No Strategy on Loan Defaults?

A federal audit of the U.S. Department of Education’s student loan programs concludes that the agency is without a “comprehensive plan or strategy to prevent student loan defaults.”

December 15, 2014

WASHINGTON -- As the U.S. Department of Education manages an increasingly larger portfolio of federal student loans, officials at the agency lack a coordinated plan for preventing borrowers from defaulting, the department’s independent watchdog said Friday.

An Inspector General audit found that the department’s in-house default prevention activities were ad hoc and that officials did not demand that the agency’s contracted loan servicers conduct meaningful default prevention activities.

“The department does not have a comprehensive plan or strategy to prevent student loan defaults and thus cannot ensure that default prevention efforts conducted by various offices are coordinated and consistent,” the audit report said.  

The audit notes that the department has recently, among other things, developed new web tools, conducted financial literacy campaigns and started one-off email campaigns to encourage struggling borrowers to enroll in income-based repayment plans. However, the report, says, those efforts lacked coordination.

The report also criticizes a division of the Federal Student Aid Office for analyzing the federal student loan portfolio “only on an ad-hoc basis” rather than proactively identifying trends and issues that could help inform policy changes to help struggling borrowers.

In addition, the inspector general also faulted the department for not explicitly requiring that its loan servicers conduct default prevention activities and for not adequately overseeing those servicers. As a result, the report says, one of those servicing companies was permitted to go for extended periods without making any calls to some borrowers who were behind on their payments.

Ted Mitchell, the undersecretary of education, wrote in a response to the report that the department agreed with much of the audit’s findings.

Mitchell wrote that the department’s default prevention “efforts have been undertaken without a comprehensive plan that clearly outlines roles and responsibilities related to preventing defaults or managing key default-related activities.” He added: “we agree that a formal plan will increase transparency regarding how the offices’ respective efforts support our overall default prevention strategy.”




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