Student Financial Aid: Data Not Fully Utilized to Identify
Inappropriately Awarded Loans and Grants (Letter Report, 07/11/95,
GAO/HEHS-95-89).

Pursuant to a congressional request, GAO reviewed the Department of
Education's underlying problems with its student loan and Pell Grant
program data, focusing on: (1) whether Education has effectively used
student aid data to comply with federal requirements and prevent loan
defaults and abuse; and (2) Education's efforts to identify ineligible
students and abuse in its loan and grant programs.

GAO found that: (1) although faced with billions of dollars in annual
payments for defaulted student loans, the Department of Education has
not effectively used available student aid data to comply with federal
requirements; (2) between 1982 and 1992, 43,519 ineligible students
received 58,105 loans, totalling over $138 million; (3) many students
may have received loans exceeding their cost of attendance (COA),
although Education has not kept sufficient information regarding COA;
(4) Education has not fully used financial aid data to identify students
who received grants while attending two or more schools concurrently or
additional financial aid despite being ineligible for defaulting on
previous loans; (5) between 1989 and 1993, over 48,000 students may have
received Pell grant overpayments and over 35,000 students may have
improperly received grants while attending two or more schools
concurrently; (6) over 101,000 students who became ineligible for
additional aid may have received Pell grants totalling about $200
million; (7) although Education has recently made improvements to its
student loan and grant systems to address concerns regarding student
loan ineligibility, it is too early to determine the effectiveness of
these new systems; and (8) the system controls in place to prevent
students who previously defaulted on loans from obtaining additional aid
are not sufficiently aimed at prevention.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-95-89
     TITLE:  Student Financial Aid: Data Not Fully Utilized to Identify 
             Inappropriately Awarded Loans and Grants
      DATE:  07/11/95
   SUBJECT:  Student financial aid
             Educational grants
             Higher education
             Program abuses
             Financial aid programs
             Government guaranteed loans
             Loan defaults
             Aid for education
             Data integrity
             Internal controls
IDENTIFIER:  Federal Family Education Loan Program
             Pell Grant
             Dept. of Education National Student Loan Data System
             Pell Grant Recipient and Financial Management System
             Dept. of Education Guaranty Agency Default Match
             
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Cover
================================================================ COVER


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

Student Financial Aid


Abbreviations
=============================================================== ABBREV

  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

Letter
=============================================================== LETTER


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 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. 


--------------------
\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). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

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 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. 


--------------------
\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. 


   BACKGROUND
------------------------------------------------------------ Letter :2

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 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

   (See figure in printed
   edition.)


--------------------
\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. 


      STUDENT'S PROCESS FOR
      APPLYING FOR FEDERAL STUDENT
      FINANCIAL AID
---------------------------------------------------------- Letter :2.1

A student's financial aid process begins with an application for aid. 
The Free Application for Federal Student Aid (FAFSA) or the Renewal
FAFSA\6 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 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. 


--------------------
\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. 

\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. 


      FEDERAL FAMILY EDUCATION
      LOAN PROGRAM
---------------------------------------------------------- Letter :2.2

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
-------------------------------------------------------- Letter :2.2.1

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 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. 

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

   (See figure in printed
   edition.)


--------------------
\9 High-Risk Series:  Student Financial Aid (GAO/HR-95-10, Feb. 
1995). 

\10 Financial Audit:  Federal Family Education Loan Program's
Financial Statements for Fiscal Years 1993 and 1992 (GAO/AIMD-94-131,
June 30, 1994). 

\11 Financial Audit:  Guaranteed Student Loan Program's Internal
Controls and Structure Need Improvement (GAO/AFMD-93-20, Mar.  16,
1993). 


      FEDERAL PELL GRANT PROGRAM
---------------------------------------------------------- Letter :2.3

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. 


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


      SYSTEMS USED TO MONITOR
      FFELP AND THE PELL GRANT
      PROGRAM
---------------------------------------------------------- Letter :2.4

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. 

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. 


--------------------
\13 As of November 1994, NSLDS replaced the FFELP database and the
data in the FFELP database were used to populate NSLDS. 


   SOME DEPARTMENT DATA PROBLEMS
   CONTINUE
------------------------------------------------------------ Letter :3

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


--------------------
\14 The 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. 


      INELIGIBLE STUDENTS MAY HAVE
      OBTAINED AID AND DEFAULTED
      ON SUBSEQUENT LOANS
---------------------------------------------------------- Letter :3.1

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 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
---------------------------------------------------------- Letter :3.2

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. 

