ARCHIVED INFORMATION -- Fiscal Year 1996 Annual Accountability Report

Financial Highlights

Fiscal year 1996 was a year of profound improvement in Department financial management. Student loan default rates dropped dramatically while collections rose steadily. However, we have not yet completed correcting longstanding problems. Structural deficiencies in the Federal Family Education Loan (FFEL) Program continue to raise concerns as to the accuracy of student loan data in the Department's systems. A small number of ineligible recipients also still manage to receive financial assistance and the audit follow-up function has been taxed by additional audit requirements. Our financial management systems infrastructure, while under a major rebuilding effort, is also seriously inadequate. We are addressing these problems.

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. At the same time, however, loan volume has grown. The national cohort default rate (the percent of loans on which repayment did not occur during the first and second years when payment was due) in the FFEL Program has dropped from 22.4 percent for the fiscal year 1990 cohort to 10.7 percent for the fiscal year 1994 cohort (the Direct Loan Program has yet to experience significant defaults). This Office has continued its aggressive accountability and collection activities resulting in a near doubling of collections in 4 years to over $2 billion in fiscal year 1996. Defaulters face serious sanctions, including general income tax refund offset, wage garnishment, denial of further student aid and loss of other forms of credit. While the IRS tax refund offset program continues to be a major source of collecting defaulted loans, the use of wage garnishments has increased from 5,000 defaulters in fiscal year 1995 to 25,000 in fiscal year 1996.

As a result of the Department's efforts to target its monitoring resources on schools that pose the greatest risk to student and taxpayer funds, a total of 672 institutions have lost eligibility to participate in Title IV programs, with 381 institutions having been terminated for all Title IV programs for poor performance and 291 institutions having lost their eligibility to participate in the student aid programs through the on-going re certification process. In addition, 203 institutions are no longer eligible for participation in the loan programs because of high default rates. These aggressive accountability and oversight efforts, commonly referred to as "gatekeeping" remove ineffective schools from the student financial aid programs, both protecting students and ensuring accountability for taxpayer funds.

Administrative Cost Reductions
As part of Priority 4: "Transform the U.S. Department of Education 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.

The Department is participating in several programs that reduce the administrative costs associated with travel as well as the need for cash advances to travelers. In addition, by using the American Express Card and the Travel Management Centers, the Department received over $113,000 in rebates during fiscal year 1996. This figure was lower than the savings in fiscal year 1995 because of the ban on travel during the December 1995 federal employee furlough.
One of the Department's goals is to reduce the number of purchase orders processed and increase usage of the International Merchant Purchase Authorization Card (IMPAC). The IMPAC card is a credit card carrying the VISA^® logo. During fiscal year 1996, there were 8,418 purchases totaling $4.4 million made using the IMPAC Card, thereby eliminating paperwork associated with traditional procurement practices. The volume will increase in fiscal year 1997 as the range of products and services procured by the Card expands, e.g., in one principal office the Department is piloting the use of the IMPAC Card to pay Federal Express bills. The Department has also developed and implemented an automated system for reconciling the IMPAC bill, creating the payment and posting the expenditure to the accounting system.
During fiscal year 1996 the Department successfully piloted and implemented the Third Party Payment System (TPPS), an automated system that enables employees to make selected payments using draft instruments in lieu of cash and government checks. Principal offices utilized TPPS and issued 6,085 drafts totaling $1,752,000 in fiscal year 1996 with savings to the Department of $146,000. Drafts were issued for employee reimbursements, spot cash awards, field reader payments and simplified acquisitions (as appropriate). Customer service was also enhanced by reducing the processing time for regional employee reimbursements from 6 to 8 weeks to one week. TPPS also enabled the Department to eliminate its imprest fund operation, thereby improving cash management practices.
The Debt Collection Improvement Act of 1996 requires Education to pay all new customers electronically and to pay all customers electronically by January 1, 1999. The Office of the Chief Financial Officer has modified contract language to require electronic payments and has developed a new method of payment [TPPS---see above] to help implement the Act.

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[Program Highlights and Performance]

[Financial Improvement Initiatives]