(GENERAL-23-119) Federal Student Aid Posts New Quarterly Reports to FSA Data Center

Today, Federal Student Aid (FSA) released new quarterly portfolio reports on its FSA Data Center website with key data and other information about the American student aid programs from September 30, 2023. 

These are the first quarterly reports published since the flexibilities applied to borrower accounts, as prescribed in the CARES Act and extended by executive actions, ended on August 31, 2023. Although most borrowers had transitioned out of the forbearance and interest began accruing on September 1, 2023, borrowers’ first payment dates were not until October.

In addition to the portfolio reports, FSA updated the lists of schools subject to Heightened Cash Monitoring and those requiring a letter of credit during AY20 and AY21 in this release. 

FSA posts reports to its FSA Data Center in support of open government initiatives to help ensure consistency, increase transparency, and establish self-service opportunities for stakeholders. 

As of September 2023, approximately 43.2 million unduplicated student loan recipients had $1.60 trillion in outstanding loans. This represents the first year-over-year decrease in the portfolio’s outstanding balance since FSA began its regular portfolio reporting in 2007. Year-over-year, the overall portfolio decreased about two percent or $32 billion while the number of student loan recipients decreased by about 300,000 since last year.

Although FFEL balances continue to decline most rapidly, Direct Loan balances have also declined about one percent compared to the same period last year. This decline is attributable to borrowers receiving forgiveness or loan discharges under Public Service Loan Forgiveness, borrower defense to repayment, Total and Permanent Disability, and the Income-Driven Repayment account adjustment as well as borrowers opting to make lump-sum payments as the payment pause ended. 

ED now directly manages 93 percent (nearly $1.5 trillion) of the total federal loan portfolio, the majority of which are Direct Loans. The remaining non-Ed-held portfolio includes school-held Perkins Loans, lender-held FFELP loans, and the FFELP loans held by guaranty agencies.

As a result of special COVID-19 flexibilities ending, the number of recipients in repayment status has greatly increased. More than 26 million ED-held recipients, with more than $1 trillion in outstanding loans, were in a repayment status as of September 2023, compared to about 400,000 recipients in September 2022 and 19.3 million recipients in September 2019. The number of recipients in a repayment status is likely to fluctuate over the next several months as borrowers evaluate their repayment options and make changes to their accounts. 

In contrast, about 1.2 million ED-held recipients with $58 billion in outstanding loans were in forbearance as of September 2023, compared to 26.3 million with nearly $1.1 trillion in outstanding loans in September 2022. There are also more than 8 million ED-held recipients in nonpayment statuses such as in-school loan status, grace period, open non-defaulted bankruptcy, and the in-school deferment types.

While enrollment in income-driven repayment (IDR) plans had generally increased during the COVID-19 emergency, IDR enrollment began to decrease in September 2022. While the decrease was insignificant and expected to be temporary, the decreases continued through June 2023, driven largely by the number of borrowers who have entered repayment during the COVID-19 emergency without selecting a repayment plan before being transitioned into a forbearance.

Now that most borrowers’ forbearances have ended, the temporary downward trend in IDR has reversed. Over the past year, ED-serviced loans in IDR plans have increased from $542 billion to $603 billion. In terms of dollars, about 50 percent of all ED-serviced dollars in repayment, deferment or forbearance reflect borrowers who are enrolled in an IDR plan today, compared to about 45 percent one year ago. In terms of borrowers, about 32 percent of the ED-serviced repayment plan universe is in an IDR plan, up from about 28 percent in September 2022. In all, about 10.2 million ED-serviced borrowers were in enrolled in an IDR plan, as of September 2023.

Beginning in August 2023, FSA launched an updated income-driven repayment application tool that allowed eligible borrowers to officially enroll in the new Saving on A Valuable Education (SAVE) plan. As of September 2023, approximately 4.9 million borrowers were enrolled in the SAVE plan, which replaced the REPAYE plan. By comparison, about 3.3 million borrowers were enrolled in REPAYE as of June 2023.

Despite the large numbers of borrowers entering repayment, no new DL borrowers are expected to enter default until fall 2025 due to the implementation of temporary on-ramp period, which prevents the worst consequences of missed, late, or partial payments, including negative credit reporting for delinquent payments for twelve months. In fact, the number of cumulative DL borrowers in default continues to decrease, now 4.4 million borrowers compared to about 4.8 million borrowers one year ago. The number of defaulted borrowers in the FFEL Program has also decreased, now less than 3.1 million borrowers compared to 3.4 million last year. (Note that the DL and the FFEL total defaults should not be summed because many borrowers have loans in both programs.) Cumulatively, approximately 6.8 million unique recipients have loans in default as of September 2023, compared to about 7.4 million one year ago. 

