The U.S. Department of Education is not properly overseeing the entities it pays to administer and insure federally guaranteed student loans, according to an audit released this week by the agency's inspector general.
The department has been overestimating the financial strength of those entities, called guaranty agencies, which are required by federal law to meet certain financial standards, according to the report. In some cases, the department's improper calculations allowed guaranty agencies to meet the standard when they should have otherwise been identified as under possible financial stress.
Even though the federal government no longer guarantees private student loans -- it only lends directly to students -- the guaranty agencies are still responsible for the existing, albeit shrinking, portfolio of federally guaranteed student loans.
In response to the report, the Education Department admitted that it has not been complying with federal regulations in assessing the guaranty agency's financial strength and pledged to change that process starting this year. However, the department defended its oversight of the guaranty agencies in general, noting that it wasn't aware of any cases in which a guaranty agency's insolvency deprived loan borrowers of the services to which they are entitled.
Degree programs that award students credit by assessing their skills – rather than making them pass courses – have been touted by the Obama administration, members of Congress and many in higher education as a promising new innovation. But the U.S. Department of Education’s Inspector General this week threw some cold water on the enthusiasm for that model, known as direct assessment, criticizing how officials have allowed the first handful of programs of that type to become eligible for federal funding.
The agency’s independent watchdog said in an audit that the department has not done enough to make sure that the direct assessment programs meet federal requirements before approving them.
Department staff should have more specific “risk areas” in mind when assessing the programs, the report says. For instance, the department should be on the lookout for programs allowing students to use federal aid to achieve credits that are awarded based merely on the skills students learn through life experiences; federal rules require students to actually have some sort of engagement with the learning resources a program offers.
The report also faults the department for not having created records that document the decision-making process for approving or denying direct assessment programs. But the report says the department has since begun maintain such records. In addition, the inspector general recommends that the department should do a better job of communicating with accreditors as it decides whether a direct assessment program has sufficient student-faculty involvement. Some accreditors have expressed frustration with how the department is approving new competency-based education programs, like direct assessment.
In responding to the report, the department agreed with most of the recommendations and pledged to reassess the risks that should be considered in approving direct assessment programs. It also said it would be soon issuing new formal guidance on direct assessment programs.
The audit comes as the Obama administration and members of Congress are increasingly interested in allowing federal aid to flow to direct assessment programs – and, more generally, all types of programs that are structured around students’ knowledge rather than classroom time. The administration will soon grant regulatory waivers to a select number of colleges that want to experiment with competency-based education.
Corinthian Colleges said Friday that the U.S. Department of Justice is investigating whether the company defrauded the federal government.
The investigation, under the False Claims Act, concerns “allegations related to student attendance and grade record manipulation, graduate job placement rate inflation and non-Title IV funding source misrepresentations,” the company told investors. The disclosure comes as Corinthian is also facing three criminal probes by the Department of Justice. Federal prosecutors in California, Florida, and Georgia have all issued grand jury subpoenas to the company. Corinthian is also in search of sources of liquidity as it seeks to sell off and close its campuses as part of an agreement with the U.S. Department of Education.
The Federal Work-Study Program needs to be revamped to help serve more low-income students, says a report released Monday by Young Invincibles, a student advocacy group.
The group calls on Congress to replace the existing formula for distributing federal work-study money to campuses with a methodology that rewards institutions that enroll and graduate large numbers of low-income students. Under the current program, the group said, the most expensive private institutions that have been in the program the longest receive the most funding at the expense of many public institutions that serve larger populations of low-income students.
The report also said that the work-study program should require that colleges place students in jobs that are better aligned with their career interests and academic programs.
Liberal comedian Bill Maher announced on his show last week that he would work to unseat Representative John Kline, the Minnesota Republican who chairs the House education committee.
The host of the HBO series "Real Time with Bill Maher" cited Kline's support of for-profit colleges -- and the industry's donations to his campaign -- as one of the reasons why he chose to target Kline as part of his "Flip a District" campaign. Maher said he would travel to Kline's Minnesota district and perform a stand-up comedy show in an attempt to swing the seat from Republican to Democratic.
Kline, after heading off a tough primary challenge earlier this year, is facing Democratic candidate Mike Obermueller, a former state lawmaker whom he defeated in 2012.
One of the main lobbying organizations that represnts loan servicers and other student loan entities has named its new president.
The Education Finance Council on Monday said that Debra J. Chromy would lead the group. Chromy was most recently a vice president at American Student Assistance. She replaces Vince Sampson, who left the council earlier this year to join a law firm.
The group represents nonprofit and state entities that provide student loans, as well as loan servicers, which have increasinglyfaced scrutiny in Washington over how well they help struggling borrowers avoid default.
Police at the College of Marin, in California, are investigating 23 people who are suspected of pretending to be students to obtain federal student aid, The San Francisco Chronicle reported. Their plot reportedly involved plans to obtain $200,000, and some of the funds have already been paid out.
Senator Elizabeth Warren, the Massachusetts Democrat who has been a leading critic of how the U.S. Department of Education oversees the companies it hires to service federal student loans, indicated Wednesday that she is not satisfied with the department’s effort to overhaul its agreements with those companies. Under pressure from Senate Democrats like Warren, as well as many groups representing students, labor unions, and consumers, the Education Department announced last month that it had renegotiated new contracts with the four main entities it hires to manage payments for federal student loan borrowers.
The new contracts change the payment structure for loan servicers, increasing the rate at which they are paid for accounts in good standing and reducing the amount of money they are paid for delinquent accounts. The servicers will also receive new bonuses if they keep their borrowers’ delinquency rates at certain levels.
At a Senate hearing Wednesday, Warren grilled an Education Department official over the new contracts, asking why the loan servicing companies would be paid more to manage the payments of borrowers in good standing. She cited analysis by Compass Point that showed that Navient, the loan-servicing business that was previously part of Sallie Mae, stood to receive an additional $20 million under the payment structure without making any changes to the health of their portfolio.
Navient has drawn particular scrutiny from Warren and other student and consumer groups. Federal prosecutors earlier this year accused the company of overcharging military service members. It entered into a multimillion-dollar settlement with the Department of Justice, in which it did not admit any wrongdoing.
William Leith, the chief business operations officer for the department’s Federal Student Aid office, said that while the department estimated that the servicers, in aggregate, would receive more money to service loans, the contracts were designed to help borrowers. He said that the Education Department was on track to complete a 120-day review of whether any of its loan servicers, including Navient, had illegally overcharged service member borrowers. That review will be completed in the next several weeks, he said.