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The U.S. Department of Education overpaid Pell grant recipients by $2.03 billion in fiscal 2016 and made another $188 million in underpayments, according to an agency finance report released this week.

The error rate for the student-aid program was 7.85% for the year ended Sept. 30, an increase over rates published for the prior year, but officials said they used a new methodology for fiscal 2016 so the numbers aren’t comparable.

Meanwhile, according to the report, the Department of Education’s direct student loan program improperly disbursed more than $3.86 billion, or an error rate of nearly 4%.

Education Department spokeswoman Kelly Leon said that the measure of improper payments historically has been “volatile and imprecise,” and to improve accuracy the agency modified the way it calculates the rate in fiscal 2016 to include annual program reviews, which may pick up more incidences of improper payments.

Ms. Leon said that as a result of the new methodology, fiscal 2015 and 2016 error rates can’t be compared directly. Indeed, the department has two different error rates for fiscal 2015—1.88% or 1.52% for Pell, and 1.3% or 2.63% for the direct loan program.

The Education Department recoups a tiny share of the overpayments. According to the report, it identified $118.7 million of the improper payments and recovered $20.4 million outside of “payment recapture audits,” which the department says aren't cost-effective.

“It appears the people at the Department of Education need a refresher course in math,” said Rep. Virginia Foxx (R, N.C.), a member of the House Committee on Education and the Workforce and chair of its higher education subcommittee. “The department’s billions of dollars in improper Pell grant and student loan payments are outrageous and unacceptable. It’s clear that Congress must strengthen its oversight of the department and increase accountability for how hardworking taxpayer dollars are spent.”

The Education Department report blamed “administrative or process errors” by colleges, student loan servicers or other third parties for the miscalculations, including not verifying financial data provided by applicants, not tracking students’ academic progress and not calculating how much money should be returned to the government after a student drops out.

It said some of the miscalculations were also due to families incorrectly reporting their income on financial-aid applications.

According to the report, the Education Department has developed “robust internal controls” to prevent, detect and recover improper payments. “The Department strives to strike the right balance between providing timely and accurate payments to grant recipients and students, while at the same time ensuring that the controls are not too costly and burdensome to fund recipients,” it said in the report.

An independent audit of the department’s financial statements, included in the fiscal report, found “significant deficiencies” in how it models out future spending, including how it estimates borrower incomes under the income-dependent repayment plans, projects cash flows and calculates how well loans will perform.

http://www.wsj.com/articles/inaccurate-pell-grant-payments-topped-2-2-billion-in-fiscal-2016-1479398442