Author: Melissa Emrey-Arras

Publisher:

Published: 2014

Total Pages: 11

ISBN-13:

As of September 2013 about $94 billion--over 11 percent of federal student loan volume in repayment--was in default. Loan rehabilitation allows borrowers who make nine on-time monthly payments within 10 months to have the default removed from their credit reports. Department of Education (Education) contracts with collection agencies to assist borrowers with rehabilitation and other options for repaying defaulted student loans. The federal government has an interest in ensuring that the loan rehabilitation process works well given the potential savings from returning defaulted loans to repayment. When Education upgraded its defaulted loan information system in October 2011, there were reports that some loans remained in default after borrowers had made enough payments to rehabilitate the loans, raising questions about Education's ability to manage the loan rehabilitation program. GAO asked Education, Workforce, and Income Security to examine Education's rehabilitation of defaulted student loans. This document reports the testimony of Melissa Emrey-Arras, Director, Education, Workforce, and Income Security. Her remarks address the following two areas: (1) how the upgrade of Education's defaulted loan information system affected loan rehabilitation; and (2) how Education oversees collection agencies in implementing loan rehabilitation. The findings in this report highlight serious weaknesses in Education's management and oversight of the loan rehabilitation process. The substantial delays that many borrowers experienced getting their loans out of default are largely attributable to Education not providing oversight appropriate to the risks associated with 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. In addition, Education's oversight of collection agencies provides little assurance that borrowers are provided accurate information about loan rehabilitation. Education has taken some steps to strengthen its oversight in response to Education, Workforce, and Income Security recommendations however, given the preliminary nature of these efforts, it will be important to track how Education builds upon and sustains these actions over time to ensure it is providing appropriate levels of oversight. [Individuals making key contributions to this statement include Debra Prescott, Assistant Director; Kurt Burgeson, Maria Gaona, Amy Moran Lowe, and Jason Palmer.].