Federal Pell Grant Program

High-priority program

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Program level Payment Integrity results

Sponsoring agency: Department of Education

The Pell Grant program provides need-based grants to low-income undergraduate and certain post baccalaureate students to promote access to postsecondary education. Root causes of Pell overpayments include incorrect calculation of Return of Title IV funds, failure to return unclaimed credit balances to the Department, and failure to meet satisfactory academic progress. Barriers include the program structure of the Pell program, which requires that funds pass through an intermediary Non-Federal entity before reaching the ultimate beneficiary (student). The statute provides FSA authority to require the third-party to impose certain internal controls or mitigation strategies, and FSA exercises this authority.

View on Federal Program Inventory

PROGRAM METRICS

$26,710 M

in FY 2021 outlays, with a

98.0%

payment accuracy rate

PROGRAM METRICS

$26,129 M

in FY 2022 outlays, with a

97.8%

payment accuracy rate

PROGRAM METRICS

$28,689 M

in FY 2023 outlays, with a

97.2%

payment accuracy rate

PROGRAM METRICS

$32,996 M

in FY 2024 outlays, with a

97.4%

payment accuracy rate

PROGRAM METRICS

$39,934 M

in FY 2025 outlays, with a

98.9%

payment accuracy rate

  • Improper payment estimates over time
    View as:

    Chart toggle amounts:
    Proper payments
    Overpayment
    Underpayment
    Technically improper
    Unknown

Payment Integrity results

  • FY 2021 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    10/2019 - 09/2020


    Confidence interval:

    >95%


    Margin of error:

    +/-0.45

Overpayments

Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $238.0 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $238.0 M

Overpayment root cause Overpayment amount
Amount of overpayments outside the agency's control $35.99 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $35.99 M

Underpayments

Underpayment root cause Underpayment amount
Amount of underpayments $149.88 M
The amount of underpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of underpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of underpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $149.88 M

Technically improper payments

The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $97.32 M

Additional information

$247.2 M

Unknown Payment Details

FSA is unable to discern whether these payments are proper or improper due to insufficient documentation maintained by the related schools and/or their auditors.

The amount of payments that could either be proper or improper but the agency is unable to determine whether they were proper or improper as a result of insufficient or lack of documentation is $8.36 M


Cause of insufficient or lack of documentation & why the documentation is needed for determination of payment type
Payment cause Amount Description of the documentation that was not provided and explanation of why the program is unable to conclude whether the payment is proper or improper without that documentation

Evaluation of corrective actions

To effectively prevent Pell Grant IPs and UPs from occurring, FSA evaluates the root causes of IPs and UPs identified. This root cause analysis is used to help formulate effective correction actions. FSA prioritizes efforts to prevent IPs and UPs from occurring, such as implementation of the FUTURE Act. When evaluating corrective actions to address the underlying root causes of Pell Grant IPs and UPs, FSA considers whether the corrective action being contemplated aligns with the program mission. For corrective actions that are implemented, FSA monitors the status of the corrective actions through quarterly outreach to corrective action owners, and collects closure evidence to evaluate the effectiveness and progress of each individual mitigation strategy which informs whether the corrective action can be refined, intensified, expanded, or should be discontinued or replaced.

Future payment integrity outlook

Federal Pell Grant Program has established a baseline.

Out-Year improper payment and unknown payment projections and target
Current year +1 estimated future outlays $29,490 M
Current year +1 estimated future improper payments $574.68 M
Current year +1 estimated future unknown payments $9.22 M
Current year +1 estimated future improper payment and unknown payment rate 1.98 %

The program's current year improper payment and unknown payment rate of 1.98 % has not been achieved with a balance of payment integrity risk and controls and does not represent the lowest rate that can be achieved without disproportionally increasing another risk, therefore it is not the tolerable rate.

FSA has the internal controls, human capital, and information systems and other infrastructure needed to reduce IPs and UPs to the tolerable rate. However, FSA must also continue to rely on controls established by external entities that receive funds and make payments on behalf of FSA for programs including Pell Grants and Direct Loans. These entities are outside of FSA’s operational control. FSA will continue to leverage data from program reviews and Single Audit Act compliance audits to identify and address root causes of IPs and UPs made by external entities; however, any requirements for additional monitoring and sources of data would require additional resources. FSA will also continue to pursue implementation of the FUTURE Act to improve verification of applicants’ and borrowers’ income data.

Additional programmatic information

  • FY 2022 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    10/2020 - 09/2021


    Confidence interval:

    95% to <100%


    Margin of error:

    +/-1.17

Overpayments

FSA has determined that some but not all Pell Grant overpayments are outside of agency control. Pell Grant overpayments related to misreported income, which is measured using the Pell FAFSA/IRS Statistical Study are within FSA’s control. FSA is working to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA. Pell Grant overpayments due to other reasons are outside of FSA's control.
Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $208.51 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $208.51 M

Overpayment root cause Overpayment amount
Amount of overpayments outside the agency's control $32.1 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $32.1 M

Underpayments

Underpayment root cause Underpayment amount
Amount of underpayments $147.49 M
The amount of underpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of underpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of underpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $147.49 M

Technically improper payments

A technically IP is a payment to the right recipient for the right amount and therefore does not result in the need for the program to recover funds due to overpayment. For the Pell Grant program, these include IPs due to untimely return of Title IV funds, untimely calculation of Title IV funds, incorrect disbursement timing, credit balance returned late, failure to properly complete verification, and professional judgement deficiencies.
The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $190.86 M

Additional information

$338.35 M

Unknown Payment Details

In some instances, FSA is unable to discern whether the payments are proper or improper. This is mainly due to insufficient documentation from the auditors and/or schools. Unknown payments typically occurred in compliance audits for fiscal years ending in 2019 and prior. FSA worked with OMB and the audit community to update the OMB Compliance Supplement. The Compliance Supplement includes supplemental information for auditors to provide to FSA which will reduce the possibility of unknown payments in future audits.

The amount of payments that could either be proper or improper but the agency is unable to determine whether they were proper or improper as a result of insufficient or lack of documentation is $7.03 M


Cause of insufficient or lack of documentation & why the documentation is needed for determination of payment type
Payment cause Amount Description of the documentation that was not provided and explanation of why the program is unable to conclude whether the payment is proper or improper without that documentation

Evaluation of corrective actions

Preventing improper payments is a top Administration and agency priority. To effectively prevent Pell Grant IPs and UPs from occurring, FSA evaluates the root causes of IPs and UPs identified. This root cause analysis is used to help formulate effective correction actions. FSA prioritizes efforts to prevent IPs and UPs from occurring, such as implementation of the authorities provided in the FUTURE Act. When evaluating corrective actions to address the underlying root causes of Pell Grant IPs and UPs, FSA considers whether the corrective action being contemplated aligns with the program mission. For corrective actions that are implemented, FSA monitors the status of the corrective actions through quarterly outreach to corrective action owners, and collects closure evidence to evaluate the effectiveness and progress of each individual mitigation strategy which informs whether the corrective action can be refined, intensified, expanded, or should be discontinued or replaced.

Future payment integrity outlook

Federal Pell Grant Program has established a baseline.

The FY 2022 Reduction Target for the Pell Grant program is 2.24% which is equal to the estimated future IP rate. In establishing realistic Reduction Target for FY 2022, FSA considered existing program characteristics and whether achieving the established target was something outside of the agency’s control. FSA determined that it has internal controls, human capital, information systems, and other infrastructure to reduce improper payments that are within FSA’s control. A key long-term corrective action to mitigate the primary root cause of misreported income which is within FSA's control is the implementation of the authorities provided in the FUTURE Act. Once fully implemented, this corrective action should result in a reduction target below the tolerable rate.

