Dive Brief:

• The U.S. Education Department’s efforts to rehabilitate defaulted student loans has been seriously flawed, federal investigators say.
• In testimony before Congress, a U.S. Government Accountability Office official said the department failed to properly implement a computer system upgrade in 2011, which led to a six-month period where no loan rehabs were processed. That affected 80,000 borrowers.
• The GAO also found that the education department lacks data and performance measures to help it manage the loan rehab program.

Dive Insight:

This mess was created after the education department accepted a proposal by the computer system’s original contractor to upgrade the system for free, even though that contractor had an unreliable performance history with the department. GAO says the department’s testing of the system failed to detect problems with the loan rehabs. The program allows borrowers who are in default on their federal student loans to rehab the loans, and their credit reports, by making nine on-time payments over a 10-month period. To clear the backlog created by the computer snafu, the education department had to rehab 600,000 loans for 200,000 borrowers from April 2012 to January 2013.