[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
     FEDERAL DEBT MANAGEMENT--ARE AGENCIES USING COLLECTION TOOLS 
                              EFFECTIVELY?

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY
                        AND FINANCIAL MANAGEMENT

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 17, 2003

                               __________

                           Serial No. 108-61

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform


                                 ______

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                            WASHINGTON : 2003
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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma              C.A. ``DUTCH'' RUPPERSBERGER, 
NATHAN DEAL, Georgia                     Maryland
CANDICE S. MILLER, Michigan          ELEANOR HOLMES NORTON, District of 
TIM MURPHY, Pennsylvania                 Columbia
MICHAEL R. TURNER, Ohio              JIM COOPER, Tennessee
JOHN R. CARTER, Texas                CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota                 ------
MARSHA BLACKBURN, Tennessee          BERNARD SANDERS, Vermont 
                                         (Independent)

                       Peter Sirh, Staff Director
                 Melissa Wojciak, Deputy Staff Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
              Philip M. Schiliro, Minority Staff Director

     Subcommittee on Government Efficiency and Financial Management

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
MARSHA BLACKBURN, Tennessee          EDOLPHUS TOWNS, New York
STEVEN C. LaTOURETTE, Ohio           PAUL E. KANJORSKI, Pennsylvania
JOHN SULLIVAN, Oklahoma              MAJOR R. OWENS, New York
CANDICE S. MILLER, Michigan          CAROLYN B. MALONEY, New York
MICHAEL R. TURNER, Ohio

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                     Mike Hettinger, Staff Director
                 Larry Brady, Professional Staff Member
                          Amy Laudeman, Clerk
          Mark Stephenson, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 17, 2003....................................     1
Statement of:
    Gregg, Richard L., Commissioner, Financial Management 
      Service, Department of Treasury; William H. Campbell, 
      Assistant Secretary for Management, Department of Veterans 
      Affairs; Theresa S. Shaw, Chief Operating Officer, Federal 
      Student Aid, Department of Education; and Deanne Loonin, 
      staff attorney, National Consumer Law Center...............     6
Letters, statements, etc., submitted for the record by:
    Campbell, William H., Assistant Secretary for Management, 
      Department of Veterans Affairs, prepared statement of......    22
    Gregg, Richard L., Commissioner, Financial Management 
      Service, Department of Treasury, prepared statement of.....     9
    Loonin, Deanne, staff attorney, National Consumer Law Center, 
      prepared statement of......................................    42
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........     3
    Shaw, Theresa S., Chief Operating Officer, Federal Student 
      Aid, Department of Education:
        Followup questions and responses.........................    73
        Prepared statement of....................................    33


     FEDERAL DEBT MANAGEMENT--ARE AGENCIES USING COLLECTION TOOLS 
                              EFFECTIVELY?

                              ----------                              


                         TUESDAY, JUNE 17, 2003

                  House of Representatives,
Subcommittee on Government Efficiency and Financial 
                                        Management,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:03 p.m., in 
room 2154, Rayburn House Office Building, Hon. Todd R. Platts 
(chairman of the subcommittee) presiding.
    Present: Representatives Platts, Blackburn, Towns and 
Maloney.
    Staff present: Mike Hettinger, staff director; Dan Daly, 
counsel; Larry Brady, Kara Galles, and Tabetha Mueller, 
professional staff members; Amy Laudeman, clerk; and Mark 
Stephenson, minority professional staff member.
    Mr. Platts. A quorum being present, the Subcommittee on 
Government Efficiency and Financial Management will come to 
order.
    We are going to try to get in a couple of brief statements 
and get as many of your opening statements before we have a 
series of three votes on the floor. We will see if we are able 
to squeeze in most of the statements, break and then come back 
to questions after those three votes.
    A priority of this subcommittee is the responsibility to 
ensure that Federal agencies are managing their finances 
wisely. An important part of a solid, financial management 
effort is the collection of debts owed to the Federal 
Government. This subcommittee, under the leadership of former 
chairman, Steve Horn, and my colleague and current member of 
the subcommittee, Representative Carolyn Maloney, developed 
legislation that was enacted as the Debt Collection Improvement 
Act of 1996, a law that made sweeping reforms to the way the 
Federal Government manages debt. Since that time, the 
subcommittee has held numerous hearings focusing on 
implementation of the act.
    Today's hearing will look at the debt collection successes 
and challenges at the Veterans Administration and the 
Department of Education's Office of Federal Student Aid. We 
will also hear from the Treasury Department's Financial 
Management Service for a look at governmentwide progress in 
implementing the Debt Collection Improvement Act and from a 
consumer law advocate regarding debt collection efforts under 
the act.
    I am very pleased to note that both the Veterans 
Administration and the Department of Education have done much 
to improve debt collection efforts and our witnesses today will 
testify that the departments are giving debt management a high 
priority in their strategic planning and that such focus has 
paid off for American taxpayers.
    In terms of all Federal agencies, implementation of the 
Debt Collection Improvement Act is also improving. Federal 
agencies are now referring almost all of their eligible debts 
to the Financial Management Service whose collection results 
continue to improve each year. FMS has collected about $15 
billion in delinquent debt through its Offset Program and more 
than $100 million through its contracts with private collection 
agencies. During fiscal year 2002 alone, collections by private 
contractors amounted to $43 million. This represents a 6-
percent increase over fiscal year 2001.
    While we have had many successes, at the same time more may 
need to be done before the Debt Collection Improvement Act will 
realize its full potential and we will examine some of these 
issues and how we can go forward from here as well.
    Today, the subcommittee is delighted to hear from Mr. 
Richard Gregg, Commissioner of the Financial Management 
Service, Department of Treasury; the Honorable William H. 
Campbell, Assistant Secretary for Management and Chief 
Financial Officer, Department of Veterans Affairs; Ms. Theresa 
S. Shaw, Chief Operating Officer, Federal Student Aid, 
Department of Education; and Ms. Deanne Loonin, staff attorney, 
National Consumer Law Center in Boston, MA.
    I want to thank each of your for being here today and I 
certainly look forward to your testimonies to complement your 
written statements you have provided.
    [The prepared statement of Hon. Todd Russell Platts 
follows:]

