Federal Student Aid's Processes for Waiving Return of Title IV Requirements — ED-OIG/A21CA0077 (May 5, 2023)
Summary
U.S. Department of Education Office of Inspector General Final Audit Report, Control Number ED-OIG/A21CA0077, dated May 5, 2023, covers Federal Student Aid's processes for waiving Return of Title IV requirements, cancelling borrowers' obligation to repay Direct Loans, and excluding Pell grants from Federal Pell lifetime usage. The audit objective was to determine whether FSA had adequate processes for these CARES Act flexibilities for students who withdrew because of the coronavirus pandemic, and for schools to report the number and amounts of R2T4 waivers applied. The audit covered March 27, 2020 through June 27, 2022. The report finds that FSA had adequate processes and designed adequate reporting processes, and provides no recommendations for corrective actions.
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“Federal Student Aid's Processes for Waiving Return of Title IV Requirements — ED-OIG/A21CA0077 (May 5, 2023).”
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U.S. Department of Education
Office of Inspector General
Federal Student Aid’s Processes for
Waiving Return of Title IV
Requirements, Cancelling Borrowers’
Obligation to Repay Direct Loans and
Excluding Pell Grants from Federal Pell
Lifetime Usage
May 5, 2023
ED-OIG/A21CA0077
ED OIG Oversight of Coronavirus Response Funds
NOTICE
In accordance with Freedom of Information Act (Title 5, United States Code,
Section 552), reports that the Office of Inspector General issues are available to
members of the press and general public to the extent information they contain is not
subject to exemptions in the Act.
UNITED STATES DEPARTMENT OF EDUCATION
OFFICE OF INSPECTOR GENERAL
Audit Services
May 5, 2023
TO: Richard Cordray
Chief Operating Officer
Federal Student Aid
FROM: Bryon S. Gordon /s/
Assistant Inspector General for Audit
SUBJECT: Final Audit Report, “Federal Student Aid’s Processes for Waiving Return of Title IV
Requirements, Cancelling Borrowers’ Obligation to Repay Direct Loans, and Excluding Pell
Grants from Federal Pell Lifetime Usage,” Control Number ED-OIG/A21CA0077
Attached is the subject final audit report that consolidates the results of our review of Federal Student
Aid’s processes for waiving the requirement that Title IV of the Higher Education Act of 1965 funds be
returned, cancelling borrowers’ obligation to repay Direct Loans, and excluding Federal Pell grant
disbursements from Pell lifetime usage calculations for students who withdrew because of the
coronavirus pandemic. We have provided an electronic copy to your audit liaison officers. We received
your comments in response to the findings in our draft report.
We appreciate your cooperation during this review. If you have any questions, please contact me at
(202) 245-6051 or Bryon.Gordon@ed.gov or Ben Sanders, Regional Inspector General for Audit, at
(916) 213-7630 or Ben.Sanders@ed.gov.
Attachment
400 MARYLAND AVENUE, S.W., WASHINGTON, DC 20202-1510
Promoting the efficiency, effectiveness, and integrity of the Department’s programs and operations.
Table of Contents
Results in Brief .................................................................................................................... 1
Introduction ........................................................................................................................ 3
Finding 1. FSA had Adequate Processes for Waiving R2T4 Requirements, Cancelling
Borrowers’ Obligation to Repay Direct Loans, and Excluding Pell Disbursements from Pell
Lifetime Usage for Impacted Students ............................................................................... 5
Finding 2. FSA Designed Adequate Processes for Schools to Report the Number and
Amounts of R2T4 Waivers Applied ................................................................................... 11
Appendix A. Scope and Methodology............................................................................... 14
Appendix B. Acronyms and Abbreviations........................................................................ 20
FSA Comments .................................................................................................................. 21
Results in Brief
What We Did
The objective of our audit was to determine whether Federal Student Aid (FSA) had
adequate processes for (1) waiving the requirement that Title IV of the Higher Education
Act of 1965 (Title IV) funds be returned, cancelling borrowers’ obligation to repay Direct
Loans, and excluding Federal Pell grant (Pell) disbursements from Pell lifetime usage
calculations for students who withdrew because of the coronavirus pandemic (impacted
students); 1 and (2) postsecondary institutions (schools) to report the number and
amounts of return of Title IV (R2T4) waivers applied. Our audit covered FSA’s processes
and related activities in these areas from March 27, 2020, when the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act) was enacted, through June 27, 2022.
Because R2T4 reporting was not due until September 30, 2022 (towards the end of our
fieldwork), we limited the scope of our review in that area to the design of FSA’s
processes.
