Public Service Loan Forgiveness: Education Needs to Provide Better Information for the Loan Servicer and Borrowers

Starting in September 2017, the first borrowers became eligible and began applying to have their loans forgiven through the PSLF program. GAO was asked to review the PSLF program.

This report examines the (1) number of borrowers pursuing PSLF and the extent to which Education has conducted outreach to increase borrower awareness of program eligibility requirements, and (2) extent to which Education has provided key information to the PSLF servicer and borrowers. GAO analyzed data from the PSLF servicer on employment and loan certifications and loan forgiveness applications as of April 2018; reviewed Education's guidance and instructions for the PSLF servicer; assessed the information used by Education and the PSLF servicer and communicated to borrowers against federal internal control standards; and interviewed officials from Education and the four largest loan servicers, including the PSLF servicer.

As of April 2018, over a million borrowers had taken steps to pursue Public Loan Service Forgiveness (PSLF) from the Department of Education (Education), but few borrowers have been granted loan forgiveness to date. The PSLF program, established by statute in 2007, forgives borrowers' federal student loans after they make at least 10 years of qualifying payments while working for certain public service employers and meeting other requirements. Over 890,000 borrowers have passed a first step towards potentially qualifying for PSLF by voluntarily having their employment and loans certified as eligible for PSLF as of April 2018, according to data from Education's PSLF loan servicer. While borrowers first became eligible to apply for loan forgiveness in September 2017, few applicants had met all requirements as of April 2018, with 55 borrowers having received loan forgiveness (see figure). Education has used various outreach methods to inform borrowers about PSLF, but the large number of denied borrowers suggests that many are still confused by the program requirements. A recently enacted law requires Education to conduct additional outreach to help borrowers understand how to meet program requirements.

Education does not provide key information to the PSLF servicer and borrowers.

Guidance and instructions: Education provides piecemeal guidance and instructions to the PSLF servicer it contracts with to process certification requests and loan forgiveness applications. This information is fragmented across the servicing contract, contract updates, and hundreds of emails. As a result, PSLF servicer officials said their staff are sometimes unaware of important policy clarifications. Education officials said they plan to create a comprehensive PSLF servicing manual but have no timeline for doing so.

Qualifying employers: Education has not provided the PSLF servicer and borrowers with a definitive source of information for determining which employers qualify a borrower for loan forgiveness, making it difficult for the servicer to determine whether certain employers qualify and for borrowers to make informed employment decisions.

Qualifying loan payments: Education does not ensure the PSLF servicer receives consistent information on borrowers' prior loan payments from the eight other federal loan servicers, which could increase the risk of miscounting qualifying payments. Borrowers also lack sufficiently detailed information to easily identify potential payment counting errors that could affect their eligibility for loan forgiveness.

These weaknesses are contrary to federal internal control standards for using and communicating quality information, creating uncertainty for borrowers and raising the risk some may be improperly granted or denied loan forgiveness.

GAO recommends that Education (1) develop a timeline for issuing a comprehensive guidance and instructions document for the PSLF servicer, (2) provide the PSLF servicer and borrowers with additional information about qualifying employers, (3) standardize payment information other loan servicers provide to the PSLF servicer, and (4) ensure borrowers receive sufficiently detailed information to help identify potential payment counting errors. Education agreed with GAO's recommendations.

Starting in September 2017, borrowers began applying to have their  federal student loans forgiven through the Public Service Loan  Forgiveness (PSLF) program. This program, established by law in 2007,  is intended to encourage individuals to enter and continue careers in  public service by forgiving borrowers’ remaining federal student loan  balances after they have made at least 10 years of loan payments while  working in public service and meeting other requirements. Only loans  provided through the William D. Ford Federal Direct Loan (Direct Loan)  program qualify for forgiveness. The Department of Education  (Education) manages the PSLF program and contracts with a single loan  servicer to handle day-to-day activities associated with the program,  which include responding to borrower inquiries, making preliminary  determinations about whether borrowers’ employment and loans qualify  for PSLF, and processing loan forgiveness applications.

Although borrowers are now applying for loan forgiveness through the  program, little is known about the processes for assessing borrower  eligibility and whether these processes ensure consistent services to  borrowers and safeguard taxpayer funds. In light of these issues, you  asked us to review the PSLF program.

This report examines (1) the number of borrowers pursuing PSLF and the  extent to which Education has conducted outreach to increase borrower  awareness of program eligibility requirements, and (2) the extent to which  Education has provided key information to the PSLF servicer and  borrowers.

To address these questions, we conducted our review of the PSLF  program using the following approaches:

To examine the number of borrowers pursuing PSLF, we analyzed the  most recent available data from the PSLF servicer on the volume of  borrower requests to have their employment and loans certified as  eligible and loan forgiveness applications, including approvals, going  back to when these processes were established by Education.  Specifically, we analyzed data on employment and loan certification  requests from January 2012 through April 2018, and data on loan  forgiveness applications from September 2017 through April 2018.  We also analyzed data on the reasons why borrowers were denied  certification and loan forgiveness. We assessed the reliability of these  data by reviewing data system documentation from the PSLF servicer  and interviewing knowledgeable officials, and we determined that the  data were sufficiently reliable for our reporting purposes. To assess  Education’s outreach to borrowers about eligibility requirements, we  reviewed the program documents and information that Education and  the PSLF servicer provide to borrowers, and interviewed Education  officials. To identify common questions borrowers have about these  requirements, we interviewed officials from the four largest federal  student loan servicers, including officials and frontline staff from the  PSLF servicer. We examined a 2017 Consumer Financial Protection  Bureau report on borrower complaints, including those related to the  PSLF program. We assessed Education’s outreach efforts against the  department’s objective in its strategic plan for fiscal years 2018  through 2022 to improve the quality of service for customers across  the entire student aid life cycle.

To examine key information Education has provided to the PSLF  servicer and borrowers, we reviewed Education’s processes for  providing and sharing information and assessed them against federal  internal control standards for communicating with external parties and  using quality information. We reviewed the various methods  Education uses to provide guidance and instructions to the PSLF  servicer, including the servicing contract, contract updates, and  emails. We examined the main information sources used by the  servicer to evaluate employer eligibility and reviewed its process for  obtaining prior loan payment information from other loan servicers.  We also reviewed the information that Education and the PSLF  servicer provided to borrowers about qualifying employers and  payments. We interviewed Education officials and the PSLF loan  servicer’s management and frontline staff. We reviewed Education’s  monitoring reports on the PSLF servicer’s operations and the PSLF  servicer’s internal handbook for processing employment and loan  certifications and forgiveness applications.

