Background Education administers federal student aid programs, including the William D. Ford Federal Direct Loan (Direct Loan) program, through the Office of Federal Student Aid. Only Direct Loans are eligible for the PSLF program and the temporary expanded process. Under the Direct Loan program, Education issues and oversees federal loans provided to students, and contractors service these loans. Education currently contracts with nine loan servicers that each handle the billing and other services for a share of the over $1 trillion in outstanding student loans provided through the Direct Loan program. Borrowers interested in pursuing loan forgiveness under PSLF, or the temporary expanded process, must have their loans eventually transferred to Education’s sole PSLF loan servicer in order to proceed. This designated PSLF servicer handles day-to-day activities associated with the PSLF program and the temporary expanded process, which include responding to borrower inquiries, making preliminary determinations about whether borrowers’ employment and loans qualify for loan forgiveness, and processing loan forgiveness applications. The PSLF program and the temporary expanded process provide eligible borrowers with forgiveness on the remaining balance of their Direct Loans after they have met all program requirements. To receive forgiveness for a loan, borrowers are required to be employed in a qualifying public service job for 10 years when making 120 qualifying payments. Borrowers must also be employed in a qualifying public service job at the time they apply for forgiveness, and at the time they receive forgiveness for their loans. Although there are some differences in the eligibility requirements for PSLF and the temporary expanded process, borrowers are generally required to: Work full-time for at least 10 years at a public service organization, a government organization, agency, or entity at any level (federal, state, local, or Tribal); a nonprofit, tax exempt organization (under section 501(c)(3) of the Internal Revenue Code); or another private nonprofit organization that provides certain public services. Not be in default on their loans. Make 120 on-time monthly loan payments for the full amount due on their bill. These monthly payments do not need to be consecutive. Repay their loans through a qualifying repayment plan. The PSLF program generally requires borrowers to repay their loans through one of the eligible income-driven repayment plans or the Standard repayment plan. The temporary expanded process allows borrowers to qualify for loan forgiveness if they are participating in several additional types of repayment plans, including the Graduated repayment plan, Extended repayment plan, Consolidated Standard repayment plan, and Consolidated Graduated repayment plan. In addition, for the temporary expanded process, the following two payments generally must be at least as much as the borrower would have paid under an income-driven repayment plan: (1) the payment made immediately prior to applying for the temporary expanded process, and (2) the payment made 12 months prior to applying for the temporary expanded process. There are key differences in the processes for applying for loan forgiveness under the PSLF program versus the temporary expanded process (see table 1). Approximately 99 Percent of Borrower Applications for Loan Forgiveness through Both the PSLF Program and the Temporary Expanded Process Have Been Denied Despite broad borrower interest in the PSLF program and the temporary expanded process, very few borrowers have been granted loan forgiveness. A large number of borrowers are pursuing the PSLF program, but our 2018 analysis found that Education had denied about 99 percent of borrowers that applied for loan forgiveness through the PSLF program during the first 8 months that Education was accepting applications (September 2017 through April 2018), according to data from the PSLF servicer. According to Education’s most recent publically released PSLF program data through March 2019, PSLF program denial rates have continued to hover around 99 percent since our 2018 review. Of the 76,002 loan forgiveness applications that had been processed, the PSLF servicer had denied 75,138 (99 percent), as of March 2019. According to data as of March 2019, close to one-half of the PSLF program loan forgiveness applications the PSLF servicer had processed were denied because the borrower had not yet made 120 qualifying payments. The other most common reasons PSLF program applications were denied were because of missing information on the application or because the borrower did not have qualifying federal loans. For borrowers that have been approved, Education had forgiven almost $31 million in outstanding student loans, an average of more than $59,000 per approved borrower. Denial rates are also very high for the temporary expanded process. We recently reported that from May 2018 through May 2019, Education had denied 99 percent of the completed requests from about 40,000 borrowers (see fig. 1). The majority of requests borrowers submitted for the temporary expanded process were ineligible for consideration and were therefore denied because the borrower had not previously submitted an application for the PSLF program, according to data from the loan servicer. For the 1 percent of applications that were approved from May 2018 through May 2019, Education had granted almost $27 million in loan forgiveness under the temporary expanded process, totaling about 4 percent of the $700 million appropriated funds, according to our 2019 report. Borrowers received an average of about $41,000 in loan forgiveness. The high denial rates for the PSLF program and temporary expanded process suggest that many borrowers are confused by the requirements. In our 2018 report, we noted that officials from the PSLF servicer said that borrowers were frequently confused by the PSLF program requirements related to qualifying loans, employment, repayment plans, and payments. PSLF servicer officials also said that borrowers were sometimes unaware that they were not on a PSLF-qualifying repayment plan or that forbearance, deferment, and loan consolidation would affect their qualifying payments. For example, the Consumer Financial Protection Bureau has reported that borrowers have complained of spending years making payments, believing they were making progress towards PSLF loan forgiveness, and then learning that they were not eligible. Similarly, in our 2019 report on the temporary expanded process, we noted that officials from Education, the PSLF loan servicer, and representatives from selected organizations representing student borrowers all said that the requirement to submit an application for the PSLF program to be eligible for the temporary expanded process can confuse borrowers. Shortcomings in the Information Education Provides to the PSLF Servicer Increase the Risk of Administrative Errors We have previously reported on how shortcomings in the information Education provides to the PSLF servicer has resulted in uncertainty about PSLF program requirements and increased the risk of potential errors in borrower eligibility determinations. To address these issues, we have made three recommendations to Education to provide the servicer with comprehensive guidance and instructions, additional information on qualifying employers, and standardized prior payment information (see table 2). Education agreed with these recommendations and has taken some actions, but has not yet fully implemented them. Piecemeal Guidance and Instructions In our 2018 report, we found that Education does not have a comprehensive document or manual to provide the PSLF servicer with guidance and instructions. This made it difficult to effectively administer the PSLF program and provide consistent service to borrowers, according to PSLF servicer officials. We reported that Education’s guidance and instructions to the PSLF servicer are dispersed in a piecemeal manner across multiple documents, including Education’s original contract with the servicer, multiple updates to the contract, and hundreds of emails. As a result, PSLF servicer officials said that their staff were sometimes unaware of relevant PSLF program guidance and instructions in emails provided by Education, which creates a risk that some policy updates will be overlooked and not consistently implemented. The absence of a central, authoritative source of PSLF guidance and instructions creates a risk of differing interpretations and inconsistent implementation. It also makes it difficult to maintain program continuity in the event of staff turnover or if Education decides to contract with a new servicer to administer the PSLF program. Federal internal control standards state that agencies should communicate information to those who need it, in a form that enables them to carry out their responsibilities. Around the time our 2018 report was issued, Education officials told us they planned to develop a comprehensive PSLF servicing manual, but they did not have a timeline for completing it. In response, we recommended that Education develop a timeline for issuing a comprehensive guidance and instructions document for PSLF servicing. Education agreed with this recommendation and reported in September 2019 that it was continuing its efforts to improve and streamline guidance for the PSLF servicer. While Education said it is