FSA must also continue to rely on controls established by external entities that receive funds and make payments on behalf of FSA for programs including the Pell Grant program. Those entities are outside of FSA’s operational control. FSA will continue to leverage data from program reviews and Single Audit Act compliance audits to identify and address root causes of improper payments made by external entities.

Out-Year improper payment and unknown payment projections and target
Current year +1 estimated future outlays $25,341 M
Current year +1 estimated future improper payments $560.83 M
Current year +1 estimated future unknown payments $6.81 M
Current year +1 estimated future improper payment and unknown payment rate 2.24 %
Current year +1 estimated future improper payment and unknown payment reduction target 2.24 %

The program's current year improper payment and unknown payment rate of 2.24 % has not been achieved with a balance of payment integrity risk and controls and does not represent the lowest rate that can be achieved without disproportionally increasing another risk, therefore it is not the tolerable rate.

FSA has the internal controls, human capital, and information systems and other infrastructure needed to reduce IPs and UPs to the tolerable rate. FSA continues to implement a multi-year corrective action plan to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. This corrective action requires changes to existing FSA systems which are in process. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA.

FSA must also continue to rely on controls established by external entities that receive funds and make payments on behalf of FSA for programs including Pell Grants. These entities are outside of FSA’s operational control. FSA will continue to leverage data from program reviews and Single Audit Act compliance audits to identify and address root causes of IPs and UPs made by external entities.

The Department requested $2.654 billion to administer the Federal student aid programs in fiscal year 2023, an increase of $800.1 million over the 2021 enacted level. The requested funds are necessary to implement the FAFSA Simplification Act and FUTURE Act, implement customer service and accountability improvements to student loan servicing, and ensure the successful transition from the current
short-term loan servicing contracts to a more stable long-term contract and servicing environment.

Additional programmatic information

The Department places a high value on maintaining the integrity of all types of payments made to ensure that the billions of dollars in federal funds it disburses annually reach intended recipients in the right amount and for the right purpose, including for the Pell Grant program. The Department ensures payment integrity by establishing effective policies, business processes, systems, and controls over key payment activities, including those pertaining to: payment data quality, cash management, banking information, third-party oversight, assessments of audit reports, and financial reporting. Accordingly, the Department maintains a robust internal control framework that includes over 500 controls designed to help prevent, detect, and recover improper payments. In designing controls, the Department attempts to strike the right balance between making timely and accurate payments and ensuring that controls put in place are not too
costly or overly burdensome and thereby deter intended beneficiaries from obtaining funds they are entitled to receive.

  • FY 2023 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    10/2021 - 09/2022


    Confidence interval:

    95% to <100%


    Margin of error:

    +/-1.06

  • Actions taken & planned to mitigate improper payments

    Mitigation strategy Description of the corrective action Completion date Status
    Automation
    To prevent IPs and UPs, FSA maintains a robust internal control framework which includes computer matches performed in FSA systems against external sources during the aid delivery process and promoting the IRS Data Retrieval Tool (DRT) which remains the fastest, most accurate way to input tax return information into the FAFSA form. FSA also continues to pursue long term corrective actions. For example, FSA is working to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA.
    FY2023 Q4
    Completed
    Behavioral/Psych Influence
    FSA performs a variety of general public awareness campaigns, training, and other outreach to the community including to prospective students and parents to help ensure applicants are aware of the importance of completing the FAFSA and correctly reporting all relevant information. FSA considers Behavioral/Psych Influence in designing this outreach.
    FY2023 Q4
    Completed
    Training
    FSA publishes and delivers various free trainings, guidance, and resources for school financial aid administrators to target the root causes of IPs and UPs and other frequently identified compliance issues. For example, FSA publishes updates to questions and answers about verification requirements to help clarify verification requirements and reduce the risk of verification deficiencies.
    FY2023 Q4
    Completed
    Change Process
    FSA is committed to improving the access, use, and dissemination of meaningful education data to inform decision making. Through the Student Aid and Borrower Eligibility (SABER) Initiative, FSA continues to implement the Fostering Undergraduate Talent by Unlocking Resources for Education (FUTURE) Act and Free Application for Federal Student Aid (FAFSA) Simplification Act which ultimately will streamline and strengthen the collection of data used to determine eligibility for student financial assistance. Implementation of the authorities provided in the FUTURE Act will significantly improve data authentication by enabling FSA to automatically receive certain federal tax information (FTI) from the IRS through a direct-data exchange with applicant approval and enabling customers to automatically report their income for the total and permanent disability (TPD) discharge post-monitoring, income driven repayment (IDR), and FAFSA processes. Implementation of the authorities provided in the FAFSA Simplification Act will improve reporting through, for example, modifying the questions that students and their families have to answer on the FAFSA form and requiring ED to conduct early awareness and outreach of student aid eligibility. Institutions are required to remain compliant with changing requirements, such as those related to institutional eligibility, financial responsibility, and administrative capability. FSA has established an integrated system of complementary oversight functions to help detect and recover improper payments and ensure compliance by all participating parties. As part of its oversight activities, FSA performs program reviews of selected schools and monitors compliance audits to confirm requirements were met and that schools continue to stay compliant with these requirements. For any deficiencies identified, FSA monitors corrective actions taken by schools.
    FY2023 Q4
    Completed
    Cross Enterprise Sharing
    FSA continues to work with Treasury to implement the authorities provided in the FUTURE Act that will allow FSA to obtain income data directly from the IRS. The cross-enterprise sharing of data will improve verification of applicants’ and borrowers’ income data.
    FY2023 Q4
    Completed
    Audit
    FSA reviews the annual Single Audit Act compliance audits of schools performed by independent auditors to evaluate schools’ administration of FSA programs. For deficiencies identified by the auditors, schools are required to develop corrective action plans. FSA reviews and evaluates the effectiveness of schools’ corrective actions and mitigation efforts for noted exceptions. When an improper payment is detected and deemed collectable, FSA establishes an account receivable and pursues collection.
    FY2023 Q4
    Completed
    Predictive Analytics
    The FSA Central Processing System performs analytics to determine which applicants should be flagged for verification prior to receiving financial aid. FSA annually assesses and revises its verification model. FSA estimates IPs and UPs for the Pell Grant program by using R Code. As part of using R, FSA is able to perform analysis on prior year results to better understand expected IP and UP results. Further, FSA uses logarithmic analysis to predict future rates and establish a tolerable rate and reduction target in accordance with OMB Circular A- 123, Appendix C guidance.
    FY2023 Q4
    Completed
    Statutory Change
    FSA is working to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA as FSA will be able to populate income data on the FAFSA with the federal tax information obtained by the IRS.
    FY2023 Q4
    Completed
    Automation
    To prevent IPs and UPs, FSA will continue to maintain a robust internal control framework which includes computer matches performed in FSA systems against external sources during the aid delivery process and promoting the IRS Data Retrieval Tool (DRT). FSA will also continue to pursue long term corrective actions. For example, FSA will continue to work to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA.
    FY2025
    Planned
    Behavioral/Psych Influence
    FSA will continue to perform a variety of general public awareness campaigns, training, and other outreach to the community including to prospective students and parents to help ensure applicants are aware of the importance of completing the FAFSA and correctly reporting all relevant information. FSA will continue to consider Behavioral/Psych Influence in designing this outreach.
    FY2024
    Planned
    Training
    FSA will continue to publish and deliver various free trainings, guidance, and resources for school financial aid administrators to target the root causes of IPs and UPs and other frequently identified compliance issues. For example, FSA will continue to publish updates to questions and answers about verification requirements to help clarify verification requirements and reduce the risk of verification deficiencies. FSA will also continue to annually host the FSA Training Conference and analyze the attendance patterns of institutions and their stakeholders, which will allow FSA to understand attendance trends and develop training content accordingly. FSA will ensure many offices within FSA continue to collectively participate to ensure key objects and milestones are met.
    FY2024
    Planned
    Change Process
    Through the Student Aid and Borrower Eligibility (SABER) Initiative, FSA will continue to implement the Fostering Undergraduate Talent by Unlocking Resources for Education (FUTURE) Act and Free Application for Federal Student Aid (FAFSA) Simplification Act which ultimately will streamline and strengthen the collection of data used to determine eligibility for student financial assistance. Implementation of the authorities provided in the FUTURE Act will significantly improve data authentication by enabling FSA to automatically receive certain federal tax information (FTI) from the IRS through a direct-data exchange with applicant approval and enabling customers to automatically report their income for the total and permanent disability (TPD) discharge post-monitoring, income driven repayment (IDR), and FAFSA processes. Implementation of the authorities provided in the FAFSA Simplification Act will improve reporting through, for example, modifying the questions that students and their families have to answer on the FAFSA form and requiring ED to conduct early awareness and outreach of student aid eligibility.
    FY2025
    Planned
    Cross Enterprise Sharing
    FSA will continue to work with Treasury to implement the authorities provided in the FUTURE Act that will allow FSA to obtain income data directly from the IRS. The cross-enterprise sharing of data will improve verification of applicants’ and borrowers’ income data.
    FY2025
    Planned
    Audit
    FSA will also continue to review the annual Single Audit Act compliance audits of schools performed by independent auditors to evaluate schools’ administration of FSA programs. For deficiencies identified by the auditors, schools are required to develop corrective action plans. FSA will continue to review and evaluate the effectiveness of schools’ corrective actions and mitigation efforts for noted exceptions. When an improper payment is detected and deemed collectable, FSA will establish an account receivable and pursue collection.
    FY2024
    Planned
    Predictive Analytics
    The FSA Central Processing System performs analytics to determine which applicants should be flagged for verification prior to receiving financial aid. In FY24, FSA will assess and revise as necessary its verification model and guidance.
    FY2024
    Planned
    Statutory Change
    FSA will continue to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA.
    FY2025
    Planned

