PANHANDLE-PLAINS HIGHER EDUCATION AUTHORITYNon-Profit

Finding 2019-001 (Repeat of Finding 2018-001): Lender Records Not Maintained Population Size Universe of FFEL loans serviced Sample Size 60 loans Instances of Noncompliance 1 document for 1 loan Condition: The condition for the instance of noncompliance is detailed in the following table. Ref Lender ID Condition 1 834567 For one sampled loan, the promissory note was not maintained as required by the FFEL attestation guide requirement 3.3. Requirements: 3.3 - The lender must maintain the required records identified in 34 C.F.R. ?682.414(a)(4)(ii) which are listed below. ? A copy of the loan application, if a separate application was provided to the lender ? A copy of the signed promissory note ? The repayment schedules ? A record of each disbursement of loan proceeds ? Notices of changes in a borrower?s address and status as at least a half-time student ? Evidence of the borrower?s eligibility for a deferment ? The documents required for the exercise of forbearance ? Documentation of the assignment of the loan ? A payment history showing the date and amount of each payment received from or on behalf of the borrower, and the amount of each payment that was attributed to principal, interest, late charges, and other costs ? A collection history showing the date and subject of each communication between the lender and the borrower or endorser relating to collection of a delinquent loan; each communication (other than regular reports by the lender showing that an account is current) between the lender and a credit bureau regarding the loan; each effort to locate a borrower whose address is unknown at any time; and each request by the lender for default aversion assistance on the loan ? Documentation of any Master Promissory Note confirmation process or processes ? Any additional records that are necessary to document the validity of a claim against the guarantee or the accuracy of reports submitted. Required Procedures: 3.3 ? The following procedures are required: (1) Select a minimum sample of 60 loans and: (a) determine whether the lender maintained a copy of the signed promissory note. Cause: Management could not locate or obtain a signed copy of the loan promissory note. Effect or Potential Effect: The effect of the error is that management did not maintain all the required records identified in 34 C.F.R. ?682.414(a)(4)(ii). The absence of a promissory note would also result in an exception should a claim be filed on the loan; however, there was no claim filed on the loan during the period for which management was responsible. The finding does not indicate material noncompliance considering the following: ? Across the 60 loans tested for requirement 3.3, all required documents other than a single promissory note were maintained. ? The absence of the promissory note for the one loan did not impact compliance with requirement 3.10 as there were no claims filed on the loan. Recommendation: Management should work with the impacted lender and/or new servicer to locate the promissory note. CES Management?s Last Comments: Management has been working to locate the promissory note and has engaged with the client and guarantor to assist.

Finding 2019-002 (Repeat of Finding 2018-002): Incorrect Interest Benefits Population Size Universe of FFEL loans serviced Sample Size 60 loans Instances of Noncompliance 2 loans Condition: The condition for each instance of noncompliance is detailed in the following table. Interest benefits findings were also noted in the prior year. Ref Lender ID Condition 1 834567 For one sampled loan, incorrect principal balances were used in the interest benefits calculations 2 834223 For one sampled loan, incorrect manual adjustments were used in the interest benefits calculations. Requirements: 3.4 ? The lender must: (1) assign the loan interest rate in accordance with 34 C.F.R. ?682.202(a) and 50 USC App. 527; (2) bill interest only for periods specified in 34 C.F.R. ?682.300 (b)(2) and not for interest covered under 34 C.F.R. ?682.300 (c); (3) bill interest on consolidation loans in accordance with 34 C.F.R. ?682.301(a)(3); (4) terminate interest billing in accordance with 34 C.F.R. ?682.300(b) and (c); (5) calculate and submit CLRF in accordance with 20 USC 1078-3(f); and (6) calculate interest benefits in accordance with 34 C.F.R. ?682.304(b) and (c). 3.5 ? The lender must: (1) bill special allowance only for eligible loans as defined in 34 C.F.R.?682.302(b); (2) terminate special allowance billing in accordance with 34 C.F.R. ?682.302(d) and ?682.302(e)(2) and (3); (3) calculate the average daily balance in accordance with 34 C.F.R. ?682.304(d); and (4) bill special allowance for eligible loans made or purchased with funds derived from tax-exempt obligations in accordance with 34 C.F.R. ?682.304 (e), (f), and (g). Required Procedures: 3.4 ? The following procedures are required: (1) Select a minimum sample of 60 loans and: (d) For consolidated loans subject to the consolidation loan interest payment rebate fee, verify that fees were calculated accurately and submitted on a monthly basis; and (e) Test the accuracy of the average daily balance or actual accrual calculations by recalculating amounts or by using reasonableness tests. 