Turnaround in the Department of Education’s Federal Student Aid Program

Situation before: The Office of Federal Student Aid (FSA) is the largest sources of student financial assistance in the United States, providing billions in aid to millions of students and parents.  In 1990 the Government Accountability Office listed FSA as one of the programs most susceptible to waste, fraud, abuse, or mismanagement:

• The Department of Education hadn’t received a “clean” opinion on its financial statements since 1995
• As of 1999, the annual cost of loan defaults for the Federal Family Education Loan Program (FFELP) and Federal Direct Loan Program (FDLP) was about $4.3 billion; over $28 billion since 1990
• Neither the Department of Education nor individual institutions such as colleges and universities that check the accuracy of student financial aid applications had access to third-party data sources to verify independently most applicants’ family income before disbursing loan and grant payments.   They could not identify students who intentionally underreport family income.

Additionally, FSA did not adequately measure its performance, oversee contracts, or focus on customer satisfaction.

Actions Taken: To address many of these challenges, FSA was given new flexibility to hold employees more accountable for their performance.  FSA’s goals:

• Integrate FSA Systems and provide new and better technology solutions
• Improve program integrity
• Reduce Program Administration Costs
• Improve Human Capital Management
• Improve Products and Services to Provide Better Customer Service

FSA developed a plan to put the right people with the right skills in the right jobs and began to hold them accountable for providing the right amount of aid to the right students in the right amount of time, measuring their progress all along the way. FSA set these clear goals for the organization and its employees so that customer satisfaction improved and waste, fraud, and abuse was eliminated.  To measure customer satisfaction, FSA benchmarks against other organizations using the American Customer Satisfaction Index.  To reduce waste, fraud, and abuse, FSA and its program participants can now verify the eligibility of applicants by comparing the income level reported with other sources of data.

The Results: As a result of its improvement efforts, FSA today is achieving better performance with limited waste, fraud, and abuse.  FSA provides approximately $74 billion to more than 11 million students and parents, including nearly $13 billion in Pell Grants to the nation’s neediest students.  The default rate decreased from 17% to just over 6% while the total loan portfolio increased 518%.  The recovery of defaulted loans also increased, from $38 million in 1993 to $1.8 billion in 2006.  Related collection costs were cut in half.   Operating expenses in FY 2006 decreased $44 million as compared to FY 2000.  Staffing also decreased by 15% from FY 2000 levels.  Eliminating duplicate IT systems will save $500 million over a 10 year period.

FSA’s focus on its customers resulted in the FY 2006 American Customer Satisfaction Index rating Federal Student Aid’s highest volume products and services in the “Excellent” or “Good Range”, higher than the federal government’s score and on par with private sector organizations such as Dell Computer and Target.  Ninety percent of Student Aid on the Web customers say they’d recommend it to others; 85% of Federal Student Aid Information Center (10800-4-FED-AID) callers rate the customer contact center as “4” or higher on a five-point scale (5=highest rating).