WASHINGTON –Today, Education and the Workforce Committee Chairwoman Virginia Foxx (R-NC) issued the following statement on the Government Accountability Office’s (GAO) newest report recommending that the Department of Education make improvements to how it estimates the costs of the Direct Loan portfolio, as well as to its reporting on overall performance and risk:
“The Department of Education has a tortured relationship with budgeting and self-reporting – to expect that it will follow the recommendation from GAO’s report is a fool’s errand. Regressive student loan policies, coupled with faulty cost estimates on the part of the Department, have saddled taxpayers time and again with an ever-ballooning bill that they will be forced to foot.
“No matter how many times the Department has endeavored to change course and improve upon its dismal record, one thing seems to remain the same: it keeps swinging and missing.”
BACKGROUND:
GAO identified several specific ways in which the Education Department’s (ED) reporting of the portfolio’s performance and the risk information could be enhanced:
Performance Factors of the Direct Loan Portfolio. ED could improve its reporting in the Agency Financial Report and Congressional Justifications by including such factors as graduation rates, borrowers’ ratios of income to monthly payments, and borrowers’ unemployment rates. Credit agencies, for example, analyze borrower graduation rates which can be an indicator of future default rates. Such agencies also look at trends in borrower data such as the ratio of borrower income to monthly loan payments. Unemployment data is also important in analyzing student loans.
Credit Risk Concentration of the Direct Loan Portfolio. ED could improve its reporting in the Agency Financial Report and Congressional Justifications by analyzing whether student loan portfolios are concentrated by the borrower’s type of degree, the type of educational institution, or geographic location of borrowers. Again, credit agencies do this, given it helps them determine if a portfolio may have greater risks of default within the indicated areas.
Administrative Risk of the Direct Loan Portfolio. ED could improve its reporting on trend data for administrative risks to the portfolio by providing trend data on loan origination costs, servicing costs, and management costs consistent with Appendix D of OMB Circulate A-129. For example, the Congressional Budget Office, in its analyses, reports extensively on qualitative and quantitative administrative risks of the Direct Loan portfolio.
Sensitivity Analysis of the Direct Loan Portfolio. ED could improve its reporting by providing more detailed and extensive sensitivity analyses in the Agency Financial Report and the Congressional Justifications. ED currently does not report on the impact on costs related to unemployment or wage growth. A helpful example of such reporting is the Federal Housing Administration’s (FHA) report on the Mutual Mortgage Insurance Fund. The FHA fund’s report includes several sensitivity analyses to demonstrate program performance under various economic circumstances.