3.5 ? The following procedures are required: (1) Select a minimum sample of 60 loans and: (c) Determine the accuracy of the average daily balance calculations as defined in 34 C.F.R. ?682.304(d) by recalculating amounts. Cause: Management?s processing is highly automated; however, forbearance, deferments and capitalization adjustments, which impact average daily balance calculation inputs, require manual processing. The noted errors occurred when manual processing was performed. Management?s controls, principally training, supervision, and quality control, did not prevent or detect these manual processor errors. Given the number of instances of noncompliance noted in the sample, the potential for additional similar errors in the untested populations, and the errors associated with findings 2018-002, 2018-003, 2018-004, 2018-005, and 2018-006, there is a material weakness in internal control over compliance related to the manual processing of transactions and adjustments. Effect or Potential Effect: The effects of the errors are detailed in the following table. Given the cause of the errors identified (manual processing errors, which were not limited by other controls), it is reasonably possible that other errors with greater impact may have occurred in the untested population. Given this finding notes multiple exceptions, this finding is indicative of material noncompliance with requirement 3.4 when taken alone and together with finding 2018-006 and with requirement 3.5 when taken alone and together with the 3.5 impacts of findings 2018-003, 2018-004, 2018-005 and 2018-006. Ref Lender ID 3.4 Interest Benefits Impact 3.5 Average Daily Balance Impact 1 834567 $0.09 (0.2%) under billed during Q4 2017 $0.01 (0.3%) under billed during Q1 2018 The special allowance average daily balance in the LA-2.68% interest rate category within the Q4 2017 LaRS was under reported by $13.97 (0.2%). The special allowance average daily balance in the LA-2.68% interest rate category within the Q1 2018 LaRS was under reported by $1.26 (0.3%). 2 834223 $0.65 (0.2%) over billed during Q2 2018 $0.65 (0.2%) under billed during Q3 2018 The calculated consolidated rebate fee was $0.65 (0.2%) under the correct fee amount No Impact Recommendation: Management should work with the impacted lenders, new loan servicers and/or guarantors to correct processing errors. CES Management?s Last Comments: FFELP Requirement 3.4 Finding 2018-002 includes 2 errors that PwC concluded impact CES?s compliance with FFELP Requirement 3.4. CES believes that it materially complied with FFELP Requirement 3.4 during the period of January 1 through September 30, 2018. CES believes the following information provides necessary perspective regarding Finding 2018-002, as it relates to FFELP Requirement 3.4: ? The control environment and quality assurance programs that have been in place at CES for years, including in prior periods when no instances of material non-compliance were identified, remained in place throughout 2018. There were no material changes to the operation of CES?s quality program in 2018. But in June of 2017, CES announced that it was exiting the student loan servicing business. Shortly after this announcement, CES began deconverting its active servicing portfolios to other servicers. As part of this effort, CES also began a voluntary process of reviewing accounts prior to transfer to ensure that any accounts requiring corrections were reviewed and corrected prior to transfer or claim submission. These corrective reviews, along with the drastic reduction in the size of CES?s servicing portfolio, impacted the composition of accounts and transactions that were reviewed as part of this year?s FFEL attestation and may have contributed to the testing results observed. ? The impact of the error identified in Ref. 1 is only $0.09, and the impact of the error identified in Ref. 2 is only $0.65. ? For the account associated with Ref. 1, CES notified the client to instruct the new servicer to make the correction. For the account associated with Ref. 2, CES made the correction as part of its fourth quarter 2018 LaRS reporting. FFELP Requirement 3.5 Finding 2018-002 includes one error that PwC concluded impact CES?s compliance with FFELP Requirement 3.5. CES believes that it materially complied with FFELP Requirement 3.5 throughout the period January 1, 2018 to September 30, 2018. CES believes the following information provides necessary perspective regarding Finding 2018-002, as it relates to FFELP Requirement 3.5: ? As discussed in more detail above, the control environment and quality assurance programs at CES remained in place throughout 2018, but the portfolio of loans serviced by CES changed dramatically during the same period. ? For the account associated with Ref. 1, CES notified the client to instruct the new servicer to make the correction.