working on developing its comprehensive PSLF servicing manual, it does not yet have a timeline for how it will complete this manual and has pushed back the estimated implementation date for this recommendation to 2020. To help ensure that program requirements are applied consistently by the PSLF servicer, we continue to believe that Education should fully implement this recommendation. Limited Information on Qualifying Employers In 2018, we reported that Education had not provided the PSLF servicer with a definitive source of information for determining which employers qualify a borrower for PSLF loan forgiveness. Instead, Education had identified some data sources the PSLF servicer can use to determine whether borrowers are working for qualifying employers. However, we found that these sources were not comprehensive, and that PSLF servicer officials said they sometimes had to consult other sources that have significant limitations. For example, PSLF servicer officials told us they used an online directory of nursing home facilities to help determine if certain nursing homes were nonprofit employers. However, this website explicitly stated that it did not guarantee that the information it provided was accurate or current. Federal internal control standards state that agencies should communicate the necessary quality information to those who need it, and PSLF servicer officials said that having additional information would help them assess employers more quickly and minimize the risk of inaccurate decisions. Borrowers would also benefit from additional information about qualifying employers, according to PSLF servicer officials, in part because it would help them make better informed employment decisions. Our 2018 report recommended that Education provide additional information to the PSLF servicer and borrowers to enhance their ability to determine which employers qualify for PSLF. Education agreed with this recommendation, and said it planned to incorporate qualifying employer information into an online PSLF Help Tool. As of September 2019, Education reported that it had incorporated a feature into its online PSLF Help Tool to help borrowers determine if their employer fits within general eligibility criteria. However, Education said more specific information to help the PSLF servicer make employer eligibility determinations and an employer database will not be available until 2020. We believe that if Education fully implements this recommendation to provide the servicer with more definitive employer information, it would help reduce the risk of errors in assessing employer eligibility for PSLF. Inconsistencies in Prior Loan Payment Data In our 2018 report, we found that Education does not ensure that the agency’s other loan servicers provide the PSLF servicer consistent information on borrowers’ prior loan payments, which could increase the risk of qualifying payments being miscounted for the PSLF program. PSLF servicer officials said inconsistencies in the information provided by other loan servicers make it challenging to determine whether borrowers are on qualifying repayment plans or making qualifying payments. Officials with Education and the PSLF servicer said that these inconsistencies increase the risk of miscounting qualifying payments. This is contrary to federal internal control standards, which state that agencies should use quality information. Our 2018 report recommended that Education standardize the payment information that the PSLF servicer receives from other loan servicers to ensure the PSLF servicer obtains more consistent and accurate payment information. Education agreed with this recommendation and stated that efforts were underway to improve the consistency of payment information exchanged between servicers. As of September 2019, Education reported that it is planning to standardize this loan payment data by spring 2020. If Education implements this recommendation, we believe it would reduce the potential risk of qualifying PSLF payment count errors moving forward. Education Can Provide Better Service to Borrowers by Expanding Outreach, Streamlining Processes, and Sharing Critical Information with Borrowers We have previously reported on how unclear processes and a lack of information about the PSLF program and the temporary expanded process could contribute to borrower confusion and high denial rates. We have also reported that borrowers can face challenges detecting any errors in payment counts for the PSLF program and with contesting eligibility determinations for the temporary expanded process. To address these issues, we have made five recommendations to Education to improve service to borrowers by expanding outreach, streamlining processes, and providing information to help borrowers catch and resolve errors (see table 3). Education agreed with these recommendations, but has not yet taken sufficient actions to fully implement them. Borrower Outreach Education uses several methods to inform borrowers about the PSLF program and temporary expanded process requirements, including through its website and webinars. Congress also appropriated $4.6 million in 2018 for Education to conduct outreach to borrowers about PSLF, including the temporary expanded process. However, our recent work has found several areas in which the agency’s outreach activities related to the temporary expanded process are limited. While Education and PSLF loan servicer officials told us that they primarily direct borrowers to online sources to inform them about requirements for the temporary expanded process, we found that the agency does not include information about the temporary expanded process in key online sources. For example, according to agency officials, one of Education’s primary PSLF outreach mechanisms—the online PSLF Help Tool, which the agency launched in December 2018—does not include any information about the temporary expanded process. Officials from Education and the PSLF servicer stated that integrating information about the temporary expanded process into the online PSLF Help Tool would be beneficial for borrowers and would reduce confusion about the temporary expanded process. In addition, our 2019 report found that while all nine of Education’s loan servicers’ websites contain some information on the PSLF program, none of them (other than the PSLF loan servicer) included information about the temporary expanded process on their websites or provided a link to Education’s website specific to the temporary expanded process. Education officials told us that only the PSLF servicer is required to have information about the temporary expanded process on its website; however, other loan servicers may also serve borrowers who are potentially eligible but may be unaware of the temporary expanded process. This limited outreach to borrowers about the temporary expanded process reduces the likelihood that borrowers are able to take advantage of this opportunity. Further, federal internal control standards state that management should externally communicate the necessary quality information to achieve the entity’s objectives. To improve Education’s borrower outreach about the temporary expanded process, our September 2019 report recommended that Education include information about the temporary expanded process in its online PSLF Help Tool and that Education require all loan servicers to provide information about the temporary expanded process on their websites. Education agreed with both of these recommendations, and stated that it would take steps to address them. If Education implements these two recommendations, we believe it would help the department provide better service to borrowers by raising awareness of the temporary expanded process and requirements. Streamlining Processes In September 2019, we reported that Education’s process for requesting loan forgiveness through the temporary expanded process is not clear to borrowers and may contribute to high denial rates. In particular, the requirement that borrowers must have already submitted a separate PSLF application in order to be eligible for loan forgiveness through the temporary expanded process can confuse borrowers. Borrowers currently must submit a separate PSLF application, even if they know it will be denied, before Education will consider their request for forgiveness through the temporary expanded process. Education officials acknowledged that the majority of requests for the temporary expanded process come from borrowers who have not first submitted a PSLF application. Similarly, our September 2019 report found that 71 percent of the denied requests were denied because the borrower had not submitted a PSLF application. Officials from the PSLF loan servicer said that borrowers who called were frequently confused when they received a denial for the temporary expanded process based on the fact that they had not first submitted an application for the PSLF program. This lack of a borrower-friendly process complicates the path towards loan forgiveness and does not align with Education’s strategic plan objective to improve the quality of service to customers. To address this issue, our 2019 report recommended that Education streamline the process for borrowers to request loan forgiveness through the temporary expanded process by integrating the request for temporary expanded process consideration into the PSLF application, eliminating the need for borrowers