Overpayments

FSA has determined that some but not all Pell Grant overpayments are within agency control. Pell Grant overpayments related to misreported income, which is measured using the Pell FAFSA/IRS Statistical Study are within FSA’s control. FSA is working to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA. Pell Grant overpayments due to other reasons are outside of FSA's control.
Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $381.57 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $381.57 M

The Pell Grant program structure per the Higher Education Act of 1965 (HEA) requires that funds pass through an intermediary non-federal entity (i.e., participating institutes of higher education) before reaching the ultimate beneficiary (i.e., the student). FSA cannot control improper payments made by institutions receiving FSA funding, because FSA does not control the payment process (i.e., the distribution of the funds between the institution and student). Errors made by institutions for incorrect financial aid determination, credit balance deficiencies, student withdrawal deficiencies, and documentation deficiencies are outside of FSA's control. The HEA does provide FSA authority to require the intermediary to impose certain internal controls or mitigation strategies to prevent these IPs, and FSA exercises this authority. FSA has established an integrated system of complementary oversight functions to help prevent, detect, and recover IPs and UPs, and ensure compliance by all participating institutions.
Overpayment root cause Overpayment amount
Amount of overpayments outside the agency's control $22.35 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $22.35 M

Overpayment type Eligibility element/information needed Eligibility amount
Overpayments Outside Agency Control Education $22.35 M
Overpayments Within Agency Control Financial $381.57 M

Overpayment type Mitigation strategies taken Mitigation strategies planned
Overpayments within the agency’s control Audit, Automation, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Statutory Change, Training Audit, Automation, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Statutory Change, Training

Underpayments

Underpayment root cause Underpayment amount
Amount of underpayments $238.75 M
The amount of underpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of underpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of underpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $238.75 M

Eligibility element/information needed Eligibility amount
Education $9.55 M
Financial $229.2 M

Mitigation strategies taken Mitigation strategies planned
Audit, Automation, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Statutory Change, Training Audit, Automation, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Statutory Change, Training

Technically improper payments

A technically IP is a payment in the correct amount to the correct recipient, but for which some requirement was not met or step performed. As such, these technically IP do not result in the need for the program to recover funds due to overpayment. These technically IP are made by institutions receiving Pell Grant funding, often due to untimely disbursements of the aid to the student and/or return of unused funds to FSA, procedural deficiencies, or human error. These technically IPs are identified from compliance audit findings to include those related to untimely return of Title IV funds, untimely calculation of Title IV funds, incorrect disbursement timing, credit balance returned late, failure to properly complete verification, and professional judgement deficiencies.
The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $166.48 M

Mitigation strategies taken Mitigation strategies planned
Audit, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Training Audit, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Training

Additional information

$405.23 M

Unknown Payment Details

FSA leverages compliance audit data to estimate improper payments and unknown payments. In some instances, FSA is unable to discern whether the payments are proper or improper. This is mainly due to insufficient documentation from the auditors and/or schools. For example, there may be rare instances in
which the auditor is unable to provide documentation to FSA because the information was not retained, or it was lost or stolen.

Unknown payments were more likely to occur in compliance audits for fiscal years ending in 2019 and prior. In 2019, FSA worked with OMB and the audit community to update the OMB Compliance Supplement to require auditors to provide FSA with supplemental compliance audit information, which reduced the possibility of unknown payments in audits for fiscal years ending in 2020 and later.

The amount of payments that could either be proper or improper but the agency is unable to determine whether they were proper or improper as a result of insufficient or lack of documentation is $3.15 M


Cause of insufficient or lack of documentation & why the documentation is needed for determination of payment type
Payment cause Amount Description of the documentation that was not provided and explanation of why the program is unable to conclude whether the payment is proper or improper without that documentation
Vendors/Providers $3.15 M FSA leverages compliance audit data to estimate improper payments and unknown payments. In some instances, there is a lack of or insufficient audit documentation when attempting to identify improper payments. This primarily occurs when the supplemental information provided to FSA in accordance with the OMB Compliance Supplement is unclear or inconsistent with the results of the compliance audit and final audit determination (FAD) letter. If this occurs, FSA must follow-up with auditors. In instances that auditors did not retain the documentation, or if the auditor is unable to provide FSA the supplemental information timely, FSA records unknown payments in accordance with OMB Circular A-123, Appendix C.

Mitigation strategies taken Mitigation strategies planned
Audit,Behavioral/Psych Influence,Change Process,Cross Enterprise Sharing,Predictive Analytics,Training Audit,Behavioral/Psych Influence,Change Process,Cross Enterprise Sharing,Predictive Analytics,Training

Evaluation of corrective actions

Preventing IPs is a top Administration and agency priority. To effectively prevent IPs and UPs from occurring, FSA evaluates the root causes of IPs and UPs identified. This root cause analysis is used to help formulate effective correction actions and prioritize efforts to prevent IPs and UPs from occurring. For example, FSA's most impactful root cause to its IP rate over the last five years has been IP due to misreported income. FSA has invested significant resources and worked cross-agency with the IRS to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Once implemented, this corrective action will eliminate misreported income on the FAFSA.