For both objectives, we also reviewed relevant federal laws and  regulations. In addition, at the time of our review, there was ongoing state  and federal litigation related to the administration of the PSLF program.  Therefore, we scoped our study to minimize overlap with issues pending  in litigation. For example, we did not assess any individual borrower  eligibility determinations or qualifying loan payment counts made by the  PSLF servicer. As a result of this approach, our findings do not draw any  conclusions about how individual borrowers or employers may have been  affected by any of the program administration issues addressed in this  report.

We conducted this performance audit from August 2017 to September  2018 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

Education administers federal student aid programs, including the Direct  Loan program, through the Office of Federal Student Aid. Under the  Direct Loan program, Education issues and oversees the loans while  contractors service them. Education currently contracts with nine loan  servicers that each handle the billing and other services for a portion of  the over $1 trillion in outstanding student loans provided through the  Direct Loan program. These servicers track and manage day-to-day  servicing activities, and they report key information on the status of each  loan to Education’s central student loan database. In 2011, Education  contracted with one of its existing loan servicers to become the single  servicer for borrowers pursuing PSLF. The PSLF servicer is responsible  for processing certification requests and forgiveness applications, as well  as servicing the loans of borrowers who have met basic PSLF eligibility  requirements.

The PSLF program provides eligible borrowers with forgiveness on the  remaining balance of their Direct Loans after they have met program  requirements. To receive forgiveness for a loan, borrowers are required  to be employed by a qualifying employer when making 120 qualifying  payments, at the time they apply for forgiveness, and at the time they  receive forgiveness for their loans. Specifically, borrowers are required  to:

Work full-time for a public service organization, such as a government organization, agency, or entity at any level (federal,  state, local, or tribal); a nonprofit, tax exempt organization (under section 501(c)(3) of  the Internal Revenue Code); or another private nonprofit organization that provides certain public  services.

Not be in default and be repaying their loans through an income- driven repayment plan (in which borrowers’ monthly payments are  based on their income and family size); the 10-year Standard  repayment plan; or another plan if the monthly payment amounts  equal or exceed the amount the borrower would have paid under the  10-year Standard repayment plan. Although the 10-year Standard  repayment plan qualifies for PSLF, borrowers in this plan will pay off  their loans before they are eligible for forgiveness unless they change  to an income-driven repayment plan that leaves them with a balance  remaining to be forgiven after 120 payments.

Make 120 on-time monthly loan payments for the full amount due on  their bill after October 1, 2007. These monthly payments do not need  to be consecutive.

In January 2012, Education began offering a voluntary process to certify  borrowers’ public service employment and loans as eligible for PSLF.  Borrowers can request to have their employment and loans certified at  any time to make sure they are meeting basic program requirements and  are on track towards qualifying for loan forgiveness (see fig. 1). Once a  borrower submits a request, the PSLF servicer reviews the borrower’s  employment and loans to determine if they qualify, and if so, counts how  many qualifying payments the borrower has made.

In September 2017, 10 years after the PSLF program was established,  Education began accepting loan forgiveness applications from borrowers.  The application is similar to the form borrowers use to request certification  of their employment and loans for PSLF, but is intended for borrowers  that have already made 120 qualifying payments (see fig. 2). The PSLF  servicer reviews a borrower’s application and incorporates information  from any previously approved certification forms to determine if the  borrower’s employment and loans qualify and if they have made 120  qualifying payments. If the borrower meets all of these requirements, the  PSLF servicer forwards the application to Education for final review. If  Education determines the borrower has met all eligibility requirements, it  directs the PSLF servicer to forgive the remaining balance on the  borrower’s loans.

Many Borrowers Are Pursuing Public Service Loan Forgiveness, and Recent Legislation Requires Education to Conduct Additional Outreach to Borrowers

Over 890,000 Borrowers Took an Initial Step Towards Qualifying for PSLF by Having Their Employment and Loans Certified, and 55 Have Received Loan Forgiveness

Over 890,000 borrowers have taken an initial step towards qualifying for  the PSLF program by voluntarily having their employment and loans  certified as eligible for PSLF, according to data from the PSLF servicer as  of April 2018. Of these, over 520,000 borrowers had recorded at least  one qualifying payment that counted towards the 120 required to be  eligible for loan forgiveness (see fig. 3). In total, almost 1.2 million  borrowers requested to have their employment and loans certified but  over 280,000 were denied, primarily due to missing information on the  form, or because they did not have qualifying federal loans or work for a  qualifying employer, according to data from the PSLF servicer.

The number of new borrowers whose employment and loans have been  certified as eligible for PSLF has increased in each of the past 6 years,  according to PSLF servicer data (see fig. 4). Officials with the PSLF  servicer said they anticipated that the volume would continue to increase  as the program gains visibility.

In the first 8 months that borrowers were able to apply for loan  forgiveness (September 2017 through April 2018), Education had  approved 55 borrowers and forgiven a total of almost $3.2 million in  outstanding student loan balances, an average of almost $58,000 per  borrower. The amount of loan forgiveness for individual borrowers ranged  from almost $800 to almost $290,000. Over 19,300 borrowers had  submitted loan forgiveness applications as of April 2018 (see fig. 5). Of  the almost 17,000 borrowers with applications that had been processed,  over 40 percent had qualifying loans and employment but were denied  because they had not yet made 120 qualifying payments. The other most  common reasons borrowers were denied included missing information on  the application or because the borrower did not have qualifying federal  loans. Education officials estimated that about 700 borrowers will be  approved for loan forgiveness by September 30, 2018.

Borrower Confusion about PSLF Requirements Persists, and Recent Legislation Requires Education to Conduct Additional Outreach

Although Education has conducted some outreach to communicate PSLF  program requirements to borrowers, the large number of borrowers  whose certification requests and forgiveness applications were denied  suggests that many borrowers do not understand or are not aware of  these requirements. For example, over half of borrowers that requested to  have their employment and loans certified as of April 2018 either did not  meet basic eligibility requirements or had yet to make any qualifying loan  payments. This includes over 150,000 borrowers who requested to have  their employment and loans certified despite not having qualifying federal  loans, which suggests these borrowers either did not know which types of  loans they had or which types qualified for the program. Borrowers who  had qualifying loans also may have been confused about requirements  related to making qualifying payments. Over 370,000 borrowers that had  their employment and loans certified as of April 2018 had not made any  qualifying payments at the time of certification because they were not on  qualifying repayment plans, had loans in a deferment or forbearance,  were still in the grace period before starting repayment, or had recently  consolidated their loans, among other reasons, according to PSLF  servicer data (see fig. 6). Although some of these borrowers may have  understood how prior choices they made regarding repayment of their  loans would affect their ability to make qualifying payments, other  borrowers may not have.

