Student Loans: Education Should Proactively Manage Fraud Risks in Any Future Debt Relief Efforts


November 16, 2023
In October 2022, the Department of Education launched a student loan debt relief program that would provide up to $20,000 in relief to borrowers who had incomes below certain thresholds. Court orders caused Education to cease work on the program before discharging any debt, and in June 2023 the Supreme Court struck down the program.
We found that Education quickly approved borrowers for debt relief without applying key practices to prevent fraud. For example, it didn’t verify certain borrowers’ self-reported income before approving them for relief.
We made 3 recommendations that could help if Education implements a similar future effort.
The Department of Education approved borrowers for its student loan debt relief program without implementing key procedures for preventing fraud. The program would have provided up to $20,000 of debt relief to borrowers who met certain income thresholds if they received a Pell Grant in college, and up to $10,000 if they did not. However, Education ceased work in response to court orders and did not relieve any debt. Education designed its approval processes to prevent ineligible borrowers from receiving relief. However, underlying Education’s efforts was its assessment that the program was at relatively low risk for fraud. Education officials said they prioritized approving eligible borrowers, but Education did not apply key processes to detect and prevent fraud. However, given the large scale of the program—an estimated $430 billion of relief for potentially over 31 million borrowers—leading practices indicate that Education should have proactively addressed risks through effective fraud risk management.
In June 2023, the U.S. Supreme Court held that the debt relief program was not authorized under the HEROES Act of 2003. As a result, Education was not able to implement the program. Education subsequently announced that the department will pursue a new effort to provide borrowers debt relief.
Before ceasing work on the original program, Education developed two processes to assess borrower eligibility, but each process had shortcomings at detecting and preventing fraud. The first process, which affected the majority of borrowers, relied on an application process. The second was an automatic process Education developed for borrowers who had recently reported income information to the department.