For corrective actions that are implemented, FSA monitors the status of the corrective actions through quarterly outreach to corrective action owners, and collects closure evidence to evaluate the effectiveness and progress of each individual mitigation strategy which informs whether the corrective action can be refined, intensified, expanded, or should be discontinued or replaced.

Future payment integrity outlook

Federal Pell Grant Program has established a baseline.

The reduction target for the Pell Grant program for FY 2024 reporting is 2.82% which is equal to the estimated future IP rate. In establishing realistic reduction target for FY 2024, FSA considered existing program characteristics and whether achieving the established target was within or outside of the agency's control. FSA determined that it has internal controls, human capital, information systems, and other infrastructure to reduce improper payments that are within FSA’s control. A key long-term corrective action to mitigate the primary root cause of misreported income which is within FSA's control is the implementation of the authorities provided in the FUTURE Act. Once fully implemented in FY 2025, this corrective action should result in a reduction target below the tolerable rate.

FSA must also continue to rely on controls established by external entities that receive funds and make payments on behalf of FSA for programs including the Pell Grant program. Those entities are outside of FSA’s operational control. FSA will continue to leverage data from program reviews and Single Audit Act compliance audits to identify and address root causes of improper payments made by external entities.

Out-Year improper payment and unknown payment projections and target
Current year +1 estimated future outlays $25,900 M
Current year +1 estimated future improper payments $727.55 M
Current year +1 estimated future unknown payments $2.83 M
Current year +1 estimated future improper payment and unknown payment rate 2.82 %
Current year +1 estimated future improper payment and unknown payment reduction target 2.82 %

The program's current year improper payment and unknown payment rate of 2.83 % has not been achieved with a balance of payment integrity risk and controls and does not represent the lowest rate that can be achieved without disproportionally increasing another risk, therefore it is not the tolerable rate.

FSA has the internal controls, human capital, and information systems and other infrastructure needed to reduce IPs and UPs to the tolerable rate. FSA continues to implement a multi-year corrective action plan to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. This corrective action requires changes to existing FSA systems which are in process. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA.

FSA must also continue to rely on controls established by external entities that receive funds and make payments on behalf of FSA for programs including Pell Grants. These entities are outside of FSA’s operational control. FSA will continue to leverage data from program reviews and Single Audit Act compliance audits to identify and address root causes of IPs and UPs made by external entities.

The Budget provides $2.7 billion for Student Aid Administration, including to the Department of Education’s Office of Federal Student Aid (FSA), a $620 million increase over the fiscal year 2023 enacted level. This additional funding is essential to support students and student loan borrowers. The increase would allow FSA to continue to operate the student aid programs, implement critical improvements to student loan servicing, continue to modernize its digital infrastructure, and ensure successful administration of the financial aid programs through a simplified and streamlined application process for students and borrowers.

Additional programmatic information

The Department places a high value on maintaining the integrity of all types of payments made to ensure that the billions of dollars in federal funds it disburses annually reach intended recipients in the right amount and for the right purpose, including for the Pell Grant program. The Department ensures payment integrity by establishing effective policies, business processes, systems, and controls over key payment activities, including those pertaining to: payment data quality, cash management, banking information, third-party oversight, assessments of audit reports, and financial reporting. Accordingly, the Department maintains a robust internal control framework that includes controls designed to help prevent, detect, and recover improper payments. In designing controls, the Department attempts to strike the right balance between making timely and accurate payments and ensuring that controls put in place are not too costly or overly burdensome and thereby deter intended beneficiaries from obtaining funds they are entitled to receive.

  • FY 2024 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    10/2022 - 09/2023


    Confidence interval:

    95% to <100%


    Margin of error:

