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Significant Problems Remain in Student-Aid Programs, Report Says

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Despite the Education Department's efforts to combat fraud and abuse in federal student-loan programs, substantial problems remain, a joint report by the agency's inspector general and the General Accounting Office concludes.

Along with the Internal Revenue Service's tax-return-filing program and the major federal public-housing program, the Federal Family Education Loan program continues to appear on the "high risk'' list compiled by the G.A.O. and the Office of Management and Budget. All three were scrutinized in Senate hearings last month.

The report found that the Education Department "had material weaknesses in internal controls'' for determining program costs, monitoring payments to guaranty agencies and lenders, and insuring accurate financial reporting.

This could "undermine Education's ability to effectively and efficiently ... provid[e] loan access to all eligible students at a reasonable cost to taxpayers,'' the report says.

At a hearing of the Senate Governmental Affairs Committee, Sen. John Glenn, D-Ohio, noted that, over the course of the next year, the department will increase the number of institutions participating in the new direct-lending program from 100 to about 3,000.

"That worries me,'' Senator Glenn said. "I think that if we are not careful, Education could have two student-loan programs on the high-risk list instead of one.''

Another Risky Program?

Under the new program, the government makes loans directly to students through their institutions, rather than through private lenders and guaranty agencies.

"While direct loans will be administered via a new delivery system, they will be managed in an environment that is in many major respects identical to that which has existed for the F.F.E.L. program,'' James B. Thomas, Jr., the department's inspector general, added in testimony at the hearing.

Noting that the direct-loan system was developed in only six months, Mr. Thomas observed that "the real stress-testing of the system is only just now taking place, during operation, while 104 schools are participating in providing almost a billion dollars worth of loans under the system.''

In her testimony, Deputy Secretary of Education Madeleine M. Kunin acknowledged the department's historical troubles in managing the loan system.

"In my eagerness to tell you about the preliminary, substantial success of our new programs and strong management ethic at the Department of Education, I do not want to gloss over the depth of our problems,'' she said. "To totally fix these programs, which have suffered from managerial neglect for many years, will take time.''

Loan defaults have dropped to $2.3 billion, compared with $3.6 billion in 1991, Ms. Kunin said. And the department has overseen a 47 percent increase in the collection of bad debts, up to $6.4 billion last year from $4.4 billion in 1991.

This fall, the department will institute a new "National Student Loan Data System,'' which Ms. Kunin said will strengthen its ability to screen borrowers, preventing defaulters and applicants who have reached maximum award levels from obtaining additional loans.

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