ARCHIVED INFORMATION -- Annual Accountability Report Fiscal Year 1995

Financial Highlights

Fiscal year 1995 was a year of profound improvement in Department financial management. Student loan default rates dropped dramatically while collections steadily rose. However, some serious problems remain. Structural deficiencies in the Federal Family Education Loan Program continue to allow inaccurate financial information into systems. A limited number of ineligible recipients also still manage to receive financial assistance and the audit follow-up function has been taxed by additional audit requirements. Financial management systems infrastructure is also seriously inadequate. The Department acknowledges these problems with a firm commitment to continue devoting available resources to their speedy resolution.

The financial highlights presented below are only the first steps in a long-term effort to be more accountable for public monies, to be more responsive to customers and to effectively promote education improvements.

Student Loan Defaults and Collections

The Department's Office of Postsecondary Education has improved control over defaulted student loans resulting in both decreased defaults and increased collections, while loan volume grows. The national cohort default rate in the Federal Family Education Loan Program (FFELP) have dropped from 22.4% in 1990 to 11.6% in 1993 (the Direct Loan Program has not yet experienced significant defaults). This Office has continued its aggressive accountability and collection activities resulting in a near doubling of collections in 2 years to over $2 billion in fiscal year 1995. Defaulters face serious sanctions, including general income tax refund offset, wage garnishment, denial of further student aid, and loss of other forms of credit. The IRS tax refund offset program continues to be a major source of collecting defaulted loans. In fiscal year 1995, the Department collected $588 million from 778,000 individuals via the IRS program.

                   THE DEPARTMENT CONTINUES TO IMPROVE                    CONTROL OVER STUDENT LOAN PROGRAMS                            Student Loan Volume       FFELP --->
Direct Loan ===>
 1992 --------------------->
 1993 ------------------------->
 1994 --------------------------------->
     =====================================>
 1995 ------------------------------->
     =============================================>
     +----------+----------+----------+----------+----------+      5,000      10,000     15,000     20,000     25,000     30,000                           (Dollars in Millions) ________________________________________________________________________                     Student Loan Defaults and Collections  Default and Insurance Claims Paid (FFELP)--->
Collections on Defaulted Loans (FFELP)   ===>
 1992 --------------------------------------------------->
     ==========>      1993 --------------------------------------------------->
     ==========>
 1994 -------------------------------------------->
     ====================>
 1995 -------------------------------------------->
     =================================>
     +----------+----------+----------+----------+----------+      500        1000       1500       2000       2500       3000                           (Dollars in Millions) 

Controlling the participation of schools in the Student Financial Assistance programs is a key to controlling fraud and abuse, reducing loan default rates, and promoting quality postsecondary education. The Department has taken a number of steps in recent years to improve its monitoring and compliance activities of institutions. During fiscal year 1995, two new administrative systems--the National Student Loan Data System (NSLDS) and the Postsecondary Education Participation System (PEPS) became operational. NSLDS should prevent ineligible students -- and students who provide false information -- from receiving funds. In the 1994-1995 school year, the NSLDS blocked the issuance of $230 million in loans to ineligible applicants. PEPS also aims at improving the gatekeeping functions over student financial aid. Its purpose is to maintain a database of institutional-level loan information that will confirm eligibility and monitor participation of postsecondary education institutions, lending institutions and loan guarantors.

Legislation has also played a vital role in improved performance by giving the Department broader authority to reduce risk and recover on defaults. The Higher Education Amendments of 1992 provided the Department a number of new authorities to deny schools eligibility to participate in Federal student aid programs if the schools have high default rates or other high risk characteristics. The Debt Collection Act, as amended, provided several new authorities to recover past due debts. These added authorities have enabled the Department to substantially increase collections.

Administrative Cost Reductions

As part of Priority 4: "Transform the Department into a high-performance organization", the Department has initiated several efforts to not only increase performance, but also to reduce costs associated with administrative activities. The benefits associated with these activities are quantifiable, as well as being sound management practices.


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