Loan refinancing company swamped.

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Author: Greene, Robert

WASHINGTON -- A Texas company that received a multimillion-dollar contract to handle federal student loan refinancing has bungled the job, U.S. Department of Education officials say.

Department officials acknowledged widespread problems in a letter sent late last month to a House subcommittee that oversees education-related issues. The letter says it has taken, on average, more than five months to handle loan consolidations since Electronic Data Systems of Plano, Texas, took over the contract in September 1996.

The process, Department of Education officials says, should take no more than two to three months. EDS 'company officials declined comment on the matter.

Refinancing enables borrowers to roll all their previous loans into one, simplifying personal finances and giving more flexibility in repaying the loans.

"This turned out to be more of a challenge than the contractor anticipated," said David Longanecker, assistant secretary of education for postsecondary education.

The computer firm, founded by Texas billionaire and two-time self-proclaimed presidential candidate H. Ross Perot, has two five-year federal contracts worth $540 million.

"This contractor does computer work extremely well," Longanecker said. "But it turns out to be more hands-on, talking to people on the phone --quite different than they anticipated."

He said the department also made a"strategic error" in assuming that borrowers would be the best information source on their loan portfolios. In many cases, he said, the loan information had changed by the time it could be verified through lenders.

Education Department officials also say the volume was higher than expected. The department anticipated 8,000 applications a month but received on average more than 13,000 a month.

The subcommittee on postsecondary education planned to hold hearings on the computer support for its massive program, which lends $43 billion a year and has a $117 billion portfolio.

General Accounting Office and Inspector General's Office investigators criticized the Education Department's slow progress in overhauling its computer systems.

The GAO says the department runs financial aid using nine major computer systems supported by 16 separate contracts that "operate independently and cannot communicate or share data."

The technology costs are expected to triple from $106 million in 1994 to $317 million next year.

But Longanecker said the Department of Education has been moving "pretty aggressively" to: ward improving the system and the delivery of student aid.

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BY ROBERT GREENE