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    Mr. Platts. I will now yield to the ranking member, the 
gentleman from New York, Mr. Towns, for the purpose of an 
opening statement.
    Mr. Towns. Thank you, Mr. Chairman.
    Billions of dollars of non-tax debt are owed to the Federal 
Government. In 1996, recognizing that our current collection 
laws were inadequate, this subcommittee passed the Debt 
Collection Improvement Act which established new tools and 
expanded existing tools to improve collection practices.
    I would like to commend the chairman for continuing the 
subcommittee's active role in the area of Federal debt 
collection. I should also mention the leadership and dedication 
of my colleague from New York, Carolyn Maloney, who has also 
been involved in this issue from day one.
    As a result of efforts of many in this room today, the 
Federal Government is beginning to realize the benefit of a 
more centralized debt collection system. In the last few years, 
the Federal Government's centralized debt collection activities 
at the Financial Management Service have begun to work more 
efficiently. Increased management attention by program agencies 
and improved use of debt collection tools by the Department of 
Treasury have resulted in advancement in Federal debt 
collection.
    Since enactment of the Debt Collection Improvement Act, $15 
billion in delinquent, non-tax debt has been collected; $2.8 
billion last year alone. There has been improvement in the 
Government's collection efforts and I commend the Treasury and 
the agencies for their work. However, there seems to be room 
for improvement.
    I want to thank the chairman for agreeing to our request 
for a witness from the National Consumer Law Center for today. 
As part of our oversight responsibility, this subcommittee is 
meeting to discuss Federal agency implementation and compliance 
with DCIA. It is my hope that as a result of this hearing, we 
will be closer to meeting our goal of having an efficient, 
effective and fair Federal debt collection system.
    On that note, Mr. Chairman, I yield back my time and I am 
anxious and eager to hear from the witnesses.
    Mr. Platts. Thank you, Mr. Towns.
    If I could ask each of our witnesses and anyone who will be 
advising them as part of their testimony here today, to stand 
and we will administer the oath before we get to your opening 
statements.
    [Witnesses affirmed.]
    Mr. Platts. Thank you. The clerk will note that all 
witnesses affirmed the oath.
    I would like now to proceed directly to testimony. Mr. 
Gregg, we will begin with you, followed by Mr. Campbell, Ms. 
Shaw and finally, Ms. Loonin. The subcommittee appreciates the 
substantive written testimonies each of you has provided and 
respectfully ask that each of you keep your oral testimonies to 
approximately 5 minutes. Given that we are going to try to get 
all these in before we break and get into questions after our 
floor votes, trying to watch that 5 minute clock would be very 
helpful.
    Mr. Gregg, we will begin with you.

    STATEMENT OF RICHARD L. GREGG, COMMISSIONER, FINANCIAL 
    MANAGEMENT SERVICE, DEPARTMENT OF TREASURY; WILLIAM H. 
  CAMPBELL, ASSISTANT SECRETARY FOR MANAGEMENT, DEPARTMENT OF 
  VETERANS AFFAIRS; THERESA S. SHAW, CHIEF OPERATING OFFICER, 
   FEDERAL STUDENT AID, DEPARTMENT OF EDUCATION; AND DEANNE 
      LOONIN, STAFF ATTORNEY, NATIONAL CONSUMER LAW CENTER

    Mr. Gregg. Mr. Chairman and members of the subcommittee, 
thank you for inviting me to testify today to provide an update 
on the Financial Management Service's implementation of the 
Debt Collection Improvement Act. I would also like to 
congratulate you, Chairman Platts, on your appointment as 
chairman of the subcommittee.
    This subcommittee's longstanding support has been central 
to helping Treasury to implement a remarkably successful, 
governmentwide debt collection program. This program has 
focused management attention across government agencies in 
making debt collection a priority, significantly increased the 
collection of delinquent debt and greatly improved the 
Government's ability to accurately report on outstanding 
delinquent debt.
    FMS collects various types of delinquent debt through two 
major programs. I would like to briefly provide an overview of 
them. First, the Treasury Offset Program compares the name and 
taxpayer identification numbers of debtors with those of 
recipients of Federal payments. If there is a match, the 
payment is reduced or offset to satisfy the debt. Using this 
same methodology, FMS also levies Federal payments to collect 
delinquent Federal income taxes for the IRS.
    The second major program is Cross Servicing under which 
Federal agencies refer delinquent debt to FMS for collection by 
means of a variety of tools.
    I am pleased to report that the Treasury debt collection 
program is, in my view, fully mature. Moreover, it has 
developed into an integral component of sound, effective 
financial management at the Federal level. As a result of the 
debt collection program, FMS has collected billions of dollars 
of debt, much of which would not have been collected otherwise.
    Since enactment of DCIA, FMS has collected about $17.6 
billion in delinquent debt, sharply increasing collections 
through numerous program enhancements and working with agencies 
to overcome the obstacles for participation. For example, we 
have worked hard to have agencies refer eligible debt in a 
timely manner. For the Treasury Offset Program and cross 
servicing, currently about 91 percent of the debt identified as 
eligible has been referred. Every year since fiscal year 1999, 
FMS has collected over $2.6 billion in delinquent debt. In 
fiscal year 2002 alone, Treasury collected over $2.8 billion 
including $1.47 billion in past due child support, $1.2 billion 
in Federal non-tax debt, and $180 million in State and Federal 
tax debts.
    I would now like to give the subcommittee a progress report 
on some of Treasury's well established collection initiatives 
as well as some new efforts.
    The offset of Social Security benefit payments continues 
smoothly. For fiscal year 2002, FMS collected about $55 million 
in Federal non-tax debts and we have collected over $36 million 
thus far in 2003. I would also note that the administration 
proposes to amend the DCIA to offset additional SSA payments to 
improve collection of delinquent child support debt. The House 
version of the Welfare Reform legislation includes a similar 
provision and we are working with the Senate to also have a 
provision in there. About $55 million over 5 years and $113 
million over 10 years in child support collections are at 
stake.
    We have also made excellent progress in collecting tax 
debt. For fiscal year 2002, about $60 million in delinquent 
Federal income tax was collected, primarily as a result of the 
Social Security benefit levy which accounts for $43 million of 
the total. In fiscal year 2003, we have already collected $61 
million including $50.5 million in Social Security levies.
    State governments have also benefited from our debt 
collection program. The FMS implemented the program to collect 
delinquent State tax in 2000. In fiscal year 2002, $119 million 
was collected and in 2003, we have already collected $136 
million for the States. Currently, 30 or the 41 States that 
collect income tax and the District of Columbia, are 
participating.
    FMS issued regulations providing guidance to agencies on 
garnishing private sector wages to collect agency debt. FMS 
views administrative wage garnishment as a powerful and 
important collection tool within enormous potential. So that 
agencies can take full advantage of FMS' centralized processes 
and established safeguards, we continue to strongly encourage 
them to use administrative wage garnishment through FMS. We 
appreciate the subcommittee's support in this effort.
    In the past 5 years, private collection agencies have 
collected over $156 million. The present contract with five 
private collection agencies went into effect October 1, 2001 
and we have seen continued improvements. In fiscal year 2002, 
PCAs collected $43 million and have already collected $45.6 
million in 2003.
    We have also been careful to make sure that compliance 
reviews are performed onsite at each PCA on an annual basis to 
assure, among other things, adherence to laws and regulations. 
As a result, we have seen no substantiated cases of abusive 
tactics under our contracts.
    Looking ahead, we have several significant improvements 
underway. In 2001, FMS began phasing in the program to collect 
delinquent debts through offset of Federal salary payments, the 
centralized process, and we have collected $1.9 million in 
fiscal year 2002 and $1.1 million thus far in fiscal year 2003.
    We have also been working with the Department of Education 
on referral of student loan debts for collection through 
centralized salary offset. In our view, this step would 
complement Education's successful collection efforts through 
their own PCAs. We believe their participation would greatly 
boost the salary offset program and will continue to work with 
them on this effort.
    Another new element of our debt collection program is the 
offset of non-Treasury disbursed payments under which debts in 
the FMS debtor data base will be compared to non-Treasury 
disbursed vendor payments. When there is a match, participating 
disbursing agencies will offset the payment. Non-Treasury 
disbursed vendor payments will also be levied to collect 
Federal tax debt. The Department of Defense is already 
participating in this initiative and we are working with the 
Postal Service and USDA's Commodity Credit Corp. to take in 
their vendor payments.
    Ensuring that delinquent debtors are barred from obtaining 
Federal loans is a high priority for FMS and the agencies. We 
have developed a system we call debt check to allow lending 
agencies to access information from the FMS delinquent debtor 
data base so that government loans are not made to previously 
identified delinquent debtors. This has already been 
implemented in the Small Business Administration and we 
continue to roll it out.
    Another program, FED Debt, scheduled for implementation in 
2005, is a web-based system that will replace the current cross 
servicing computer system and enhance the effectiveness of that 
program by providing increased flexibility, automating a number 
of processes currently handled manually, and improving system 
access for customers and service partners.
    In summary, Treasury's debt program is one that is both 
robust and effective and has consistently met or exceeded its 
performance measures. Nonetheless, we continue to work to 
enhance the program. In addition to maximizing our statutory 
authority, we believe that the need for congressional oversight 
is critical. We also believe that agencies and the Inspectors 
General can enhance the program as well.
    Be assured that the debt collection program will remain a 
high priority for the Department of Treasury. I would be happy 
to answer any questions you and other members of the 
subcommittee may have.
    [The prepared statement of Mr. Gregg follows:]

