Attention GAO: Aid Programs are Still at Risk

If the events of the last two years have taught us anything, it’s that the U.S. Department of Education’s oversight of the Federal Family Education Loan (FFEL) program has been unconscionably lax. The recent revelations that the Department had inadvertently allowed convicted felons to become eligible FFEL lenders is just the latest example of the agency’s negligence.

Why then, despite all evidence to the contrary, does the Government Accountability Office (GAO) no longer consider the FFEL program to be at a “High Risk” for waste, fraud, and abuse?

Every two years the GAO, the investigative arm of Congress, puts together the “High Risk” list, an official compilation of federal programs it considers to be the most vulnerable to exploitation. Started in 1990, the goal of the list is to help set the oversight agenda for each new Congress. For 15 years, the federal student aid programs stood at the top of the list, along with other notorious trouble areas such as the Defense Department’s contracting practices, and the IRS’s efforts to police tax law violations.

Among the government’s financial-aid programs, the GAO expressed the most serious reservations about the FFEL program. For instance, a January 1999 update to the report noted that the guaranteed loan program was “particularly vulnerable because of its size, the large number of participants, and the federal guarantee under which the federal government bears most of the risk when students default on their loans.”

From its start, the Bush administration made getting the student-aid programs off the list among the Department’s highest priorities. The Department’s political appointees knew they could score easy points by focusing on this area — as the Clinton administration had taken a lot of political heat from Republican lawmakers over allegations that it had mismanaged the student aid programs and left the agency’s finances in shambles.

From 2001 to 2005, Education secretary Rod Paige and other top Department officials applied constant pressure on the GAO to reconsider the designation. At one point, when the prodding became particularly intense, the comptroller general (who heads the GAO) gently admonished Paige — reminding him that “it is not our policy to address high-risk designations ‘out of cycle.'” Providing “an out of cycle assessment for the Department of Education,” he explained, “would set a precedent that would result in other agencies asking for such interim determinations.” In other words, if we do it for you, we’ll have to do it for everybody.

What all the pressure did succeed in doing was to get the GAO to significantly narrow the criteria it used to judge the Department’s management of the programs. As long as the Department met certain quantifiable goals — such as obtaining “clean audits” on its financial records and making sure the student loan “cohort” default rate continues to drop — it would eventually get its way.

In 2005, the GAO relented and removed the aid programs from the list. In retrospect, the decision was a big mistake. Just look at everything we’ve learned about the Department’s management of the federal student aid programs in recent years:

• The Department looked the other way as lenders systematically overcharged the federal government hundreds of millions of dollars in improper 9.5 percent loan subsidy payments. Margaret Spellings, the education secretary, acknowledged that the Department shared “some responsibility” for allowing lenders to bilk taxpayers, but has steadfastly refused to calculate the cost of or demand reimbursement for the overpayments. The Washington Post, however, conducted its own analysis, using subsidy payment data it obtained from the Department, and calculated the government’s total losses to be about $600 million.

• The Department turned a blind eye while student loan providers routinely violated a federal law forbidding lenders from providing “illegal inducements” to colleges and financial aid administrators in exchange for getting the schools to steer borrowers their way. For years, the Department’s top political appointees, many of whom came from the loan industry, ignored concerns about these “pay for play” practices, even from the agency’s own Inspector General and lenders who complained about their competitors’ activities. Last July, the GAO blasted the Department for its complete failure to oversee the activities of lenders, noting that the agency had “not developed any oversight tools” to help it determine whether lenders offered improper inducements to colleges and students to win student-loan business, and that it failed to heed repeated requests for clearer guidelines on acceptable lender behavior.

• Department officials allowed lenders specializing in offering consolidation loans to mine the National Student Loan Data System (NSLDS) to collect personal information about borrowers for marketing purposes. While civil service employees at the Department had loudly complained about these practices, the agency’s leaders didn’t do anything about it until Higher Ed Watch broke the story and the national news media picked up on our coverage.

• The Department has done little to look into widespread allegations that some of the largest publicly-traded for-profit higher education companies have knowingly violated the federal student aid law prohibiting colleges from giving “any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments.” In fact, it remains unclear whether the Department ever even punished the agency official who leaked to the University of Phoenix the entire legal strategy of a pair of whistleblowers who had sued the school for violating the incentive compensation ban.

The GAO will release the latest version of its High Risk report early next year. With a new administration taking over, we believe it’s absolutely vital for the agency to use this opportunity to admit its mistake and put the student-aid programs back on the list. The next president needs to understand how important it is to protect the integrity of these programs — for the sake of the students who depend on them, and the taxpayers who finance them.