Gov't Report Faults Oversight of ED Debt Collection Program

A report issued this week by the Government Accountability Office (GAO) said that a major computer system upgrade with the Department of Education’s debt management division was so poorly managed, it led to months-long delays in loan rehabilitations. The report also showed that ED is not effectively monitoring its private debt collection agencies’ performance.

The report, Oversight of Defaulted Loan Rehabilitation Needs Strengthening, was produced after a lengthy review of the computer upgrade project. The GAO reviewed ED’s policies, procedures, and guidance; contracts and monitoring records for ED’s system contractor and 22 collection agencies; and fiscal year 2011-2013 collections and rehabilitation data. The GAO also conducted site visits to a sample of six contracted collection agencies, based on factors such as loan volume and geographic location.

The GAO found that because of limited planning and oversight, ED was unable to provide most borrowers who completed loan rehabilitation with timely benefits for more than a year following the October 2011 upgrade of its defaulted loan information system. As a result, borrowers who made a good faith effort to rehabilitate their loans experienced delays in having the defaults removed from their credit reports and reinstating their federal student aid eligibility.

The 2011 computer system upgrade has long been sore spot in the student loan ARM market. Grumbling began as soon as the project launched. In October 2011, ED addressed some of the concerns in a meeting for debt collection contractors held in Washington, DC.

Problems with the integration were partially to blame for a long delay in releasing performance scores in the private debt collection program.

This week’s GAO report found the department’s testing of the new information system, which began in February 2011, was insufficient to detect problems associated with loan rehabilitation. As a result of the system challenges, no loan rehabilitations were processed from September 2011 through March 2012, and ED officials said they needed until January 2013 to clear the resulting backlog

The report also found that key weaknesses reduce ED’s ability to effectively monitor collection agency performance and ensure borrowers receive accurate information about loan rehabilitation. While ED’s monitoring procedures call for quarterly reviews of each collection agency’s phone conversations with borrowers, the GAO found that ED had not consistently completed such call reviews.

GAO investigators examined call review reports issued between September 2011 and March 2013 for the six collection agencies it visited; however, ED was unable to provide documentation for 11 of the 42 call reviews that should have been performed. ED officials said the reviews may not have been completed due to competing priorities, such as needing to reassign staff to manually process loan rehabilitations following the system upgrade.

The report recommended that ED take steps to improve its collection agency call review process. ED concurred with the recommendation and stated that it is revising its procedures to improve documentation of corrective actions and developing a database to track collection agency errors and associated corrective actions.