    +/-0.47

  • Actions taken & planned to mitigate improper payments

    Mitigation strategy Description of the corrective action Completion date Status
    Automation
    To prevent IPs and UPs, FSA maintains a robust internal control framework which includes computer matches performed in FSA systems against external sources during the aid delivery process. FSA also continues to pursue long term corrective actions. For example, FSA is working to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA.
    FY2024 Q4
    Completed
    Behavioral/Psych Influence
    FSA performs a variety of general public awareness campaigns, training, and other outreach to the community including to prospective students and parents to help ensure applicants are aware of the importance of completing the FAFSA and correctly reporting all relevant information. FSA considers Behavioral/Psych Influence in designing this outreach.
    FY2024 Q4
    Completed
    Training
    FSA publishes and delivers various free trainings, guidance, and resources for school financial aid administrators to target the root causes of IPs and UPs and other frequently identified compliance issues. For example, FSA publishes updates to questions and answers about verification requirements to help clarify verification requirements and reduce the risk of verification deficiencies.
    FY2024 Q4
    Completed
    Change Process
    FSA is committed to improving the access, use, and dissemination of meaningful education data to inform decision making. Through the Student Aid and Borrower Eligibility (SABER) Initiative, FSA has implemented the Fostering Undergraduate Talent by Unlocking Resources for Education (FUTURE) Act and Free Application for Federal Student Aid (FAFSA) Simplification Act for Award Year (AY) 2024-2025 which streamlines and strengthens the collection of data used to determine eligibility for student financial assistance. Implementation of the authorities provided in the FUTURE Act improves data authentication by enabling FSA to automatically receive certain federal tax information (FTI) from the IRS through a secure cloud environment to store and manage FTI-related data, technology, and business logic and enabling customers to automatically report their income and tax information for the total and permanent disability (TPD) discharge post-monitoring, income driven repayment (IDR), and FAFSA processes. The FUTURE Act will significantly reduce the burden to borrowers who are submitting an income driven repayment (IDR) application or completed the recertification processes as the law allows FSA and entities providing loan servicing functions to review FTI, validate IDR monthly payment calculations, and trace why and when payment changes occurred. Implementation of the authorities provided in the FAFSA Simplification Act improved reporting through, for example, modifying the questions that students and their families have to answer on the FAFSA form and requiring ED to conduct early awareness and outreach of student aid eligibility. Institutions are required to remain compliant with changing requirements, such as those related to institutional eligibility, financial responsibility, and administrative capability. FSA established an integrated system of complementary oversight functions to help detect and recover improper payments and ensure compliance by all participating parties. As part of its oversight activities, FSA performs program reviews of selected schools and monitors compliance audits to confirm requirements are met. For any deficiencies identified, FSA monitors corrective actions taken by schools.
    FY2024 Q4
    Completed
    Cross Enterprise Sharing
    FSA worked with Treasury to implement the authorities provided in the FUTURE Act to allow FSA to obtain income data directly from the IRS. The cross-enterprise sharing of data improves verification of applicants and borrowers income data. Additional information regarding implementation of the authorities provided in the FUTURE Act is described in the "Change Process" section of this report.
    FY2024 Q4
    Completed
    Audit
    FSA reviews the annual Single Audit Act compliance audits of schools performed by independent auditors to evaluate schools’ administration of FSA programs. For deficiencies identified by the auditors, schools are required to develop corrective action plans. FSA reviews and evaluates the effectiveness of schools’ corrective actions and mitigation efforts for noted exceptions. When an improper payment is detected and deemed collectable, FSA establishes an account receivable and pursues collection.
    FY2024 Q4
    Completed
    Predictive Analytics
    The FAFSA Processing System performs analytics to determine which applicants should be flagged for verification prior to receiving financial aid. FSA annually assesses and revises its verification model. FSA estimates IPs and UPs for the Direct Loan program by using R Code. As part of using R, FSA is able to perform analysis on prior year results to better understand expected IP and UP results. Further, FSA uses logarithmic analysis to predict future rates and establish a tolerable rate and reduction target in accordance with OMB Circular A-123, Appendix C guidance.
    FY2024 Q4
    Completed
    Statutory Change
    In FY24, FSA implemented the authorities and provisions provided in the FUTURE Act and FAFSA Simplification Act to streamline and strengthen the collection of data used to determine eligibility for student financial assistance. Specifically, FSA implemented the FAFSA Processing System (FPS) and Federal Tax Information (FTI) systems to automatically provide a student and families’ federal tax information to FSA for the 2024–25 FAFSA form. This significantly improves data authentication by enabling FSA to automatically receive certain FTI from the IRS through a direct-data exchange with applicant approval.
    FY2024 Q4
    Completed
    Automation
    To prevent IPs and UPs, FSA will continue to maintain a robust internal control framework which includes computer matches performed in FSA systems against external sources during the aid delivery process. FSA will also continue to pursue long term corrective actions. For example, FSA will continue to work to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA.
    FY2025
    Planned
    Behavioral/Psych Influence
    FSA will continue to perform a variety of general public awareness campaigns, training, and other outreach to the community including to prospective students and parents to help ensure applicants are aware of the importance of completing the FAFSA and correctly reporting all relevant information. FSA will continue to consider Behavioral/Psych Influence in designing this outreach.
    FY2025
    Planned
    Training
    FSA will continue to publish and deliver various free trainings, guidance, and resources for school financial aid administrators to target the root causes of IPs and UPs and other frequently identified compliance issues. For example, FSA will continue to publish updates to questions and answers about verification requirements to help clarify verification requirements and reduce the risk of verification deficiencies. FSA will also continue to annually host the FSA Training Conference and analyze the attendance patterns of institutions and their stakeholders, which will allow FSA to understand attendance trends and develop training content accordingly. FSA will ensure many offices within FSA continue to collectively participate to ensure key objects and milestones are met.
    FY2025
    Planned
    Change Process
    Through the Student Aid and Borrower Eligibility (SABER) Initiative, FSA implemented the Fostering Undergraduate Talent by Unlocking Resources for Education (FUTURE) Act and Free Application for Federal Student Aid (FAFSA) Simplification Act which streamline and strengthen the collection of data used to determine eligibility for student financial assistance. Implementation of the authorities provided in the FUTURE Act improved data authentication by enabling FSA to automatically receive certain federal tax information (FTI) from the IRS through a direct-data exchange with applicant approval and enabling customers to automatically report their income for the total and permanent disability (TPD) discharge post-monitoring, income driven repayment (IDR), and FAFSA processes. Implementation of the authorities provided in the FAFSA Simplification Act improved reporting through, for example, modifying the questions that students and their families have to answer on the FAFSA form and requiring ED to conduct early awareness and outreach of student aid eligibility.
    FY2025
    Planned
    Cross Enterprise Sharing
    FSA will continue to work with Treasury to implement the authorities provided in the FUTURE Act that will allow FSA to obtain income data directly from the IRS. The cross-enterprise sharing of data will continue to improve verification of applicants’ and borrowers’ income data.
    FY2025
    Planned
    Audit
    FSA will also continue to review the annual Single Audit Act compliance audits of schools performed by independent auditors to evaluate schools’ administration of FSA programs. For deficiencies identified by the auditors, schools are required to develop corrective action plans. FSA will continue to review and evaluate the effectiveness of schools’ corrective actions and mitigation efforts for noted exceptions. When an improper payment is detected and deemed collectable, FSA will establish an account receivable and pursue collection.
    FY2025
    Planned
    Predictive Analytics
    The FAFSA Processing System performs analytics to determine which applicants should be flagged for verification prior to receiving financial aid. In FY25, FSA will assess and revise as necessary its verification model and guidance.
    FY2025
    Planned
    Statutory Change
    FSA will continue to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA.
    FY2025
    Planned

Overpayments

FSA has determined that some but not all Pell Grant overpayments are within agency control. Pell Grant overpayments related to misreported income, which are measured using the Pell FAFSA/IRS Statistical Study are within FSA’s control. In FY24, FSA implemented the authorities and provisions provided in the FUTURE Act and FAFSA Simplification Act to streamline and strengthen the collection of data used to determine eligibility for student financial assistance. Specifically, FSA implemented the FAFSA Processing System (FPS) and Federal Tax Information (FTI) systems to automatically provide a student and families’ federal tax information to FSA for the 2024–25 FAFSA form. Pell Grant overpayments due to other reasons are outside of FSA's control.
Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $438.84 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $438.84 M

The Pell Grant program structure per the Higher Education Act of 1965 (HEA) requires that funds pass through an intermediary non-federal entity (i.e., participating institutes of higher education) before reaching the ultimate beneficiary (i.e., the student). FSA cannot control improper payments made by institutions receiving FSA funding, because FSA does not control the payment process (i.e., the distribution of the funds between the institution and student). Errors made by institutions for incorrect financial aid determination, credit balance deficiencies, student withdrawal deficiencies, and documentation deficiencies are outside of FSA's control. The HEA does provide FSA authority to require the intermediary to impose certain internal controls or mitigation strategies to prevent these IPs, and FSA exercises this authority. FSA has established an integrated system of complementary oversight functions to help prevent, detect, and recover IPs and UPs, and ensure compliance by all participating institutions.
Overpayment root cause Overpayment amount
Amount of overpayments outside the agency's control $19.71 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $19.71 M

Overpayment type Eligibility element/information needed Eligibility amount
Overpayments Outside Agency Control Education $19.71 M
Overpayments Within Agency Control Financial $438.84 M

Overpayment type Mitigation strategies taken Mitigation strategies planned
Overpayments within the agency’s control Audit, Automation, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Statutory Change, Training Audit, Automation, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Statutory Change, Training

Underpayments

Underpayment root cause Underpayment amount
Amount of underpayments $271.83 M
The amount of underpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of underpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of underpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $271.83 M

Eligibility element/information needed Eligibility amount
Education $8.15 M
Financial $263.68 M

Mitigation strategies taken Mitigation strategies planned
Audit, Automation, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Statutory Change, Training Audit, Automation, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Statutory Change, Training

Technically improper payments

A technically IP is a payment in the correct amount to the correct recipient, but for which some requirement was not met or step performed. As such, these technically IPs do not result in the need for the program to recover funds due to overpayment. These technically IPs are made by institutions receiving Pell Grant funding, often due to untimely disbursements of the aid to the student and/or return of unused funds to FSA, procedural deficiencies, or human error. These technically IPs are identified from compliance audit findings to include those related to untimely return of Title IV funds, untimely calculation of Title IV funds, incorrect disbursement timing, credit balance returned late, failure to properly complete verification, and professional judgement deficiencies.
The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $131.14 M

Mitigation strategies taken Mitigation strategies planned
Audit, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Training Audit, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Training

Additional information

$402.97 M

Unknown Payment Details

FSA leverages compliance audit data to estimate improper payments and unknown payments. In some instances, FSA is unable to discern whether the payments are proper or improper. This is mainly due to insufficient documentation from the auditors and/or schools. For example, there may be rare instances in which the auditor is unable to provide documentation to FSA because the information was not retained, or
it was lost or stolen.