Finding 2019-003 (Repeat of Finding 2018-003): Incorrect Special Allowance Population Size Universe of FFEL loans serviced Sample Size 60 loans Instances of Noncompliance 1 loan Condition: The condition for each instance of noncompliance is detailed in the following table. Special allowance findings were also noted in the prior year. Ref Lender ID Condition 1 809921 For one sampled loan, an incorrect manual adjustment was used in the special allowance calculation Requirements: 3.5 ? The lender must: (1) bill special allowance only for eligible loans as defined in 34 C.F.R.?682.302(b); (2) terminate special allowance billing in accordance with 34 C.F.R. ?682.302(d) and ?682.302(e)(2) and (3); (3) calculate the average daily balance in accordance with 34 C.F.R. ?682.304(d); and (4) bill special allowance for eligible loans made or purchased with funds derived from tax-exempt obligations in accordance with 34 C.F.R. ?682.304 (e), (f), and (g). Required Procedures: 3.5 ? The following procedures are required: (1) Select a minimum sample of 60 loans and: (c) Determine the accuracy of the average daily balance calculations as defined in 34 C.F.R. ?682.304(d) by recalculating amounts. Cause: Management?s processing is highly automated; however, on occasion manual payment adjustments need to be processed, which the impact average daily balance calculation inputs. The noted errors occurred when manual processing was performed. Management?s controls, principally training, supervision, and quality control, did not prevent or detect these manual processor errors. Given the number of instances of noncompliance noted in the sample, the potential for additional similar errors in the untested populations, and the errors associated with findings 2018-002, 2018-003, 2018-004, 2018-005 and 2018- 006, there is a material weakness in internal control over compliance related to the manual processing of transactions and adjustments. Effect or Potential Effect: The effects of the errors are detailed in the following table. Given the cause of the errors identified (manual processing errors, which were not limited by other controls), it is reasonably possible that other errors with greater impact have occurred in the untested population. This finding is indicative of material noncompliance with requirement 3.5 for this finding alone and when taken together with findings 2018- 002, 2018-004, 2018-005 and 2018-006. Ref Lender ID 3.5 Average Daily Balance Impact 1 809921 The special allowance average daily balance in the LJ?6.8% interest rate category within the Q3 2018 LaRS was over reported by $0.15 (0.005%). Recommendation: Management should work with the impacted lenders, new loan servicers and/or guarantors to correct processing errors. CES Management?s Last Comments FFELP Requirement 3.5 Finding 2018-003 includes 1 error that PwC concluded impact CES?s compliance with FFELP Requirement 3.5. CES believes that it materially complied with FFELP Requirement 3.5 throughout the period January 1, 2018 to September 30, 2018. CES believes the following information provides necessary perspective regarding Finding 2018-003, as it relates to FFELP Requirements 3.5: ? As discussed in more detail above, the control environment and quality assurance programs at CES remained in place throughout 2018, but the portfolio of loans serviced by CES changed dramatically during the same period. ? The impact of the identified error is only $0.15. CES corrected the error as part of its fourth quarter 2018 LaRS reporting.

