The Obama Administration has made a top education priority of the elimination of federally guaranteed student loans by private-sector lenders, to be replaced by expanding the federal Education Department’s Direct Loan program. Such a move, supporters say, will allow tax dollars to be reallocated away from subsidizing lenders and toward increasing federal student aid programs like Pell Grants.
Administration officials have indicated they will rely on contracts with private companies to help manage the transition, as the nation’s 6,200 higher education institutions move to the Direct Loan program exclusively. But indications suggest this transition could be moving toward the growing peril of students and taxpayers alike.
In fact, several audits by the department’s Inspector General and the Government Accountability Office (GAO) have raised major concerns about oversight within the department’s Federal Student Aid (FSA) office. A GAO report published in November concluded that a lack of financial expertise at the department hinders the effectiveness of its monitoring of grantees. A December 2008 report by the Inspector General (IG) concluded FSA’s “policymaking, spending decisions and program oversight are handicapped by a lack of disclosure.”
The Education Department relies on a single platform, called the Common Origination and Disbursement (COD) system, to support the delivery of all direct loans and grants. The system, developed and run by Accenture, is managed through a sole-source, non-compete, billion-dollar contract. When the contract expired, FSA, rather than re-compete or divide it into key components, chose to simply extend it through 2014. A 2005 IG report noted lack of oversight with the COD contract, and a failure to assure continuation of service when the contract expires.
In a written response to the IG’s 2008 findings, a senior FSA executive noted that, in an effort to increase product quality and reduce exposure to system failure, his office would increase the competitive environment through a new strategy of replacing single, large contracts with smaller, multi-vendor contracts, with a focus on component-based development. But this strategy, and with it its goals of reduced risk with improved performance, seems to have disappeared.
The required Direct Loan program expansion (by fivefold from the time of the contract’s five-year renewal) is expected to drive proportional increases to taxpayers’ costs for the COD system. System vulnerabilities will likely also increase with unprecedented loan volume operating off a single platform. Ireland-based Accenture noted an additional risk for the company in a recent SEC filing — the possibility that future legislative proposals could restrict or prohibit the eligibility of non-U.S. corporations for future federal contracts.
With students and taxpayers exposed to ever-increasing costs and risks, federal education officials will be under increased pressure to maintain smooth operations. It is just as vital that this new accountability extends to federal contracts as well.
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