To achieve our audit objective, we interviewed FSA personnel and reviewed FSA’s
guidance documents and technical assistance provided to schools, its processes for
waiving R2T4 requirements, and the mechanisms it set up for schools to identify Direct
Loan and Pell disbursements made to impacted students and report the number and
amounts of R2T4 waivers applied. We also reviewed the oversight activities that FSA
performed to ensure that schools were applying the CARES Act flexibilities 2 and
reporting required information. Lastly, we performed testing to determine whether
1
FSA cancels borrowers’ obligation to repay the entire portion of Direct Loans associated with the
payment period for impacted students by discharging the Direct Loan disbursements made during the
payment period. Only Direct Loan and Pell disbursements received during the payment period
associated with the impacted students’ withdrawal would be subject to discharge or exclusion.
2
Throughout the report, we will use “CARES Act flexibilities” as a short form for the following
flexibilities: waiving R2T4 requirements, cancelling borrowers’ obligation to repay Direct Loans, and
excluding Pell disbursements from Pell lifetime usage for impacted students.
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ED-OIG/A21CA0077 1
Direct Loan disbursements were discharged3 and Pell disbursements were excluded
from Pell lifetime usage for impacted students.
What We Found
FSA had adequate processes for waiving R2T4 requirements, cancelling borrowers’
obligation to repay Direct Loans, and excluding Pell disbursements from Pell lifetime
usage for impacted students. FSA also designed adequate processes for schools to
report the number and amounts of R2T4 waivers applied.
What We Recommend
We are not providing any recommendations for corrective actions.
FSA Comments
We provided a draft of this report to FSA officials for comment. FSA stated that the
CARES Act provisions addressed in the report provided significant benefits to impacted
students. FSA also stated that the OIG’s findings were a testament to the dedication of
FSA staff to the students they serve and FSA’s responsibility to ensure accountability.
We include the full text of FSA’s comments at the end of the report (see FSA
Comments).
3
The terms “cancel” and “discharge” generally have the same meaning. When a student loan is
discharged, the borrower no longer needs to make payments on that loan (34 Code of Federal
Regulations 685.212). Throughout the report, we will use “cancel” when discussing the borrowers’
obligation to repay Direct Loans and “discharge” when discussing the treatment of Direct Loan
disbursements made to impacted students.
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Introduction
Background
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136),
enacted on March 27, 2020, authorized more than $2 trillion to battle the coronavirus
pandemic and its economic effects. It also authorized the use of certain flexibilities for
students who withdrew from postsecondary institutions (schools) because of the
coronavirus pandemic (impacted students). These flexibilities include waiving the
amounts of Title IV of the Higher Education Act of 1965 (Title IV) funds that schools and
impacted students are required to return under section 484B of the Higher Education
Act of 1965 (sections 3508(a)(1) and (b)), cancelling borrowers’ obligation to repay the
entire amount of Direct Loans impacted students received during the payment period of
their withdrawal (section 3508(c)), and excluding from impacted students’ Federal Pell
grant (Pell) lifetime usage limit 4 any semester (or the equivalent) that the students did
not complete because of the coronavirus pandemic (section 3507). Throughout the
report, we will refer to these as "CARES Act flexibilities." Section 3508(a)(2) of the CARES
Act requires schools using return of Title IV (R2T4) waivers for impacted students to
report the number of recipients, the amount of grant or loan assistance (other than
Federal Work Study) associated with each recipient, and the total amount of grant or
loan assistance (other than Federal Work Study) they have not returned to the
U.S. Department of Education (Department). Federal Student Aid (FSA) is responsible for
administering or overseeing the administration of these CARES Act flexibilities and
related R2T4 reporting.
Usage of the CARES Act Flexibilities
As of June 22, 2022, schools had identified and reported to FSA a total of 266,508
impacted students. 5 For these impacted students, Direct Loan disbursements totaling
$626.3 million and Pell disbursements totaling $404.1 million were subject to discharge
or exclusion from Pell lifetime usage. As of January 9, 2023, the total amount of Title IV
funds not returned for all impacted students was $244 million, of which $174 million
(71 percent) represented Direct Loan funds not returned and $70 million (29 percent)
4
Per the Consolidated Appropriations Act of 2012, a student’s maximum duration of Pell eligibility is six
scheduled awards, as measured by the percentage of “Lifetime Eligibility Used” for a maximum of
600 percent. The use of 1 full year funding is equal to 100 percent, so a student may receive the
equivalent of 6 years of Pell funding in their lifetime.
5
The number of impacted students is an unduplicated count. Students who had multiple Direct Loan
disbursements discharged or multiple Pell disbursements excluded were counted only once.
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represented Pell funds not returned. 6 The number of impacted students was the highest
during Federal award year 2019−2020 with about 174,000 students, representing about
1.6 percent of the 10.9 million Title IV students during that award year. 7 The number of
schools using R2T4 waivers was also the highest during award year 2019−2020 at more
than 2,400 schools, representing about 41 percent of the approximately
6,000 postsecondary schools participating in the Title IV programs.
6
Source: OIG analysis of Direct Loan and Pell disbursements marked with the coronavirus indicator in
the Department’s Common Origination and Disbursement system (COD) as of January 9, 2023; R2T4
Usage on COD Report by Award Year, generated on January 9, 2023; and COD R2T4 Lump Sum Report by
Award Year, generated on January 9, 2023.