to submit a separate PSLF application prior to consideration. Education agreed with this recommendation and stated that it will integrate requests for the temporary expanded process into the PSLF application as part of its ongoing initiative to overhaul its online portal for student loan borrowers. Implementation of this recommendation would improve service to borrowers by making the process easier and less confusing. Information to Help Borrowers Identify and Remedy Potential Errors In 2018, we reported that although Education and PSLF servicer officials acknowledged the risk of miscounting qualifying payments, the PSLF servicer did not provide borrowers with sufficient information to easily identify PSLF program errors. Officials with the PSLF servicer said they rely on borrowers to catch any payment counting errors resulting from issues with information provided by other loan servicers. As we reported, the PSLF servicer provided borrowers with aggregate counts of qualifying payments, which are useful for helping borrowers track their progress, but did not provide borrowers with enough detail to check the servicer’s counts and identify prior payments that the servicer may have missed. This is also contrary to federal internal control standards which call for communicating necessary information to external parties. Our 2018 report recommended that Education ensure that borrowers receive sufficiently detailed payment information from the PSLF servicer to be able to identify any errors in the servicer’s counts of qualifying payments. Education agreed with this recommendation and stated that efforts were underway to standardize the payment count information that is provided to borrowers. As of September 2019, Education reported that it is reviewing communications from the PSLF servicer to ensure that borrowers receive sufficiently detailed information regarding payment counts and payment history and that this review will be completed by September of 2020. To help borrowers detect potential payment counting errors that could ultimately affect their eligibility for the PSLF program, we believe Education should implement this recommendation and provide borrowers with more detailed qualifying payment information. Further, our 2019 report on the temporary expanded process found that Education does not provide complete information to borrowers about options they have to contest payment counts or other aspects of the eligibility determination process. An Education official told us that while there is no formal process for borrowers who are dissatisfied with their temporary expanded process determinations to contest the determination, borrowers do have additional options for addressing concerns, such as an additional review by the PSLF servicer, or a complaint to Education’s Federal Student Aid Feedback System or Ombudsman. Education officials told us that the agency does not provide information about these options in its denial letters or on its website for the temporary expanded process, noting that borrowers could find this information at the bottom of Education’s Federal Student Aid main website. However, borrowers may not know where to find this information should they choose to contest their temporary expanded process determination, because this information is not effectively communicated to them in accordance with federal internal control standards. To address this, our 2019 report recommended that Education provide borrowers with more information on the website for the temporary expanded process and in the servicer’s denial letters about options available to borrowers should they wish to contest the servicer’s decision. Education agreed with this recommendation and stated that it would add information about the options borrowers have to contest temporary expanded process decisions to relevant websites and denial letters. Implementing this recommendation will increase the likelihood that borrowers with valid concerns about the temporary expanded process will have them appropriately resolved. In conclusion, my statement has highlighted several actions Education could take to strengthen the PSLF program and the temporary expanded process to deliver on the promise the federal government has made to borrowers pursuing careers in public service. Education is responsible for establishing an administrative structure for the loan servicer, but more than 10 years after the PSLF program was first established, Education has not provided the loan servicer with a comprehensive source of guidance and instructions on how to operate the PSLF program, and could provide additional information to help ensure that eligibility determinations are being made correctly. Education is responsible for ensuring that borrowers are aware of and understand programmatic requirements. However, the high denial rates for the PSLF program and its temporary expanded process suggest that borrowers are still confused. It is also important for Education to maintain borrower confidence, but the department has not provided critical information to borrowers to help them remedy potential errors. Large numbers of borrowers have pursued careers in public service, sometimes at lower pay than in the private sector, with the hope of one day achieving loan forgiveness through the PSLF program. They have often had to navigate the PSLF program requirements with a lack of sufficient information from Education only to be denied 10 years later when they applied for loan forgiveness because their prior years of employment or loan payments did not qualify. In addition, some borrowers who were denied may not be aware that they might be eligible for loan forgiveness through the temporary expanded process, potentially missing out on this temporary opportunity. Education needs to take action to better serve these borrowers and help smooth their long road towards loan forgiveness. Education has not yet taken action to fully implement the eight recommendations discussed in this testimony. We continue to believe that implementing these eight recommendations would strengthen program administration, improve service to borrowers, and help to fulfill the original goal of encouraging individuals to enter and continue in public service employment. We will continue to monitor Education’s efforts in these areas. Chairwoman Davis, Senior Republican Smucker, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. GAO Contact and Staff Acknowledgments If you or your staff have any questions about this testimony, please contact Melissa Emrey-Arras, Director of Education, Workforce, and Income Security, at (617) 788-0534 or emreyarrasm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony include William Colvin (Assistant Director), Nora Boretti (Analyst-in-Charge), Linda Collins, and Aaron Karty. Additional support was provided by James Bennett, Deborah Bland, Alex Galuten, Lara Laufer, Sheila R. McCoy, and Jessica Orr. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.


Background Education administers federal student aid programs, including the William D. Ford Federal Direct Loan (Direct Loan) program, through the Office of Federal Student Aid. Only Direct Loans are eligible for the TEPSLF and PSLF programs. Under the Direct Loan program, Education issues and oversees federal loans provided to students and contractors service these loans. Education currently contracts with nine loan servicers that each handle the billing and other services for a portion of the over $1 trillion in outstanding student loans provided through the Direct Loan program. These servicers track and manage day-to-day servicing activities. Education contracts with a single loan servicer to implement PSLF and TEPSLF, which includes responding to borrower inquiries, reviewing requests for loan forgiveness, and processing loan forgiveness for qualifying borrowers. Borrowers interested in pursuing loan forgiveness under either PSLF or TEPSLF must have their loans transferred to this loan servicer in order to proceed. TEPSLF is a temporary expansion of the PSLF program and the eligibility requirements for TEPSLF are largely the same as those of the PSLF program with a few key exceptions. Both provide eligible borrowers with forgiveness on the remaining balance of their Direct Loans after they have met all program requirements. To receive forgiveness for a loan under either PSLF or TEPSLF, borrowers are required to be employed in a public service job for 10 years when making 120 qualifying payments, at the time they apply for forgiveness, and at the time they receive forgiveness for their loans. Specifically, borrowers are generally required to: Work full-time for at least 10 years at a public service organization, a government organization, agency, or entity at any level (federal, state, local, or Tribal); a nonprofit, tax exempt organization (under section 501(c)(3) of the Internal Revenue Code); or another private nonprofit organization that provides certain public services. Not be in default on their loans. Make 120 on-time monthly loan payments for the full amount due on their bill. These monthly payments do not need to be consecutive. Key differences between PSLF and TEPSLF include: Qualifying repayment plans. PSLF generally requires borrowers to repay their loans through one of the eligible income-driven repayment plans or the Standard repayment plan. TEPSLF allows borrowers to qualify for loan forgiveness through several