The Department of Education’s basic functions are to provide financial resources, primarily through student loans and grants for higher education; provide research and information on best practices in education; and ensure that publicly funded schools and education programs observe civil rights laws. It administers a variety of grant and contract programs that provide aid for disadvantaged children; aid for children and adults with disabilities; student loans and grants for higher education; vocational and adult education; and research and evaluation, as well as a variety of smaller programs, such as the gifted and talented education program. Secondary Education Act, which helps support the education of over 6 million disadvantaged children in more than 50,000 schools nationwide—about one-half of the nation’s public schools—and special education programs that assist over 5 million children with disabilities from birth through age 21 in meeting their educational and developmental needs. For fiscal year 1997, the Department has an estimated budget of $29.4 billion and is authorized 4,613 full-time-equivalent (FTE) staff-years. The administration’s fiscal year 1998 budget request is for $39.5 billion and 4,560 FTE staff. This represents an increase of about $10 billion, $5 billion of which the administration wants to use to assist states in acquiring funds for school construction. The Department’s spending for education leverages well beyond its budget authority. For example, the fiscal year 1998 budget request of $12.7 billion for postsecondary student aid programs is expected to generate $47.2 billion for more than 8 million students. And $4 billion in federal appropriations for special education is expected to leverage about $29.5 billion in state and local funds. Through its student aid programs, the Department has enabled millions of students to attend postsecondary educational institutions; however, the current economic conditions make continuing to ensure such access difficult. Rising tuition, coupled with the shift to providing loans instead of grants, could result in fewer low-income and minority students’ staying in college. At the same time the Department is concerned with access, its ongoing challenge is to improve its processes to ensure financial accountability in its postsecondary student aid programs, particularly FFELP, FDLP, and the Pell Grant Program. In 1990, we designated the student financial aid program one of 17 federal high-risk programs likely to cause the loss of substantial amounts of federal money because of their vulnerabilities to waste, fraud, abuse, and mismanagement. Although the Department has acted to correct many problems and improve program controls, significant vulnerabilities remain, and we have included the student financial aid program in our 1997 list of 25 high-risk programs. of education is closely linked to unemployment. In addition, level of education is a strong determinant of wage earnings. For example, college graduates earn much more than those with only a high school education, and the differential has been increasing. According to Department data, in 1985 the median annual income of full-time male workers 25 years and over was $41,892 for college graduates and $26,609 for those with high school diplomas only, a difference of $15,283. By 1994, the difference between these two groups had grown to $21,191. Low-income and minority students have traditionally been underrepresented among college students, and access is becoming more and more problematic as the cost of attending college increases. For example, as we reported to the Congress in August 1996, a public college education has become less affordable in the last 15 years as tuition has risen nearly three times as fast as household income. The average tuition for full-time in-state students increased from $804 per year to $2,689, or 234 percent, and median household income, from $17,710 to $32,264, or 82 percent. Students and their families have responded to this “affordability gap” by drawing more heavily on their own financial resources and increasing their borrowing. For example, the annual average student loan at 4-year public schools rose from $518 per full-time student in fiscal year 1980 to $2,417 in fiscal year 1995, an increase of 367 percent, which is almost five times the 74-percent increase in the cost of living—as measured by the consumer price index—for the same period. If this trend continues, rising tuition levels may deter many students from attending college. The Department’s primary mechanism for ensuring access to postsecondary institutions is the federal student financial aid programs—principally FFELP, FDLP, and the Pell Grant Program. While federal student financial aid has been substantial in the past, recent trends may inhibit broader college access. A growing proportion of federal aid has taken the form of loans rather than grants since the 1970s. For example, from 1977 to 1980, grant aid exceeded loan aid; since 1985, however, loan aid has been about twice the amount of grant aid. With federal grant aid declining in relative terms, students and their families have had to shoulder a greater share of college expenses. Many policymakers have expressed concern that this trend in college costs and in financial aid patterns, which increases students’ net costs for higher education, has diminished college access—both entry and attendance through graduation—for low-income students. Our work supports this belief with respect to attendance through graduation. We concluded from our work that financial aid packages with relatively high grant levels may improve low-income students’ access to higher education more than packages that rely more on loans. In addition, our analysis indicated that the sooner low-income students receive grant assistance, the more likely they are to stay in college. We found that grants were most effective in reducing low-income students’ dropout probabilities in the first year. For these students, an additional $1,000 grant reduced the dropout probability by 23 percent. In the second year, the additional grant reduced dropout probability by 8 percent, while in the third year it had no statistically discernable effect. Therefore, we believe that restructuring federal grant programs to feature frontloading could improve low-income students’ dropout rates with little or no change in each student’s overall 4-year allocation of grants and loans. We suggested that, if the Congress was interested in increasing the number of low-income students who stay in college, it could direct the Department to conduct a pilot program for frontloading federal grants. The Congress has yet to act on this suggestion. Although major federal student aid programs, such as FFELP, FDLP, and the Pell Grant Program, have succeeded in providing students access to billions of dollars for postsecondary education, our work has shown that the Department has been less successful in protecting the financial interests of U.S. taxpayers. For example, in fiscal year 1996, while the Department made more than $40 billion available in student aid, the federal government paid out over $2.5 billion to make good its guarantee on defaulted student loans. agencies be conducted annually rather than every 2 years. The Department also has planned and taken a number of actions to correct its financial accountability problems, such as reorganizing the Office of Postsecondary Education to permit it to better administer and oversee federal student aid programs and developing several new information systems to provide more accurate and timely information. Many of the Department’s actions are likely to have played a major role in reducing the amount of student loan defaults from $2.7 billion in fiscal year 1992 to $2.5 billion in fiscal year 1996 and in increasing collections on defaulted student loans from $1 billion in fiscal year 1992 to $2.1 billion in fiscal year 1996. However, the Department’s actions have not completely resolved many of the underlying problems, and, therefore, vulnerabilities remain. At the core of the Department’s financial accountability difficulties are persistent problems with the individual student aid programs’ processes, structure, and management. These problems include (1) overly complex processes, (2) inadequate financial risk to lenders or state guaranty agencies for defaulted loans, and (3) management shortcomings. Our work has shown that the student aid programs have many participants and involve complicated, cumbersome processes. Three principal participants—students, schools, and the Department of Education—are involved in all the financial aid programs; two additional participants—lenders and guaranty agencies—also have roles in FFELP. In general, each student aid program has its own processes, which include procedures for student applications, school verifications of eligibility, and lenders or other servicing organizations that collect payments. Further, the introduction of FDLP, originally viewed as a potential replacement for FFELP, has added a new dimension of complexity. Rather than replacing FFELP as initially planned, FDLP now operates along side it. Essentially, this means that the Department has two programs that are similar in purpose but that operate differently. programs now serve more students from low-income families and those attending proprietary schools than in the past. As the number of these higher-risk borrowers has increased, so has the number of defaults. Both of these conditions enhance access for low-income students, yet a tension exists because they jeopardize financial accountability. Management shortcomings also continue as a major problem and contribute to the Department’s financial accountability difficulties. In the past, congressional hearings and investigations, reports by the Department’s OIG, our reports, and other studies and evaluations have shown that the Department (1) did not adequately oversee schools that participated in the programs; (2) managed each title IV program through a separate administrative structure, with poor or little communication among programs; (3) used inadequate management information systems that contained unreliable data; and (4) did not have sufficient and reliable student loan data to determine the Department’s liability for outstanding loan guarantees. These problems cannot be quickly or easily fixed. The Department has taken many actions, such as improving gatekeeping procedures for determining which schools may participate, to address these problems.