7
Source: OIG analysis of Direct Loan and Pell disbursements marked with the coronavirus indicator in
COD as of June 22, 2022; COD Coronavirus Summary Reports by Award Year, generated on January 9,
2023; and FSA’s Data Center (https://studentaid.gov/data-center).
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Finding 1. FSA had Adequate Processes for
Waiving R2T4 Requirements, Cancelling
Borrowers’ Obligation to Repay Direct Loans,
and Excluding Pell Disbursements from Pell
Lifetime Usage for Impacted Students
FSA had adequate processes to evaluate whether the R2T4 requirements were being
waived for impacted students in accordance with the CARES Act. FSA cancelled
borrowers’ obligation to repay the entire portion of Direct Loans associated with the
payment period for impacted students by discharging the Direct Loan disbursements
made during the payment period. For impacted students, Direct Loan disbursements
were appropriately discharged. In addition, Pell disbursements were appropriately
excluded from impacted students’ Pell lifetime usage, exclusive of a small number of
exceptions.
Section 10.01 of the Government Accountability Office’s Standards for Internal Control
in the Federal Government (September 2014), states that management should design
control activities to achieve objectives and respond to risks.
FSA’s Monitoring of Schools’ Compliance with R2T4 Waiver
Requirements
Under sections 3508(a)(1) and (b) of the CARES Act, for impacted students, the
Secretary shall waive the amounts of Title IV funds that schools and impacted students
are required to return under section 484B of the Higher Education Act of 1965.
FSA monitored schools’ compliance with the R2T4 waiver requirements by conducting
program reviews and reviewing the annual compliance audits that independent auditors
performed for schools. FSA’s Federal Student Aid Program Review Guide
(September 2021) (program review guide) and the Office of Management and Budget,
2 CFR, Part 200, Appendix, XI, Compliance Supplement (Compliance Supplement) were
updated to provide coverage of the CARES Act flexibilities. 8 New steps included, for any
impacted students included in a program review or annual compliance audit's sample,
verifying that students provided written attestation to the schools explaining why the
withdrawal was a result of coronavirus pandemic, schools selected the coronavirus
indicators in the Department’s Common Origination and Disbursement system (COD) for
Direct Loan and Pell disbursements made to impacted students, and schools did not
8
Updates to the Compliance Supplement first appeared in the December 2020 addendum to the
Compliance Supplement.
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return unearned Title IV funds for impacted students. The Guide for Financial
Statement Audits of Proprietary Schools and For Compliance Attestation
Examination Engagements of Proprietary Schools and Third-Party Servicers
Administering Title IV Programs (March 2023) (proprietary schools audit guide), issued
by the OIG, provides coverage of the CARES Act flexibilities similar to the coverage
provided in FSA’s updated program review guide and the Compliance Supplement. The
proprietary schools audit guide is effective for fiscal years beginning on or after
January 1, 2023, with early implementation allowed and encouraged. We reviewed the
new procedure steps in the updated program review guide, the Compliance
Supplement, and proprietary schools audit guide and concluded that they were
sufficient and appropriate for purposes of evaluating whether the R2T4 requirements
were being waived for impacted students in accordance with the CARES Act.
FSA created deficiency codes, including ones specific to the CARES Act, to categorize
deficiencies identified during program reviews and annual compliance audits. FSA used
CARES Act deficiency codes, tracked within its Postsecondary Education Participants
System, in part, to identify and follow up on any R2T4 waiver-related deficiencies
identified during program reviews and annual compliance audits.
FSA’s Processes for Cancelling Borrowers’ Obligation to Repay
Direct Loans
Section 3508(c) of the CARES Act requires the Secretary to cancel the borrower’s
obligation to repay the entire portion of a Direct Loan associated with a payment period
for a student who withdraws from the school during the payment period because of a
qualifying emergency (Direct Loan cancellations). As noted above, FSA cancels the
borrowers’ obligation to repay Direct Loans for impacted students by discharging the
applicable Direct Loan disbursement.
FSA made technical updates to COD and generated reports from COD that it could use
to ensure that Direct Loan disbursements were discharged for impacted students. To
establish a new code for coronavirus disaster relief, FSA added “coronavirus” to the list
of disasters that were already included in COD. FSA then added a coronavirus indicator
box in COD for schools to select to identify Direct Loan and Pell disbursements made to
impacted students. When schools selected the coronavirus indicator box, COD created a
new nonfinancial disbursement record marked with the coronavirus indicator. This new
record enabled FSA to identify disbursements made to impacted students and generate
reports identifying information related to the coronavirus national emergency. FSA
generated a weekly report from COD that identified all Direct Loan disbursements that
had the coronavirus indicator added during that week for each loan servicer (weekly
spreadsheet report). FSA used the weekly spreadsheet report to inform loan servicers of
the specific loan disbursements that needed to be discharged and to confirm that the
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loan servicers discharged those loan disbursements. The following figure provides an
overview of FSA’s processes for cancelling borrowers’ obligation to repay Direct Loans.
