The Federal Diary in the Aug. 2 Metro section incorrectly said that a tax-free transit subsidy provided to federal employees would increase from $105 to $155 a month. The provision was not adopted by House and Senate negotiators in the highway and mass-transit legislation approved July 29 by Congress. (Published 8/3/2005)

Federal agencies describe the program that allows them to repay educational loans for employees as "time-consuming and cumbersome to operate," according to a report from the Government Accountability Office.

Agency officials told the GAO that the federal student loan repayment program could be improved by increasing automation and consolidating activities. For example, some payroll operations cannot make electronic transfers of loan repayments, requiring them to issue paper checks. Some departments are dealing with multiple lending institutions, which slows processing. Some agencies lack staff with expertise in the student loan business.

By most accounts, student loan repayments help give agencies an edge when trying to hire talented college graduates, who often have student debts to repay, and in keeping employees in hard-to-fill jobs. Congress permits agencies to make student loan repayments of up to $10,000 annually, for a lifetime total of $60,000.

Despite its popularity, the program has been slow to take off. About 80 percent of the reimbursements are made by five agencies: the departments of State, Defense and Justice, the Securities and Exchange Commission and the GAO.

The latest data on the program, from fiscal 2004, show that, on a government-wide basis, 28 federal agencies provided 2,945 employees with more than $16.4 million in student loan repayments.

The Office of Personnel Management, which oversees the program, has asked agency officials to attend a meeting tomorrow morning to look at ways to improve the loan repayment process. "At the forum, we will discuss GAO's recommendations, listen to your thoughts and concerns and discuss ways to improve this valuable recruitment and retention tool," Linda M. Springer, OPM director, said in a memo.

For its report, the GAO looked for examples of why and how agencies decided to use the program or chose not to use it.

The departments of State and Justice and the SEC said they used the program for broad-based retention efforts, in many cases aimed at keeping employees who have critical skills and knowledge. The General Services Administration and the departments of Energy and Transportation said they used the program to recruit specific individuals, such as presidential management fellows and engineers.

The Social Security Administration, Equal Employment Opportunity Commission and Small Business Administration "reported having no real need to implement the program at this time, because their agencies are not facing significant recruitment and retention challenges," the GAO report said.

One of the key problems facing the program is funding. Many agencies are reluctant to ask Congress for additional money, but some do. For example, the State Department has sought a specific appropriation in past years, the Congressional Research Service noted in a July 15 report.

The loan repayments count as taxable income, a fact that many employees dislike because it reduces the amount that goes to pay off their student debt. Legislation has been introduced that would exclude student loan repayments from gross taxable income and from the definition of wages in the tax code, but the outlook for passage is murky. Similar efforts have stalled in previous years.

Because the program is relatively new -- OPM issued regulations in 2001 -- agencies told the GAO that it probably would take more than three years to gather data and evaluate how much of a difference the loan repayments make in attracting and keeping employees. Under the law authorizing the program, employees usually agree to stay in their jobs for at least three years in exchange for the benefit.

Transit Perk to Grow

Starting next year, federal departments and agencies will be able to provide tax-free transit subsidies to their employees worth up to $155 a month, under legislation approved by Congress last week.

A provision in the transportation bill raises the monthly maximum amount of transit benefits excludable from the recipient's taxable income from the current $105 to $155, effective in 2006.

Many federal agencies in the Washington area and elsewhere pay such benefits to encourage their employees to use mass transit or van pools. Under the bill, the tax-free benefit will be expanded to include the legislative and judicial branches.