Officials with the PSLF servicer said borrowers were frequently confused  by program requirements related to qualifying loans, employment,  repayment plans, and payments. For example, PSLF servicer officials  said that borrowers were sometimes unaware that they were not on a  qualifying repayment plan or that forbearance, deferment, and loan  consolidation would affect their qualifying payments. PSLF servicer  frontline customer service staff also said they frequently received calls  from borrowers who were confused about whether their loans qualified for  PSLF and other program requirements. Two other loan servicers we  spoke to identified the same general areas of confusion among borrowers  who call with questions about PSLF. In addition, borrower complaints  reported by the Consumer Financial Protection Bureau indicate confusion  with PSLF requirements related to qualifying loans and payments.

Education uses several methods to conduct outreach to inform borrowers  about PSLF requirements, but denial data suggest and PSLF servicer  officials confirmed that borrower confusion persists. Education currently  provides information on its website about PSLF requirements and links to  an online portal where borrowers can check what types of loans they  have and identify their loan servicer. When the PSLF servicer notifies  borrowers that their certification requests or forgiveness applications were  denied, the notification letter includes information on program  requirements and explains why the borrower did not qualify for the  program. Education has also adopted other methods to raise awareness  of the program among borrowers, such as webinars and outreach to  schools, in response to a recommendation in our previous report.  Education also instructs borrowers who have additional questions about  PSLF to contact the PSLF servicer. However, officials with the PSLF  servicer said they can provide more details about the program but cannot  answer certain eligibility questions, such as whether a particular borrower  has qualifying employment or is on a qualifying repayment plan, until the  borrower submits a form to request certification. Officials with three  other loan servicers we spoke with also said it is their general policy not  to answer specific questions about an individual borrower’s eligibility for  PSLF due to the complexity of program requirements, and they instead  direct the borrower to contact the PSLF servicer. Although this approach  may help avoid the risk of other servicers providing borrowers with  incorrect advice, it highlights the need for Education to provide borrowers  with clear and sufficient information about how to qualify for the program.  It is essential for borrowers to understand eligibility requirements because  the retrospective nature of the program requires borrowers to make  decisions about their loans and employment months or years before they  submit a PSLF certification request or apply for loan forgiveness. For  example, the Consumer Financial Protection Bureau reported that  borrowers have complained of spending years making payments,  believing they were making progress towards PSLF loan forgiveness, and  then learning that they were not eligible.

Recent legislation requires Education to conduct additional outreach. The  consolidated appropriations act enacted in March 2018 appropriated $350  million to forgive the loans of borrowers who otherwise would qualify for  PSLF had they not selected a non-qualifying repayment plan. In addition  to these funds, the act directed that $2.3 million of Education’s  appropriation for administering student aid be used to conduct outreach to  borrowers about PSLF, to help ensure borrowers are meeting program  requirements. The act specifically requires Education to communicate  PSLF program requirements to all Direct Loan borrowers and improve  PSLF outreach and information through calls, electronic communications,  and other methods. Once implemented, these provisions could reduce  confusion about PSLF requirements and help Education provide better  service to borrowers.

Education Could Provide More Comprehensive Information to Improve Program Administration and Qualifying Employment and Loan Payment Determinations

Education’s Piecemeal Guidance and Instructions to the PSLF Loan Servicer Create Challenges for Program Administration

Education does not have a comprehensive document or manual to  provide the PSLF servicer guidance and instructions, which PSLF  servicer officials said makes it difficult to effectively administer the  program and provide consistent service to borrowers. Instead,  Education’s guidance and instructions to the PSLF servicer are dispersed  in a piecemeal manner across multiple documents, including Education’s  original contract with the servicer, multiple updates to the contract, and  hundreds of emails. According to PSLF servicer officials, administering  the program based on this fragmented collection of guidance and  instructions creates a risk that relevant information may be overlooked.

Education’s use of email to communicate key guidance and instructions  to the PSLF servicer is particularly problematic because this important  information is not disseminated to relevant individuals at Education and  the PSLF servicer in the same standard fashion as official changes to the  servicing contract. Various individuals at Education have sent emails with  guidance and instructions to different staff at the PSLF servicer. As a  result, all the relevant parties may not be aware of important policy  changes or clarifications provided in these emails, according to PSLF  servicer officials and Education’s monitoring reports. In one instance, for  example, Education staff incorrectly identified what they thought was an  error in how the servicer was certifying borrowers that were employed  part-time because they were not aware of the most recent guidance that  other staff at Education had emailed the servicer on the topic. Similarly,  PSLF servicer officials said their staff are sometimes unaware of relevant  guidance and instructions in emails provided by Education, which creates  a risk that some policy updates will be overlooked and not consistently  implemented. Education has also used email to communicate certain  policy clarifications involving employer eligibility and payment counting  that, according to the PSLF servicer, have affected hundreds of  borrowers and set precedents for future eligibility decisions.

Gaps in Education’s guidance and instructions have also left the PSLF  servicer uncertain about how to administer key aspects of the program.  For example, PSLF servicer officials said that from 2016 to 2018 they  were awaiting additional clarifications from Education about how to  account for loan payments when borrowers pay more than the amount  due or submit a payment several weeks before the due date. How  overpayments and prepayments are accounted for can affect whether the  borrower’s subsequent payments qualify for PSLF because borrowers  can only receive credit for one payment per month and only when a  payment is due. While Education provided a clarification about how to  address this issue in May 2018, current guidance from Education on other  topics is still unclear or incomplete, according to PSLF servicer officials.

The absence of a central, authoritative source of PSLF guidance and  instructions creates a risk of differing interpretations and inconsistent  implementation. The PSLF servicer has developed its own internal  processing handbook based on Education’s guidance and instructions,  which PSLF servicer officials said is useful for helping staff process  certifications and forgiveness applications. However, Education has  reviewed sections of this processing handbook and identified places  where the handbook does not accurately reflect PSLF requirements and  could result in borrowers’ certification requests being improperly approved  or denied. The PSLF servicer has made updates to its processing  handbook to address certain issues that Education identified, but  Education has not conducted a comprehensive review of this handbook.  As a result, there is a risk that the PSLF servicer may still be applying  Education’s guidance and instructions differently from how the agency  intended. PSLF servicer officials said it would be helpful if Education  created a centralized manual of PSLF guidance and instructions. The lack  of a central guidance document also makes it difficult to maintain program  continuity in the event of staff turnover or if Education decides to contract  with a new servicer to administer the PSLF program. Federal internal  control standards state that agencies should communicate information to  those who need it, in a form that enables them to carry out their  responsibilities. Education has recently taken some steps to provide  clearer guidance and instructions, such as holding meetings with PSLF  servicer officials every 2 weeks to discuss any administrative issues.  Education officials also told us they plan to develop a comprehensive  PSLF servicing manual, but they do not have a timeline for completing it.  They are currently drafting an initial section of the manual focusing on  payment counting. The current lack of a definitive and comprehensive  source of guidance and instructions for the PSLF servicer creates the risk  of inconsistent interpretations that could potentially result in borrowers  being improperly denied loan forgiveness since Education does not  currently review loan forgiveness applications that are denied by the  PSLF servicer.