Figure. Overview of FSA’s Processes for Cancelling Borrowers’ Obligation to Repay
Direct Loans
• Schools select the coronavirus indicator box in COD for Direct Loan
disbursements made to impacted students. Once that box is selected, COD
Schools identify creates a new nonfinancial loan disbursement record marked with the
impacted coronavirus indicator.
students in COD
• FSA generates a weekly spreadsheet report from COD for each loan
servicer that identifies all Direct Loan disbursements that had the
coronavirus indicator added during that week.
FSA generates
weekly • FSA then sends the weekly spreadsheet report to each servicer notifying
spreadsheet them of the Direct Loan disbursements needing to be discharged.
report for loan
servicers
• Using information in the weekly spreadsheet reports, the loan servicers
discharge the Direct Loan disbursements and record them in the students’
official loan servicer records. If the servicers have difficulty discharging the
loan disbursements, they add comments to the updated weekly
Loan servicers spreadsheet report.
discharge loan
disbursements • Loan servicers update the weekly spreadsheet report by adding the
and update amount and date of the discharged loan disbursements.
reports
• Loan servicers send the updated weekly spreadsheet reports to FSA.
Loan servicers • Loan servicers submit update files to FSA with the new loan discharge
send updated information. (Submitting update files to FSA is part of the loan servicers'
reports back to standard processes for updating the Department’s COD and NSLDS
FSA and update systems.)
NSLDS
• FSA then reviews the weekly spreadsheet report to determine whether any
FSA reviews loan disbursement discharges require follow up.
reports and
follows up as
needed
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Testing of Direct Loan Disbursement Discharges
We concluded that Direct Loan disbursements for impacted students were appropriately
discharged by FSA’s loan servicers. As of June 22, 2022, 269,997 Direct Loan
disbursements, totaling $626.3 million, were marked with the coronavirus indicator in
COD. Based on our analysis that matched data in COD and the Department’s National
Student Loan Data System (NSLDS), we determined that FSA’s loan servicers discharged
260,854 of the 269,997 loan disbursements. For the 9,143 loan disbursements that we
were unable to match, we sampled 79 disbursements 9 and determined that FSA’s loan
servicers discharged all 79 loan disbursements.
FSA’s Processes for Excluding Pell Disbursements from
Impacted Students’ Pell Lifetime Usage
Section 3507 of the CARES Act requires the Secretary to exclude from a student’s Pell
lifetime limit any semester (or the equivalent) that the student does not complete due
to a qualifying emergency (Pell exclusions).
As discussed above, in COD, FSA added “coronavirus” to the list of disasters and a
coronavirus indicator box for schools to select to identify Pell disbursements made to
impacted students. When schools selected the coronavirus indicator box, COD created a
new nonfinancial Pell disbursement record marked with the coronavirus indicator and
the student’s Pell lifetime usage automatically adjusted (was reduced) in COD by the Pell
eligibility percentage associated with that Pell disbursement. This automatic adjustment
process was designed to restore the student’s Pell lifetime usage as if the Pell
disbursements, during the payment period when the students withdrew because of the
coronavirus pandemic, had not occurred. Updates in COD, including updated Pell
lifetime usage information, were sent to NSLDS on a nightly basis.
Testing of Pell Exclusions
We concluded that FSA had adequate processes for excluding Pell disbursements from
impacted students’ Pell lifetime usage and that FSA’s automated Pell adjustment
processes in COD were working as intended. As of June 22, 2022, 255,492 Pell
disbursements, totaling $404.1 million for 202,039 impacted students, were marked
with the coronavirus indicator in COD. Based on our analysis that recalculated Pell
lifetime usage adjustments using NSLDS data and compared our calculations to data in
COD, we determined that FSA appropriately processed the exclusions for
9
This comprises the judgmental sample of 25 loan disbursements and risk-based statistical sample of
54 loan disbursements that we selected for review. The results of our judgmental sample testing apply
only to the items (disbursements) we reviewed and cannot be projected to the entire population. See
Appendix A for additional information regarding our sampling methodology and testing in this area.
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200,731 (99.4 percent) of the 202,039 impacted students. From the remaining
1,308 impacted students (0.6 percent) who did not appear to have their Pell
disbursements excluded correctly, we judgmentally selected a sample of 30 students for
additional review and analysis. We determined that the adjusted Pell lifetime usage
percentages were correct for 24 (80 percent) of 30 students when rounding was
considered. However, the adjusted Pell lifetime usage percentages for the other
six students in our sample were higher than they should have been.