additional types of repayment plans that do not qualify for PSLF, including the Graduated repayment plan, Extended repayment plan, Consolidated Standard repayment plan, and Consolidated Graduated repayment plan. Funding. TEPSLF loan forgiveness is temporarily available to borrowers on a first-come, first-served basis until the $700 million is expended. The PSLF program will continue unless repealed by Congress. Specific payment requirements. For TEPSLF, the following two payments generally must be at least as much as the borrower would have paid under an income-driven repayment plan: (1) the payment made immediately prior to applying for TEPSLF, and (2) the payment made 12 months prior to applying for TEPSLF. In the context of high denial rates in the PSLF program and evidence that some borrowers were being misinformed by loan servicers about which repayment plans would qualify for PSLF, Congress appropriated $4.6 million for Education to conduct outreach on PSLF and TEPSLF. The legislation called for this outreach to be targeted to, among others, borrowers who would qualify for PSLF loan forgiveness except that they have made some or all of their payments through plans that do not qualify. Education’s Temporary Expanded Loan Forgiveness Process Is Not Clear to Borrowers Congress directed Education to implement a simple method for borrowers to apply for TEPSLF within 60 days after the legislation funding the program was enacted. In response, Education established a process in which borrowers send an email to the TEPSLF loan servicer with their name and date of birth to initiate their TEPSLF review and establish their place in line for TEPSLF funds. In addition to sending an email to initiate a TEPSLF request, Education requires that a borrower has submitted a PSLF application before they can be considered for TEPSLF (see fig. 1). While a PLSF application is not explicitly required by statute for a borrower to be considered for TEPSLF loan forgiveness, Education officials said that the department added this step to the process because the PSLF application form captures information the TEPSLF loan servicer needs to determine a borrower’s eligibility for TEPSLF. Education officials said that they added this step in order to roll out the TEPSLF program within the required 60 days. Education’s TEPSLF website states that borrowers interested in this temporary expanded loan forgiveness option must submit a PSLF application in order to be considered for TEPSLF. Even with this information, our review of TEPSLF loan servicer data found that 71 percent of denied TEPSLF requests were denied because the borrower had not submitted a PSLF application. Education officials said that they believed that many borrowers send a TEPSLF request without submitting a PSLF application because TEPSLF funding is temporary and borrowers know that sending the email request will hold their place in line for the limited funds. However, borrowers who have not submitted the PSLF application are sent a denial letter from the TEPSLF loan servicer. According to Education officials, these borrowers would lose their place in line and have to reapply if they want to be reconsidered for TEPSLF. Officials from Education, the TEPSLF loan servicer, and representatives from selected organizations representing student borrowers all said that the requirement to submit a PSLF application to be eligible for TEPSLF loan forgiveness can confuse borrowers. For example, Education officials acknowledged that the majority of TEPSLF requests come from borrowers who have not first submitted a PSLF application, and officials from the TEPSLF loan servicer said that borrowers who called were frequently confused when they received a TEPSLF denial based on the fact that they had not first submitted the PSLF application. In addition, representatives from the three student borrower groups we interviewed said that having to apply for PSLF before requesting TEPSLF often confuses borrowers and, in the opinion of officials from two of the three groups, leads directly to large numbers of TEPSLF denials. We also found some examples of borrower confusion about the PSLF application requirement in our review of borrower complaints. In three TEPSLF borrower complaints filed with Education that we reviewed, the borrowers expressed confusion and frustration about why they were being asked to submit an application for a program—PSLF—they knew they did not qualify for in order to receive TEPSLF loan forgiveness. Education’s policy of requiring all borrowers requesting TEPSLF to first submit a PSLF application has created a confusing process for borrowers. Education officials said that integrating the TEPSLF request into the PSLF application—for example, by including a checkbox that borrowers could use to request a TEPSLF review if the loan servicer finds they are ineligible for PSLF—would eliminate the need for borrowers to take multiple steps, reduce the number of borrowers who are denied, and improve service to borrowers. Education officials estimated that integrating the TEPSLF request into the existing PSLF process would require roughly a year in order to revise the PSLF application form, borrower communications, and program procedures, and to work with the loan servicer to implement new contractual requirements. Education officials told us that they will be implementing a new online portal in fall 2019 to provide better overall service to borrowers. They also stated that the new portal could incorporate an online integrated PSLF and TEPSLF application if they had sufficient resources and time, but that there were currently no specific plans to do so. While Education rolled out the process for requesting TEPSLF loan forgiveness in 2 months, it has not created a borrower-friendly TEPSLF process. This does not align with Education’s strategic plan objective to improve the quality of service to customers across the student aid life cycle. Further, Congress created the temporary expansion to the PSLF program to help certain borrowers who faced barriers obtaining PSLF loan forgiveness and required Education to develop a simple method for borrowers to apply for TEPSLF. While initiating a TEPSLF request through an email is straightforward, requiring borrowers to have submitted a PSLF application to successfully pursue TEPSLF loan forgiveness is confusing and inefficient for borrowers because borrowers must take multiple steps and complete an application for a program they do not qualify for. If Education were to allow borrowers to request TEPSLF loan forgiveness through an integrated application form, it would improve service to borrowers, reduce borrower confusion about how to obtain loan forgiveness, and better align with its strategic plan objective to improve service to borrowers. Further, although TEPSLF is a temporary opportunity, it could be years before the $700 million appropriation is exhausted, and it is therefore worthwhile for Education to invest resources in improving the process now. Ninety-nine Percent of Borrowers’ TEPSLF Requests Have Been Denied and Certain Denial Letters Do Not Include Important Information Education Has Approved 1 Percent of TEPSLF Loan Forgiveness Requests and Spent 4 Percent of TEPSLF Loan Forgiveness Funds in a Year From May 2018 through May 2019, about 40,000 borrowers submitted TEPSLF requests for loan forgiveness and Education has approved or denied about 54,000 separate TEPSLF requests. Education has approved 1 percent (661) and denied 99 percent (53,523) of these requests, according to the most recent data from the TEPSLF loan servicer (see fig. 2). Of the 53,523 denied TEPSLF requests, about 38,000 were ineligible for consideration and were therefore denied because the borrower had not submitted a PSLF application, according to data from the TEPSLF loan servicer. Of the remaining denied requests, about 15,000 were denied because they did not meet other program requirements (see fig. 3). As we previously noted, under the current TEPSLF review process, the loan servicer first checks to see if the borrower requesting TEPSLF has submitted a PSLF application. If the borrower has not done so, the loan servicer does not conduct any further review of the borrower’s request and sends the borrower a denial letter informing them they have to submit the PSLF application before the borrower can be considered for TEPSLF. Without the loan servicer conducting any further review of a borrower’s request, it is impossible to know how many of the roughly 38,000 requests that were denied because the borrower had not yet submitted a PSLF application would have otherwise met all other program requirements and been approved for TEPSLF loan forgiveness. The large number of TEPSLF requests denied for not submitting a PSLF application provides further evidence that many borrowers may be confused about the process for obtaining TEPSLF loan forgiveness. Further, more than 5,000 (about 10 percent) of the TEPSLF requests were denied because the borrower had not been repaying their loans for at least 10 years, which indicates that they had not yet made 120 qualifying payments—a straightforward program requirement. Since TEPSLF became available in May 2018, Education has approved TEPSLF loan forgiveness totaling about 4 percent (approximately $26.9 million) of the $700 million appropriated for TEPSLF loan forgiveness, according to the most recent data available from the TEPSLF loan servicer