Direct Student Loans

Pursuant to a congressional request, GAO reviewed reports of erroneous Department of Education payments to schools participating in the William D. Ford Federal Direct Loan Program (FDLP) during the conversion to a new computerized payment system, focusing on: (1) the transition from the old payment system to the new payment system; and (2) whether the Department erroneously disbursed $400 million to schools participating in the direct loan program during the conversion.

GAO noted that: (1) the transition to the Education Central Automated Processing System/Grant Administration and Payment System (GAPS) took longer than the Department anticipated; (2) it was originally planned for a 2-week period in February 1998 but was delayed about 4 months to May 1998 because of difficulties the Department encountered in incorporating its data files into the new computer system; (3) schools were authorized to draw down within existing guidelines as many funds as they expected to disburse during the transition period; (4) the Department did not erroneously disburse $400 million to schools; (5) the $400 million was the approximate amount the FDLP schools drew down to meet their needs during the transition to GAPS; (6) however, overpayments of about $6 million to $10 million were made when the Department's contractor inadvertently processed a payment list that it had already processed for disbursement; (7) aware of these overpayments, the Department contacted all schools that may have received an overpayment and asked them to return it; and (8) the Department plans to identify and recover any remaining overpayments during its end of program year reconciliation process starting July 31, 1999.