We asked FSA to review the records for the six students to ensure that they had their
Pell disbursements excluded correctly. In response, FSA told us that it identified a
processing error that occurred in November 2020, when some impacted students’ Pell
lifetime usage percentages were not recalculated correctly. Before a fix was
implemented in COD in September 2021, a COD contractor was responsible for manually
reviewing and correcting the percentages as a workaround. FSA told us that these six
students were missed during the manual review but have now been corrected. We
reviewed information in COD for these six students and verified that FSA corrected the
Pell lifetime usage for these students. FSA further scanned the entire COD system and
identified 61 additional students who did not have their Pell lifetime usage adjusted
correctly. In January 2023, FSA provided documentation to support that it had made the
necessary corrections for 60 of the 61 students. FSA told us that it still needs to correct
the Pell lifetime usage for the one remaining student.
FSA Guidance and Technical Assistance
We concluded that FSA communicated clear and accurate guidance to schools regarding
the CARES Act flexibilities. FSA provided guidance and technical assistance to schools
regarding CARES Act flexibilities through electronic announcements, online training
conferences, question and answer documents, and the FSA training website. 10 Less than
2 months after the CARES Act was enacted, FSA began issuing periodic electronic
announcements (starting on May 15, 2020) that provided guidance to schools regarding
the CARES Act waivers, including how schools were to apply the R2T4 waivers for
impacted students. FSA used electronic announcements, in part, to notify schools of the
updates it made to COD and provide instruction on how to use the new coronavirus
indicator in COD when identifying Direct Loan disbursements needing to be discharged
and Pell disbursements needing to be excluded from Pell lifetime usage for impacted
students. FSA also used the electronic announcements to communicate best practices
for using the coronavirus indicator and the deadlines for selecting the indicators.
10
In addition to schools, loan servicers, students, taxpayers, and other members of the public can also
view FSA’s guidance, including its electronic announcements and question and answer documents.
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FSA provided CARES Act flexibility-related training and guidance to schools via training
sessions presented by its subject matter experts during the 2020 and 2021 FSA training
conferences, which were held online and made available to schools in December 2020
and December 2021, respectively. FSA also provided periodic live webinars where its
staff presented information about the CARES Act flexibilities and responded to
questions from schools. Recordings of the webinars and FSA conferences, including
questions from schools and FSA responses, were made available on the FSA training
website after the live presentations.
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Finding 2. FSA Designed Adequate Processes for
Schools to Report the Number and Amounts of
R2T4 Waivers Applied
FSA designed adequate processes for schools to report the number and amounts of
R2T4 waivers applied. FSA added reporting mechanisms in COD for schools to report the
number of R2T4 waivers for impacted students, the amounts of Direct Loan and Pell
disbursements associated with the impacted students, and the amounts of Direct Loan
and Pell not returned to the Department. 11 It also communicated clear and accurate
guidance to schools on the R2T4 reporting requirements and how to satisfy those
requirements. Collectively, these actions should help ensure that schools understand
the R2T4 reporting requirements and how to report R2T4 information. To monitor
reporting by schools, FSA incorporated new procedure steps into its updated program
review guide that sufficiently covered the R2T4 reporting requirements and created a
CARES Act deficiency code, tracked within its Postsecondary Education Participants
System, to identify and follow up on any R2T4 reporting deficiencies identified during
program reviews and compliance audits.
Section 3508(a)(2) of the CARES Act requires a school using R2T4 waivers to report the
number of recipients, amount of grant or loan assistance (other than Federal Work
Study) associated with each recipient, and the total amount of grant or loan assistance
(other than Federal Work Study) that it had not returned to the Department. The CARES
Act did not specify how the Department or FSA should use the information reported by
schools.
Schools report information on R2T4 waivers for impacted students to the Department
using COD. FSA added a coronavirus indicator box in COD for schools to select to identify
Direct Loan and Pell disbursements made to impacted students. When schools selected
this box, they were reporting to FSA the number of waivers applied and the associated
disbursement amounts for impacted students. FSA established two options in COD for
schools to report Title IV funds not returned for impacted students. Schools can report
11
Schools were required to report R2T4 information by September 30, 2022, but they had the ability to
start reporting the number and amounts of R2T4 waivers applied in September 2020 when FSA added
the coronavirus indicator box in COD. Schools were able to start reporting the amount of Title IV funds
not returned at the student and institution levels in September 2020 (when FSA implemented
coronavirus-specific functionality to the R2T4 calculator tool in COD) and April 2021 (when FSA added
the lump sum reporting tool in COD), respectively. FSA told us that it extended the deadlines for schools
to report R2T4 information multiple times because the national emergency was ongoing.
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their information using either option but should not use both options to avoid
duplicative reporting.
The first option is for schools to report information at the student level. Under this
option, schools enter withdrawal information for impacted students in the R2T4
calculator in COD. 12 Once the school enters withdrawal information for all impacted
students, it has satisfied the Title IV funds not returned reporting requirement. The
second option is for schools to report information at the institution level. Under this
option, schools use their own financial systems to calculate the total amount of Title IV
funds not returned for impacted students and then use the lump sum reporting tool in
COD to report the total amount of Title IV funds not returned.