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    Mr. Platts. Thank you.
    We will continue and see if we can get in at least two if 
not all three statements before I have to run over to vote.
    Mr. Campbell.
    Mr. Campbell. Mr. Chairman and members of the subcommittee, 
it is my pleasure to appear before you regarding the Department 
of Veterans Affairs' implementation of the Debt Collection 
Improvement Act [DCIA], of 1996. My staff has worked with all 
VA elements as well as the Department of Treasury's Financial 
Management Service to take the necessary steps to ensure our 
full compliance with the law's requirements.
    In our previous appearances before the subcommittee, we 
testified about our progress in referring eligible debt to the 
Treasury Offset Program [TOP], and for cross servicing. In 
recent years, we have consistently referred well in excess of 
90 percent of eligible debt to the TOP and cross servicing 
programs. VA has made extensive efforts to reduce the creation 
of debts and to collect those that have been established.
    At the end of fiscal year 1996, the year in which the DCIA 
was enacted, VA had $4.2 billion in total receivables with $2.4 
billion delinquent. When we last testified before the 
subcommittee in 2001, VA had $3.8 billion in total receivables 
at the end of fiscal year 2000, with $1.4 billion delinquent. 
As of March 31, 2003, VA had $3.5 billion in total receivables 
with $1.2 billion delinquent. The trend continues to improve.
    Of the $1.2 billion in delinquent debt at the end of the 
second quarter of this fiscal year, $328 million was 
attributable to the direct home loan mortgages held by VA; $312 
million to compensation and pension overpayments; $106 million 
to defaulted guaranteed home loans; $46 million to readjustment 
benefit overpayments; and $318 million to charges for medical 
care and services owed to VA's Medical Care Collection Fund 
[MCCF].
    The majority of the $318 million for medical care is 
comprised of claims filed with third-party health insurers. 
These claims are not referable to Treasury for cross servicing 
or administrative offset because they are not sum-certain 
amounts owed. The Veterans Health Administration has developed 
a revenue improvement plan to improve the MCCF program. The 
plan concentrates on improving patient intake, medical 
documentation, medical coding, billing and collection of 
accounts receivable.
    At the end of the second quarter of fiscal year 2003, VA 
had referred $284.4 million or 97 percent of the $292.6 million 
in delinquent debt eligible for TOP. VA began participating 
also in the Tax Refund Offset Program in 1985. The Department 
collected $343 million from 1985 through 1999 when the Tax 
Refund Offset Program became part of TOP. VA has collected $110 
million from TOP over the last 3 calendar years and so far this 
year, through May, TOP has collected $40 million for the 
Department of Veterans Affairs.
    In implementing the cross-servicing requirements of DCIA, 
at the end of the second quarter of this fiscal year, VA 
referred $171.4 million or 95 percent of the $180.6 million in 
delinquent debt eligible for the cross-servicing program. The 
eligible debt remaining at the end of the second quarter of 
fiscal year 2003 is made up of debt from a few smaller benefit 
programs and miscellaneous veterans health debt such as vendor 
debt, employee debt and non-Federal sharing agreement debt. We 
continue to work toward referring most of this remaining debt 
for cross servicing throughout the fiscal year.
    We have some other collection tools. Each year VA sells 
approximately 15,000 to 25,000 properties that we acquire due 
to foreclosure of our guaranteed loans. In fiscal year 2002, VA 
sold a total of 16,000 properties for $967 million. VA has also 
amended its regulations to comply with the revised Federal 
Claims Collection Standards [FCCS] and they will be published 
in the Federal Register soon. The amended regulations include a 
new regulation to authorize VA's use of the administrative wage 
garnishment as well as a regulation barring delinquent debtors 
from obtaining certain benefits while a debt is outstanding.
    We also have a debt management center in St. Paul, MN. VA 
has had an automated collection system since 1975 and the Debt 
Management Center has operated this system since its creation 
in 1991. The Debt Management Center utilizes every collection 
tool available to Federal agencies such as automated payment 
processing and collection systems; benefits and salary offset; 
credit bureau reporting; and private collection agency 
referrals, compromises in litigation and writeoffs.
    The DMC developed a fully automated set of procedures for 
identifying and referring all eligible debts to the TOP and 
cross-servicing programs. In addition, we run a Financial 
Services Center in Austin, TX. The FSC reviews VA vendor 
payments daily to systematically identify, prevent and recover 
improper payments made to commercial vendors. In fiscal year 
2002, the FSC recovered more than $2.2 million, a 44 percent 
increase from the preceding year when they collected $1.6 
million.
    In a 2001 fiscal year report, the General Accounting Office 
recognized the FSC's efforts to recover excess expenditures as 
a good example of effective government financial management. VA 
has also fully centralized its permanent change of station 
travel payment processing at the Financial Services Center. 
This consolidation will greatly increase efficiency, reduce 
improper payments and improve internal controls and 
accountability over VA travel funds.
    Mr. Chairman, this concludes my statement. I certainly 
appreciate the opportunity to discuss the progress we have made 
in implementing DCIA. We still have a way to go and will 
continue to work hard. I would be pleased to answer any 
questions the subcommittee may have.
    [The prepared statement of Mr. Campbell follows:]