Additional Information from Education Could Improve the PSLF Servicer’s and Borrowers’ Ability to Determine Whether Borrowers’ Employment Qualifies for Loan Forgiveness

Education has provided the PSLF servicer and borrowers with limited  information that could help them determine which employers qualify for  PSLF, creating uncertainty for borrowers and increasing the risk that the  PSLF servicer may improperly certify or deny certification to some  borrowers. Education has not provided the PSLF servicer with a definitive  source of information for determining which employers qualify a borrower  for loan forgiveness. Instead, Education has identified some data sources  the PSLF servicer can use to determine whether borrowers are working  for qualifying employers. However, these sources are not comprehensive,  and PSLF servicer officials said they sometimes have to consult other  sources that have significant limitations. For example, Education directs  the PSLF servicer to review the Internal Revenue Service’s public list of  501(c)(3) organizations to identify qualifying nonprofit employers. Since  this list does not capture all potentially qualifying nonprofits, the PSLF  servicer supplements this with other sources that have not been fully  reviewed or assessed for accuracy by Education. For example, PSLF  servicer officials told us they use an online directory of nursing home  facilities to help determine if certain nursing homes are nonprofit  employers. However, this website explicitly states that it does not  guarantee that the information it provides is accurate or current. PSLF  servicer officials also said they sometimes use state government websites  to research organizations’ nonprofit status, but they only have access to  the relevant information from states that provide it for free. For assessing  government employers, Education directs the servicer to www.usa.gov,  an official federal government website that describes government  agencies and services, but this source provides limited information on  state and local government employers. In addition, PSLF servicer officials  said it is particularly difficult to assess certain types of employers, such as  quasi-governmental entities and charter schools. PSLF servicer officials  said that when they are uncertain whether an employer qualifies, they  elevate the assessment to Education, but they generally try to resolve as  many employer determinations as possible by using supplemental  sources to research employers. However, the reliability of some of these  supplemental sources is unclear.

PSLF servicer officials said that having additional information would help  them assess employers more quickly and minimize the risk of inaccurate  decisions. One way to provide this information would be for Education to  develop an official, comprehensive list of qualifying employers, which  would help the PSLF servicer assess employers and help borrowers  determine whether they are eligible for PSLF, according to PSLF servicer  officials. Education officials said they are considering creating their own  list of qualifying employers and are investigating how to leverage  information from other federal government agencies that could be useful  for categorizing employers. In particular, Education officials said they  have reached out to the Internal Revenue Service to explore the  feasibility of obtaining relevant data on employers. Education could also  expand and improve on a database that the PSLF servicer created based  on its prior assessments of employers. Education staff that conducted a  spot check on the PSLF servicer’s database expressed concerns about  using it as a sole source for assessing employers, according to an  Education monitoring report, but Education officials said it could provide a  foundation for Education to build on.

Borrowers would also benefit from additional information about qualifying  employers, according to PSLF servicer officials. Education currently  provides borrowers with basic information on the types of employers that  qualify for PSLF, but not sufficient details to reliably determine whether  specific employers qualify. When borrowers contact their loan servicer  with questions about their employer’s eligibility, officials with the PSLF  servicer and other loan servicers we spoke with said they generally do not  provide borrowers with information about whether a specific employer  qualifies, due to the complexities involved in assessing qualifying  employers. Instead, borrowers are encouraged to submit an employment  certification form once they are working for an employer in order to find  out if the employer qualifies. PSLF servicer officials said that providing  borrowers with access to additional information about qualifying  employers, such as an official list, would reduce uncertainty for borrowers  and reduce the number of borrowers who submit certification requests  and forgiveness applications despite working for non-qualifying  employers. In addition, making this information readily available to  borrowers could help them to make better informed employment  decisions rather than having to wait to submit a certification request after  they have started a job to find out if their employer qualifies.

Federal internal control standards state that agencies should  communicate the necessary quality information to those who need it in  order to achieve the agencies’ objectives. Unless Education provides  additional information to help the PSLF servicer make employer  assessments, it will remain difficult to determine whether employers  qualify for the program, raising the risk that borrowers’ certification  requests will be improperly approved or denied. Moreover, without access  to sufficient information about qualifying employers, borrowers will not be  able to reliably determine whether certain employers qualify for PSLF.  This creates uncertainty for borrowers as to which jobs and careers to  pursue and leaves them to make important employment decisions without  knowing until after the fact how these decisions affect their future  eligibility for PSLF.

Education Could Improve the Information Provided to the PSLF Servicer and Borrowers about Whether Borrowers’ Payments Qualify for Loan Forgiveness

Collecting Consistent Payment Information

Education does not ensure the PSLF servicer receives consistent  information on borrowers’ prior loan payments from other loan servicers,  which could raise the risk of qualifying payments being miscounted. In  order to process certification requests and loan forgiveness applications,  the PSLF servicer has to examine the borrower’s prior loan payment  information to determine which prior payments count towards the 120  needed to qualify for loan forgiveness. This is relatively easy in cases  where the PSLF servicer was servicing the borrower’s loans during the  entire period he or she was pursuing PSLF because the servicer already  has the necessary information on their prior payments, according to PSLF  servicer officials. However, the PSLF servicer does not have the same  information readily available for loans that are serviced by one of  Education’s eight other loan servicers. For these loans, Education  established a process for servicers to use in transferring loan and prior  payment information to the PSLF servicer. The servicers transfer most  information through standardized templates that Education developed.  However, despite the use of standardized templates, the PSLF servicer  does not receive consistent and reliable information from other servicers,  according to PSLF servicer officials. For example, PSLF servicer officials  said the lack of standard definitions and terminology among loan  servicers leads servicers to interpret some data fields differently, resulting  in inconsistencies in the data other loan servicers report to the PSLF  servicer. Comparable data and standardized terminology is particularly  important given the need for loan servicers with different systems and  practices to communicate key payment information with one another.  PSLF servicer officials said inconsistencies in the information provided by  other loan servicers make it challenging to determine whether borrowers  are on qualifying repayment plans or making qualifying payments. For  example, when a borrower has multiple loans, PSLF servicer officials said  they assess PSLF eligibility and payments separately for each individual  loan. Officials added that some servicers only report total monthly  payments for the borrower’s combined loans, and not how these  payments were allocated among each loan. This makes it difficult for the  PSLF servicer to determine whether the borrower paid the full monthly  payment amount due on each loan, which it needs to know in order to  determine whether the payment qualifies for PSLF.