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
---------------------------------------------------------- Letter :3.3

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, 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
---------------------------------------------------------- Letter :3.4

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

                                   Amount in
                     Number of     excess of     Number of
Award year            students        limits        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 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. 


--------------------
\15 In 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. 


   STUDENT FINANCIAL AID OVERSIGHT
   AND ACCOUNTABILITY WERE
   INEFFECTIVE
------------------------------------------------------------ Letter :4

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 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. 

   Figure 3:  Organization of the
   Office of Postsecondary
   Education

   (See figure in printed
   edition.)


--------------------
\16 Administration Adopts Plan to Reorganize Student Financial
Assistance Programs, U.S.  Department of Education and the Office of
Management and Budget.  Washington, D.C.:  1991. 

\17 Gatekeeping generally refers to the Department's procedures for
determining which schools can participate--and whether they should
continue participating--in federal student aid programs. 


   DEPARTMENT IMPROVEMENTS UNDER
   WAY
------------------------------------------------------------ Letter :5

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
---------------------------------------------------------- Letter :5.1

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
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
-------------------------------------------------------- Letter :5.1.1

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
-------------------------------------------------------- Letter :5.1.2

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
---------------------------------------------------------- Letter :5.2

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 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. 


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

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


      DEPARTMENT EFFORTS TO
      STRENGTHEN SYSTEM CONTROLS
---------------------------------------------------------- Letter :5.3

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
-------------------------------------------------------- Letter :5.3.1

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. 



                          Table 3
          
            Increase in the Number and Amount of
                Loans to Ineligible Students

Fiscal year\a        Number of loans\b     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
----------------------------------------------------------
\a The Department began using the Guaranty Agency Default Match in
July 1992 and the Title IV Default Match in January 1991. 

\b The 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 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
-------------------------------------------------------- Letter :5.3.2

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. 


      EXPANDING CRITERIA FOR
      PROGRAM REVIEWS
---------------------------------------------------------- Letter :5.4

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 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. 


--------------------
\20 Report 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. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

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. 


   RECOMMENDATION
------------------------------------------------------------ Letter :7

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
------------------------------------------------------------ Letter :8

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 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. 


---------------------------------------------------------- Letter :8.1

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


SCOPE AND METHODOLOGY
=========================================================== Appendix I

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
--------------------------------------------------------- Appendix I:1

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
------------------------------------------------------- Appendix I:1.1

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 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 Department\21 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. 


--------------------
\21 Guaranty agencies classify loans as permanently assigned to the
Department if the loan has defaulted and been permanently assigned to
the Department. 


      INELIGIBLE FFELP STUDENTS
      OBTAINED LOANS
------------------------------------------------------- Appendix I:1.2

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
------------------------------------------------------- Appendix I:1.3

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, (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. 


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


   IDENTIFYING PELL GRANT ABUSE
--------------------------------------------------------- Appendix I:2

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
------------------------------------------------------- Appendix I:2.1

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
------------------------------------------------------- Appendix I:2.2

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. 

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
------------------------------------------------------- Appendix I:2.3

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. 


PROCESS FOR APPLYING FOR FEDERAL
STUDENT FINANCIAL AID
========================================================== Appendix II

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. 


STUDENT FINANCIAL AID SYSTEMS
========================================================= Appendix III


   CENTRAL PROCESSING SYSTEM
------------------------------------------------------- Appendix III:1

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
------------------------------------------------------- Appendix III:2

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
------------------------------------------------------- Appendix III:3

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
------------------------------------------------------- Appendix III:4

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
------------------------------------------------------- Appendix III:5

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
------------------------------------------------------- Appendix III:6

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. 


GUARANTY AGENCIES THAT GUARANTEED
LOANS TO INELIGIBLE STUDENTS WHO
HAD ALREADY DEFAULTED ON
SUBSEQUENT LOANS (FISCAL YEARS
1982-92)
========================================================== Appendix IV

