It is no secret that the Biden administration wants to forgive student loans. One—of at least eight—of its forgiveness proposals has been definitively buried, which would have forgiven up to $20,000 per borrower, or $10,000 if not a Pell Grant recipient. There were many reasons why this plan was terribly designed, and it was ultimately ruled illegal by the Supreme Court. But a new Government Accountability Office (GAO) report reveals just how poorly the plan would have been carried out as well.
Before the courts intervened, the Department of Education (ED) was implementing the plan. After the plan was announced in August 2022, the ED started accepting applications for forgiveness in October 2022. When the courts suspended the plan in November 2022, the ED had already approved forgiveness for 16 million borrowers.
But there were flagrant flaws with the ED’s approval process. In particular, the ED appeared almost completely uninterested in detecting and preventing fraud. The biggest flaws include:
No. 1: Trust but don’t verify
The plan would have forgiven up to $20,000 for those making less than $125,000 or $250,000 if married, meaning that those above the income thresholds could fraudulently benefit if they understated their income and got away with it. To prevent this type of fraud, all the ED needed to do was verify beneficiaries’ income. Yet rather than require proof of income or checking with other federal agencies that already collect income data—such as the IRS and the Social Security Administration—“Education planned to automatically approve more than 2 million borrowers for relief based solely on their self-reported income, without any additional verification checks.” President Ronald Reagan famously advised that we should trust but verify. The ED’s approach was to just trust. No verification necessary. Needless to say, self-reported information that is not verified is an open invitation for fraud.
No. 2: A high tolerance for fraud
The ED also had a high tolerance for fraud. The GAO report notes that “Education documents and our analysis indicate that the department intended for its application process to further reduce the potential rate of fraud to less than 1 percent of all borrowers.” That sounds pretty good. But the report also notes that only “about 2 percent of borrowers had incomes above the eligibility threshold.” So only 2 percent of borrowers would have been ineligible, and up to 1 percent would have been able to get forgiveness anyway. In other words, the ED would have allowed up to 50 percent of ineligible borrowers to fraudulently get their loans forgiven.
No. 3: No convincing plan to detect and prevent fraud
The GAO report notes that “the department approved millions of applicants before fully implementing processes to review and evaluate fraud risk” and that “Education did not develop formal written summaries of its plans that fully explained its income verification process.” In other words, the ED was planning to forgive loans before developing a way to check for fraud and didn’t bother to actually formalize a fraud prevention plan at all.
No. 4: No plan to verify the accuracy or effectiveness of the minimal fraud detection effort
For some borrowers, the ED did plan to verify income, but “Education did not have procedures in place to evaluate the accuracy of the process it had used to approve an estimated 12 million-plus applicants for relief. Education approved these applicants because the department’s risk-based selection process did not select them for income verification. However, Education did not fully evaluate whether this risk-based approach for selecting borrowers for review was an effective tool for detecting and preventing fraud.”
In other words, most borrowers were simply assumed to be eligible for forgiveness, with the ED not even bothering to test whether that assumption was accurate. The GAO report notes that it would have been easy for ED to confirm if their assumptions were accurate:
Education had options for quickly implementing evaluation checks on its application process without imposing excessive delays or burdens on borrowers. For example, the department could have worked with the Internal Revenue Service (IRS) to crosscheck a sample of approved borrowers to measure the effectiveness of its income verification process. In addition, Education could have quickly implemented its plans for the review process and begun reviewing tax documentation for an initial batch of selected borrowers to have assurances that its selection process worked.
It’s been clear that the Biden administration’s (first) student loan forgiveness plan would have been a disaster if it had come to fruition. But we now know that the Department of Education’s careless approach to detecting and preventing fraud would have made it even worse.