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    Mr. Platts. Thank you, Mr. Campbell.
    We are going to try to get in one more. Ms. Shaw and Ms. 
Loonin, we will save you for after the break.
    Ms. Shaw. Mr. Chairman and members of the subcommittee, I 
am pleased to be here today to discuss with you the 
implementation of and compliance with the Debt Collection 
Improvement Act of 1996 by the Department of Education with 
special emphasis on my area of responsibility, the Office of 
Federal Student Aid.
    I especially would like to thank you, Chairman Platts, for 
this opportunity and look forward to working with you and the 
other members of the subcommittee as we continue to look for 
ways to improve the Federal Government's debt collection tools.
    I also must congratulate you, Chairman Platts, as it is my 
understanding that you recently made your last payments on your 
student loans. I am pleased that you were able to avail 
yourself of these programs and to recognize firsthand their 
importance.
    Mr. Platts. I am waiting for verification of that in 
writing so I can celebrate at that point.
    Ms. Shaw. I am the Chief Operating Officer for Federal 
Student Aid and FSA is the organizational unit within the 
Department of Education with the operational responsibility for 
the collection of defaulted student loans and to a great extent 
the implementation of the Debt Collection Improvement Act.
    For many years now, the Department of Education has been 
the primary source of federally supported student loans. 
Students have received over $500 billion in loans since the 
enactment of the Higher Education Act of 1965 and our current 
outstanding loan portfolio including direct and guaranteed 
loans was approximately $280 billion at the end of fiscal year 
2002. Student loans are inherently risky, largely due to the 
statutory design and purpose of the programs themselves, each 
year providing loans to millions of borrowers who may not be 
credit worthy. Though the vast majority of borrowers repay 
their loans, some borrowers default on their loans and thus one 
of our challenges at FSA is to collect on these defaulted 
student loans.
    The Department has undertaken a broad range of activities 
over the past two decades to continue improving our debt 
collection efforts. The use of private collection agencies, 
Treasury offset and administrative wage garnishment, Federal 
salary offset, credit bureau reporting, and the requirement of 
taxpayer identification numbers have been in place at the 
Department of Education for many years.
    We are pleased to report that since the passage of the Debt 
Collection Improvement Act, FSA has recovered over $8 billion 
in defaulted student loans which is an increase of nearly 38 
percent since September 2001 and includes $2.6 billion in 
consolidated and rehabilitated loans. Before I focus on our 
successes with our private collection agency contracts, I want 
to highlight a few of our accomplishments that conform to the 
major provisions of the Debt Collection Improvement Act.
    Treasury offsets on student loan debts referred by the 
Department have totaled $5.4 billion since 1996. We began using 
administrative wage garnishment under Higher Education Act 
authority 8 years ago and working with Congress, we were 
granted the authority to receive important information on 
employment from the National Directory of New Hires. This new 
authority has really been effective allowing us to collect more 
than $500 million since our first National Directory of New 
Hires match in June 2001.
    The decision to contract for services by private collection 
agencies has been one of our most successful management 
decisions. Today, FSA is the largest debt collection outsourcer 
in the Federal Government. We have approximately $14 billion in 
defaulted student loans currently under management with 20 
contractors. Over the past 7 years, private collection agencies 
have generated over $1.2 billion in collections, excluding 
consolidations and rehabilitated loans.
    FSA collection contracts rely on a contingent fee method of 
compensating collection agencies, meaning the collection 
agencies are paid only for the results achieved. Our most 
recent contracts have several performance-based evaluation 
measures, making the contracts models for performance-based 
contracting in the Federal Government. The private collection 
agencies are evaluated and rated according to the overall 
service they perform, as well as their ability to collect 
defaulted student loan debt. The collection agencies that 
perform best across all these categories receive additional 
incentives, both monetary rewards and new account placements.
    The Department of Education has established ground rules 
for healthy competition as well as the guidelines and 
requirements for protecting the rights of defaulted student 
loan borrowers, including the ability to immediately terminate 
collectors who violate the Fair Debt Collection Practices Act. 
To help assure borrowers' rights are protected and that 
complaints are appropriately addressed, we have an added safety 
net provided by the Student Aid Ombudsman who reports directly 
to me. The use of private agencies has allowed education to 
dramatically reduce costs. In fiscal year 1993, the contractors 
were paid roughly 33 cents for every dollar collected. After 
new contracts were competed and awarded in fiscal year 1997, 
the costs were reduced to 23 cents per dollar collected. Our 
costs are now down to only 16 cents per dollar collected and 
are expected to be reduced even further during our next 
competition and award process which is scheduled for late in 
fiscal year 2004.
    I believe the steps we have taken in compliance the Debt 
Collection Improvement Act have made a significant contribution 
to the recovery of debt and in recognition of our success on 
May 11, 2001, the Department of the Treasury granted the 
Department of Education a permanent waiver to allow it to 
service its own defaulted student loans. I am very pleased to 
announce that fiscal year 2003 is proving to be another 
successful collection year for the Department of Education.
    However, at FSA we are not resting on our debt collection 
accomplishments. We know that FSA's default prevention 
activities are equally important and arguably more so as 
collecting on loans that have defaulted. Outreach efforts like 
our student loan repayment symposium and national default 
prevention days where we share best practices to reduce 
defaults, and our debt management partnership with the National 
Council of Higher Education Loan Programs demonstrate that we 
place a high value on default prevention. These and other 
efforts have helped us to reduce student loan cohort default 
rates to below 6 percent for each of the last 2 years, the 
lowest rates ever.
    As you know, one of the Department's top priorities is to 
remove the General Accounting Office high risk designation from 
the Federal student aid programs. We are almost there are we 
are confident we will get there. Our continuous improvements in 
default management and prevention activities including our 
focus on debt collection improvement are key indicators to our 
successful attainment of that goal.
    I want to thank you for the opportunity to discuss the 
significant progress the Department has made in improving debt 
collection. We look forward to continued congressional support 
as we work to make further improvements in this area.
    I would be pleased to answer any questions you all may 
have.
    [The prepared statement of Ms. Shaw follows:]

