Finding Text
2024-003 Significant Deficiency: Direct Loan Limits (U.S. Department of Education, William D. Ford
Direct Loan Program, ALN #84.268)
Criteria: In accordance with the Federal Student Aid Handbook, Volume 3, Chapter 3, you must
determine an undergraduate student’s Pell Grant eligibility before originating a Direct Subsidized or
Unsubsidized Loan for that student, and you must package Campus-Based funds and Direct Subsidized
Loans before Direct Unsubsidized Loans. In addition, you must determine an undergraduate student’s
maximum Direct Subsidized Loan eligibility before originating a Direct Unsubsidized Loan for the
student. The student’s maximum annual loan limit increases as the student progresses to higher grade
levels.
Statement of Condition: During the audit, it was noted that the University did not fulfill maximum
award of students’ Direct Subsidized Loan eligibility prior to awarding Unsubsidized Direct Loans.
Questioned Costs: This finding is monetary in nature. In the instances noted in testing, the total error
is $5,983 in under-award. Extrapolation of this monetary error estimates a total potential error of
$54,614. This exceeds the $25,000 reporting threshold for monetary error within Federal Award
Programs.
Perspective Information: The audit included a detailed testing of 32 files for undergraduate students
who had received Unsubsidized Direct Loans, of which this significant deficiency applies to 3,
indicating an error rate of 9.4%. This does not exceed the reporting threshold of 10% for Federal
Award Programs.
Recommendation: The University should institute processes and controls to ensure that the student
eligibility is assessed properly based upon grade level progression and that maximum Subsidized
Direct Loans are awarded prior to Unsubsidized Direct Loans, as this practice is more beneficial for
the student.
Cause and Effect: For one of the three students identified, the student was a transfer into the
University from another institution for the 2023-24 school year. The student’s transcript was not
received prior to awarding, so the student was awarded as a first-year student; once received, the
award was not adjusted to reflect the credit hours previously earned by the student. Since the
handbook states that the student eligibility must match the credit hours recognized academically by
the receiving institution, this resulted in an under-award of Subsidized Direct Loans. For another of
the three students identified, a system error resulted in an under-award. The error was not noticed
by the responsible parties, so correction was not made, resulting in an under-award of Subsidized
Direct Loans. For the final of the three students identified, the student received the full amount of
aggregate annual Direct Loan eligibility as Unsubsidized Direct Loans. The student was a first-year
student with adequate calculated need to receive the maximum Direct Subsidized Loans. This
oversight results in an under-award of Subsidized Direct Loan, which should have been reclassified
from Unsubsidized Direct Loans.
View of Responsible Officials: The University has determined that this finding was caused by a
deficiency in the software’s calculation of the subsidized award. Specifically, the software failed to
update the student’s records following changes in circumstances that impacted the calculation of
financial need. In response, the University has conducted a thorough evaluation and implemented
new software designed to address this issue and ensure accurate calculations in future cases.