To verify that schools correctly reported the number of R2T4 waivers applied and
Title IV funds not returned, FSA relied on the program reviews it performs and annual
compliance audits that independent auditors perform for schools. In September 2021,
FSA updated its program review guide to include steps for FSA program reviewers to
verify that schools accurately reported the number of R2T4 waivers applied and amount
of Title IV funds not returned for impacted students. In addition, two new testing
procedures were included in the 2021 and subsequent Compliance Supplements. The
two procedures required the independent auditor to determine, for any impacted
students included in the sample, (1) whether the impacted students were eligible for the
CARES Act flexibilities and (2) that the school reported the correct number of R2T4
waivers applied and correct amount of Title IV funds not returned. The proprietary
schools audit guide provides coverage of the R2T4 reporting requirements similar to the
coverage provided in the updated program review guide and Compliance Supplement.
We reviewed the new procedure steps in the updated program review guide,
Compliance Supplement, and proprietary schools audit guide and concluded that they
were sufficient and appropriate for purposes of evaluating whether schools were
reporting the correct number and amounts of R2T4 waivers applied for impacted
students in accordance with the CARES Act. In addition, FSA created and used a CARES
Act deficiency code, tracked within its Postsecondary Education Participants System, in
part, to identify and follow up on any R2T4 reporting deficiencies identified during
program reviews and annual compliance audits.
We concluded that FSA communicated clear and accurate guidance to schools regarding
the R2T4 reporting requirements and how and when to report R2T4 information. FSA
provided guidance and technical assistance to schools regarding R2T4 reporting through
12
The R2T4 calculator was available to schools before the coronavirus pandemic, but FSA implemented
additional functionality (for example, coronavirus indicator box) to the tool in September 2020.
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electronic announcements, online training conferences, question and answer
documents, and the FSA training website. FSA’s guidance included details about what
R2T4 waiver information needed to be reported, the deadlines for reporting the
information, and training on how to report the information in COD.
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Appendix A. Scope and Methodology
Our audit covered FSA’s processes and related activities (including oversight) for waiving
the R2T4 requirements, cancelling borrowers’ obligation to repay Direct Loans, and
excluding Pell disbursements from Pell lifetime usage for impacted students. 13 It also
covered the design of FSA’s processes for schools to report R2T4 waiver information.
We reviewed FSA’s processes and activities in these areas from March 27, 2020, when
the CARES Act was enacted, through June 27, 2022, when FSA issued its last electronic
announcement related to the audit subject matter before we concluded our fieldwork. 14
To achieve our audit objective, we gained an understanding of relevant laws,
regulations, and guidance, including:
• sections 3507 (“Exclusion from Federal Pell Grant Duration Limit”) and
3508 (“Institutional Refunds and Federal Student Loan Flexibilities”) of the CARES
Act;
• sections 401 (“Federal Pell Grants”) and 484B (“Institutional Refunds”) of the Higher
Education Act of 1965;
• 34 Code of Federal Regulations, volume dated July 1, 2022, Parts 668, “Student
Assistance General Provisions” (particularly provisions related to record keeping and
treatment of Title IV funds when a student withdraws); 685, “William D. Ford
Federal Direct Loan Program”; and 690 “Federal Pell Grant Program”;
• Government Accountability Office, Standards for Internal Control in the Federal
Government (September 2014), particularly the principles related to control
activities (principles 10, 11, and 12);
• program review guide, which included updates that FSA made in response to the
CARES Act flexibilities;
• Compliance Supplement and addendums for 2020, 2021, and 2022;
• proprietary schools audit guide (March 2023); and
• 2021−2022 FSA Handbook, Volume 1, Chapter 6 (“Eligibility for Specific FSA
Programs”); Volume 3, Chapters 3 (“Calculating Pell and Iraq and Afghanistan
13
Our audit did not assess whether schools accurately identified impacted students.
14
On June 27, 2022, FSA issued an electronic announcement that provided the reporting deadlines for
schools to add the coronavirus indicator for disbursements of Title IV funds and for reporting funds not
returned under R2T4 requirements due to CARES Act relief.
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Service Grant Awards”) and 5 (“Direct Loan Periods and Amounts”); and Volume 5
(“Withdrawals and the Return of Title IV Funds”).
We gained an understanding of FSA’s processes related to the CARES Act waiver
flexibilities and R2T4 reporting through interviews and reviews of relevant documents
and records. We interviewed employees and officials from FSA who had knowledge
about or were responsible for administering or overseeing the administration of the
CARES Act waiver flexibilities, and for providing guidance to schools on when, how, and
what R2T4 information to report for impacted students. To assess the reliability of the
testimonial evidence, we compared information obtained through interviews with
records related to FSA’s processes in these areas when provided by the interviewees.