Unknown payments were more likely to occur in compliance audits for fiscal years ending in 2019 and
prior. In 2019, FSA worked with OMB and the audit community to update the OMB Compliance
Supplement to require auditors to provide FSA with supplemental compliance audit information, which
reduced the possibility of unknown payments in audits for fiscal years ending in 2020 and later.

The amount of payments that could either be proper or improper but the agency is unable to determine whether they were proper or improper as a result of insufficient or lack of documentation is $10.63 M


Cause of insufficient or lack of documentation & why the documentation is needed for determination of payment type
Payment cause Amount Description of the documentation that was not provided and explanation of why the program is unable to conclude whether the payment is proper or improper without that documentation
Vendors/Providers $10.63 M FSA leverages compliance audit data to estimate improper payments and unknown payments. In some instances, there is a lack of or insufficient audit documentation when attempting to identify improper payments. This primarily occurs when the supplemental information provided to FSA in accordance with the OMB Compliance Supplement is unclear or inconsistent with the results of the compliance audit and final audit determination (FAD) letter. If this occurs, FSA must follow-up with auditors. In instances that auditors did not retain the documentation, or if the auditor is unable to provide FSA the supplemental information timely, FSA records unknown payments in accordance with OMB Circular A-123, Appendix C.

Mitigation strategies taken Mitigation strategies planned
Audit,Behavioral/Psych Influence,Change Process,Cross Enterprise Sharing,Predictive Analytics,Training Audit,Behavioral/Psych Influence,Change Process,Cross Enterprise Sharing,Predictive Analytics,Training

Evaluation of corrective actions

Preventing IPs is a top Administration and agency priority. To effectively prevent IPs and UPs from occurring, FSA evaluates the root causes of IPs and UPs identified. This root cause analysis is used to help formulate effective correction actions and prioritize efforts to prevent IPs and UPs from occurring. For example, FSA's most impactful root cause over the last five years for total IP in aggregate across all programs has been improper payments due to misreported income. FSA has invested significant resources and worked cross-agency with the IRS to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Significant work has been accomplished, and once fully implemented in FY 2025, this corrective action is expected to significantly reduce misreported income on the FAFSA.

FSA relies on the expertise of its subject matter experts and owners of the corrective actions to identify any changes for its corrective actions. FSA monitors the status of the corrective actions through quarterly outreach to corrective action owners and collects closure evidence to evaluate the effectiveness and progress of each individual mitigation strategy. This process informs whether the corrective action can be refined, intensified, expanded, or should be discontinued or replaced.

Collectively, the corrective actions completed and ongoing have mitigated and will continue to mitigate identified root causes of improper payments. The interim milestones achieved and the reductions planned, demonstrate the adequacy of the actions taken. FSA's continued efforts to implement the authorities in the FUTURE Act is expected to significantly mitigate the risk of improper payments related to misreported income, which is FSA's most impactful root cause of improper payments. Through the Student Aid and Borrower Eligibility (SABER) Initiative and implementation of the FAFSA Processing System (FPS) and federal tax information (FTI) systems for the 2024-25 FAFSA, FSA is able to populate FTI data in the FAFSA form with FTI obtained from the IRS.

As described in the section of this report discussing types of corrective actions taken (i.e., Automation, Behavioral/Psych Influence, Training, Change Process, Cross-Enterprise Sharing, Audit, Predictive Analytics, and Statutory Change), each corrective action is tailored to one or more specific root causes. For example, training and school oversight help correct the various school root cause-related improper payments, such as student withdrawal deficiencies, credit balance deficiencies, incorrect financial aid determination, and documentation deficiencies. FSA measures the effectiveness of each corrective action completed annually to ensure that the actions completed help the program achieve or progress toward its tolerable error rate.

The following examples demonstrate how FSA will continue to focus on addressing root causes to reduce improper payments.

FSA's most impactful root cause over the last five years for total IP in aggregate for all programs has been improper payments due to misreported income. To address this root cause, FSA developed a corrective action plan to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS, which is expected to significantly reduce misreported income on the FAFSA. In FY 2024, FSA implemented the FAFSA Processing System (FPS) and Federal Tax Information (FTI) systems to automatically provide a student and families’ federal tax information to FSA for the 2024–25 FAFSA form. In FY 2025, FSA will continue to implement the FUTURE Act FAFSA solution for students and families with individual taxpayer identification numbers (ITINs) during the 2026–27 FAFSA cycle.

FSA has and will continue to publish and deliver various free trainings, guidance, and resources for school financial aid administrators to target the root causes of improper payments at the schools. For example, FSA has and will continue to publish guidance and respond to questions regarding verification requirements to help clarify verification requirements and reduce the risk of verification deficiencies. For additional information, see the section of this report discussing the types of corrective actions planned (i.e., Behavioral/Psych Influence, Training, Change Process, Cross-Enterprise Sharing, Audit, and Predictive Analytics).

FSA has and will continue to maintain a robust internal control framework, which includes conducting annual program risk assessments and reviews of program participants, among other activities. FSA has and will continue to leverage Single Audit Act compliance audits of its loan and grant programs as a key source of identifying risks and potential improper payments made by external entities, including federal, state, and private organizations and institutions, that receive and further distribute grant and loan funds to subordinate organizations and individuals. FSA will continue to work with fund recipients to resolve audit findings timely. All of these actions planned by FSA are specifically focused to reduce improper payments and address root causes of improper payments.

Mitigation of causes of improper payments is a top Department priority. The implementation of the authorities in the FUTURE Act continues to be a key FSA-wide initiative. FSA established and prioritized the Student Aid and Borrower Eligibility (SABER) Initiative, collaborating with the IRS to implement the FAFSA Processing System (FPS) and federal tax information (FTI) systems for the 2024-2025 FAFSA. These changes are expected to significantly mitigate the risk of improper payments related to misreported income, which is FSA's most impactful root cause of improper payments.

FSA also prioritizes stakeholder and community outreach and training, as these oversight activities are core business functions. FSA annually implements procedures to perform trainings and outreach, participates in trainings and outreach, and continually assesses how to improve these areas. For example, FSA listens to stakeholder feedback and publishes responses to questions from the community. FSA also invests significant resources and efforts into training. For example, FSA annually holds the FSA Training Conference and analyzes the attendance patterns of institutions and their stakeholders, which allows FSA to understand attendance trends and develop training content accordingly. As such, many offices within FSA collectively participate to ensure key objects and milestones are met. FSA strives and will continue to strive to implement best practices, such as those described in this section of the report, to ensure corrective actions are effectively implemented and prioritized within the agency.


Future payment integrity outlook

Federal Pell Grant Program has established a baseline.

Based on FY 2024 results, the reduction target for the Pell Grant program for FY 2025 is 2.63% which is equal to the estimated future IP plus UP rate. In establishing a realistic reduction target for FY 2025, FSA considered existing program characteristics and whether achieving the established target was within or outside of the agency's control. FSA determined that it has internal controls, human capital, information systems, and other infrastructure to reduce improper payments that are within FSA’s control. A key long-term corrective action to mitigate the primary root cause of misreported income which is within FSA's control is the implementation of the authorities provided in the FUTURE Act. Once fully implemented in FY 2025, this corrective action should result in a reduction target below the tolerable rate.