Finding 2019-004 (Repeat of Finding 2018-004): School Enrollment Updates Population Size Loans in enrollment reports received during 2018 Sample Size 60 enrollment status adjustments Instances of Noncompliance 1 enrollment status adjustment Condition: The condition for each instance of noncompliance is detailed in the following table. School enrollment update findings were also noted in the prior year. Ref Lender ID Condition 1 824573 For one sampled student enrollment update received, the student deferment start date was not adjusted accurately. Specifically, the start date was 11/1/2017, but was recorded as 8/1/2017 Requirements: 3.5 ? The lender must: (1) bill special allowance only for eligible loans as defined in 34 C.F.R.?682.302(b); (2) terminate special allowance billing in accordance with 34 C.F.R. ?682.302(d) and ?682.302(e)(2) and (3); (3) calculate the average daily balance in accordance with 34 C.F.R. ?682.304(d); and (4) bill special allowance for eligible loans made or purchased with funds derived from tax-exempt obligations in accordance with 34 C.F.R. ?682.304 (e), (f), and (g). 3.7 ? The lender must (1) review and use enrollment report data to make adjustments to loan status, and (2) convert loans to repayment status in accordance with 34 C.F.R. ?682.209. Required Procedures: 3.5 ? The following procedures are required: (1) Select a minimum sample of 60 loans and: (c) Determine the accuracy of the average daily balance calculations as defined in 34 C.F.R. ?682.304(d) by recalculating amounts. 3.7 ? The following procedures are required: (1) Using the Enrollment Reports received during the audit period, select a minimum sample of 60 loans and: (a) Trace loan status information from the Enrollment Reports to loan records and any lender discrepancy reports or other notifications of change information to determine if changes to student enrollment status were made accurately. Cause: Management?s processing is highly automated; however, certain student enrollment adjustments require manual processing. The noted errors occurred when manual processing was performed. Management?s controls, principally training, supervision, and quality control, did not prevent or detect the manual processor error noted. Effect or Potential Effect: The effects of the error are detailed in the following table. The error does not indicate material noncompliance with requirement 3.7. During the period January 1, 2018 to September 30, 2018, management?s quality control program student enrollment update testing results indicated a 2% error rate based on testing of 1,031 updates processed. The error does, however, indicate material noncompliance with requirement 3.5 when taken together with findings 2018-002, 2018-003, 2018-005, and 2018-006. Ref Lender ID 3.5 Average Daily Balance Impact 1 824573 ? The Q4 2017 LaRS category LJ ? 6.8% was under reported by $7,233.73 average daily balance (the entire principal average daily balance for the impacted loan). ? The Q4 2017 LaRS category LI ? 6.8% was over reported by $7,233.73 average daily balance (the entire principal average daily balance for the impacted loan). ? The Q4 2017 LaRS category LC ? IC was under reported by $185.83 average daily balance (the entire interest average daily balance for the impacted loan). Recommendation: Management should work with the impacted lender and new servicer to make corrections as needed. CES Management?s Last Comments: FFELP Requirement 3.7 New enrollment information for this error will be provided to the new servicers through the National Student Clearinghouse. FFELP Requirement 3.5 Finding 2018-004 includes one error that PwC concluded impacts CES?s compliance with FFELP Requirement 3.5. As noted above, CES believes that it materially complied with FFELP Requirement 3.5 during the period of January 1 through September 30, 2018. CES believes the following information provides necessary perspective regarding Finding 2018-004, as it relates to FFELP Requirement 3.5: ? As discussed in more detail above, the control environment and quality assurance programs at CES remained in place throughout the period January 1, 2018 to September 30, 2018, but the portfolio of loans serviced by CES changed dramatically during the same period. ? New enrollment information for this error will be provided to the new servicers through the National Student Clearinghouse.