at the time of our review (see fig. 4). Of the 656 borrowers approved for TEPSLF loan forgiveness, the borrowers received an average of about $41,000 in loan forgiveness, with loan forgiveness amounts ranging from about $190 to about $227,000. Education Does Not Fully Inform Borrowers about Available Options to Contest Denial Decisions Education does not provide complete information to borrowers about options they have to contest a denied TEPSLF request. Specifically, the letter the TEPSLF loan servicer sends to the borrower communicating a decision to deny the TEPSLF request includes the reason for the denial and the TEPSLF loan servicer’s customer service number for borrowers to call with questions. An FSA official told us that while there is no formal process for borrowers who are dissatisfied with their TEPSLF or PSLF determinations to contest them, borrowers do have additional options for addressing concerns, such as an additional review by the TEPSLF servicer, or a complaint to the FSA Feedback System or Ombudsmen (see fig. 5). According to Education officials, when a borrower is denied loan forgiveness, they can call the TEPSLF loan servicer’s customer service number with questions about the denial. TEPSLF servicer officials said that if the customer service representative is unable to resolve the borrower’s questions, the representative can elect to elevate the borrower’s concern internally within the TEPSLF loan servicer, which may result in a second review by loan servicer management. Education and TEPSLF loan servicer officials said that borrowers who are not able to resolve their issues with the loan servicer can bring their issues directly to Education. Specifically, if a borrower is dissatisfied with their TEPSLF decision, they can submit their concern through the online FSA Feedback Tool. Borrowers can also contest the decision with the FSA Ombudsman Group. Education officials told us it does not provide information about these options in its denial letters or on its TEPSLF website, noting that borrowers could find this information at the bottom of FSA’s main website. Education officials also stressed the importance of borrowers resolving their concerns first with their loan servicer directly before pursuing other avenues, and said that this is part of the reason why they do not include this information in letters sent to borrowers. All TEPSLF denial letters include a statement at the bottom of the letter indicating that if borrowers had questions about the information in their denial letter, they should call the general customer service number at the TEPSLF loan servicer for assistance. The letters did not explain how the servicer could potentially do a second review or subsequently refer the matter to Education. Information about the potential for a second review at the loan servicer and the option to raise an issue with Education directly would help borrowers who are unable to resolve their concerns by calling the general customer service number at the loan servicer. Additional information on options for contesting decisions is not necessary for all TEPSLF borrowers who are denied. For example, it may not be appropriate to include this information in denial letters sent to borrowers who do not meet basic program requirements—for example, those who have no federal Direct Loans. However, borrowers who are denied for reasons that are more prone to error, such as having fewer than 120 qualifying payments, are not made aware of all the available options so they can make informed decisions about how to best resolve their concerns. We previously reported that Education does not ensure that the loan servicer responsible for PSLF and TEPSLF is receiving consistent loan payment history information from other loan servicers, increasing the risk of inaccurate qualifying payment counts. This also raises the risk of inappropriate denials for TEPSLF. Our review of TEPSLF complaints made to Education from borrowers found eight examples of borrowers contesting the loan servicer’s determination of the number of qualifying payments. In six of these instances, the TEPSLF servicer determined that the borrowers were correct and had met requirements for loan forgiveness. Given the risk of denial errors, additional information about options for borrowers who are dissatisfied with their TEPSLF denial determination is especially important. While there is information about options for contesting decisions at the bottom of FSA’s main website, it is not incorporated into the TEPSLF website and borrowers may not know where to find this information. Federal internal control standards for external communication with stakeholders call for communication of quality information with external parties to achieve program objectives. Providing this information in relevant denial letters and Education websites will increase the likelihood that borrowers with valid concerns will have their TEPSLF requests appropriately resolved. Education Contacts Certain Borrowers Directly about TEPSLF, but Its General TEPSLF Outreach Activities Are Limited Education Conducts Direct Outreach to Certain Individual Borrowers Education and the TEPSLF loan servicer conduct direct outreach to certain borrowers about TEPSLF. For example, when TEPSLF was first rolled out, Education sent a notice to over 1,000 borrowers who had been denied PSLF due to a lack of 120 qualifying payments, but who had been in repayment for at least 10 years. Education officials told us that they had identified this group of borrowers as the most likely to be eligible for TEPSLF. This notice informed borrowers of the new TEPSLF loan forgiveness opportunity and told them how to apply for it. Education officials told us that they continue to review the PSLF denial list on a weekly basis and send notices to those whom they have determined to be the most likely to qualify for TEPSLF loan forgiveness. In addition, borrowers who have previously expressed interest in TEPSLF by sending an email to request TEPSLF loan forgiveness will be sent a TEPSLF outreach letter by the TEPSLF loan servicer under certain conditions: after submitting a new employment certification form, or after submitting a new PSLF application that is subsequently denied. In these two circumstances, the TEPSLF loan servicer sends the borrower a letter suggesting that they may now be eligible for TEPSLF loan forgiveness and would need to re-request such loan forgiveness. Education’s General TEPSLF Online Outreach Is Limited Education officials told us that the agency has focused on a broad, general outreach strategy; however, we found that its online information is limited because TEPSLF information is not included in several key online sources. Education and TEPSLF loan servicer officials told us that they primarily direct borrowers to online sources to inform them about TEPSLF requirements. For example, Education has created a TEPSLF-specific website and the TEPSLF loan servicer’s website references the TEPSLF opportunity and links to Education’s TEPSLF website if borrowers would like more information. However, we found that while all nine of the loan servicers’ websites contain some information on the PSLF program, none of them (other than the TEPSLF loan servicer) included TEPSLF information on their websites or provided a link to Education’s TEPSLF website. While Education officials told us that only the TEPSLF servicer is required to have TEPSLF information on its website, other loan servicers may also serve borrowers who are potentially eligible but may be unaware of TEPSLF. In addition, borrowers with other loan servicers who are interested in TEPSLF may not be aware that they have to transfer to the TEPSLF loan servicer to obtain loan forgiveness. Further, according to agency officials, Education’s PSLF Online Help Tool also does not include any TEPSLF information, and Education has not created a similar tool for TEPSLF. Education officials told us that the PSLF Online Help Tool, which assists borrowers with determining whether their loans and employment qualify and which PSLF forms they need to submit, is one of the primary PSLF outreach mechanisms to inform borrowers about PSLF eligibility. According to Education data, since the rollout of the online tool in December 2018 through the beginning of March 2019, about 340,000 users have used the online tool, and about 100,000 have logged on and have collectively generated about 40,000 PSLF-related forms, such as PSLF application forms. However, according to Education officials, the online tool does not include any information on TEPSLF. Education officials stated that the first phase of the Online Help Tool was focused on informing borrowers about eligibility requirements for PSLF and that as the department makes enhancements to phase two of the Online Help Tool, it could consider adding TEPSLF information and functionality. Both FSA and TEPSLF loan servicer officials stated that having information on TEPSLF integrated into the PSLF Online Help Tool would be beneficial for borrowers and would reduce confusion about TEPSLF. Federal internal control standards state that management should externally communicate the necessary quality information to achieve the entity’s objectives. Including TEPSLF information in the PSLF Online Help Tool and noting it on all loan servicer websites could increase borrower awareness of TEPSLF and the likelihood that borrowers are able to take