Watchdog: Thousands may be committing fraud to lower student loan payments

Tens of thousands of federal student loan borrowers may be lying about their income and family size in order to lower their monthly payments, according to a Government Accountability Office (GAO) report released Thursday.

The GAO, which examined the Education Department’s oversight of income-driven repayment plans, said it has identified 95,100 cases in which borrowers were approved under the plans as having no money, even though they were allegedly earning income.

{mosads}In 40,900 plans, borrowers said they had family sizes of nine or more, and in 1,200 of those cases, borrowers said they had families of 16 or more.

The report found that 11 percent of plans examined by investigators involved borrowers who falsely claimed they had no income. Borrowers who claimed unusual family sizes made up 1 percent of plans reviewed. Combined, those cases totaled more than $6 billion in loans.

The GAO said it discovered 3,300 cases in which borrowers said they had no income, even though federal income data reports said they made at least $100,000 a year. Two separate borrowers claimed to have 93 relatives living in their household. Borrowers in both groups were all approved for lower loan payments.

The GAO’s report said the Education Department “does not have procedures to verify borrower reports of zero income, nor, for the most part, procedures to verify borrower reports of family size.” Borrowers can tell the department they have no income, and the department works using that data, according to the report. 

“The weaknesses we identified raise questions about the strength of Education’s institutional oversight of a major program involving hundreds of billions of dollars,” the GAO added.

Education Secretary Betsy DeVos said in response to Thursday’s report that her agency will conduct a comprehensive review and refer fraud cases to the Justice Department.

“The GAO report released today further proves what I’ve long said: there is significant risk in the federal student loan portfolio. For years there have been deliberate efforts to make the maze of student aid more complex for students and less accountable to the American taxpayers who underwrite it. Today’s report is just the latest proof that many of the policy ideas previously pursued were poorly implemented,” DeVos said in a statement.

“Misrepresenting income or family size is wrong, and we must have a system in place to ensure that dishonest people do not get away with it. We didn’t create that problem, but rest assured we will fix it,” she added.

DeVos also called on Congress to give the Education Department access to federal income data for verification purposes. A bill passed by the Senate last year would have automatically sent borrowers’ tax documents to the Education Department, but it was not voted on in the House.

Sen. Lamar Alexander (R-Tenn.), one of the bill’s co-sponsors, said Thursday that the Senate should pass the legislation again this year.

Student debt has become a campaign issue among some 2020 Democratic presidential candidates. Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) have released competing proposals for canceling student debt and offering debt-free tuition.