Finding 2019-005 (Repeat of Finding 2018-005): Claims Filed with Inaccurate Information Population Size Claims filed on FFEL loans during 2018 Sample Size 60 claims filed Instances of Noncompliance 3 claims filed Condition: The condition for each instance of noncompliance is detailed in the following table. In summary, for three sampled claims filed, management did not file the claim with accurate claim payment information due either to errors when creating the claim form or due to errors when processing transactions impacting the loan balance claimed. Claims filing findings were also noted in the prior year. Ref Lender ID Condition 1 834416 For one sampled claim filed, financial adjustments were not accurately processed; as a result, the amounts claimed were incorrect. 2 808851 For one sampled claim filed, a processor did not populate the claim form correctly based on the balances in the servicing system. 3 833955 For one sampled claim filed, financial adjustments were not accurately processed; as a result, the amounts claimed were incorrect. Requirements: 3.5 ? The lender must: (1) bill special allowance only for eligible loans as defined in 34 C.F.R.?682.302(b); (2) terminate special allowance billing in accordance with 34 C.F.R. ?682.302(d) and ?682.302(e)(2) and (3); (3) calculate the average daily balance in accordance with 34 C.F.R. ?682.304(d); and (4) bill special allowance for eligible loans made or purchased with funds derived from tax-exempt obligations in accordance with 34 C.F.R. ?682.304 (e), (f), and (g). 3.10 ? The lender is required to maintain records necessary to document the validity of a claim against a loan guaranty (34 C.F.R. ?682.414(a)(4)(ii)). Required Procedures: 3.5 ? The following procedures are required: (1) Select a minimum sample of 60 loans and: (c) Determine the accuracy of the average daily balance calculations as defined in 34 C.F.R. ?682.304(d) by recalculating amounts. 3.10 ? (1) Select a minimum sample of 60 loans on which a claim was filed and: (a) Determine if the lender?s records document that a claim was filed with accurate claim payment information and in a timely manner with the guaranty agency. Cause: Management?s claim filing process assumes the data in the system is accurate; however, the errors related to pre-claim transactions (e.g., deferments, forbearances, capitalization adjustments and interest rate adjustments) which create claim errors when relied upon. Management?s processing is highly automated; however, forbearances, deferments, capitalization adjustments, interest rate changes and certain student enrollment adjustments require manual processing. Certain of the noted errors occurred when manual processing was performed for transactions prior to the claim filing process, and certain of the errors noted occurred during the claims filing process itself. Management?s controls, principally training, supervision, and quality control, did not prevent or detect these manual processor errors. Given the number of instances of noncompliance noted in the sample, the potential for additional similar errors in the untested populations, and the errors associated with findings 2018-002, 2018-003, 2018-004, 2018-005, and 2018-006, there is a material weakness in internal control over compliance related to the manual processing of manual processing of transactions and adjustments. Effect or Potential Effect: The effects of the errors are detailed in the following table. Given the nature of the errors (manual processing errors, which were not limited by other controls), it is reasonably possible that other errors, including errors having larger effects, may have occurred in the untested population. Further, given more than one exception in the sample, testing was not expanded. This finding is indicative of material noncompliance with requirement 3.10 when taken alone and together with finding 2018-006, and with requirement 3.5 when taken alone and together with findings 2018-002, 2018-003, 2018-004 and 2018-006. Ref Lender ID 3.5 Average Daily Balance Impact 3.10 Claim Filing Impact 1 834416 The Q4 2017 LaRS category LC-CL-3.875% was under reported by $3.95 (0.01%). The Q1 2018 LaRS category LC-CL-3.875% was under reported by $3.25 (0.01%). An additional $3.95 (0.01%) Principal and $0.88 (0.07%) interest should have been included in the claim. 2 808851 No Impact An additional $0.98 (0.01%) principal should have been claimed 3 833955 The Q4 2017 LaRS category LF-CL- 8.00% was over reported by $90.00 (0.03%). The Q1 2018 LaRS category LF-CL- 8.00% was over reported by $90.00 (0.03%). The Q2 2018 LaRS category LF-CL- 8.00% was over reported by $90.00 (0.03%). The Q3 2018 LaRS category LF-CL- 8.00% was over reported by $39.13 (0.03%). $90.00 (0.03%) principal and $0.21 (0.001%) interest claimed should not have been included in the claim. Recommendation: Management should work with the impacted lenders to correct the errors as needed. CES Management?s Last Comments: FFELP Requirement 3.5 Finding 2018-005 includes 2 errors that PwC concluded impact CES?s compliance with FFELP Requirement 3.5. As noted above, CES believes that it materially complied with FFELP Requirement 3.5 during the period of January 1 through