Debt Management Collection System 2

We found that the Debt Management Collection System 2 (DMCS2), the Federal Student Aid office’s (FSA) system for managing defaulted student loans, was unable to accept the transfer of certain defaulted student loans from FSA’s Title IV Servicers. At the time of our audit, the entities that service Federal student aid loans had accumulated more than $1.1 billion in defaulted loans that should have been transferred to the Department for management and collection. DMCS2 has been unable to accept transfer of these loans and, as a result, the Department is hampered in pursuing collection remedies and borrowers are unable to take steps to remove their loans from default status. The inability of DMCS2 to accept these transfers also contributed to a material weakness in internal control over financial reporting that was identified in FSA’s FY 2012 financial statement audit. Based on our interaction with FSA officials to date, FSA has yet to implement effective corrective action to bring these affected loans into collection and to correct the problems with DMCS2. Our report included a number of recommendations, including that the Department identify each problem related to DMCS2 loan transfers, the source of each problem, and the entire population of loans adversely affected and establish dates for resolving the cause of each identified problem related to DMCS2 loan transfers.