2022-003. FINDING: Federal Perkins Loan Cohort Default Rate Too High Federal Department: U.S. Department of Education Assistance Listing Number: 84.038, 84.033, 84.007, 84.063, 84.268, 84.379 Cluster Name: Student Financial Assistance Cluster Program Name: Federal Perkins Loan Program ? Federal Capital Contributions, Federal Work-Study Program, Federal Supplemental Educational Opportunity Grants, Federal Pell Grant Program, Federal Direct Student Loans, Teacher Education Assistance for College, and Higher Education Grants Award Numbers: P033A201156, P033A191156, P007A151156, P007A191156, P007A201156, P063P190567, P063P200567, P268K210567, P268K200567, P379T200567, and P379T210567 Questioned Cost: None Program Expenditures: $2,837,726; $467,499; $287,775; $6,964,315; $22,967,948; $14,145 Cluster Expenditures: $34,781,190 Governors State University?s (University) Federal Perkins loan cohort default rate is in excess of the threshold for administrative capability stipulated by the U.S. Department of Education. The Federal Perkins Loan Cohort Default Rate for the past three years (Fiscal Years 2020, 2021, and 2022, for borrowers who entered repayment during Fiscal Years 2019, 2020, and 2021, respectively) is 19.38% which exceeded the 15% threshold. The University chose to continue servicing their Perkins Loan portfolio after Federal Perkins Loan Program loan originations were discontinued in Fiscal Year 2018. The Code of Federal Regulations (Code) (34 CFR 668.16) states ?to begin and to continue to participate in any Title IV, HEA program, an institution shall demonstrate to the Secretary that the institution is capable of adequately administering that program under each of the standards established in this section. The Secretary considers an institution to have that administrative capability if the institution ? ... (m)(1) Has a cohort default rate - (iii) as defined in 34 CFR 674.5, on loans made under the Federal Perkins Loan Program to students for attendance at the institution that does not exceed 15 percent.? For institutions with less than 30 borrowers in the cohort for a fiscal year, cohort default rate is computed as the percentage of the total number of borrowers in that cohort and in the two most recent prior cohorts who are in default by the total number of borrowers in that cohort and the two most recent prior cohorts (34 CFR 668.202 (d)(2)(ii)). The U.S. Department of Education?s Dear Colleague Letter (DCL ID: GEN-17-10) states institutions that choose to continue to service their outstanding Perkins Loan portfolios must continue to service these loans in accordance with the Federal Perkins Loan Program regulations in 34 CFR 674. The Uniform Guidance (2 CFR 200.303) requires nonfederal entities receiving Federal awards establish and maintain internal controls designed to reasonably ensure compliance with Federal statutes, regulations, and terms and conditions of the Federal award. Effective internal controls should include procedures to ensure the University maintains a Federal Perkins Loan cohort default rate of less than 15%. University officials indicated they have met all due diligence requirements with regards to Perkins collections and have worked closely with the collection agency and with former students to facilitate loan consolidations, to reduce the cohort default rate. The University?s cohort default rate during the Fiscal Year 2022 (for borrowers who entered repayment during Fiscal Year 2021) was at 11.11%, meeting the 15% threshold. However, since the number of University borrowers who entered repayment during Fiscal Year 2021 were fewer than 30, the current cohort default rate calculation also included the University borrowers who entered into repayment and defaulted for the past three years, in accordance with federal regulations. Failure to maintain a Federal Perkins Loan cohort default rate below 15% resulted in noncompliance with the Code, the Uniform Guidance, and the U.S. Department of Education?s directive. (Finding Code No. 2022- 003, 2021-005, 2020-002, 2019-005, 2018-008, 2017-003, 2016-006)