September 30, 2018. CES believes the following information provides necessary perspective regarding Finding 2018-005, as it relates to FFELP Requirement 3.5: ? As discussed in more detail above, the control environment and quality assurance programs at CES remained in place throughout 2018, but the portfolio of loans serviced by CES changed dramatically during the same period. ? Management has corrected these errors. FFELP Requirement 3.10 Finding 2018-005 includes 3 errors that PwC concluded impact CES?s compliance with FFELP Requirement 3.10. CES believes that it materially complied with FFELP Requirement 3.10 during the period of January 1 through September 30, 2018. CES believes the following information provides necessary perspective regarding Finding 2018-005, as it relates to FFELP Requirement 3.10: ? As discussed in more detail above, the control environment and quality assurance programs at CES remained in place throughout the period January 1, 2018 to September 30, 2018, but the portfolio of loans serviced by CES changed dramatically during the same period. ? For 2 of the 3 errors identified (Ref. 1 and Ref. 3), the claim forms filed by CES were accurate based upon CES?s reasonable reliance upon the account balances in its system of record at the time of the claim filing. CES submits that its reliance upon the system of record at the time of claim filing is consistent with FFELP regulations. CES?s practice is also consistent with industry practices. ? For Ref. 1, the impact of the identified error is only $3.95 (to principal) and $0.88 (in interest). For Ref. 2, the impact of the identified error is only $0.98 (to principal) and $0.00 (in interest). ? The accounts associated with 2 of the errors identified by PwC (Refs. 1 and 2) required further review but did not require a supplemental claim filing because the impact was less than $50.00. ? For the account associated with the remaining error (Ref. 3), CES is processing a refund to the guarantor.

Finding 2019-006 (Repeat of Finding 2018-006): Impact of Prior Year Processing Errors Condition: Certain findings identified in prior years and remained unresolved for some or all of the 2018 period for affected loans. 1. Unprocessed financial adjustments related to income based repayment plans, forbearances and deferments identified in prior years affect the calculations of interest benefits, special allowance, as well as allocation of payments. 2. Management has also discovered certain financial adjustments initially believed to have been processed prior to 2014, but which may also require remediation. Additionally, in June 2018, management discovered that financial adjustments required for certain forbearance and deferment transactions processed since 2006 were not made. There were 30,030 loan packets serviced during 2018 for which a financial adjustment may have been required, but was not processed during the period 2006 through 2018. Management has conducted a sampling of the potentially affected loans to further quantify the impact of the missing financial adjustments, but has not concluded that analysis to be able to fully assess the effect of the missing financial adjustments. Requirements: 3.4 ? The lender must: (1) assign the loan interest rate in accordance with 34 C.F.R. ?682.202(a) and 50 USC App. 527; (2) bill interest only for periods specified in 34 C.F.R. ?682.300 (b)(2) and not for interest covered under 34 C.F.R. ?682.300 (c); (3) bill interest on consolidation loans in accordance with 34 C.F.R. ?682.301(a)(3); (4) terminate interest billing in accordance with 34 C.F.R. ?682.300(b) and (c);(5) calculate and submit CLRF in accordance with 20 USC 1078-3(f); and (6) calculate interest benefits in accordance with 34 C.F.R. ?682.304(b) and (c). 3.5 ? The lender must: (1) bill special allowance only for eligible loans as defined in 34 C.F.R.?682.302(b); (2) terminate special allowance billing in accordance with 34 C.F.R. ?682.302(d) and ?682.302(e)(2) and (3); (3) calculate the average daily balance in accordance with 34 C.F.R. ?682.304(d); and (4) bill special allowance for eligible loans made or purchased with funds derived from tax-exempt obligations in accordance with 34 C.F.R. ?682.304 (e), (f), and (g). 3.8 ? The lender must (1) calculate interest and principal in accordance with 34 C.F.R. ?682.202 (a) and (b), and (2) apply loan payments and prepayments in accordance with 34 C.F.R. ?682.209(b) or the documented specific request of the borrower. 3.10 ? The lender is required to maintain records necessary to document the validity of a claim against a loan guaranty (34 C.F.R. ?682.414(a)(4)(ii)). Required Procedures: Not applicable. The findings were identified upon disclosure by management. Cause: Management has noted that processors were not able to keep pace with borrower requests for income based repayment plans, deferments and forbearances and financial adjustments were not processed timely. Given the number of instances of noncompliance noted in the sample, the potential for additional similar errors in the untested populations, and the errors associated with findings 2018-002, 2018-003, 2018-004, 2018-005, and 2018-006, there is a material weakness in internal control over compliance related to the manual processing of manual processing of transactions and adjustments. Effect or Potential Effect: The use of unadjusted balances led to incorrect interest benefits, special allowance, and payment allocation calculations in prior years, and for loans which remained unremediated during some or all of 2018. These loans were not excluded from testing compliance with the Specified Requirements. The following summarizes the effect or potential effect for each condition: 1. The prior year adjustments identified by management in its remediation plan represented 0.12% of management?s FFEL servicing portfolio as of September 30, 2016. 