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Audit at ETSU shows repeat problem with default loan notification

Rex Barber • Jan 31, 2013 at 8:35 PM

East Tennessee State University’s financial and compliance audit for this past fiscal year revealed a problem with notifying some students whose loans have gone into default.

This was the second time this problem has been found, but a school administrator said the problem may now be fixed.

This default notification issue was first addressed in the previous year’s audit and school administrators thought the situation had been corrected.

Prior to the first time this issue was found, ETSU had employees who handled Perkins Loans, which are the loans in question. But after spring 2009 that function was contracted to a company called ECSI.

The Perkins Loan is a program funded by the federal government and the university. ETSU administers the program and is responsible for notifying students who go into default and for collecting payment.

According to the audit, which was released in November, ETSU “did not ensure that all notification procedures were performed for Perkins Loans in default status.”

The Federal Student Aid Handbook was cited in the audit. This handbook contained information regarding a requirement that notices be sent 15 days, 30 days and 15 days after a payment is late.

If no response is made to the final notice within 30 days, the school must attempt to contact the borrower twice by phone.

Non payment may allow the school to accelerate a loan, which means immediately making the full balance due. If this is done, the school must send the borrower a written acceleration notice at least 30 days in advance.

The audit contained a review of 25 students whose Perkins Loans went into default during the fiscal year that ended June 30. Of these 25, 11 were not mailed final notice letters.

No attempt was made to contact three of the 25 students by phone who did not have a listed number or had an invalid number, which is a requirement.

According to the audit, 12 of the 25 students in default were mailed intent to accelerate letters earlier than the 30 days. As stated earlier, the requirement for this step is to wait at least 30 days.

B.J. King, senior associate vice president for finance and administration, said samples of default notifications during this fiscal year have been pulled and no errors were found. She said ETSU will continue to monitor the situation.

King said the first time these loan issues were discovered, the audit revealed that ETSU had not contracted to be a full-service client of ECSI. The contract has since been amended to reflect that full-service client status.

Problems with notification of students who had loans in default remained, though.

Auditors discovered a software glitch that was leading to some of the problems. That, too, was rectified.

It was also discovered the vendor was misinterpreting guidelines regarding the timing of notifying borrowers whose loans were in default. That has since been rectified with the Department of Education, King said.

Finally, King said phone numbers for some of the borrowers were not connected to the borrowers in the computer system. King said the vendor now has all the numbers it needs.

“So what we’re doing on our part is monitoring closely” the vendor’s work, King said.

Overall, the audit was fine. No finances were affected by this finding.

“We know it’s serious and we’re working with the vendor to make sure everything is correct,” King said.

In that first audit that discovered the loan notification compliance issues, there was also a finding that direct loan reconciliations had not been documented.

This most recent audit found that issue had been resolved.

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