Federal Student Aid: Additional Actions Needed to Mitigate the Risk of Servicer Noncompliance with Requirements for Servicing Federally Held Student Loans

The objective of our audit was to determine whether Federal Student Aid (FSA) had established policies and procedures to mitigate the risk of servicers not servicing federally held student loans in accordance with Federal requirements. We assessed FSA’s operations as of September 2017. We found that FSA had not established policies and procedures that provided reasonable assurance that the risk of servicer noncompliance with requirements for servicing federally held student loans was mitigated.FSA’s oversight activities regularly identified instances of servicers’ not servicing federally held student loans in accordance with Federal requirements. However, it did not track the identified instances of noncompliance that servicers remediated, even though FSA management could have used such information to identify patterns of noncompliance. FSA management also had not analyzed the information it did track to identify trends and recurring instances of noncompliance at each servicer and across all servicers. We also found that FSA management rarely used available contract accountability provisions to hold servicers accountable for instances of noncompliance. It also did not incorporate a performance metric relevant to servicer compliance with Federal requirements into its methodology for assigning loans to servicers.