2. Management has not identified the full population of loans that were not included in the remediation plan, but has conducted a sampling of the potentially affected loans. As it relates to the transactions identified in June 2018, principal and interest balances would be incorrect for any loan with a missing financial adjustment, and thus: subsequent payments would be incorrectly applied to principal and interest, average daily balances used to calculate interest benefits and/or special allowance payments subsequent to the errors would be incorrect, and claims filed subsequent to the errors would contain inaccurate claim information. There were 30,030 loan related to packets service during 2018 for which a financial adjustment may have been required, but was not processed during the period 2006 through 2018. Recommendation: Management should work with the impacted lenders to correct the errors as needed. CES Management?s Last Comments: As CES disclosed in December 2014, CES had identified a population of loans requiring remediation to the Department of Education (?ED?) and remediated those loans pursuant to a plan that ED reviewed and approved. The remediation of all loans subject to the remediation plan was completed by the end of 2016. In all cases, the remediation of these loans consisted of the completion of financial adjustments that were the result of the borrower requests; all borrowers, to the extent eligible, had their requests approved and received the benefit of those requests. In 2017, as part of its continuing review of its operations, CES reviewed a population related to the initial remediation population (the completed eGain ticket population) and, through sampling, discovered that some amount of those tickets related to borrower requests for which financial adjustments had not been completed. CES disclosed this development to ED in May 2017 and remediated those loans pursuant to a plan that ED reviewed and approved. With the exception of certain loans, the data relating to which the Department has exclusive control over (and to which CES has no access), CES remediated all loans subject to the remediation plan by March 18, 2018. As with the first remediation, in all cases, the remediation of these loans consisted of the completion of financial adjustments that were the result of the borrower requests; all borrowers, to the extent eligible, had their requests approved and received the benefit of those requests. In 2018, as part of its continuing review of its operations, CES reviewed a population of non-ticketed deferment, forbearance, and enrollment update transactions without corresponding financial adjustments and, through sampling, discovered that some amount of those transactions related to borrower requests for which financial adjustments had not been completed. CES disclosed this development to ED in June 2018. CES has been able to narrow the population of packets potentially with this condition to 352,800, but notes that not all packets within this population require further review. Instead, based on CES?s review to date, it appears that approximately one third of this population ultimately may require further review. CES has studied this population and has submitted a proposal to ED. With respect to each impacted FFELP Requirement, CES also provides the following responses: FFELP Requirement 3.4 CES believes the following information provides necessary perspective regarding the impact of Finding 2018-006, as it relates to FFELP Requirement 3.4: ? As discussed in more detail above, the control environment and quality assurance programs at CES remained in place throughout the period January 1, 2018 to September 30, 2018, but the portfolio of loans serviced by CES changed dramatically during the same period. ? Any interest benefits calculated by CES for accounts potentially impacted by the non-ticketed population were accurate based on CES?s system of record at the time of calculation. PwC made its determination that the calculations associated with accounts potentially included in this population are potentially incorrect based upon updates and corrections that may, or may not, be required for these accounts after the calculations at issue were performed. PwC concluded that its examination disclosed material non-compliance with FFELP Requirement 3.4. CES believes that it materially complied with FFELP Requirement 3.4 throughout the period January 1, 2018 to September 30, 2018 with respect to Finding 2018-006 when taken alone, and also with respect to Finding 2018-006 when