GAO report reveals lack of oversight in student loan rehabilitation program

foil.seal.gaoA report released by the Government Accountability Office last week revealed “serious weaknesses” in the Department of Education’s oversight of a program intended to help financially troubled student loan borrowers.

The student loan rehabilitation program allows student loan borrowers in default to “rehabilitate” their loans by making consecutive, on-time monthly payments for 10 months, after which the loans may be consolidated and the default removed from the borrower’s credit report.

According to the GAO report, however, for more than a year after its 2011 upgrade of its defaulted loan information system, the Department of Education failed to provide the promised benefits of loan rehabilitation to borrowers in a timely manner—the report said the delays were attributable to a lack of oversight of firms contracted to build the system upgrade.

“While Education took steps to process the backlog of loans eligible for rehabilitation, it does not have performance data to provide assurance that borrowers are no longer experiencing delays,” the report said. “In addition, Education’s oversight of collection agencies provides little assurance that borrowers are provided accurate information about loan rehabilitation.”

The Department of Education began testing of the system in February 2011, but the report found it was “insufficient” to detect any delays and problems associated with the program. Problems encountered with the system resulted in the processing delay of loan rehabilitations until 2012, though officials said they needed until January 2013 to clear the backlog.

Additionally, when the system began processing loan rehabilitations, it did not always recognize that borrowers had met the requirements for loan rehabilitations, leading the Department of Education to implement workarounds and to begin manually processing loan rehabilitations.

Though the Department of Education said it no longer manually processes loan rehabilitations, the system still requires workarounds, though a new contractor was hired in September and is expected to remedy the issues.

“Default can have serious consequences for a borrower’s credit rating and future prosperity, making an effective and timely rehabilitation process critical to the well-being of the nation’s borrowers,” Rep. Virginia Foxx (R-N.C.), the chairman of the House Subcommittee on Higher Education and Workforce Training, said. “The GAO report’s findings are extremely troubling, and contradict the department’s previous claims that the system was working as intended. Policymakers have a responsibility to ensure student loans increase opportunity, not limit success. I expect the administration to take immediate steps to address the problems in the student loan rehabilitation process with permanent solutions – not more workarounds and temporary fixes.”

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