FSA must also continue to rely on controls established by external entities that receive funds and make payments on behalf of FSA for programs including the Pell Grant program. Those entities are outside of FSA’s operational control. FSA will continue to leverage data from program reviews and Single Audit Act compliance audits to identify and address root causes of improper payments made by external entities.

Out-Year improper payment and unknown payment projections and target
Current year +1 estimated future outlays $38,297 M
Current year +1 estimated future improper payments $996.15 M
Current year +1 estimated future unknown payments $12.29 M
Current year +1 estimated future improper payment and unknown payment rate 2.63 %
Current year +1 estimated future improper payment and unknown payment reduction target 2.63 %

The program's current year improper payment and unknown payment rate of 2.64 % has not been achieved with a balance of payment integrity risk and controls and does not represent the lowest rate that can be achieved without disproportionally increasing another risk, therefore it is not the tolerable rate.

FSA has the internal controls, human capital, and information systems and other infrastructure needed to reduce IPs and UPs to the tolerable rate. FSA continues to implement a multi-year corrective action plan to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. This corrective action requires changes to existing FSA systems which have been completed or are in process. Obtaining this data will prevent improper payments resulting from the applicant misreporting their income on the FAFSA.

FSA must also continue to rely on controls established by external entities that receive funds and make payments on behalf of FSA for programs including Pell Grants. These entities are outside of FSA’s operational control. FSA will continue to leverage data from program reviews and Single Audit Act compliance audits to identify and address root causes of IPs and UPs made by external entities.

The most recent budget provides $2.7 billion for Student Aid Administration, including to the Department of Education’s Office of Federal Student Aid (FSA), a $625 million increase over the fiscal year 2024 annualized continuing resolution level. This additional funding is essential to support students and student loan borrowers. The increase would allow FSA to continue to operate the student aid programs, implement critical improvements to student loan servicing, continue to modernize its digital infrastructure, and provide for the administration of the financial aid programs through a simplified and streamlined application process for students and borrowers.

Additional programmatic information

The Department places a high value on maintaining the integrity of all types of payments made to ensure that the billions of dollars in federal funds it disburses annually reach intended recipients in the right amount and for the right purpose, including for the Direct Loan program. The Department ensures payment integrity by establishing effective policies, business processes, systems, and controls over key payment activities, including those pertaining to: payment data quality, cash management, third-party oversight, assessments of audit reports, and financial reporting. Accordingly, the Department maintains a robust internal control framework that includes controls designed to help prevent, detect, and recover improper payments. In designing controls, the Department attempts to strike the right balance between making timely and accurate payments and ensuring that controls put in place are not too costly or overly burdensome and thereby deter intended beneficiaries from obtaining funds they are entitled to receive.

Accountability for detecting, preventing, and recovering improper payments

Key management officials have annual performance appraisal elements that contain specific criteria related to payment integrity.

FSA managers and staff are held accountable for maintaining effective controls. FSA performs an annual assessment of the effectiveness of its internal controls, including those controls designed to prevent or detect improper payments. Any deficiencies identified are remediated and retested within the next assessment cycle.

FSA has an integrated system of complementary oversight functions to help prevent, detect, and recover improper payments, and ensure compliance by all participating parties. This includes routinely conducting program reviews to confirm that schools meet requirements for institutional eligibility, financial responsibility, and administrative capability. Program reviews evaluate schools’ compliance with federal requirements, assess monetary liabilities for errors in performance which are calculated based on program review findings, and identify actions schools must take to make whole the Higher Education Act’s Title IV programs or recipients for any funds that were improperly managed and prevent the same problems from recurring. FSA also uses Single Audit Act compliance audits as a key source of identifying risks and potential improper payments made by schools. FSA has worked with fund recipients to resolve audit findings timely.

  • FY 2025 improper payment estimates

    Chart legend and breakdown

    Payment accuracy rate

    Improper payment rate

    Unknown payment rate


    Sampling & estimation methodology details

    Sampling timeframe:

    10/2023 - 09/2024


    Confidence interval:

    95% to <100%


    Margin of error:

    +/-1.78

Causes

FSA diligently works to identify the causes of improper payments and unknown payments, adhering to the guidance outlined in the Office of Management and Budget (OMB) Circular A-123, Appendix C (OMB A-123C). According to this guidance, causes of improper and unknown payments are classified into five cause categories. Historically, FSA has identified such payments in three of these categories: (1) Failure to access data or information needed to verify payments; (2) Statutory requirements of the program not being met; and (3) Unable to determine whether proper or improper (i.e., unknown payments).

In addition to using the OMB A-123C framework for identifying the causes of improper and unknown payments, FSA takes a detailed approach to identifying the root causes for its Phase 2 programs. This is accomplished through the Sampling and Estimation Methodology Plan (S&EMP), which leverages data from compliance audits. By analyzing these data sources, FSA is able to pinpoint specific root causes that contribute to improper payments and unknown payments within its programs.

For fiscal year (FY) 2025, FSA’s fieldwork revealed that the most impactful root causes of improper and unknown payments stemmed from several distinct areas. First, payments were linked to ineligible institutions, programs, or locations, indicating that funds were disbursed in violation of Title IV eligibility criteria. Second, documentation deficiencies played a critical role, particularly instances where required notifications, such as informing students of impending disbursements, were not provided prior to the release of Title IV funds. Third, errors related to student withdrawal, such as mistakes in the calculation or processing of Return of Title IV Funds (R2T4), contributed to improper payments. Finally, failure to meet Satisfactory Academic Progress (SAP) requirements resulted in funds being disbursed to students who did not maintain the academic standards mandated by federal regulations.

FSA's commitment to understanding and mitigating improper payments extends beyond identification of root causes as described above. The agency actively coordinates with its stakeholders to ensure that all potential root causes are considered during its testing procedures. Through extensive fieldwork and stakeholder collaboration, FSA has currently identified more than 45 program-specific root cause categories for improper payments and unknown payments. This comprehensive approach enables FSA to continually refine its processes and reduce the risk of improper payments across its portfolio.

Overpayment root cause Overpayment amount
Amount of overpayments within the agency's control $0.0 M
Amount of overpayments outside the agency's control $337.67 M
Amount of overpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
Amount of overpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
Amount of overpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $337.67 M

Underpayment root cause Underpayment amount
Amount of underpayments $6.13 M
The amount of underpayments that occurred because the data/information needed to validate payment accuracy prior to making a payment does not exist $0.0 M
The amount of underpayments that occurred because of an inability to access the data/information needed to validate payment accuracy prior to making a payment $0.0 M
The amount of underpayments that occurred because of a failure to access data/information needed to validate payment accuracy prior to making a payment $6.13 M

The amount of improper payments that were paid to the right recipient for the correct amount but were considered technically improper because of failure to follow statute or regulation $76.88 M

The amount that could either be proper or improper but the agency is unable to determine whether it was proper or improper as a result of insufficient or lack of documentation $5.91 M

Prevention

FSA undertook a broad range of corrective actions throughout FY 2025 to target the root causes of improper and unknown payments. A cornerstone of FSA’s corrective actions was the continued implementation of the FUTURE Act, in partnership with the Treasury, which enabled secure cross-enterprise sharing of federal tax information directly from the IRS. Actions continued to occur through FY 2025 Q4 and dramatically improved the verification of income data for applicants and borrowers, particularly those involved in income-driven repayment (IDR) plans. Access to real-time tax data has eased the administrative burden for borrowers, facilitated accurate validation of IDR payments, and allowed FSA and loan servicers to track changes and address discrepancies.