Officials with Education and the PSLF servicer said that inconsistencies in  the information obtained from other loan servicers increase the risk of  miscounting qualifying payments. Education officials said they have  started to track these data consistency problems and coordinate  discussions among the PSLF servicer and the three other loan servicers  that together provide the data systems used by all nine servicers.  However, these efforts are in the early stages. Federal internal control  standards state that agencies should use quality information to achieve  their objectives. Standardizing the prior payment information transferred  among servicers could improve the PSLF servicer’s ability to determine  qualifying payment counts for borrowers transferring from other servicers.

Although Education and PSLF servicer officials acknowledge the risk of  miscounting qualifying payments, the PSLF servicer does not provide  borrowers with sufficient information to easily catch errors. In addition to  the risks caused by inconsistent prior payment information from other  loan servicers, the payment counting process is also vulnerable to errors  in instances when the PSLF servicer has to manually review payment  information from other servicers, according to PSLF servicer officials and  an Education monitoring report. Borrowers whose loans were  transferred to the PSLF servicer from other loan servicers have  complained about inaccurate qualifying payment counts, according to a  Consumer Financial Protection Bureau report. Officials with the PSLF  servicer said they rely on borrowers to catch any payment counting errors  resulting from issues with information provided by other loan servicers.  However, the PSLF servicer provides borrowers with aggregate counts of  qualifying payments, which are useful for helping borrowers track their  progress, but do not provide borrowers with enough detail to check the  servicer’s counts and identify prior payments that the servicer may have  missed (see fig. 7). Borrowers have several options for disputing payment  counts or other aspects of the eligibility determination process, including  contacting the PSLF servicer or filing an official complaint with  Education’s Federal Student Aid Ombudsman Group or through the  Federal Student Aid Feedback System. However, the lack of detailed  information on qualifying payment counts makes it difficult for borrowers  to determine whether the count is correct or not.

Education officials said they have not considered requiring the PSLF  servicer to provide more detailed information to borrowers on which prior  payments were approved or denied. Officials noted that there would be a  cost associated with providing this information to borrowers, although  they have not produced a cost estimate. Also, officials said that providing  too much information may confuse borrowers, and they must consider  how to meet borrowers’ need for detailed information without  overwhelming borrowers with payment counting complexities. Officials  with the PSLF servicer said providing this information to borrowers could  be helpful but would require time to confirm the information was correct  and would only be done at the direction of Education. Federal internal  control standards state that agencies should communicate necessary  quality information to external parties. While providing too much  information could prove counterproductive, borrowers could benefit from  receiving greater detail about their qualifying payments beyond the  aggregate counts of qualifying payments that they currently receive.  Without clearer and more detailed information on qualifying payments,  borrowers may not detect any errors in payment counts, which could  ultimately affect borrowers’ eligibility for loan forgiveness.

Education is responsible for establishing the administrative structure  necessary to fulfill the PSLF program’s goal of encouraging individuals to  enter and continue in public service employment by providing loan  forgiveness to eligible borrowers who meet program requirements.  However, Education has not provided the PSLF servicer with a  comprehensive source of guidance and instructions on how to operate  the program, raising the risk that the PSLF servicer may improperly  approve or deny borrowers’ certification requests and forgiveness  applications. Education officials told us they have plans for creating a  comprehensive PSLF servicing manual, but no timeline for doing so.

Working for a qualifying employer is one of the key requirements of the  PSLF program; however, Education has not provided the PSLF servicer  and borrowers with sufficient information for determining whether  employers qualify. This makes the PSLF servicer’s employer  assessments vulnerable to inconsistencies and fosters uncertainty for  borrowers as to whether or not their employment will eventually qualify  them for loan forgiveness.

Similarly, inconsistencies in the information used for counting borrowers’  qualifying loan payments raise the risk of errors. Borrowers should be  confident that their loan payments will be accurately counted regardless  of who their servicer is. However, Education has not ensured the PSLF  servicer is receiving consistent loan payment history information from  other loan servicers, increasing the risk of inaccurate qualifying payment  counts. The chance that these and any other payment counting errors will  go undetected is compounded by the fact that Education does not require  the PSLF servicer to provide borrowers with details on which payments  qualified and which did not. This makes it difficult for borrowers to detect  erroneous counts that could ultimately affect their eligibility for loan  forgiveness. Consequently, some borrowers may be required to make  more payments than necessary before receiving loan forgiveness, while  others may be improperly approved for forgiveness.

We are making the following four recommendations to Education’s Office  of Federal Student Aid:  The Chief Operating Officer of the Office of Federal Student Aid should  develop a timeline for issuing a comprehensive guidance and instructions  document for PSLF servicing. This could involve developing a new  servicing manual or expanding upon the PSLF servicer’s existing  processing handbook. (Recommendation 1)

The Chief Operating Officer of the Office of Federal Student Aid should  provide additional information to the PSLF servicer and borrowers to  enhance their ability to determine which employers qualify for PSLF. This  could involve Education developing an authoritative list of qualifying  employers or improving the PSLF servicer’s existing database, and  making this information available to borrowers. (Recommendation 2)

The Chief Operating Officer of the Office of Federal Student Aid should  standardize the information the PSLF servicer receives from other loan  servicers to ensure the PSLF servicer obtains more consistent and  accurate payment information for borrowers pursuing PSLF.  (Recommendation 3)

The Chief Operating Officer of the Office of Federal Student Aid should  ensure that borrowers receive sufficiently detailed information from the  PSLF servicer to be able to identify any errors in the servicer’s counts of  qualifying payments, including information on whether or not each  payment qualified toward forgiveness. (Recommendation 4)

We provided a draft of this report to Education for its review and  comment. In its comments, reproduced in appendix I, Education  concurred with each of our recommendations and identified steps it plans  to take to implement them. To improve guidance and instructions for  PSLF servicing, Education stated it is documenting PSLF requirements  and guidelines and plans to incorporate them into a comprehensive  guide. Regarding our recommendation to provide additional information  on qualifying employers to the PSLF servicer and borrowers, Education  stated that it is reviewing options for developing an online help tool that  would be expanded to incorporate qualifying employer information. To  standardize the information other loan servicers provide to the PSLF  servicer, Education stated it will continue its efforts to address data  definition issues related to the data exchanged between servicers. To  ensure borrowers receive sufficiently detailed information on counts of  qualifying payments, Education stated it will review the letters the PSLF  servicer sends to borrowers to determine how to better communicate  regarding qualifying payment counts, program requirements, and  employer eligibility. We also provided relevant report sections to the PSLF  servicer and the three other loan servicers included in our review for  technical comments. The PSLF servicer provided technical comments,  which we incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Secretary of Education, and other  interested parties. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (617) 788-0534 or emreyarrasm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix II.