advantage of this opportunity. Conclusions The loan forgiveness opportunity through TEPSLF is an expansion of the PSLF program and helps borrowers who hoped to qualify for PSLF but who did not realize they were in an ineligible loan repayment plan. Instead of integrating the expanded loan forgiveness opportunity into the existing PSLF process, Education required borrowers to have submitted a separate PSLF application before the loan servicer will consider a borrower’s TEPSLF request. The large number of requests denied because borrowers had not submitted a PSLF application suggests that borrowers are confused about this requirement. In some cases, these borrowers may have been working in public service jobs for years believing they were on track for loan forgiveness, only to find out later that they did not qualify. While the loan forgiveness opportunity through TEPSLF is only available until the $700 million in funding has been spent, a relatively small amount of total funding has been spent so far. It is possible that the program could continue for years, supporting the case for investing in improvements to the process now. Integrating the process for obtaining loan forgiveness through TEPSLF into the PSLF application would be easier for borrowers and help Education meet its goal to improve customer service. Information provided in TEPSLF denial letters and on the TEPSLF website does not explain what options are available to borrowers if they want to contest the loan servicer’s determination. While additional information on this topic is not necessary for borrowers who do not meet basic program requirements—for example, those who have no qualifying federal loans—this information would help certain borrowers whose TEPSLF requests may have been denied. By including this additional information on the TEPSLF website and in denial letters to these borrowers, the borrowers can then pursue additional options to contest the denial and help Education avoid denial errors. Finally, Congress provided funding and tasked Education with conducting outreach to borrowers to help increase overall borrower awareness of the public service loan forgiveness programs. While Education has engaged in some outreach activities, Education is missing opportunities to reach out to borrowers potentially eligible for TEPSLF—specifically, by not requiring all loan servicers’ websites to include information about TEPSLF and not including TEPSLF information in the PSLF Online Help Tool. TEPSLF was created to provide relief to a group of borrowers who were ineligible because they were repaying their loans on repayment plans that were not eligible for the original PSLF program. Without improved TEPSLF outreach in these two areas, however, many of these borrowers who were initially unable to qualify for the PSLF program may be unaware of the TEPSLF opportunity that was designed to help them. Recommendations for Executive Action We are making the following four recommendations to Education’s Office of Federal Student Aid: The Chief Operating Officer of the Office of Federal Student Aid should integrate the TEPSLF request into the PSLF application, for example, by including a checkbox on the PSLF application, to provide borrowers a more seamless way to request TEPSLF consideration. (Recommendation 1) The Chief Operating Officer of the Office of Federal Student Aid should provide certain borrowers, for example, those who are denied TEPSLF for not having 120 qualifying payments, with more information about options available to contest TEPSLF decisions on the TEPSLF website and in their denial letters. (Recommendation 2) The Chief Operating Officer of the Office of Federal Student Aid should require all loan servicers to provide TEPSLF information on their websites. (Recommendation 3) The Chief Operating Officer of the Office of Federal Student Aid should include TEPSLF information in its PSLF Online Help Tool. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to Education for its review and comment. In its comments, reproduced in appendix I, Education concurred with each of our recommendations and identified steps it plans to take to implement them. To make the TEPSLF loan forgiveness process easier for borrowers, Education stated that it will integrate the TEPSLF request into the PSLF application as part of the improvements planned for the PSLF application under its new online interface for student borrowers. Regarding our recommendation to provide certain borrowers with more information about options available to contest TEPSLF decisions, Education stated that it will add information for borrowers on the procedures for contesting TEPSLF decisions to FSA’s specific TEPSLF website and in relevant TEPSLF denial letters. To improve outreach and help increase overall borrower awareness of TEPSLF, Education stated it will require all loan servicers to provide TEPSLF information on their websites within 120 days. In addition, Education stated that it will also include TEPSLF information in the PSLF Help Tool. We also provided relevant report sections to the TEPSLF loan servicer for technical comments. The TEPSLF servicer provided technical comments, which we incorporated as appropriate. We are sending copies of this report to relevant congressional committees, the Secretary of Education, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (617) 788-0534 or emreyarrasm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Comments from the Department of Education Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Michelle L. St. Pierre (Assistant Director), Nora Boretti (Analyst-In-Charge), and Aaron Karty made significant contributions to this report. Also contributing to this report were James E. Bennett, Deborah Bland, Alicia P. Cackley, Marcia L. Carlsen, Linda A. Collins, William W. Colvin, Alex Galuten, Sheila R. McCoy, Jean L. McSween, Jessica S. Orr, Debra Prescott, and Ashanta Williams. Related GAO Products Public Service Loan Forgiveness: Education Needs to Provide Better Information for the Loan Servicer and Borrowers. GAO-18-547. Washington, D.C.: Sept. 5, 2018. Federal Student Loans: Further Actions Needed to Implement Recommendations on Oversight of Loan Servicers. GAO-18-587R. Washington, D.C.: July 27, 2018. Federal Student Loans: Education Could Improve Direct Loan Program Customer Service and Oversight. GAO-16-523. Washington, D.C.: May 16, 2016. Federal Student Loans: Key Weaknesses Limit Education’s Management of Contractors. GAO-16-196T. Washington, D.C.: Nov. 18, 2015. Federal Student Loans: Education Could Do More to Help Ensure Borrowers Are Aware of Repayment and Forgiveness Options. GAO-15-663. Washington, D.C.: Aug. 25, 2015.


Background Education’s Oversight of Accreditation The primary purpose of accreditation is to help ensure that schools provide a quality education to students. Accrediting agencies, also known as accreditors, are generally nongovernmental, nonprofit entities that work with Education and states as part of the “triad” that oversees postsecondary schools participating in federal student aid programs. The Higher Education Act and Education’s regulations require accreditors to meet certain criteria and have certain operating procedures in place to be “recognized” by Education as reliable authorities on assessing academic quality (see fig. 1). Accreditors must have their recognition renewed by Education at least every 5 years. To recognize an accrediting agency, Education officials and the National Advisory Committee on Institutional Quality and Integrity (NACIQI), which advises the Secretary of Education on accreditation issues, review among other things whether the accreditor applies its own standards, policies, and procedures when they accredit schools. While Education is required to determine whether accrediting agencies have standards for schools in certain areas, such as student achievement and curricula, before recognizing them, the accrediting agencies are responsible for evaluating member schools to determine if they meet the accreditors’ standards. The specific standards that accreditors develop in these areas can differ, and accreditors may also establish additional standards in areas not required by law. When schools do not meet accreditor standards, accrediting agencies may impose sanctions, such as placing a school on probation or terminating the school’s accreditation. Education’s Oversight of College Finances Education conducts annual reviews of the financial condition of all schools participating in federal student aid programs to determine if they are financially responsible, based on criteria and processes established in federal law and regulations. The specific financial responsibility standards that apply to each school depend on the school’s ownership type, and the bulk of Education’s financial oversight efforts focus on private nonprofit and for-profit schools. One key financial responsibility standard that Education uses to assess nonprofit and for-profit schools is a financial composite score that is calculated for each school based on items drawn from the school’s audited financial statements. The composite score—a metric for evaluating a school’s financial condition—uses a formula based on three financial ratios. A passing score is 1.5 to 3.0; a “zone” score is from 1.0 to 1.4, and a failing score is from -1.0 to 0.9. (See fig. 2) Schools that receive a zone or failing composite score, or do not meet