Federal Student Loans: Supplemental Data on Income and Family Size Information for Income-Driven Repayment Plans
higher education students, financial status and behavior
As of March 2020, one-half of the $989 billion in outstanding William D. Ford Federal Direct Loans (Direct Loans) was being repaid by student loan borrowers using Income-Driven Repayment (IDR) plans. IDR plans are designed to make loan repayment more manageable by basing monthly payment amounts on borrowers’ income and family size, extending repayment periods from the standard 10 years to up to 25 years, and forgiving any loan balances remaining at the end of the repayment period. The U.S. Department of Education (Education) administers the Direct Loan program and contracts with nine private loan servicers to handle billing and other tasks, including processing borrowers’ applications for IDR plans.
Prior GAO work found that although IDR plans can benefit borrowers by reducing their monthly payment amounts, they may carry high costs for taxpayers and the government because of the possibility of loan forgiveness. In June 2019, we also found indicators of potential fraud or error in the income and family size information for borrowers with approved IDR plans. Our June 2019 report also identified weaknesses in Education’s verification processes that limit its ability to detect potential fraud or error in IDR plans. While Education requires IDR applicants who report taxable income to provide documentation, such as tax returns or pay stubs, Education generally accepts borrower reports of zero income and borrower reports of family size without verifying this information. In addition, Education has not systematically implemented other data analytic practices, such as using data it already has to detect anomalies in income and family size that may indicate potential fraud or error.
To address these weaknesses, we recommended that Education (1) obtain data to verify income information for borrowers who report zero income on IDR applications, (2) implement data analytic practices and follow-up procedures to verify borrower reports of zero income, and (3) implement data analytic practices and follow-up procedures to verify borrowers’ family size. Education generally agreed with our recommendations and has taken steps to implement them. As of August 2020, Education was planning for the implementation of legislation enacted in December 2019 that provides the department with statutory authority to access certain Internal Revenue Service (IRS) data for the purpose of determining eligibility for IDR plans, and had initiated a pilot program to conduct additional verification of information on IDR applications. However, the verification pilot was put on hold as Education implemented student loan relief for borrowers under the CARES Act in response to the COVID-19 global pandemic.