible in fiscal year 1993, when

they received additional loans.

Page 43 GAO/HEHS-95-89 Student Financial Aid
Appendix VI 

GAO Contacts and Staff Acknowledgments

The following team members contributed to this report: Paula N.

Denman-Barnes, Evaluator-in-Charge; Scott M. Berger and Joel H. Marus,

Evaluators; Edward H. Tuchman, Computer Scientist; Julian P. Klazkin,

Senior Attorney; Ann McDermott, Publishing Advisor; and Laurel H. Rabin,

Communications Analyst.

Page 44 GAO/HEHS-95-89 Student Financial Aid
Appendix VI 

GAO Contacts and Staff Acknowledgments

Page 45 GAO/HEHS-95-89 Student Financial Aid
Appendix VI 

GAO Contacts and Staff Acknowledgments

Page 46 GAO/HEHS-95-89 Student Financial Aid
Appendix VI 

GAO Contacts and Staff Acknowledgments

Page 47 GAO/HEHS-95-89 Student Financial Aid
Related GAO Products

High Risk Series: Student Financial Aid Programs (GAO/HR-95-10, Feb. 95).

Financial Audit: Federal Family Education Loan Program’s Financial

Statements for Fiscal Years 1993 and 1992 (GAO/AIMD-94-131, June 30, 1994).

Student Loans: Millions Loaned Inappropriately to U.S. Nationals at

Foreign Medical Schools (GAO/HEHS-94-28, Jan. 21, 1994).

Student Financial Aid Programs: Pell Grant Program Abuse (GAO/T-OSI-94-8,

Oct. 27, 1993).

Financial Management: Education’s Student Loan Program Controls Over

Lenders Need Improvement (GAO/AIMD-93-33, Sept. 9, 1993).

Direct Student Loans: The Department of Education’s Implementation of

Direct Lending (GAO/HRD-93-26, June 10, 1993).

Financial Audit: Guaranteed Student Loan Program’s Internal Controls and

Structure Need Improvement (GAO/AFMD-93-20, Mar. 16, 1993).

Department of Education: Long-Standing Management Problems Hamper

Reforms (GAO/HRD-93-47, May 28, 1993).

Department of Education: Management Commitment Needed to Improve

Information Resources Management (GAO/IMTEC-92-17, Apr. 20, 1992).

Student Loans: Direct Loans Could Save Billions in First 5 Years With

Proper Implementation (GAO/HRD-93-27, Nov. 25, 1992).

Stafford Student Loans: Millions of Dollars Awarded to Ineligible

Borrowers (GAO/IMTEC-91-7, Dec. 12, 1990.)

(104764) Page 48 GAO/HEHS-95-89 Student Financial Aid
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