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    Mr. Platts. Thank you, Ms. Shaw.
    I do need to run over to vote, so we are going to stand in 
recess until about 2:50 p.m., and we will continue then with 
Ms. Loonin's testimony.
    Thank you.
    [Recess.]
    Mr. Platts. Ms. Loonin, if you would go forward with your 
testimony, that would be great.
    Ms. Loonin. Thank you for inviting the National Consumer 
Law Center to testify today. The National Consumer Law Center 
is a nonprofit organization specializing in consumer issues on 
behalf of low income people. I am here today to help bring the 
consumer's perspective into this evaluation of the DCIA.
    First, I want to be clear that we support and respect the 
Government's right to collect its debts and understand the 
importance of this, but the DCIA and other collection programs, 
although today's topic is the DCIA, should not be considered 
successful if measured only by dollars collected. There are 
constitutional and statutory limits to the Government's debt 
collection powers and unfortunately in the rush to collect more 
and more, these limits are often ignored or not treated 
seriously enough.
    I would like to highlight just a few of the issues from my 
written testimony and then take any questions. I am focusing 
also on the Department of Education experience for a number of 
reasons, mainly because they are the agency we have tracked the 
closest and also because they have the longest track record and 
even before the DCIA was passed had implemented a number of the 
collection tools the DCIA provides.
    First, with respect to private debt collectors, the 
experience of contracting out to private debt collectors 
through the Department of Education is not the unequivocal 
success story that is portrayed. We applaud any efforts the 
Department is making or has made to ensure that consumers are 
protected from collection abuses but it hasn't been enough. I 
am particularly interested in hearing more about the 
termination of agencies that Ms. Shaw referred to of those that 
have violated the Fair Debt Collection Practices Act.
    Even though well intentioned debt collection agencies are 
usually not equipped or informed to address consumer questions 
about the complex student loan repayment, deferment, 
forbearance, cancellation options, there are a number of unique 
and easily misunderstood remedies involved with student loans. 
As a result, in many cases, consumers are deprived of important 
options to which they are entitled and in some cases might 
actually lead to repayment as opposed to continued default.
    As an example, particularly this year and last year, I 
received calls, primarily from legal services advocates across 
the country and most work on elder hotlines so their calls are 
going to be almost exclusively from low income elders. They 
have told me their clients who have student loan debts, usually 
for very old debts, have been contacted by private debt 
collectors who told them they could collect or offset from 
their SSI payments. I can explain to those few attorneys that 
get to me that this is wrong, that Department of Treasury 
regulations specifically exempt SSI payments but it is only a 
handful that get to the legal services advocate and get to me 
and who then get to sort of communicate that back. That is an 
example of frankly wrong information we have heard in the last 
couple of years.
    I have had similar problems in the past with private debt 
collection agencies taking on the responsibility of explaining 
repayment options or even trying to set reasonable and 
affordable repayment options. Maybe the debt collection agent 
knew he was wrong, maybe just mistaken. In either case, the 
result in that case is frightening elders whose SSI benefits 
are specifically exempted and who were specifically intended to 
be protected from offset.
    I have mentioned more extensively in my written testimony 
and won't go into detail here, the problems with due process 
protections, but this is an area where we have particularly 
grave concerns. All of the programs we have talked about here 
under the DCIA, the administrative wage garnishment, tax refund 
intercept, administrative benefits offset, all have statutory 
due process protections written into the statute. The agencies 
are required to write regulations which they have done. The 
problem in general is with enforcement of those regulations and 
frankly whether they meet the constitutional due process 
protections.
    Again, the problem is that the consumer's contact is often 
with the private debt collection agent. To try to get a free 
hearing or set up and organize that kind of hearing through a 
private debt collection agent who is trying to carry through 
what is an inherently government function is where a lot of 
problems lie. Unfortunately, in many cases, there ends up being 
nothing fair about what is supposed to be a fair hearing.
    Particularly with those sorts of inherent government 
functions like fair hearings, that would also include 
explaining and counseling student loan borrowers on the various 
repayment, cancellation, deferment, forbearance options, those 
sorts of things we believe should not be in the hands of 
private debt collectors who are not trained or experienced to 
understand those.
    The one other program I wanted to mention briefly today is 
specifically the Social Security benefits offsets. This really 
is probably the most extraordinary part of the Debt Collection 
Improvement Act or at least the most unprecedented part in the 
sense that it allows Federal agencies to offset from Federal 
benefits programs such as Social Security which have 
traditionally been off limits to the creditors whether private 
or government creditors. We understand the DCIA does 
specifically abrogate the Social Security anti-assignment 
provisions but Congress placed some heightened protections in 
this case which we are afraid are not being followed through.
    In particular, the DCIA statute in administrative offset 
that sets a 10-year limit for Federal benefits offsets, the 
Department of Education has taken the position that the 10-year 
limit does not apply to student loan collections and in 
addition, as I mentioned before, collections have threatened to 
take benefits considered to be exempt, SSI benefits. The other 
protection Congress specifically provided is the $9,000 that is 
exempt.
    For all the other collection tools under the DCIA, the 
Department of Education has the luxury of no statute of 
limitations. We understand that. We may not necessarily agree 
with it, but we understand that is what there is but in this 
particular case, because Social Security benefits have to do 
with the most vulnerable members of society, there is a 10-year 
limit and we believe that 10-year limit should be respected.
    We certainly support the Government's right to collect, as 
I said at the beginning, but not at the expense of important 
consumer rights. We want to ensure that when this evaluation of 
the DCIA occurs, we are not looking at only dollars, that the 
agencies also be required to give information about how they 
comply with some consumer protections such as due process 
requirements and not just how they train people but for 
example, how many hearings are offered, what are the results of 
those hearings, how many request them, who are actually the 
judges in those hearings. This is the kind of information we 
think if taken in complement with the information about the 
dollars collected, could show what could be a truly successful 
program.
    Thank you.
    [The prepared statement of Ms. Loonin follows:]

