WASHINGTON — With new findings questioning the risk of fraud, U.S. Sen. Patty Murray, D-Wash., is asking the Education Department to suspend an expanded initiative to ensure that borrowers qualify for popular student loan repayment plans.
“Verification ensnares students in a jungle of red tape,” Murray, the top-ranking Democrat on the Senate Education Committee, wrote in a letter to Education Secretary Betsy DeVos on Wednesday. “The [Education] Department’s efforts to impose verification procedures on borrowers are based on unsupported assumptions.”
Murray’s concerns stem from a Government Accountability Office report in July that said lax vetting of income and household data submitted by borrowers in income-driven repayment plans is leaving the programs susceptible to fraud and errors. The plans cap monthly payments at a given percentage of earnings, with the promise the balance will be forgiven after 20 or 25 years. The government calculates payments using a borrower’s income and family size.
GAO researchers found that about 95,100 income-driven plans were held by borrowers who reported no earnings while actually making enough to pay something toward their debt. About one-third of that group were estimated to have earned at least $45,000 a year; some had six-figure salaries.
An additional 41,000 plans were held by borrowers who said they had households of at least nine people.
When the GAO report was released, DeVos issued a statement saying the findings were proof of her long-held belief that “there is significant risk in the federal student loan portfolio. Misrepresenting income or family size is wrong, and we must have a system in place to ensure that dishonest people do not get away with it.”
The report served as the basis for the Education Department’s plan to shore up verification policies, which Murray argues are based on “flawed assumptions” that errors result from borrowers defrauding the government.
The senator asked the GAO to clarify its findings and was told many potential reasons exist for data errors, including borrower confusion over what constitutes taxable income or loan servicers’ mistakes when copying family size from paper applications into computer systems. In a written response to Murray’s questions, the GAO said it was not feasible to examine the full range of factors that lead to data errors in the report and that “it is not possible to conclude the existence of fraud” without further research.
The Education Department said robust vetting is critical to ensure that taxpayers are not left on the hook for money that should be repaid.
“It is astonishing that a member of Congress would ask us to ignore our fiduciary responsibility to the taxpayer by turning a blind eye to fraud,” Education Department spokeswoman Angela Morabito said. “It’s a matter of basic fairness to make sure that the borrowers receive loan forgiveness are the ones who actually qualify for it.”
The department is forging ahead with a pilot program to root out fraud in the income-driven repayment plans, according to a report released last week by the agency’s inspector general. Based on the results of the yearlong project, the Education Department will determine whether additional steps are needed to review and verify earnings for people reporting no income or to substantiate family size.
Murray said she worries those steps could mirror the time-consuming verification some students applying for federal financial aid endure. Every year, about one-third of students who apply must provide further proof that the information they supplied is accurate. More than 1 in 5 students selected for verification fail to complete it and miss out on federal aid, according to the National College Access Network, an advocacy group.
If student loan borrowers are flagged for further verification and decide to forgo the process, they could miss out on an affordable way to repay their debt and avoid default.
Nearly half of federal student loans are repaid through income-driven plans. Hundreds of thousands of borrowers fall out of these plans after failing to verify their income every year. Advocacy groups have called for streamlining the programs, but some expressed concern when the GAO report was released that it could be used as an excuse to tighten the screws, even though the problems identified were not conclusively determined to be fraud.
Murray argues there is no need for additional policy changes at the Education Department beyond the legislative proposals already in the works. A proposal in the president’s fiscal 2020 budget request would allow the Internal Revenue Service to disclose tax return information directly to the department to simplify verification. Furthermore, the GAO recommended the department use data it already has about borrowers to detect anomalies in income and family size that may indicate fraud or potential errors.