Summary: GAO reviewed lenders' billings under the Guaranteed Student Loan Program to determine whether the Department of Education was incurring excessive costs related to its payment of interest and special-allowance subsidies, focusing on the extent to which: (1) lenders erred in billing Education for interest and special-allowance payments; (2) lender billing errors resulted in federal overpayments; and (3) Education established adequate procedures to detect billing errors and prevent overpayments.
GAO found that, from its review of 16 lenders' accounts over one quarterly billing period: (1) all 16 lenders submitted erroneous billings to Education, resulting in a net overpayment of at least $1.8 million; (2) 18 percent of loan accounts were erroneous or lacked adequate documentation to support the billed amount; (3) errors typically resulted from lenders miscalculating loan principal balances and interest subsidies or continuing to bill Education after borrowers began repaying; and (4) three of the lenders voluntarily repaid Education for overbillings. GAO found that Education: (1) relied on lenders to maintain current and complete loan files, submit accurate billings, and make adjustments promptly; (2) required only summary information from lenders regarding bills, since supporting documentation was too voluminous for it to validate; (3) limited its verification of bills to checking mathematical accuracy and completeness; (4) conducted fewer than 500 on-site reviews of the 14,000 participating lenders in 1986; and (5) charged lenders interest on overbillings from the date it notified lenders of the error, but lacked authority to charge interest from the date of the actual overpayments.