taken together with Finding 2018-002. CES believes that assessment of its compliance with FFELP Requirement 3.4 can be demonstrated by the information highlighted above regarding each of those Findings. FFELP Requirement 3.5 CES believes the following information provides necessary perspective regarding the impact of Finding 2018-006, as it relates to FFELP Requirement 3.5: ? As discussed in more detail above, the control environment and quality assurance programs at CES remained in place throughout the period January 1, 2018 to September 30, 2018, but the portfolio of loans serviced by CES changed dramatically during the same period. ? Any average daily balances calculated by CES for accounts potentially impacted by the non-ticketed population were accurate based on CES?s system of record at the time of calculation. PwC made its determination that the calculations associated with accounts potentially included in this population are potentially incorrect based upon updates and corrections that may, or may not, be required for these accounts after the calculations at issue were performed. PwC concluded that its examination disclosed material non-compliance with FFELP Requirement 3.5. CES believes that it materially complied with FFELP Requirement 3.5 throughout the period January 1, 2018 to September 30, 2018 with respect to Finding 2018-006 when taken alone, and also with respect to Finding 2018-006 when taken together with Findings 2018-002, 2018-003, 2018-004, and 2018-005. CES believes that assessment of its compliance with FFELP Requirement 3.5 can be demonstrated by the information highlighted above regarding each of those Findings. FFELP Requirement 3.8 CES believes the following information provides necessary perspective regarding the impact of Finding 2018-006, as it relates to FFELP Requirement 3.8: ? As discussed in more detail above, the control environment and quality assurance programs at CES remained in place throughout the period January 1, 2018 to September 30, 2018, but the portfolio of loans serviced by CES changed dramatically during the same period. ? Any payments processed by CES for accounts potentially impacted by the non-ticketed population were accurate based on CES?s system of record at the time of payment processing. PwC made its determination that the payments associated with accounts potentially included in this population are potentially incorrect based upon updates and corrections that may, or may not, be required for these accounts after the payments at issue were processed. FFELP Requirement 3.10 CES believes the following information provides necessary perspective regarding the impact of Finding 2018-006, as it relates to FFELP Requirement 3.10: ? As discussed in more detail above, the control environment and quality assurance programs at CES remained in place throughout 2018, but the portfolio of loans serviced by CES changed dramatically during the same period. ? The claim forms filed by CES for accounts potentially impacted by the non-ticketed population were accurate based on CES?s system of record at the time of the claim filing. PwC made its determination that the claim forms associated with accounts potentially included in this population are potentially incorrect based upon updates and corrections that may, or may not, be required for these accounts after the claim forms at issue were processed. PwC concluded that its examination disclosed material non-compliance with FFELP Requirement 3.10. CES believes that it materially complied with FFELP Requirement 3.10 throughout the period January 1, 2018 to September 30, 2018 with respect to Finding 2018-006 when taken alone, and also with respect to Finding 2018-006 when taken together with Finding 2018-005. CES believes that assessment of its compliance with FFELP Requirement 3.10 can be demonstrated by the information highlighted above regarding each of those Findings. Material Weakness in Internal Control over Manual Processing PwC also concluded that its examination identified a material weakness in internal control over compliance related to the manual processing of forbearances, deferments, and student enrollment adjustments. CES believes that no material weakness in internal control over compliance related to the manual processing of forbearances, deferments, and student enrollment adjustments existed from January 1 through December 31, 2018. CES believes the following information provides necessary perspective regarding PwC?s finding: ? As discussed in more detail above, the control environment and quality assurance programs at CES remained in place throughout 2018, but the portfolio of loans serviced by CES changed dramatically during the same period. ? The majority (over 80%) of its processing was automated, as opposed to manual, and no automated errors were identified by PwC in this audit. ? CES did manually process a significant number of transactions. For the vast majority of these transactions, CES?s processing was error free. PwC?s testing identified only very few, isolated errors for each of the FFELP Requirements, and, in several instances, the errors detected by PwC had a de minimis impact.

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