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    Mr. Platts. Thank you, Ms. Loonin, and thank you to each of 
our witnesses today for your testimonies and your patience as 
we had our interruption for the floor votes. I think we are in 
good shape for at least an hour or maybe 2 hours before the 
next votes, so we shouldn't have any other interruptions of our 
hearing today.
    We are going to move to questions. I believe Dan Osendorf 
is going to join us at the table from the Department of 
Veterans Affairs, the Debt Management Center. Mr. Osendorf, I 
need to administer the oath to you as well.
    [Witness sworn.]
    Mr. Platts. Let the record reflect the witness answered in 
the affirmative and we will proceed. We generally do about 5 
minutes each but at this point with just the ranking member and 
myself, we will be pretty liberal in that requirement.
    I am going to start with you, Mr. Gregg, with your 5\1/2\ 
years at FMS, your familiarity with the tremendous progress 
from the 1996 act to where we are today. If you could highlight 
what you think would be the greatest key to the success of 
today versus the past, the change that has occurred and more 
importantly, what is the greatest challenge from doing even 
more in the future if it is what we need to look at for the 
challenges we need to help from a legislative standpoint or 
internally?
    Mr. Gregg. We have come a long way. When DCIA was passed, 
we struggled for a number of years to get our own act together 
and I think the agency struggled in a twofold way, one was to 
get the systems in place to do what they had to do as we 
weren't prepared, and second and probably more importantly, was 
to get the commitment from fairly high in the organizations to 
change the way of doing business. I think it is worth noting 
the examples of Education, VA, and Agriculture, of people 
making a difference to implement the program because agencies 
rightly so felt these were their programs and the idea of 
turning them over to FMS at some levels wasn't the thing they 
wanted to do. So beyond the system problems, there was some 
purely predictable resistance.
    I think in the last couple of years, we have seen that 
shift and the agencies as you heard from both Education and VA 
are referring virtually all of their eligible debt and working 
with us to grow the program.
    Looking ahead, I would highlight the need for continued 
emphasis of the importance of this. One of the things that goes 
beyond the numbers in what we have collected is the improvement 
in the information that we are seeing and is being reported to 
Congress. That has been kind of hidden but I think through this 
whole process, the focus on making sure the numbers are right 
and providing better financial controls within the agency is 
still something we are working for but have made great strides.
    Looking ahead trying to make sure we pull this very complex 
program together in a way that provides good information to the 
agencies, provides the right kind of protection for the debtors 
and doing that with systems and with management focus is the 
kind of challenge I see, while at the same time agencies are 
struggling with everything else on their plate. I think that is 
the balance we all face, trying to do this on top of everything 
else we have to manage.
    Mr. Platts. I would like to recognize Mrs. Maloney who 
played a critical role in the 1996 act who has joined us as 
well. We are delighted to have you here with us today.
    To followup, not necessarily wanting to put you on the spot 
but to get as frank an answer as far as highlighting VA, 
Education and Agriculture, what agencies or departments still 
have the farthest to go in getting up to speed and having the 
leadership embrace this effort as part of their comprehensive 
financial management effort?
    Mr. Gregg. I would have had a fairly long list a couple of 
years ago. The area we need to focus on I think, and this runs 
through a number of agencies, is getting the administrative 
wage garnishment in place. If we do that in a handful of large 
agencies, we are going to cover a good portion of the 
potential. The potential for centralized salary offset I think 
is also something that runs across the gamut.
    One of the most recent areas we have focused on is the non-
Treasury disbursed payments. We have a ways to go yet with the 
Department of Defense and the Postal Service and others who 
make their own payments. That is something that we are working 
with them on but we need to make sure for example, vendor 
payments are being offset. That is an area where we will keep 
pushing.
    Mr. Platts. That was going to be one of my specific 
followups, DOD and Postal Service. Could you tell us where you 
are today and how close we are to getting a good process in 
place regarding those non-Treasury disbursements?
    Mr. Gregg. We actually began offsetting some portion of 
Department of Defense vendor payments a number of months ago. I 
think we are actually quite close to being there with the 
Postal Service. That is something where we have made progress. 
I think we only have one of a number of the Department of 
Defense facilities that is participating now and we want to 
continue to make sure we have all those.
    Mr. Platts. One more for you, Mr. Gregg and I will 
recognize the ranking member.
    With your efforts governmentwide and the efforts going on, 
my understanding is perhaps you would like to see more of the 
actual tax debt. My understanding is most of the tax debt 
referred to you by the IRS is very old which the IRS has pretty 
much given up on as opposed to more current tax debt. Your 
assessment of how your office would be able to maybe better 
address even the more recent tax debt than the IRS, if you 
would like to share comments on that?
    Mr. Gregg. It was difficult to get the tax levy program in 
place. It was difficult for a number of reasons. One of them 
was the letter that has to go out before any tax levy occurs, 
when they are going to refer it to us. That is a fairly manual 
process. Basically, we stand ready to take on as much as they 
are prepared to give us. They are aware of that and in some 
cases, I think it is a system limitation more than the intent 
because I know the former Commissioner and the present 
Commissioner were very committed to working with us in this 
program.
    Mr. Platts. I appreciate in that case your efforts with IRS 
but with DOD and with other agencies on the non-Treasury 
disbursements to keep leading the charge of pushing the 
envelope with these agencies. It really amazes me when, 
especially in the DOD example, we are making payments to people 
that owe the Federal Government money, yet we are paying them, 
that we are not correlating those two better. It sounds like we 
are heading in the right direction with some of these larger 
ones like DOD to stop that practice out of simple fairness to 
all American taxpayers who are paying their fair share.
    Before I recognize the ranking member, I would like to also 
recognize our vice chair, the gentlelady from Tennessee, Ms. 
Blackburn. We appreciate your joining us.
    I recognize the ranking member for the purpose of 
questions.
    Mr. Towns. Thank you, Mr. Chairman.
    I actually want to direct this question to you, Mr. Gregg, 
and also to you, Ms. Shaw. You both testified that contracts 
which your agencies have with private collection agencies are 
performance-based. First of all, I want to know what is a 
performance-based contract?
    Ms. Shaw. A performance-based contract really includes 
incentives for the contractor to perform against the 
requirements spelled out in the contract and those contractors 
are only remunerated out of that performance, a percentage of 
those collections are incented to perform in not only meeting 
the objectives but to exceed the objectives laid out for them.
    Mr. Gregg. We have a number of things in place. First of 
all, it was a competitive process in which we selected the five 
private collection agencies we have. In addition to that, we 
have incentives for them based on quarterly reviews--by those 
reviews, depending on which ones do the best, agencies may get 
a slightly larger referral than the previous quarter. That is 
the sort of thing that we have built into our contract.
    Mr. Towns. Do they include a measure of whether the private 
collection agencies are respecting the legitimate rights and 
protections of the client?
    Mr. Gregg. I wouldn't necessarily classify that as a 
performance measure per se in the terms of dollars and cents, 
but one of the things we have done is to make sure, first of 
all, they understand what the requirements are. We have done 
that through not only extensive training at the time the 
contracts were awarded, but on an ongoing basis, the reviews we 
do to make sure that they are following procedure.
    We also have the opportunity to listen in on conversations 
to get notes they take and we are a relatively small 
organization. The most important thing is that myself and the 
people sitting behind me consider this our business, not 
something we have handed off to somebody else, and we don't 
view that any differently than a phone call that one of our 
employees makes. It is our responsibility to make sure that 
people are treated right; yes, we try to collect the debt, but 
it is our responsibility and that is a clear expectation we 
have of the PCAs.