Appendix I: Comments from the U.S. Department of Education

Appendix II: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Debra Prescott (Assistant  Director), William Colvin (Analyst-in-Charge), and Linda Collins made key  contributions to this report. Additional assistance was provided by James  Bennett, Deborah Bland, Alicia Cackley, Sarah Cornetto, Hedieh Fusfield,  Kirsten Lauber, Sheila R. McCoy, Jeffrey G. Miller, Jessica Orr, Ellen  Phelps Ranen, and Paul Wright.


Federal Real Property: Status of FBI Headquarters Consolidation and Issues Related to Funding Other Future Projects

GSA, which manages federal real property on behalf of other federal agencies, faces challenges in funding new construction projects due to budget constraints—including obtaining upfront funding—among other reasons. One type of transaction, called a swap exchange, enables GSA to apply the value of federal property to finance construction without relying on appropriated funds. Under such an exchange, GSA transfers the title of the unneeded property to a private investor after receiving the agreed upon construction services at another location. GSA proposed a swap exchange procurement for construction of a new FBI headquarters building in exchange for the Hoover Building and appropriations to compensate for the difference in value between the Hoover Building and the new building. GSA cancelled this procurement in July 2017 due to lack of funding.

This statement addresses (1) GSA's and FBI's assessments of the Hoover Building, (2) GSA efforts to implement swap exchanges, and (3) alternative approaches to funding real property projects. It is based on GAO's body of reports on real property from 2011 to 2017, and selected updates from GSA.

In November 2011, GAO reported that, according to General Services Administration (GSA) and Federal Bureau of Investigation (FBI) assessments, the FBI's headquarters building (Hoover Building) and its accompanying facilities in Washington, D.C., did not fully support the FBI's long-term security, space, and building condition requirements. Since GAO's report, the assessments have not materially changed, for example:

Security: GAO's prior work noted that the dispersion of staff in annexes creates security challenges, including where some space was leased by the FBI and other space was leased by nonfederal tenants. Earlier this year, GAO reported the FBI is leasing space in D.C. from foreign owners.

Space : In 2011, GAO reported that FBI and GSA studies showed that much of the Hoover Building is unusable. GSA noted in its fiscal year 2017 project prospectus for the FBI headquarters consolidation that the Hoover Building cannot be redeveloped to meet the FBI's current needs.

Building Condition: In GAO's 2011 report, GAO noted that the condition of the Hoover Building was deteriorating, and GSA assessments identified significant recapitalization needs. Since GAO's report and in response to GAO's recommendation, GSA has evaluated its approach to maintaining the building and completed some repairs to ensure safety.

GSA has limited experience in successfully completing swap exchange transactions and chose not to pursue several proposed swap exchanges, most recently the planned swap exchange for the Hoover Building. GSA has developed criteria for determining when to solicit market interest in a swap exchange, in response to recommendations in GAO's 2014 report. In addition, GSA officials told GAO that they planned to improve the swap exchange process, including the property appraisal process, outreach to stakeholders to identify potential risks associated with future projects, and to the extent possible, mitigate such risks. Nevertheless, several factors may continue to limit use of swap exchanges, including market factors, such as the availability of alternative properties and an investor's approach for valuing properties. For example, in reviewing a proposed swap exchange in Washington, D.C., GAO found in a 2016 report that the proposals from two firms valued the two federal buildings involved in the proposed swap substantially less than GSA's appraised property value.

In a 2014 report, GAO identified a number of alternative approaches to funding real property projects. Congress has provided some agencies with specific authorities to use alternative funding mechanisms—including the use of private sector funds or land swaps—for the acquisition, renovation, or disposal of federal real property without full, upfront funding, though GAO has previously reported that upfront funding is the best way to ensure recognition of commitments made in budgeting decisions and maintain fiscal controls. GAO has reported that projects with alternative funding mechanisms present multiple forms of risk that are shared between the agency and any partner or stakeholder. In addition, alternative budgetary structures could be established, such as changing existing or introducing new account structures to fund real property projects.

GAO has made recommendations in the past to GSA on various real property issues, including to develop additional guidance for swap exchanges and to evaluate its approach to maintaining the Hoover Building. GSA agreed with these two recommendations and addressed them.

Thank you for the opportunity to discuss our work on the General  Services Administration’s (GSA) efforts to consolidate the Federal Bureau  of Investigation’s (FBI) headquarters operations into a new location and  the broader challenges associated with funding and budgeting for  similarly large real property projects. GSA, which manages federal real  property on behalf of other federal agencies, continues to face challenges  related to funding new construction projects due to budget constraints— including obtaining upfront funding—among other reasons. According to  GSA officials, funding has not kept pace with GSA’s need to replace and  maintain the approximately 1,500 owned buildings under its control. Using  various available legal authorities, GSA has begun to exchange title to  some federally owned real property for other properties or construction  services.

One type of transaction, called a “swap construct” exchange (or swap  exchange), enables GSA to apply the value of federal property to finance  construction needs without relying on appropriated funds. Under such an  exchange, GSA transfers the title of the unneeded property to a private  investor after receiving the agreed-upon construction services at another  location. For example, in 2012 GSA exchanged a 5-acre property in San  Antonio, Texas, for the construction of a new parking structure at a  different location. Swap exchanges can be of equal value or can include  federal appropriations to compensate for a difference in value between  the federal property and the asset or services to be received by the  federal government.

