Watchdog says Biden’s student loan forgiveness plan lacked proper fraud protection

President Joe Biden’s initial endeavor to forgive student loans encountered issues with fraud, according to an independent watchdog.

Last year, the federal Education Department granted approval to 16 million borrowers out of the more than 26 million who applied, for student debt relief totaling up to $20,000. However, the department failed to implement standard fraud prevention measures for these borrowers, as per a report published by the nonpartisan Government Accountability Office (GAO) on Thursday.

The debt relief plan aimed to forgive as much as $400 billion in student loans, alleviating the financial burden faced by many American families. Repayments on these loans recommenced last month after a pause of over three years, which was initiated due to the pandemic. Auditors stated that if the plan had not been halted by lower courts and ultimately rejected by the Supreme Court’s conservative majority in the summer, the department would have exposed itself to the possibility of fraudulent data leading to forgiveness for ineligible borrowers.

“It is crucial that the department commit to fraud risk management in any future program it pursues,” the auditors emphasized.

The report provides material that can be used by Biden’s political opponents as his administration continues to stress the need for relief from the approximately $2 trillion owed in student debt by Americans. This debt has become the largest financial asset of the U.S. government. While Americans are divided along party lines regarding the fairness of widespread student debt relief, Biden has made it a key issue in his reelection campaign and has enlisted a team of negotiators to help develop more targeted forms of loan forgiveness.

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Thursday’s GAO report highlighted a key concern regarding some borrowers who had self-reported incomes. When the Education Department introduced Biden’s extensive student debt relief plan in October of last year, it neglected to verify the self-reported incomes of certain borrowers before granting them relief, according to the auditors.

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The Education Department downplayed the findings presented in the report.

In a letter dated October 16, Richard Cordray, the chief operating officer for the Federal Student Aid program, stated that the potential rate of fraud among applications would have been less than 1%, even in the worst-case scenario. Cordray wrote, “Faulting the Department’s implementation of its fraud risk management strategy as incomplete, when federal court orders prevented the Department from continuing to work on any aspect of the program, mischaracterizes those efforts,” in response to the GAO’s findings.

Among other recommendations, the auditors advised the federal government to avoid relying on self-reported data for future loan relief efforts. They also urged the Education Department to fully implement its risk management plan at all stages before launching any other relief initiatives.

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The department largely agrees with these suggestions but expresses dissent on certain technicalities. Cordray noted that the program had an extremely low risk of fraud, targeted a well-known group of borrowers within the Department, and provided debt relief rather than cash payments.

The GAO began its investigation into the program before the Supreme Court ruling in June, as confirmed by GAO spokesperson Chuck Young in an email to USA TODAY. The investigation was initiated by the GAO to ensure program integrity and was not conducted at the request of Congress, unlike some other audits.