    Mr. Towns. Are these new or old loans and would the amount 
determine whether you would actually get an agency to collect? 
Would it be a new loan or an old loan?
    Mr. Gregg. In our cases, it is more old than new. 
Basically, we get a few that are within 90 days delinquent, but 
quite a bit of our debt is 2, 3 and 4 years old.
    Mr. Towns. Does the size of the loan have anything to do 
with whether you give it to a collection agency or not?
    Mr. Gregg. No, sir.
    Mr. Towns. How about you, Ms. Shaw?
    Ms. Shaw. No, in response to the last question. The size of 
the loan is not the determinant for forwarding it to a 
collection agency.
    I would like to respond to the question you had with 
respect to treating consumers fairly. First and foremost, the 
Department wants to ensure that all borrowers are treated 
fairly, even if they are defaulted and throughout that 
collection process. We have a number of things at the 
Department we do to help ensure that.
    First of all, all of our collection agency contracts are 
monitored and managed by Federal agency employees. As I noted 
before, we have the ability to terminate collectors who violate 
the Fair Debt Collection Practices Act.
    Mr. Towns. When you say monitor, what do you really mean?
    Ms. Shaw. We review on a regular basis, weekly, monthly, 
quarterly, the performance of the contractors, not only in 
terms of collecting the debt but actually how they do it. We 
have toll free 800 numbers that we provide for complaints to be 
lodged if there are perceived inappropriate collection 
activities going on and we monitor that information. In fact, 
in fiscal year 2002, over 1.1 million calls came into that 800 
number; 99 percent of those calls were answered; the average 
hold time on those calls was 12.5 seconds. So we do respond to 
the calls that come in to that 800 number.
    We also have our Federal Student Aid ombudsman who reports 
directly to me. We track the calls that come into the ombudsman 
office that are on a variety of things but in particular, we 
look at servicing complaints and collection practices 
complaints. Since 2000, of the total complaints in 2000, 20 
percent of those complaints were about servicing concerns and/
or collection practices concerns. So far in 2003, through June 
13, that number has been reduced to 9 percent of calls and we 
are tracking pretty much for that number to hold for the year. 
That demonstrates our focus and our concern on ensuring that 
consumers are treated fairly and that we respond when we do 
find out there is an issue.
    Mr. Towns. If that is the case, would you terminate the 
contract if you find out that they are using unscrupulous 
techniques to get people to respond?
    Ms. Shaw. I think our first level of activity would be to 
deal with an individual collector through that contract agency 
and if there is an individual collector that is not behaving 
appropriately and in compliance with everything they need to 
comply with, that collector we would certainly not want 
collecting on any of the Department of Education loans.
    If it is a broader issue, certainly the collection agency 
we would not want the agency itself to be collecting loans for 
the Department of Education.
    Mr. Towns. Mr. Chairman, my time has expired. We will have 
another round?
    Mr. Platts. Yes. Thank you, Mr. Towns.
    I will recognize Members in the order of appearance, Mrs. 
Maloney, recognized for the purpose of questions.
    Mrs. Maloney. Thank the chairman for having this oversight 
hearing and ranking member Towns.
    As the author of the Debt Collection Improvement Act of 
1996, I am greatly interested in the topic and this common 
sense bill that centralized the Federal debt collection in the 
Department of Treasury and gave all Federal agencies the tools 
needed to collect billions of dollars of delinquent and non-tax 
debt.
    The panelists today really pointed out that in many ways, 
it has improved collection. It has collected roughly $15 
billion in delinquent debt and in fiscal year 2002, Treasury 
collected more than $2.8 billion in delinquent debt, including 
$1.4 billion in past child support which is very important and 
$1.2 billion in Federal non-tax debt.
    There are always ways to do a better job and my question 
is, is there anything that needs to be modernized in the bill, 
that needs to be brought up to date, do we need more 
consideration for time for student loans? I just open it up for 
the panelists to discuss the bill, discuss the changes in debt 
collection procedures, if they are working or if there are ways 
you think it should be improved?
    Mr. Gregg. One suggestion we have and we have worked with 
the administration and legislation has been proposed, is to 
include the opportunity to offset Social Security payments for 
delinquent child support. I think that is something that at 
least we think would be an improvement to the program.
    Mrs. Maloney. Do you see that it is widespread? That people 
are getting Social Security checks, yet not taking any effort 
to help their children?
    Mr. Gregg. The estimate we have is that, it is not huge 
numbers but we think we could probably collect at least $50 
million over a 5-year period if that was added. That may be 
conservative but we have done some tests and we think it is 
probably at least that.
    Mr. Campbell. Congresswoman Maloney, the Department of 
Veterans Affairs doesn't see at this time any structural 
changes that need to be made in the act. Most of the things we 
need to do are internal.
    Ms. Shaw. I would have to say the same thing. At this time, 
we don't see any imperative structural changes. We are getting 
ready at the Department of Education to implement 
administrative wage garnishment to take the maximum of 15 
percent as opposed to 10 percent under the Higher Education 
Act. We are on track to have those changes implemented by 
October 2003.
    While it is clear that we can move from the 10 percent to 
the 15 percent, we anticipate perhaps some legal challenges to 
that. If there are any clarifying words that might be added 
that could be helpful as we anticipate those legal challenges 
perhaps manifesting as we move forward.
    Ms. Loonin. In general, most of the things I have talked 
about are regulatory or enforcement issues, but one thing in 
the statute with the Social Security exemption is it is set at 
$9,000 and is not indexed to the cost of living. We believe 
that is a big concern. We think there should be some provision 
in the statute to increase that based on cost of living.
    Mrs. Maloney. Thank you. I have no further questions.
    Mr. Platts. We will come back to Ms. Blackburn when she 
returns.
    Mr. Gregg, if you could touch on an issue. When I look at 
the numbers between the cross servicing versus the Treasury 
offset and the success and the overwhelming majority of the 
money is from the offset versus cross servicing. In Ms. Shaw's 
testimony she looks at the past 7 years where through private 
collection agencies about $1.2 billion in overdue student loans 
was collected versus about $5.4 billion when we use Treasury 
offset.
    The GAO in assessing the success of the effort has raised 
the issue whether the cross servicing approach has a cost 
benefit to the taxpayer. If you could address that? My 
understanding is there was a request for review of cross 
servicing and is that ongoing? If so, what results if any are 
available at this point?
    Mr. Gregg. We have a little different perspective than GAO 
provided. Normally we pay pretty close attention. We kind of 
disagreed with them philosophically on what we understood they 
wanted us to do. One part of that cross servicing examination 
as I understood it was to look at how long we should keep debts 
before we referred them to PCAs, the private collection 
agencies. Our view, and I think the intent of this subcommittee 
at the time the legislation was passed, was to turn them over 
to the PCAs quickly and that is what we do. We keep them for 30 
days and if we get collection, fine; if we don't, we turn them 
over to those who are really expert in the field for 
collection. That was one of the differences we had.
    I am concerned that if we tried to say let us keep these 
debts for ourselves and turn these over to the private 
collection agencies, over time that could undermine our ability 
to really have good competition because we might be accused, 
and probably rightly so, of cherry picking the debt. There is a 
bit of a fundamental philosophical difference.
    We have not and we don't have underway a review of that. I 
think it is very cost effective. It is one thing to look at the 
numbers and the numbers have grown tremendously over the years. 
We went from $1.2 million collected in fiscal year 1997 and we 
will collect over $120 million this year in cross servicing. 
For that part of the program, I don't think we spend more than 
$10 million in administrative costs for a $120 million return. 
Even that doesn't fully capture the value of getting those 
debts in and helping the agencies make sure that the debts are 
in order, and the process of the private collection agencies 
determining that certain debt is not collectible. These factors 
show up on the collection side but it helps continue to improve 
the agency's recordkeeping and decisionmaking on whether or not 
to write-off the debt. So there is a lot of value that is 
greater than even fairly significant growth which is now $120 
million.