GSA had proposed using a swap exchange for consolidation of the FBI  headquarters operations into a new location in exchange for the existing  FBI headquarters building (Hoover Building) in Washington, D.C., and its  underlying land, but cancelled that procurement in July 2017. Specifically,  GSA proposed construction of a new 2.1 million square foot consolidated  headquarters building in one of three locations—Greenbelt, Maryland;  Landover, Maryland; or Springfield, Virginia. As part of a swap exchange,  the developer chosen to design and construct the new headquarters  building would, in exchange, receive the Hoover Building site and  appropriated funds to compensate for the difference in value between the  Hoover Building and the new building. However, in July 2017, GSA  cancelled the project because, according to GSA and FBI officials, they  lacked the amount of funding necessary to proceed with the  procurement.

The cancellation of the proposed FBI swap exchange has highlighted the  continuing challenges GSA and federal agencies face for budgeting and  funding real property construction projects. My testimony will address (1)  GSA’s and FBI’s assessments of the status of the Hoover Building, (2)  GSA efforts to implement swap exchanges to facilitate real property  actions, and (3) alternative approaches to funding real property projects.  My testimony summarizes the results of a number of our previous reports  on real property utilization and management issued from 2011 to 2017.  Detailed information on our scope and methodologies for this work can be  found in these published products, which are cited throughout this  testimony. In addition, this testimony includes some updates based on  our follow-up with GSA on the status of our recommendations and  information posted on GSA’s website on the project’s status. The work on  which this statement is based was conducted in accordance with  generally accepted government auditing standards. Those standards  require that we plan and perform audits to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provided a reasonable basis for our findings and conclusions based on  our audit objectives.

Prior GSA and FBI Assessments Showed That FBI Headquarters Facilities Did Not Fully Support the FBI’s Long-Term Requirements

In November 2011, we reported that over the previous decade, the FBI  and GSA conducted a number of studies to assess the Hoover Building  and its other headquarters facilities’ strategic and mission needs.  Through these studies, they determined the condition of the FBI’s current  assets and identified gaps between current and needed capabilities, as  well as studied a range of alternatives to meet the FBI’s requirements.  According to these assessments, the FBI’s headquarters facilities did not  fully support the FBI’s long-term security, space, and building condition  requirements. Since our report, the assessment of the Hoover Building  has not materially changed. For example:

Security: Since September 11, 2001, the FBI mission and workforce  have expanded, and the FBI has outgrown the Hoover Building. As a  result, the FBI also operates in annexes, including some located in the  National Capital Region. During our 2011 review, FBI security officials  told us that they have some security concerns—to varying degrees— about the Hoover Building and some of the headquarters annexes. In  our report, we noted that the dispersion of staff in annexes created  security challenges, particularly for at least nine annexes that were  located in multitenant buildings, where some space was leased by the  FBI and other space was leased by nonfederal tenants. While this  arrangement did not automatically put FBI operations at risk, it  heightened security concerns. In addition, in January 2017, we found  that the FBI occupies space leased from foreign owners in at least six  different locations, including one in Washington, D.C. Further, federal  officials who assess foreign investments told us at that time that  leasing space in foreign-owned buildings could present security risks,  such as espionage and unauthorized cyber and physical access.

Space: In 2011, we reported that FBI and GSA studies showed that  much of the Hoover building’s approximately 2.4 million gross square  feet of space is unusable, and the remaining usable space is not  designed to meet the needs of today’s FBI. Moreover, the Hoover  Building’s original design is inefficient, according to GSA  assessments, making it difficult to reconfigure space to promote staff  collaboration. For example, in its fiscal year 2017 prospectus for the  proposed FBI headquarters consolidation project, GSA noted that the  Hoover Building was designed at a time when FBI operated  differently, and it cannot be redeveloped to provide the necessary  space to consolidate the FBI Headquarters components or to meet  the agency’s current and projected operational requirements. As a  result, the FBI reported facing several operational and logistical  challenges. We similarly noted in our prior work in 2011 that space  constraints at the Hoover Building and the resulting dispersion of staff  sometimes prevented the FBI from physically locating certain types of  analysts and specialists together, which in turn hampered  collaboration and the performance of some classified work.

Building condition: In our 2011 report, we noted that the condition of  the Hoover Building was deteriorating, and GSA assessments had  identified significant recapitalization needs. At that time, we found that  GSA had decided to limit investments in the Hoover Building to those  necessary to protect health and safety and keep building systems  functioning while GSA assessed the FBI’s facility needs. We found  that this decision increased the potential for building system failures  and disruption to the FBI’s operations. Given that the FBI would likely  remain in the building for at least several more years, we  recommended that GSA evaluate its strategy to minimize major repair  and recapitalization investments and take action to address any  facility condition issues that could put FBI operations at risk and lead  to further deterioration of the building. In 2014, in response to our  recommendation, GSA evaluated its strategy for the Hoover Building  and determined it needed to complete some repairs to ensure safety  and maintain tenancy in the building. For example, in 2014, GSA  funded contracts to waterproof portions of the building’s mezzanine  level to prevent water intrusion into the building and repair the  concrete facade, small sections of which had cracked and fallen from  the building.

In July 2017, GSA and FBI officials stated that they cancelled the  procurement for the new FBI headquarters consolidation project, noting  that the there was a lack of funding necessary to complete the  procurement. GSA added that the cancellation of the procurement did not  lessen the need for a new FBI headquarters, and that GSA and the FBI  would continue to work together to address the space requirements of the  FBI.

GSA Has Limited Successes in Completing Recent Swap Exchanges, but Has Plans to Improve the Process

In July 2014, we reported that the swap exchange approach can help  GSA address the challenges of disposing of unneeded property and  modernizing or replacing federal buildings. GSA officials told us that  swap exchanges can help GSA facilitate construction projects given a  growing need to modernize and replace federal properties, shrinking  federal budgets, and challenges obtaining funding. Specifically, GSA  officials noted that swap exchanges allow GSA to immediately apply the  value of a federal property to be used in the exchange to construction  needs, rather than attempting to obtain funds through the appropriations  process. In our 2014 report, GSA officials stated that the exchanges can  be attractive because the agency can get construction projects  accomplished without having to request full upfront funding for them from  Congress. In addition, because swap exchanges require developers or  other property recipients to complete the agreed-upon GSA construction  projects prior to the transfer of the title to the current property GSA is  exchanging, federal agencies can continue to occupy the property during  the construction process for the new project, eliminating the need for  agencies to lease or acquire other space to occupy during the  construction process.