one or more of the other financial responsibility standards, may continue to participate in federal student aid programs if they agree to additional oversight. Education may place these schools under heightened cash monitoring (increasing schools’ reporting requirements and postponing the timing for receiving federal student aid payments), or require schools to post a letter of credit (a financial commitment from a bank to protect Education against potential liabilities should the school close), or a combination of the two. Education’s Oversight of School Default Rates Education may rescind a school’s ability to participate in federal student aid programs if a significant percentage of its borrowers—generally, 30 percent or more of borrowers for 3 consecutive years or more than 40 percent in 1 year—default on their federal student loans within the first 3 years of repayment. This calculation is called the cohort default rate. To compute a school’s cohort default rate, Education divides the number of student loan borrowers in a cohort—those entering repayment in the same fiscal year—who have defaulted on their loans in the initial 3 years of repayment by the total number of a school’s student loan borrowers in that cohort (see fig. 3). The cohort default rate does not hold schools accountable for borrowers who default after the initial 3 years. Borrowers in deferment and forbearance—options that allow borrowers to temporarily postpone monthly payments— are considered to be “in repayment” and current on their loans for the purpose of calculating a school’s cohort default rate, even though borrowers in these loan statuses are not expected to make any monthly payments. Education Does Not Use Available Data to Identify Weaknesses in Accreditor Oversight of Schools’ Academic Quality We have previously reported on a number of challenges with the accreditation system’s oversight of academic quality. Although Education is prohibited from specifying the specific content of accreditor standards, the agency is responsible for assessing whether accreditors are effectively overseeing schools’ academic quality as part of their criteria for recognizing accreditors. Our 2014 analysis found that schools with weaker student outcomes were, on average, no more likely to be sanctioned by accreditors than schools with stronger student outcomes, and that the proportion of their member schools that accreditors sanctioned varied. For example, our analysis of Education’s sanction data from October 2009 through March 2014 found that two accreditors sanctioned less than 2 percent of their member schools during this time frame, compared to 41 percent sanctioned by another accreditor. Our 2017 report also discussed challenges with the accreditation system’s oversight of academic quality. For example, some experts and literature stated that accreditors may be hesitant to terminate schools’ accreditation when they identify issues because such action would adversely affect schools’ eligibility for federal student aid programs. Despite inconsistencies in accreditors’ use of sanctions, our 2014 report found that Education did not systematically examine data on accreditor sanctions that could have helped it identify insufficient accreditor oversight and thereby reduce potential risk to students and federal funds. Accreditors provide Education with records of terminations and probations. However, Education officials told us that they had not used this sanction information for oversight of accreditors because Education’s regulations did not have specific criteria that require them to do so. While Education is not required to use sanction data or analyze accreditor sanctions as part of the accreditor recognition process, we found that it could be useful for Education to consider these data when evaluating whether accreditors meet prescribed criteria, such as whether they consistently apply and enforce standards. Federal internal control standards call for federal agencies to track data to help them make decisions, as well as conduct ongoing, consistent monitoring to identify weaknesses. Since accreditors are gatekeepers for tens of billions of dollars in federal student aid from Education, as well as the key oversight bodies for ensuring academic quality at schools, we found that failure on the part of Education to spot weaknesses in accreditors’ processes could result in poor quality schools gaining access to federal funds. To strengthen Education’s oversight of accreditors, we recommended in 2014 that Education draw upon accreditor data to determine whether accreditors are consistently applying and enforcing their standards to ensure that the education offered by schools is of sufficient quality. For example, Education could systematically use available information related to the frequency of accreditor sanctions or could do additional analyses, such as comparing accreditor sanction data with Education’s information on student outcomes, to inform its recognition reviews. Education agreed with this recommendation and initially started to track the number of accreditor sanctions issued by each accrediting agency. However, Education has since questioned the usefulness of this information and has not yet used this sanction data to inform its discussions of accreditor recognition and oversight. We continue to believe that implementing the recommendation could help inform Education’s reviews of accreditors and ultimately reduce potential risk to students and federal funds. For example, analyses of accreditor sanction data could help reveal patterns in individual accreditor behavior and the extent to which they are consistently enforcing standards. This recommendation remains open and we will continue to monitor Education’s efforts in this area. Limitations in Education’s Financial Oversight Metric Hinder Its Ability to Identify At-Risk Schools Holding schools accountable for their financial condition can help protect taxpayers and students against the risk of school closure, but the limitations of Education’s financial composite score hamper its effectiveness at identifying at-risk schools. Although a relatively small number of schools close each year, these closures can affect tens of thousands of students and result in hundreds of millions of dollars in financial losses for the federal government and taxpayers from unrepaid student loans. However, we reported in 2017 that Education’s composite score has been an imprecise predictor of school closures. Half the colleges that closed in school years 2010-11 through 2015-16 received passing financial composite scores on their last assessment before they closed. For example, 58 of the 96 schools that closed in school year 2015-16 had recently received passing scores. Closures can be difficult to predict in part because each school faces its own unique challenges, both financial and nonfinancial, that can eventually push it into financial trouble. Education’s composite score is not designed to account for nonfinancial risks; however, it is a primary means of securing financial protections in the form of a letter of credit from schools at risk of closure. The composite score’s inconsistent performance in identifying at-risk schools is due in part to limitations of the underlying formula and the fact that it has remained unchanged for more than 20 years. The composite score is based on common financial ratios that Education selected in 1997 after consulting with an accounting firm, school officials, and other experts. However, the composite score formula has not been updated since then and several experts and school officials we interviewed identified three key weaknesses: Accounting changes: The composite score has not kept pace with changes since 1997 in accounting practices and standards, creating ambiguity and making it more difficult to apply the formula in a uniform manner. Accounting practices and standards are periodically updated, for example, to improve the comparability and usefulness of financial reporting. When these updates diverge from the components and definitions in Education’s composite score, certain components of the composite score are no longer directly linked to items on schools’ audited financial statements. These accounting changes can also cause large shifts in schools’ composite scores. For example, administrators at one school we talked to said changes to state laws have affected how some schools categorize their endowment holdings in financial audits, and that this had the effect of reducing the school’s composite score from passing to not passing. However, Education has not updated the composite score formula to ensure the score is a reliable measure of financial health. Outdated financial measures: The composite score does not incorporate new financial metrics that would provide a broader indication of schools’ financial health. For more than 20 years, the composite score formula has remained unchanged as the field of financial analysis has continued to evolve with new measures becoming important as economic conditions change. For example, liquidity (i.e., access to cash) has become an important financial measure since the 2007-09 economic downturn, when some schools had trouble meeting payroll and fulfilling contractual obligations. More sophisticated methodologies used by credit rating agencies have sometimes resulted in assessments of a school’s financial condition that are strikingly