We concluded that the testimonial evidence we obtained was sufficiently reliable within
the context of our audit objective.
We reviewed FSA electronic announcements, question and answer documents, training
materials, and other guidance and technical assistance documents covering the CARES
Act waiver flexibilities and R2T4 reporting. We also reviewed the weekly spreadsheet
report that FSA used to notify loan servicers of the Direct Loan disbursements subject to
discharge and verify that the loan servicers discharged those disbursements. We viewed
and gained an understanding of the changes that FSA made in COD to implement the
CARES Act Flexibilities. We also reviewed documents and records covering the program
reviews that FSA performed and compliance audits that independent auditors
performed for schools with impacted students. These included selected audit reports for
schools with CARES Act deficiencies and summaries of the program reviews that FSA
completed from October 2021 through August 2022.
We performed testing to determine whether impacted students had their Direct Loan
disbursements discharged and Pell disbursements excluded from their Pell lifetime
usage. See the Sampling Methodology section below for additional information
regarding our testing in these areas.
Sampling Methodology
Direct Loan Disbursements
To determine whether loan servicers discharged impacted students’ Direct Loan
disbursements, we primarily used loan disbursement data from COD and loan discharge
data from NSLDS. We considered impacted students’ loan disbursements to be
discharged if the total amount of coronavirus type discharges on a loan in NSLDS
equaled the total amount of loan disbursements marked with the coronavirus indicator
on a loan in COD. As of June 22, 2022, we identified in COD 269,997 Direct Loan
disbursements that were marked with the coronavirus indicator.
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For 260,854 (97 percent) of the 269,997 loan disbursements, NSLDS had complete
information for us to rely on to determine if the loan disbursements were discharged. 15
For the remaining 9,143 Direct Loan disbursements, we concluded that NSLDS lacked
complete information to determine if the loan disbursements were discharged. Thus,
we judgmentally selected a sample of 25 Direct Loan disbursements 16 and reviewed
loan data in COD, FSA’s weekly spreadsheet reports, and NSLDS to determine whether
loan disbursements were discharged. The results from this sample testing apply only to
the items (disbursements) that we reviewed and cannot be projected to the entire
population. Using a risk-based statistical sampling approach, we also selected an
additional 54 Direct Loan disbursements and reviewed loan servicer records to
determine whether the loan disbursements were discharged.
Table. Selection of Direct Loan Disbursements for Testing
Percent of Loan
Loan Disbursements with Disbursements
Loan Disbursements
Description Coronavirus Indicator in COD, Selected for
Selected for Review
as of June 22, 2022 Review
Loan discharge data
in NSLDS could be 260,854 260,854 100 percent
relied on
Loan discharge data
in NSLDS could not 9,143 79 17 0.9 percent
be relied on
Total 269,997 260,933 97 percent
15
We also reviewed the loan servicer records for 39 Direct Loan disbursements that were part of this
subset of 260,854 disbursements and determined that the information in COD and NSLDS reflected the
correct loan balances in the impacted students’ official loan servicer records.
16
For the 9,143 Direct Loan disbursements, we identified 3 characteristics: (1) for 7,959 disbursements,
a coronavirus discharge code was not recorded in NSLDS; (2) for 952 disbursements, a coronavirus
discharge amount was recorded in NSLDS that was different than the disbursement amount marked
with a coronavirus indicator in COD; and (3) for 232 disbursements, another type of loan discharge
(such as death or permanent disability) was used to discharge the loan disbursement. Our judgmental
sample of 25 included loan disbursements from these 3 groups.
17
This comprises the judgmental sample of 25 loan disbursements and the risk-based statistical sample
of 54 loan disbursements that we selected for review.
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The results of our testing in this area are covered in Finding 1.
Pell Disbursements
To determine whether impacted students’ Pell disbursements were excluded from their
Pell lifetime usage calculation, we used Pell disbursement data from COD and Pell
lifetime eligibility usage data from NSLDS. 18 We considered impacted students’ Pell
disbursements to be excluded from their Pell lifetime eligibility usage in COD if the
lifetime eligibility usage adjustments in NSLDS equaled our recalculation of the
disbursements’ eligibility usage. As of June 22, 2022, we identified in COD 255,492 Pell
disbursements that were marked with the coronavirus indicator, involving
202,039 impacted students.
Using Pell lifetime eligibility usage adjustments in NSLDS, we determined that FSA
excluded Pell disbursements for 200,731 (99.4 percent) of the 202,039 impacted
students. For the remaining 1,308 impacted students (0.6 percent), we selected a
judgmental sample of 30 students 19 for additional review and analysis using information
directly from COD to determine whether the Pell disbursements were excluded from the
impacted students’ Pell lifetime eligibility usage calculation. The results from our sample
testing apply only to the items (Pell calculations) that we reviewed and cannot be
projected to the entire population. The results of our testing in this area are covered in
Finding 1.
