Can Technology Help Prevent Improper Pell Payments?
Earlier this summer, the U.S. Department of Education disclosed the fact that it had made over $6 billion in improper payments across its vast portfolio of student loans and grants. The department’s revelation was both alarming and multifaceted. Incorrect amounts were disbursed resulting in overages. Unnecessary payments were made altogether. And, in some cases, payments were made to the wrong students entirely.
Well over $2 billion was erroneously paid out in Pell Grants alone—need-based aid designed to help make college more affordable for low-income students. Shockingly, Inspector General Kathleen Tighe acknowledged that while she was committed to “recommending corrective actions,” the Department had no plan in place to sort out, or address, the “root cause” of its sweeping problem.
As a former financial aid director with an understanding of both the technological and procedural underpinnings of aid disbursement processes used by American colleges and universities, I am deeply concerned by what appears to be a growing problem. Among institutions charged with administering the Pell Grant program, improper payments surged from 1.52 percent in the fiscal year 2015 to 7.85 percent in the fiscal year 2016.
As a former beneficiary of federal aid, I’m also afraid that failure to address improper payments threatens the potential for programs like Pell play in making good on the promise of higher education for low-income students. That risk is especially troubling, given the potential to prevent improper payments through well-established, but inconsistently utilized, processes for verification of self-reported student financial information. Here’s why:
Reports suggest that the majority of improper payments stem from inaccurate or unverified self-reported financial information on a student's Free Application for Federal Student Aid (FAFSA). This indicates that institutions are committing errors when completing the verification of student information, despite use of the algorithm developed by the department to select students for verification. Significant reductions in improper payments made through the Pell program would be seen if verification of self-reported financial information was required for all Pell-eligible students.
At first blush, college and university leaders will no doubt scoff at the concept of universal verification. They will cite budget cuts, inadequate resources and claim that new federal requirements would impose an administrative burden that renders their work unmanageable, if not intolerable. But from 2005 to 2013, I worked in or directed aid offices that did exactly this without incurring a single audit finding for verification errors. For the last four years, I have worked within a software company that develops technology used by the financial aid office to improve efficiencies and accuracies, including the verification processes.
Today, Optical Character Recognition (OCR) technology – utilized by major banks to enable mobile deposits – allows institutions to automate document review processes used to flag conflicts between tax transcripts and self-reported values during the verification and documents review process. OCR makes universal verification of Pell-eligible student data a practice that is increasingly feasible for institutions working to streamline and create new efficiencies across their financial aid processes.
Beyond requiring universal verification, the federal government can also play a role in equipping financial aid practitioners with tools to enable implementation of better processes and technologies. Ensuring the efficacy of the IRS Data Retrieval Tool (DRT), which allows students to transfer financial information from the IRS into the FAFSA, would, for example, further relieve institutions of the need to verify financial data and also reduce the administrative burden on schools resulting from the increased volume of verifications.
Based on my work with a cross-section of over 400 institutions nationwide, I believe we are at a precipice when it comes to higher education and the educational funding available to students. After completing college only through the use of both the Pell and Stafford Loan programs, I have dedicated myself to making college accessible to students. Title IV funding programs are critical to advancing that mission of access for low-income students. Use of technology to improve processes within the aid office is an integral component of achieving the desired results and improvements. We must take action to ensure that improper payments within these programs are brought under control – and quickly.