GSA has limited experience in successfully completing swap exchange  transactions and has cancelled several recently proposed swap  exchanges. More specifically, in 2016 we reported that GSA had only  completed transactions using the swap exchange authority for two small  (under $10-million each) swap exchanges completed in Atlanta, Georgia,  in 2001 and in San Antonio, Texas, in 2012. Furthermore, GSA has  faced a number of obstacles in its use of this authority. For example, for  our 2014 report, we reviewed five projects identified since August 2012 in  which GSA solicited market interest in exchanging almost 8-million  square feet in federal property for construction services or newly  constructed assets. However, GSA chose not to pursue swap-exchanges  in all five of these projects, including the proposed FBI headquarters consolidation project. For example, GSA officials told us that there was  little or no market interest in potential swap exchanges in Baltimore,  Maryland, and Miami, Florida, and that GSA chose to pursue different  approaches. Respondents to the solicitations for these two GSA swap  exchanges noted that GSA did not provide important details, including the  amount of investment needed in the federal properties and GSA’s specific  construction needs. In addition, from 2012 to 2015, GSA pursued a larger  swap exchange potentially involving up to 5 federal properties located in  the Federal Triangle South area of Washington, D.C., to finance  construction at GSA headquarters and other federal properties. In 2013,  GSA decided to focus on exchanging two buildings, the GSA Regional  Office Building and the Cotton Annex, based on input from potential  investors. On February 18, 2016, GSA decided to end its pursuit of the  exchange, saying in a memorandum supporting this decision that private  investor valuations for the two buildings fell short of the government’s  estimated values.

After the discontinuation of the Federal Triangle swap exchange project,  we reported in 2016 that GSA officials noted they planned to improve the  swap exchange process, including the property appraisal process,  outreach to stakeholders to identify potential project risks for future  projects, and to the extent possible, mitigate such risks. However, we also  reported that several factors may continue to limit the applicability of the  agency’s approach. Specifically, the viability of swap exchanges may be  affected by specific market factors, such as the availability of alternative  properties. In addition, the specific valuation approach used by appraisers  or potential investors may reduce the viability of the swap exchange. For  example, in reviewing the proposed Federal Triangle project, we found in  2016 that the proposals from two of the investment firms valued the two  federal buildings involved in the proposed swap substantially less than  GSA’s appraised property value. In addition, swap exchanges can  require developers to spend large sums on GSA’s construction needs  before receiving title to the federal property used in the exchanges. We  found in 2014 that GSA’s solicitations have not always specified these  construction needs in sufficient detail. Consequently, developers may  be unable to provide meaningful input, and GSA could miss swap  exchange opportunities. In 2014, we recommended that GSA develop  criteria for determining when to solicit market interest in a swap  exchange. GSA agreed with the recommendation and has since updated  its guidance to include these criteria.

In January 2017, GSA agreed to a swap exchange for the U.S.  Department of Transportation Volpe Center in Cambridge,  Massachusetts. After a competitive process, GSA selected the  Massachusetts Institute of Technology (MIT) as its exchange partner for  the existing Department of Transportation (DOT) facility. Per the  agreement, MIT will construct a new DOT facility on a portion of a 14 acre  site to which DOT has title and, in exchange, will receive title to the  remaining portion of the site that will not be used by DOT, which is  located near its main campus. GSA indicated that, once completed, the  project will provide $750 million in value to the federal government in the  form of the design and construction services and value-equalization funds  from MIT.

Various Alternative Funding Mechanisms for Federal Property Exist

Our prior work has identified a number of alternative approaches to  funding real property projects. In March 2014, we reported that upfront  funding is the best way to ensure recognition of commitments made in  budgeting decisions and to maintain fiscal controls. However, obtaining  upfront funding for large acquisitions such as the Hoover Building  replacement can be challenging. Congress has provided some agencies  with specific authorities to use alternative funding mechanisms for the  acquisition, renovation, or disposal of federal real property without full,  upfront funding. Table 1 outlines selected funding mechanisms, and  considerations for each mechanism we identified in our 2014 report.  Some of these alternative mechanisms allow selected agencies to meet  their real property needs by leveraging other authorized resources, such  as retained fees or land swaps with a private sector partner. Funding  mechanisms leverage both monetary resources, such as retained fees,  and non-monetary resources, such as property exchanged in a land swap  or space offered in an enhanced use lease. In some cases, the funding  mechanism may function as a public-private partnership intended to  further an agency’s mission by working with a partner to leverage  resources. Some of these mechanisms allow the private sector to provide  the project’s capital—at their cost of borrowing. The U.S. federal  government’s cost of borrowing is lower than the private sector’s. When  the private sector provides the project capital, the federal government  later repays these higher private sector borrowing costs (e.g., in the form  of lease payments). In some cases, factors such as lower labor costs or  fewer requirements could potentially help balance the higher cost of  borrowing, making partner financing less expensive. Our 2014 report also  identifies budgetary options—within the bounds of the current unified  budget—to meet real property needs while helping Congress and  agencies make more prudent long-term decisions.

In 2014, we reported that projects with alternative funding mechanisms  present multiple forms of risk that are shared between the agency and  any partner or stakeholder. Further, we noted project decisions should  reflect both the likely risk and the organization’s tolerance for risk.  Incorporating risk assessment and management practices into decisions  can help organizations recognize and prepare to manage explicit risks  (e.g. financial and physical) and implicit risks (e.g. reputational). For  example, clearly defined lease terms may help agencies manage risks of  costs for unexpected building repairs. Further considerations we noted in  our 2014 report include the availability of an appropriate partner—and  that partners should bring complementary resources, skills, and financial  capacities to the relationship—and management of the relationship with  that partner.

While different funding mechanisms have been used as an alternative to  obtaining upfront funding for federal real property projects, changes to the  budgetary structure itself—within the bounds of the unified budget that  encompasses the full scope of federal programs and transactions—may  also help agencies meet their real property needs. Such alternatives may  include changing existing or introducing new account structures to fund  real property projects. Our previous work identified options for changes  within the current discretionary budget structure and options on the  mandatory side of the budget. Alternative budgetary structures may  change budgetary incentives for agencies and therefore help Congress  and agencies make more prudent long-term fiscal decisions.

Chairman Barrasso, Ranking Member Carper, and Members of the  Committee, this concludes my prepared statement. I am happy to answer  any questions you may have at this time.

If you or your staff members have any questions concerning this  testimony, please contact me at (202) 512-2834 or wised@gao.gov. In  addition, contact points for our Offices of Congressional Relations and  Public Affairs may be found on the last page of this statement. Individuals  who made key contributions to this testimony are Mike Armes (Assistant  Director), Colin Ashwood, Matt Cook, Joseph Cruz, Keith Cunningham,  Alexandra Edwards, Carol Henn, Susan Irving, Hannah Laufe, Diana  Maurer, John Mortin, Monique Nasrallah, Matt Voit, Michelle Weathers,  and Elizabeth Wood.

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