Additional efforts included the implementation of behavioral and process-driven strategies, such as outreach campaigns to raise applicant awareness of accurate FAFSA completion and adjustments to the FAFSA form itself based on the FAFSA Simplification Act. By modifying application questions and emphasizing early outreach about student aid eligibility, FSA worked to reduce errors and omissions that may contribute improper or unknown payments. These measures, completed by Q4 of FY 2025, leveraged both behavioral insights and process improvements to ensure applicants provide correct and complete information.

To further safeguard payment accuracy, FSA relied on predictive analytics, automation, and ongoing training. The FAFSA Processing System used advanced analytics to flag applicants for verification. Additionally, FSA employed R programming and logarithmic analysis to estimate and predict rates of improper and unknown payments. These models are reviewed and updated annually to set reduction targets and maintain compliance with federal guidance. Simultaneously, FSA delivered a suite of free trainings and updated guidance for school financial aid administrators, helping institutions stay current on verification requirements and compliance issues. This information was published in the FSA Handbook and made available to the public.

Audit and oversight functions formed the final layer of FSA’s approach. Throughout FY 2025, FSA performed program reviews of selected schools and monitored annual Single Audit Act compliance audits conducted by independent auditors. Schools with identified deficiencies were required to develop corrective action plans, which FSA then monitored and evaluated for effectiveness. When improper payments were traced and deemed recoverable, FSA established accounts receivable and pursued collections. All oversight and corrective actions were completed by the end of FY 2025 Q4.
Preventing IPs is a top Administration and agency priority. To effectively prevent IPs and UPs from occurring, FSA evaluates the root causes of IPs and UPs identified. This root cause analysis is used to help formulate effective correction actions and prioritize efforts to prevent IPs and UPs from occurring. For example, FSA's most impactful root cause over the last five years for total IP in aggregate across all programs has been improper payments due to misreported income. FSA has invested significant resources and worked cross-agency with the IRS to implement the authorities provided in the FUTURE Act to obtain federal tax information data directly from the IRS. Significant work has been accomplished, and was fully implemented in FY 2025, and this corrective action has shown a significant reduction in misreported income on the FAFSA.

FSA relies on the expertise of its subject matter experts and owners of the corrective actions to identify any changes for its corrective actions. FSA monitors the status of the corrective actions through periodic outreach to corrective action owners and collects closure evidence to evaluate the effectiveness and progress of each individual mitigation strategy. This process informs whether the corrective action can be refined, intensified, expanded, or should be discontinued or replaced.

The agency has demonstrated a strategic and targeted approach to implementing corrective actions, prioritizing those that directly address significant root causes of improper payments, such as misreported income on the FAFSA, which has been FSA's most impactful root cause of improper payments over the last five years. By leveraging the authorities provided in the FUTURE Act, FSA developed and executed a corrective action plan to obtain federal tax information directly from the IRS. This initiative, including the rollout of the FAFSA Processing System (FPS) and Federal Tax Information (FTI) systems, automates the transfer of accurate income data for students and families directly from the IRS, significantly reducing the likelihood of misreported information on the FAFSA form. The expansion of these solutions to include individuals with taxpayer identification numbers further strengthens the agency’s efforts to minimize errors and unknown payments. This is a prime example of how FSA’s corrective actions are prioritized for payment integrity and how FSA implements continuous improvement to address emerging risks and populations.

The adequacy of these corrective actions is reinforced by the agency's comprehensive support and oversight mechanisms. FSA maintains a robust internal control framework, including program risk assessments and reviews, which help to identify and address vulnerabilities in payment processes. The agency also provides ongoing training, guidance, and resources to school financial aid administrators, which specifically target the root causes of improper payments at the institutional level. Activities such as clarifying verification requirements, responding to administrator questions, and utilizing compliance audits under the Single Audit Act ensure that corrective actions are not only well-implemented but also effective in reducing both improper and unknown payments. Timely resolution of audit findings and cross-enterprise sharing of best practices further contribute to sustained improvement in payment integrity, indicating that the agency’s actions are both adequate and successful in reducing payment errors.

Payment type Mitigation strategies taken Mitigation strategies planned
Overpayments Audit, Automation, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Statutory Change, Training Audit, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Training
Underpayments Audit, Automation, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Statutory Change, Training Audit, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Training
Technically improper payments Audit, Automation, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Statutory Change, Training Audit, Behavioral/Psych Influence, Change Process, Cross Enterprise Sharing, Predictive Analytics, Training
Unknown payments Audit,Automation,Behavioral/Psych Influence,Change Process,Cross Enterprise Sharing,Predictive Analytics,Statutory Change,Training Audit,Behavioral/Psych Influence,Change Process,Cross Enterprise Sharing,Predictive Analytics,Training

Eligibility element/information needed Description of the eligbility element/information
Education The education level or enrollment status of the recipient/beneficiary

Additional information

FSA places the highest value on maintaining the integrity of all types of payments made to ensure that the billions of dollars in federal funds it disburses annually reach intended recipients in the right amount and for the right purpose, including for the Direct Loan program. FSA ensures payment integrity by establishing effective policies, business processes, systems, and controls over key payment activities, including those pertaining to: payment data quality, cash management, third-party oversight, assessments of audit reports, and financial reporting. Accordingly, FSA maintains a robust internal control framework that includes controls designed to help prevent, detect, and recover improper payments. In designing controls, FSA strives to strike the right balance between making timely and accurate payments and ensuring that controls put in place are not too costly or overly burdensome and thereby deter intended beneficiaries from obtaining funds they are entitled to receive.

Reduction target

1.07 %

The Pell program achieved its tolerable rate. FSA has the internal controls, human capital, and information systems and other infrastructure needed to continue to maintain IP and UP estimates within the tolerable rate band. FSA must also continue to rely on controls established by external entities that receive funds and make payments on behalf of FSA for programs including Pell Grants. These entities are outside of FSA’s operational control. FSA will continue to leverage data from program reviews and Single Audit Act compliance audits to identify and address root causes of IPs and UPs made by external entities.

The FY 2026 budget provides $2.06 billion for the Student Aid Administration, which is straight lined from the fiscal year 2024 appropriation. This funding is essential to support students and student loan borrowers. The funding would allow FSA to continue to operate the student aid programs, implement critical improvements to student loan servicing, continue to modernize its digital infrastructure, and provide for the administration of the financial aid programs through a simplified and streamlined application process for students and borrowers.

FSA managers and staff are held accountable for maintaining effective controls and payment integrity. FSA performs an annual assessment of the effectiveness of its internal controls, including those controls designed to prevent or detect improper payments. Any deficiencies identified are remediated and retested within the next assessment cycle.

FSA has an integrated system of complementary oversight functions to help prevent, detect, and recover improper payments, and ensure compliance by all participating parties. This includes routinely conducting program reviews to confirm that schools meet requirements for institutional eligibility, financial responsibility, and administrative capability. Program reviews evaluate schools’ compliance with federal requirements, assess monetary liabilities for errors in performance which are calculated based on program review findings, and identify actions schools must take to make whole the Higher Education Act’s Title IV programs or recipients for any funds that were improperly managed and prevent the same problems from recurring. FSA also uses Single Audit Act compliance audits as a key source of identifying risks and potential improper payments made by schools. FSA has worked with fund recipients to resolve audit findings timely.

$83.01 M