What GAO found
Students affected by college closures may be eligible for federal student loan forgiveness through a “closed school expulsion” from their educational institution. However, the GAO notes that outreach to student borrowers about possible expulsion is 1) not timely, 2) does not always contain complete information, and 3) the risk of default is high. We discovered that we were missing an opportunity to provide additional information to our highest borrowers. These practices are inconsistent with education’s strategic goals of effective outreach and assistance to borrowers.
Key Issues with Closed School Discharge Outreach
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timeliness |
Due to Education’s delay in identifying college closures, it may take several months after closures before federal student loan servicers notify borrowers that they may be expelled. For example, Education did not identify a third of school closures between 2010 and 2020 until more than two months after the university actually closed. This means borrowers who attended these colleges weren’t notified of their termination options by loan servicers until months after the colleges closed. These delays limit the ability of students to make timely and informed decisions about their educational and financial options after colleges are closed. |
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incomplete information |
GAO reviewed form letters sent by five loan servicers to inform borrowers of their potential eligibility for a waiver. GAO found that four of her servicers (who served more than half of all borrowers) had incomplete and potentially confusing information. For example, letters from her 3 out of 5 servicers lacked critical information to help borrowers make informed decisions about applying for termination, such as eligibility criteria and explanations of termination benefits. I was. Educators noted that they do not provide guidance to loan servicers on what to include in these letters. As a result, eligible borrowers seeking loan forgiveness may not understand the information they receive. They may continue to struggle to pay off the loan that is subject to the deductible. |
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missed a chance |
After the servicer notifies the debtor of its potential eligibility for release, limited additional outreach is provided to them. For example, Education currently does not direct servicers to include waiver information in delinquency and default notices sent to borrowers. In addition, servicer call centers interviewed by GAO did not notify borrowers who called in advance that they may be eligible for debt forgiveness. As a result, institutions are missing an opportunity to ensure additional outreach to borrowers at risk of defaulting on loans that may be subject to forgiveness. |
Source: GAO analysis of education data, education and loan servicer documents and interviews. | | GAO-22-104403
Why GAO did this study
When a university closes, many students’ education is derailed and they are left with loans but no degrees. Those who fail to complete their education may be subject to closed school expulsion from education, but borrowers may not be aware of this potential remedy.
The GAO was asked to consider issues related to university closures. His 2021 testimony for GAO focused on the number of borrowers affected and layoffs (GAO-21-105373). This report examines whether institutions are ensuring timely and sufficient outreach to borrowers following closures. GAO analyzed educational data on closed universities from 2010 to 2020. GAO has reviewed relevant federal laws, regulations, and Education documents, as well as his five out of eight loan servicers of various types and sizes operating in 2021.