ED may provide federal student aid funds to an institution under the advance payment method, heightened cash monitoring (HCM) payment method, or reimbursement payment method. 

Under the advance payment method, an institution submits a request for funds that may not exceed the amount of funds the institution needs immediately for disbursements the institution has made or will make to eligible students and parents. The institution can electronically access the funds and must disburse the federal student aid requested within a specific timeframe. 

FSA may place an institution on an HCM payment method to provide additional oversight for financial or federal compliance issues, some of which may be serious and others less troublesome. 

There are two levels of HCM: 

ED may place an institution on the Reimbursement payment method if ED determines that the institution needs the highest level of monitoring. 

The Reimbursement payment method is similar to HCM2, except ED reviews the documentation for all students and parents included in the payment request, not just a sample. Institutions may be placed on HCM1, HCM2, or Reimbursement as a result of compliance issues, including but not limited to, accreditation issues, late or missing annual financial statements and/or audits, outstanding liabilities, denial of re-certifications, concern regarding the institution’s administrative capabilities, concern regarding an institution’s financial responsibility, and possibly severe findings uncovered during a program review. 

FSA’s Dec. 1, 2023, HCM report identifies 418 institutions receiving Title IV funds under HCM. A little more than half (212 institutions) are for-profit institutions, while approximately 41% (172 institutions) are nonprofits, and the remaining 8% (34 institutions) are public. 

Of the 418 institutions on the Dec. 1, 2023, report, 363 are on HCM1, and 55 are on HCM2. More than 94% of institutions that were placed on HCM1 are due to financial responsibility, or late or missing compliance audits or financial statements submissions. Institutions may also be cited for a past performance violation due to a late audit submission. Nearly 80% of the institutions placed on HCM2 have exhibited accreditation problems, administrative capability concerns, or Title IV compliance concerns identified in audits, or program reviews. The HCM report is accessible at StudentAid.gov/data-center/school/hcm. 

Section 498(c) of the Higher Education Act of 1965, as amended (HEA) requires institutions to submit financial statements to the Department of Education when applying to start participation, to determine compliance annually with the standards of financial responsibility, or to continue participation after a change in ownership, in the various Title IV programs. The regulations establish general standards of financial responsibility, and also provide for the Department to determine the financial responsibility of an institution by calculating composite financial scores based on an institution’s audited annual financial statements. The regulations specify that certain amounts reported in the institution's financial statements are used as required elements to calculate the composite score.

Institutions may be required to remit financial protection to the Department if they are in violation of a financial responsibility requirement. Financial protection is frequently provided by schools to the Department in the form of an irrevocable letter of credit (LOC) issued by a recognized U.S. financial institution. The Department may also accept a school’s cash deposit or set aside a portion of a school’s drawdown of federal monies over a brief period until the required financial protection is funded through the offset process. Financial protection requirements are applicable to domestic and foreign, private non-profit and proprietary institutions. These requirements generally do not apply to public institutions that are backed by the full faith and credit of a state.

The most common reason why an institution is required to remit a financial protection to the Department is because they have a failing financial responsibility composite score (generally a score of 1.4 or less on a scale of -1.0 to +3.0) and are not deemed financially responsible. In accordance with 34 CFR 668.175, an institution with a composite score of 1.4 or less may continue to participate in the Title IV programs under the Provisional certification alternative. Institutions participating under provisional certification are subject to heightened cash monitoring and may be required to submit a financial protection of not less than 10 percent of the Title IV aid the institution received during its most recently completed fiscal year. Institutions that passed the score in the previous year may score from 1.0 to 1.4 for up to three consecutive years without providing a financial protection, provided other reporting conditions are met. Institutions that score below a 1.0 are required to submit a financial protection of not less than 10 percent of the Title IV aid the institution received during its most recently completed fiscal year. A financial protection may also be required by institutions that are cited for failure of other portions of the financial responsibility standards noted under 34 CFR Part 668 Subpart L. Such conditions may include the following:

The Department’s financial protection report for the 2020-2021 Award Year indicates that more than $580 million in financial protection was requested and received from more than 310 distinct institutions of higher education, including from more than 200 proprietary institutions and more than 100 domestic nonprofit and foreign institutions. The Department has also posted a financial protection report for the 2019-2020 Award Year. The reports are accessible at studentaid.gov/data-center/school/loc.

The FSA Data Center was launched in 2009 to increase government transparency by posting information useful to businesses, postsecondary institutions, the media, and individuals.