Education Department Improperly Forgiving Loans

Washington, DC ? Senate Governmental Affairs Committee Chairman Fred Thompson (R-TN) today called on Education Secretary Richard Riley to adopt recommendations from a Department of Education Inspector General?s (IG) Report detailing the improper discharging of almost $80 million in loans under the Federal Family Education Loan Program (FFELP).

The IG reported that student loans are being discharged or forgiven by the Education Department on the basis of total and permanent disability and death even though the borrowers are apparently neither. The Higher Education Act provides for loan discharges when the borrower either becomes totally and permanently disabled or dies.

“Access to higher education is important to all Americans,” said Senator Fred Thompson, Chairman of the Committee on Governmental Affairs, upon learning of mismanagement of the Federal Family Education Loan Program. “Yet millions of dollars appropriated for education are being wasted through mismanagement by the Department of Education. With a little better management, it could prevent the bilking of the student loan program.”

According to the Education Department Inspector General, FFELP loans totaling over $292 million were discharged for borrowers claiming total and permanent disability. Over $216 million were discharged for borrowers who died. This occurred from July 1, 1994 through December 31, 1996.

The DOE IG matched all of the borrowers who received these disability and death discharges with the Social Security Administration?s (SSA) master earning records for 1997. The IG identified 9,798 individual borrowers, or 23 percent of the total disabled borrowers, who were earning wages after having over $73 million in loans forgiven. Further, 81 of these individuals earned more than $50,000 in 1997 after receiving a disability discharge.

The DOE IG also found that 708 borrowers who had received discharges totaling over $3.8 million because they claimed to be dead were actually earning wages after the discharge. Additionally, over the period studied by the DOE IG, over 6,800 new loans totaling almost $20 million have been awarded to borrowers who returned to school after previously having loans totaling nearly $11.5 million discharged due to total and permanent disability.

“Perhaps the most troubling fact is that the mismanagement in loan discharges has worsened in recent years,” Senator Thompson said. According to the IG, “The amount of new loans awarded to borrowers with previous discharges for disability increased from about $1.9 million to $8.6 million, or 351 percent, from the 1994 to the 1997 award year.”

In the report detailing improper loan discharges of almost $80 million in loans under the FFELP, the DOE IG made recommendations for improved management of the program.