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New Report Confirms Education Department Failures in Student Loan Rehabilitation

Higher Education and Workforce Training Subcommittee Chairwoman Virginia Foxx (R-NC) issued the following statement after the release of a new Government Accountability Office (GAO) report that confirms Republican concerns about the Department of Education’s management of the student loan rehabilitation process. The report was released moments ago during a hearing entitled, “Examining the Mismanagement of the Student Loan Rehabilitation Process.” Tune in to watch the live webcast here.
“Default can have serious consequences for a borrower’s credit rating and future prosperity, making an effective and timely rehabilitation process critical to the well-being of the nation’s borrowers. The GAO report’s findings are extremely troubling, and contradict the department’s previous claims that the system was working as intended,” Rep. Foxx said. “Policymakers have a responsibility to ensure student loans increase opportunity, not limit success. I expect the administration to take immediate steps to address the problems in the student loan rehabilitation process with permanent solutions – not more workarounds and temporary fixes.”
Borrowers who default on their federal student loans can “rehabilitate” their loans and return their credit to good standing by making nine on-time payments over a 10-month period. However, the House Education and the Workforce Committee has heard from several borrowers who have encountered problems with the Department of Education when trying to take advantage of this important repayment option.
News reports have also highlighted additional problems with the federal Direct Loan program, leaving policymakers, financial aid administrators, and students questioning whether the department has the capability to protect borrower privacy and effectively administer the student loan program.
With the federal government now responsible for all student lending, Washington policymakers have a responsibility to conduct oversight over all facets of the Direct Loan program to ensure it is working for borrowers and taxpayers. Toward that end, in 2012 House and Senate Republican leaders requested GAO examine the Department of Education’s management of the Direct Loan program, and its ability to manage the student loan rehabilitation process in particular.
Highlights from the final GAO report include:
  • For more than a year, the Department of Education was unable to provide most borrowers who completed loan rehabilitation with timely benefits, such as removing defaults from their credit reports. 
  • The Department of Education failed to conduct adequate or effective oversight over an upgrade of the loan default system, leading to significant delays and errors. As a result, not a single loan rehabilitation was processed between September 2011 and March 2012.
  • The Department of Education lacks data and related performance measures to inform its management and oversight of loan rehabilitation. Additionally, limited oversight of contracted collection agencies continues to reduce the department’s ability to effectively monitor their performance.
To read the full report, click here.


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