                                                      Remain
                                      Amount             ing
                                      guaran          amount
Guaranty agency                         teed   Loans  due\\a
------------------------------------  ------  ------  ------
Higher Education Assistance           $11,47   5,036  $15,69
 Foundation, Minnesota\b               9,155           9,783
Puerto Rico Higher Education          10,665   4,841  10,140
 Assistance Corporation\c               ,845            ,877
California Student Aid Commission     4,696,   1,918  4,684,
                                         200             511
Higher Education Assistance           3,430,   1,475  4,591,
 Foundation, Kansas\b                    451             466
United States Aid Fund, Incorporated  4,152,   1,980  3,934,
                                         914             626
Nebraska Student Loan Program         3,700,   1,639  3,519,
                                         172             471
Texas Guaranteed Student Loan         3,043,   1,391  3,010,
 Corporation                             971             862
New York State Higher Education       2,805,   1,209  2,650,
 Services                                466             149
Pennsylvania Higher Education         2,188,     905  2,127,
 Assistance Agency                       308             834
Great Lakes Higher Education          2,328,     974  1,935,
 Corporation                             798             916
Illinois Student Assistance           1,385,     610  1,393,
 Commission                              361             650
Massachusetts Higher Education        1,184,     470  1,176,
 Assistance\d                            151             327
Higher Education Assistance,          795,39     336  1,140,
 District of Columbia\b                    8             097
Connecticut Student Loan Foundation   1,210,     553  1,005,
                                         832             057
Virginia State Education Assistance   968,70     431  986,44
 Authority                                 8               6
Higher Education Assistance           608,58     271  810,23
 Foundation, West Virginia\b               9               8
Michigan Higher Education Assistance  670,59     299  672,30
 Authority                                 7               3
Colorado Guaranty Student Loan        658,66     290  656,37
 Program                                   3               4
Coordinating Board for Higher         631,40     276  609,12
 Education, Missouri                       8               4
Tennessee Student Assistance          585,63     258  600,32
 Corporation                               5               6
Governor's Special Commission of      664,18     308  578,76
 Education                                 5               8
Ohio Student Loan Commission          532,79     236  544,07
                                           1               6
Maryland Higher Education Loan        541,47     224  532,63
 Services                                  6               6
Arizona Educational Loan Program\e    542,08     248  523,50
                                           7               2
Oklahoma Guaranteed Student Loan      481,45     251  486,87
 Program                                   3               6
New Jersey Higher Education           393,94     158  398,47
 Assistance Authority                      4               9
Mississippi Guaranty Student Loan     266,96     127  267,38
 Agency\f                                  5               0
State Student Assistance Commission   242,80     116  249,56
 of Indiana                                0               6
Higher Education Assistance           171,85      84  244,40
 Foundation, Nebraska\b                    1               7
Northwest Education Loan Association  235,85      98  206,68
                                           8               7
Iowa College Student Aid Commission   179,04      78  187,05
                                           7               0
Georgia Higher Education Assistance   191,63      91  173,34
                                           8               9
Utah Higher Education Assistance      192,05      96  171,93
                                           3               6
Alabama Commission on Higher          126,74      62  130,19
 Education                                 9               1
Kentucky Higher Education Assistance  112,99      62  120,48
 Authority                                 1               4
Student Loan Guaranty Foundation,     114,52      66  112,83
 Arkansas                                  6               1
Pacific Islands Educational Loan      88,109      36  88,733
 Program
Oregon State Scholarship Commission   63,732      27  74,508
North Dakota Guaranty Student Loan    38,835      23  45,533
 Program
Guaranteed Student Loan Program,      40,773      20  43,396
 Montana
South Dakota Education Assistance     39,962      22  42,183
 Corporation
Vermont Student Assistance            36,441      18  36,681
 Corporation
NORTHSTAR Guaranty Incorporated,      30,977      13  33,765
 Minnesota
New Mexico Student Loan Guaranty      29,856      15  29,004
 Corporation
Rhode Island Higher Education         26,226      12  26,928
 Assistance Authority
Student Loan Fund of Idaho,           28,574      12  25,868
 Incorporated\g
Higher Education Assistance           13,011       7  19,197
 Foundation\b
New Hampshire Higher Education        13,950       5  14,254
 Assistance
South Carolina Loan Corporation       12,775       6  12,629
North Carolina State Education        11,849       4  10,192
 Assistance Authority
Finance Authority of Maine             9,256       4  10,049
Florida Student Financial Assistance  994,07     422      \h
 Foundation                                6
------------------------------------------------------------
\a Includes interest and principal. 

\b Agency no longer exists. 

\c Now part of Great Lakes Higher Education Corporation in Madison,
Wisconsin. 

\d Now American Student Assistance. 

\e The United States Aid Fund Incorporated (USAF) in Indianapolis,
Indiana, is now the designated guaranty agency. 

\f Replaced by USAF. 

\g Now part of Northwest Education Loan Association. 

\h The information was not available in the FFELP database. 




(See figure in printed edition.)Appendix V
COMMENTS FROM THE DEPARTMENT OF
EDUCATION
========================================================== Appendix IV



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


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 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. 


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


GAO CONTACTS AND STAFF
ACKNOWLEDGMENTS
========================================================== Appendix VI

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. 




RELATED GAO PRODUCTS
============================================================ Chapter 0

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.)

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