Reporting of R2T4 Waiver Information
Schools were not required to report R2T4 waiver information to FSA until September 30,
2022, which was towards the end of our fieldwork. Therefore, we limited the scope of
our review in this area to the design of FSA’s processes for schools to report the number
and amounts of R2T4 waivers applied.
Internal Control
We obtained an understanding of all five areas of internal control (control environment,
risk assessment, control activities, information and communication, and monitoring)
relevant to FSA’s processes for waiving the R2T4 requirements, cancelling borrowers’
obligation to repay Direct Loans, and excluding Pell disbursements from Pell lifetime
usage for impacted students; and for schools to report the number and amounts of
R2T4 waivers applied. We concluded that control activities were significant to our audit
objective. As discussed in the findings, we concluded that FSA had adequate processes
18
NSLDS receives Pell lifetime eligibility usage information from COD.
19
Our judgmental sample included students from different schools.
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(control activities) for administering the CARES Act flexibilities and had designed
adequate processes for schools to report R2T4 waiver information.
Use of Computer-Processed Data
Data for Direct Loan Disbursements Testing
To assess the reliability of the 269,997 Direct Loan disbursements that were marked
with the coronavirus indicator in COD as of June 22, 2022, we gained an understanding
of (1) aspects of the design and implementation of COD specific to processing the CARES
Act waivers, (2) FSA’s process for discharging impacted students’ Direct Loan
disbursements, (3) the subsequent reporting of this data from loan servicers to NSLDS,
and (4) how FSA instructed schools to report impacted students’ Direct Loan
disbursements.
For the 260,854 Direct Loan disbursements that we determined FSA had discharged
using loan discharge data in NSLDS alone, the total amount of discharges on a loan in
NSLDS equaled the total amount of loan disbursements marked with the coronavirus
indicator on a loan in COD. From this subset of 260,854 disbursements, we selected
(using risk-based stratified statistical sampling) and reviewed the loan servicer records
for 39 disbursements. We confirmed that the information in the loan servicer records
matched information in NSLDS for all 39 disbursements. For the remaining 9,143 loan
disbursements, NSLDS lacked complete information to determine whether these loan
disbursements had been discharged. Thus, we used data from other sources (for
example, FSA weekly spreadsheet reports, loan servicer records) to determine if loan
disbursements had been discharged. We concluded that the COD and NSLDS data
extracts (data that we used for Direct Loan disbursements testing) were sufficiently
reliable for their intended uses and could be relied on to answer the audit objective.
Data for Pell Disbursements Testing
To assess the reliability of the 255,492 Pell disbursements for 202,039 impacted
students that were marked with the coronavirus indicator in COD as of June 22, 2022,
we gained an understanding of (1) aspects of the design and implementation of COD
specific to processing the CARES Act waivers and (2) how FSA instructed schools to
report impacted students’ Pell disbursements.
To assess the reliability of Pell lifetime eligibility usage adjustments in NSLDS for the
202,039 impacted students, we gained an understanding of how the Pell lifetime
eligibility usage calculation is performed within COD and the subsequent reporting of
this data from COD to NSLDS. For 200,731 students, the lifetime eligibility usage
adjustments in NSLDS equaled our recalculation of the disbursements’ eligibility usage
and matched Pell lifetime eligibility adjustment data in COD. For the remaining
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1,308 impacted students, we used COD records and therefore did not assess the
reliability of the NSLDS data for these students. We concluded that the COD and NSLDS
data extracts (data that we used for Pell disbursement testing) were sufficiently reliable
for their intended uses and could be relied on to answer the audit objective.
Compliance with Standards
We conducted this performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform the
audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objective. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on our
audit objective.
We remotely conducted our audit from April 2022 through January 2023. We discussed
the results of our audit with FSA and other Department officials on December 20, 2022,
and provided them with a draft of this report on March 17, 2023.
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Appendix B. Acronyms and Abbreviations
CARES Act Coronavirus Aid, Relief, and Economic Security Act
COD Common Origination and Disbursement system
Compliance Office of Management and Budget, 2 CFR, Part 200, Appendix,
Supplement XI, Compliance Supplement
Department U.S. Department of Education
FSA Federal Student Aid
impacted students students who withdrew from postsecondary institutions due
to the coronavirus pandemic
NSLDS National Student Loan Data System
OIG Office of Inspector General
Pell Federal Pell grant
program review Federal Student Aid Program Review Guide (September 2021)
guide
proprietary schools Guide for Financial Statement Audits of Proprietary Schools
audit guide and For Compliance Attestation Examination Engagements of
Proprietary Schools and Third-Party Servicers Administering
Title IV Programs (March 2023)
R2T4 return of Title IV
schools postsecondary institutions
Title IV Title IV of the Higher Education Act of 1965
weekly spreadsheet weekly report from COD that identified all Direct Loan
report disbursements that had the coronavirus indicator added
during that week for each loan servicer
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FSA Comments
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