different from the school’s composite score. For example, in 2016, two credit rating agencies assigned non-investment grade (i.e., junk bond) ratings to 30 schools that received passing composite scores from Education. Vulnerability to manipulation: We previously reported that the composite score can be manipulated by some schools that take on long-term debt (e.g., loans with terms in excess of 12 months) because these debts can increase a school’s composite score and help it avoid requirements to post a letter of credit. Long-term debt usually represents a long-term investment in a school’s campus and buildings, and the composite score formula treats this type of debt in a positive manner. An accountant for multiple schools told us that some schools have taken advantage of this provision and taken on a million dollars in debt in order to obtain a passing composite score. Corinthian Colleges, which closed in 2015, also exploited this vulnerability to boost its composite score and avoid having to post a letter of credit that could have been used by Education to cover some of the hundreds of millions in student loan discharges resulting from the school’s closure, according to company documents and Education documents and officials. These three weaknesses with the financial composite score hamper Education’s ability to effectively fulfill its statutory responsibility to determine whether schools participating in federal student aid programs are financially responsible. Identifying and responding to risks is a key component of federal internal control standards, but Education’s financial composite score formula has remained unchanged for over 20 years despite significant changes in the financial landscape of higher education. To address these limitations, we recommended in our 2017 report that Education update the composite score formula to better measure schools’ financial conditions and capture financial risks. Education generally disagreed with this recommendation and stated that the issues identified in our report did not necessarily mean that the composite score was an unreliable measure of schools’ financial strength. Since our report was issued, new regulations have gone into effect specifying that certain financially risky events, such as those related to litigation and certain accreditor actions, will generally trigger a recalculation of a school’s composite score. In addition, Education has also published proposed regulations that would update some of the definitions of terms used to calculate a school’s composite score to conform with changes in accounting standards and also make an adjustment to how the formula treats long-term debt, which according to Education would be intended to make the formula less susceptible to manipulation. However, Education has not finalized these regulations and has not released a timeline for when it plans to do so, nor has it indicated that it has any broader plans to update the composite score, as we recommended. Since the existing composite score calculation remains unchanged, we are leaving this recommendation open and will continue to monitor Education’s efforts in this area. Education’s Ability to Hold Schools Accountable for Loan Default is Limited by Schools’ Ability to Distort Their Cohort Default Rates The cohort default rate, which is specified in federal law, is a key measure for holding schools accountable for borrower outcomes and for protecting borrowers and the federal government from the costs associated with default. However, in 2018 we reported that this rate has limitations as an accountability tool. Some schools managed their 3- year cohort default rate by hiring consultants that encouraged borrowers with past-due payments to put their loans in forbearance, an option that allows borrowers to temporarily postpone payments and bring past-due loans current. At five of the nine default management consultants we selected (that served about 800 schools), we identified examples when forbearance was encouraged over other potentially more beneficial options for helping borrowers avoid default, such as repayment plans that base monthly payment amounts on income. Four of these consultants also provided inaccurate or incomplete information to borrowers about their repayment options in some instances. Although Education officials and student loan experts said that forbearance is intended to be a short-term option, our analysis of Education data found that 20 percent of borrowers who began repaying their loans in 2013 had loans in forbearance for 18 months or more during the 3-year cohort default rate period. Spending this much time in forbearance reduces the potential for borrowers to default within the 3- year period, thus helping improve a school’s cohort default rate. However, postponing loan payments through forbearance can increase borrowers’ loan costs in the long term. For example, a typical borrower with $30,000 in loans who spends the first 3 years of repayment in forbearance would pay an additional $6,742 in interest, a 17 percent increase, over the life of the loan. In addition, borrowers in forbearance for 18 months or longer defaulted more often in the fourth year of repayment, when schools are not accountable for defaults, than they did during the 3-year period. While forbearance can help borrowers avoid default in the short term, this finding suggests that forbearance may have delayed—not prevented— default, potentially resulting in increased costs to the federal government. Reducing the number of borrowers in long-term forbearance and directing them toward other options for avoiding default, such as repayment plans that base monthly payment amounts on income, could help reduce the number of borrowers that later default and may eventually save the federal government money. Specifically, for William D. Ford Federal Direct Loans issued in fiscal year 2018, Education estimates that it will not recover over 20 percent of defaulted loans. These unrecovered defaulted loan amounts total an estimated $4 billion, according to our analysis of Education’s budget data. Schools are seldom held accountable for their students’ defaults, in part because of the high rate of borrowers in long-term forbearance. To examine the impact of long-term forbearance on schools’ 3-year default rates, we recalculated schools’ cohort default rates by excluding borrowers who were in forbearance for 18 months or more and who did not default during the 3-year period. We found that over 260 additional schools—receiving a combined $2.7 billion in Direct Loans and Pell Grants in academic year 2016-2017—would potentially have had a default rate high enough to put them at risk of losing access to federal student aid programs. The reduced effectiveness of cohort default rates as a tool for holding schools accountable creates risks to the federal government and taxpayers, who are responsible for the costs associated with high rates of default. Since the way the cohort default rate is calculated is specified in federal law, any changes to its calculation would require legislation to be enacted amending the law. Our 2018 report suggested that Congress consider strengthening schools’ accountability for student loan defaults, for example, by revising the cohort default rate calculation or using other accountability measures to complement or replace the cohort default rate. In the 115th Congress, proposals were introduced to revise, supplement, or replace the cohort default rate, though none of the legislation was enacted. This matter for congressional consideration remains open. We continue to believe that strengthening the accountability measure for loan defaults could further protect borrowers and the billions of dollars of federal student aid the government distributes each year. In conclusion, the large federal investment in higher education makes it essential that the federal government maintain a robust system of accountability to protect students and taxpayers. My statement has highlighted three actions Education and Congress could take to strengthen the existing accountability tools for educational quality, financial sustainability, and student loan defaults. Students deserve to go to schools that provide a quality education and are financially stable. Taxpayers deserve an accountability system that protects federal student aid funds from going to schools that are financially irresponsible or push borrowers into forbearance for long periods in order to reduce the school’s cohort default rate. We believe that fully implementing the two recommendations and matter for congressional consideration discussed in this testimony would improve federal accountability, help students, and potentially lead to financial savings for taxpayers. Chairwoman Davis, Ranking Member Smucker, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. GAO Contact and Staff Acknowledgments If you or your staff have any questions about this testimony, please contact Melissa Emrey-Arras, Director of Education, Workforce, and Income Security, at (617) 788-0534 or emreyarrasm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony include Debra Prescott (Assistant Director), Will Colvin (Analyst-in-Charge), and Brian Schwartz. In addition, key support was provided by Susan Aschoff, James Bennett, Deborah Bland, Marcia Carlsen, Alex Galuten, Sheila McCoy, Jessica Rider, and Walter Vance. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.