Debt Management Disarray

The Education Department's oversight of its debt management system has been lacking, say Congressional investigators and the agency's own inspector general. 

March 13, 2014

WASHINGTON -- Congressional investigators have found “serious weaknesses” in how the Education Department manages a program meant to help defaulted borrowers get their loans back on track, a Government Accountability Office official said on Wednesday.

Melissa Emrey-Arras, who oversees education issues at the GAO, told a House panel that the department’s failure to properly oversee a 2011 computer system upgrade was largely responsible for delays that tens of thousands of borrowers experienced in trying to get their loans out of default.

Borrowers who are in default on their federal student loans are able to "rehabilitate” those loans by making nine on-time payments in a 10-month period. At that point, the default is supposed to be scrubbed from the borrower’s credit report.

But problems with the department’s debt management system were so severe after the system upgrade that it was not able to process a single loan rehabilitation between September 2011 and March 2012, according to the GAO. It took until January 2013 for the department to clear a backlog of rehabilitated loans.

The GAO report faults the department for not fully testing the system before it went live and also for failing to properly oversee its system contractor, Affiliated Computer Services, a Xerox subsidiary. 

“Despite known risks, such as concerns about the contractor’s unreliable performance on previous system development efforts, [the] Education [Department] did not have plans for monitoring the upgrade,” Emrey-Arras said.

The department’s inspector general, Kathleen S. Tighe, has previously sounded the alarm on problems with the department’s debt management system.

And in testimony before the House higher education subcommittee on Wednesday, Tighe appeared to strike a tone of exasperation with the department’s handling of the issue, saying she remains concerned about the agency’s “apparent lack of oversight and monitoring of this system.”

She said her office had spent nearly $1 million looking into problems related to the debt management system and had designated it a top priority.

In addition, Tighe said the department had not yet provided an “acceptable” corrective action plan for making sure the debt management system becomes “fully operational,” a recommendation her office first made in December 2012.

She also said that despite the department’s original claim that it had completed all corrective actions related to the debt management system, it wrote in its most recent annual report that work on four recommended improvements was, in fact, still in progress.

James Runcie, the chief operating officer of the department’s Federal Student Aid office, acknowledged previous challenges with the debt management system but also defended the department.

He said that the loan rehabilitation functions had been “fully restored,” and pointed to record collection rates on student loans as evidence the system was functioning effectively. 

He also said that the department had fined the contractor that completed the system upgrade.

Oversight of Debt Collectors

Emrey-Arras, the GAO official, said her staff also found problems with how the department oversees the several dozen companies it hires to collect student loan debts.

The department’s own quarterly reviews of its collection agencies have identified a range of problems, she said, including agencies providing borrowers with misleading information. In one instance, the department found that a collection agency incorrectly told a borrower that a debit card was required to rehabilitate a loan.

But, while the department documents and informs the collection agency of such problems, it does not make sure that those collection agencies actually make any changes to their practices, Emrey-Arras said.

Tighe, the inspector general, expressed similar concerns about the department’s contracted debt collectors. She noted that her office last year found that the department was doling out bonus and incentive payments to the contractors based only on their estimates and without asking for documentation.

Runcie said in written testimony that the department had strengthened its oversight of the debt collectors and developed a database to track errors. 

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