    Mr. Platts. Ms. Shaw, I think your testimony was that in 
your use of private collection agencies, that cost is down to 
about 16 percent or will be this year.
    Ms. Shaw. Sixteen cents per dollar collected.
    Mr. Platts. Correct. Am I stating correctly that is kind of 
your total cost for dollar collected is about 16 cents for 
every dollar?
    Ms. Shaw. Yes.
    Mr. Platts. Mr. Gregg, would you find that would be fairly 
accurate across the Government as to where we are getting to in 
the efficiency of using PCAs?
    Mr. Gregg. I think we are following Education and they have 
a greater volume, so they may get an advantage. We are paying 
23 percent to the PCAs and whether we can improve on that, I 
don't know. Especially when the program started and I think it 
is still the case, we have a lot of debt that is very old and a 
lot that is referred to us and we send on to PCAs which is not 
collectible, so there is a cost to having that mix of debt in 
your data base.
    Mr. Platts. I assume there is a minimum requirement of what 
a PCA has to do to try to collect it when you give them a whole 
slew of debt to go after, that they can't just cherry pick 
within what you give them, that they have to make a certain 
minimum effort on each debt that they are afforded so they are 
really going after everything?
    Mr. Gregg. Yes, and I think the incentives we have built in 
like Education has, really makes it to their advantage to try 
to collect. I think sometimes they get surprised. I know some 
debts that were very sizable that were quite old and you look 
at it and say there is no way that is going to be collected, 
but in fact they were. So you never quite know, just because of 
the composition or the size whether or not you are really going 
to be able to collect it.
    Mr. Platts. This might go to both you and Ms. Shaw, Mr. 
Gregg, in reference to one of the concerns about excessive fees 
being charged to the debtor. I assume the collection agency was 
not allowed to impose any fees beyond what they are getting 
from the Department or whatever agency. Is that correct?
    Ms. Shaw. For the Department of Education, that is correct. 
Actually, the Department sets the fees and it is limited the 
promissory note and those amounts allowable under the Higher 
Education Act. We set the fees and they cannot tack on anything 
else.
    I would also like to add we have built into our contracts 
disincentives for the contractors to cherry pick loans in 
reference to your last statement. We have achieved the 16 cents 
per dollar collected through very, very vigorous competition 
among those competing for the contracts to do collections for 
us. We are looking forward to even reducing the collection 
costs in the next competition that is coming up in fiscal year 
2004.
    Mr. Platts. In your contracts with the PCAs, I would think 
if it is clear you set the fees, where there would be instances 
of violations of that, is there strict enforcement or is it 
still discretionary? What, if any, consequences are imposed on 
the PCA for trying to charge additional fees to the debtor?
    Ms. Shaw. The contracts we have with the collection 
agencies do not allow for them to collect anything other than 
what we set forth. We do monitor for that and if there are fees 
in addition, they are not getting them.
    Mr. Platts. My question is, if an agency was engaged in 
inappropriate conduct as referenced by Ms. Loonin, is there 
something in your contract that spells out a financial penalty 
or some specific recourse to have that financial disincentive 
from them even thinking about that practice?
    Ms. Shaw. With respect to penalties, I will have to check 
on that and report back to the subcommittee in writing, if you 
don't mind.
    Mr. Platts. If you could, that would be great.
    Mr. Towns, did you have further questions?
    Mr. Towns. Thank you, Mr. Chairman.
    Ms. Loonin, you mentioned several times that borrowers may 
sometimes have legitimate defenses to collection procedures. 
What are some of those legitimate defenses?
    Ms. Loonin. Again, I am confined to the student loan 
context because that is what I know the best. For student loans 
in particular, there are a number of cancellation programs, 
there is a total and permanent disability cancellation, there 
are a number of cancellation programs tied to some of the 
abuses, particularly vocational schools that primarily happened 
in the past, there is a closed school cancellation, false 
certification cancellation, and unpaid refund cancellation. I 
mention those because they are defenses in the sense that they 
are the most extreme in the sense that if someone is qualified 
for it, then the debt or loan obligation is completely 
canceled. Any moneys collected voluntarily or involuntarily are 
supposed to be returned and the person is reeligible, except 
for the disability context, for student assistance again.
    Mr. Towns. You also testified that debt older than 10 years 
is not permitted to be offset against Federal benefits such as 
Social Security. Wouldn't that logically exempt almost all 
student loan debt? Ms. Shaw and Mr. Gregg, are your agencies 
complying with this requirement?
    Mr Gregg. I am sorry, I missed that question.
    Mr. Towns. Ms. Loonin testified that debt older than 10 
years is not permitted to be offset against Federal benefits 
such as Social Security. Wouldn't that logically exempt almost 
all student loan debt?
    Ms. Shaw. It has been the Department's position that there 
is no statute of limitation on the collection of student loan 
debt. In direct response to your question, repayment of student 
loans does often extend beyond that 10 years, in particular 
with respect to loans that have been consolidated that had 
longer repayment terms and loans that have been granted 
extended repayment terms. So yes, if a loan was extended in 
repayment terms beyond 10 years and there was not a statute of 
limitations, those loans would be automatically exempted just 
by their term alone.
    Mr. Towns. I am going to hear Mr. Gregg and come back to 
you because I think this is interesting.
    Mr. Gregg. There has been a recent lawsuit and I think 
there is an appeal pending. Our view is that the 10-years would 
not apply and it is fairly complicated. I think there are three 
statutes involved but if in fact there needs to be 
clarification, then perhaps I could amend my earlier statement 
and add one more to say that assuming that is the intent to 
allow us to offset student loan debts referred to us for offset 
that are older than 10 years and perhaps that ought to be 
clarified.
    Mr. Towns. Ms. Loonin.
    Ms. Loonin. A couple of things. This issue is I think 
confined to the Department of Education because I believe they 
are the only agency where the statute of limitations has been 
eliminated. My understanding is that other agencies would 
comply with the 10-year limit because they don't have the same 
provision the Higher Education Act has that eliminated the 
statute of limitations.
    It is a statutory construction argument essentially. It is 
that the antiassignment provisions of the Social Security Act 
back in the 1930's specifically say if you are going to 
abrogate this protection, this antiassignment protection, you 
have to explicitly refer to it.
    The Debt Collection Improvement Act does explicitly refer 
to it and it also sets a 10-year limit. The elimination of the 
statute of limitations in the Higher Education Act does not 
explicitly refer to the antiassignment provisions of the Social 
Security Act. In the court decision that agreed with us on 
this, in that case it is the 10-year limit and the Debt 
Collection Improvement Act that governs.
    As far as whether this means a lot of loans wouldn't be 
able to be collected, it is true this is just for Federal 
benefits offsets, it is the only program where there would be 
this 10-year limit. There would be some student loans that 
couldn't be collected, there also would be some that could if 
someone became disabled, for example and has SSDI within the 
10-year period of repayment and doesn't qualify for disability 
discharge or doesn't know about it, they could continue to try 
to collect against those people.
    Once the 10-years is up, then the Department wouldn't be 
able to use the benefits offsets but if there was anything 
else, any other collection tool available to them they thought 
they could use to collect from this person, they could because 
there is no statute of limitations for all the other ones. I 
think that is just Congress' recognition of the heightened 
protection they wanted to give to Federal benefits recipients.
    Mr. Towns. Mr. Gregg, you testified that HHS and Education 
had recently published regulations that will allow them to 
participate in the administrative wage garnishment. How many 
agencies currently allow FMS to garnish wages to collect the 
debts? Of the close to 8 billion referred to FMS for cross 
servicing, how much as been collected using this tool? What 
protections are in place to protect low income individuals from 
perhaps overzealous collection? For example, would the wages of 
a single mother of two whose income is below the poverty level 
be garnished?
    Mr. Gregg. I think there is only a handful of agencies 
right now that have fully implemented the administrative 
garnishment under FMS procedures. That continues to grow but 
that has taken longer than we would have liked. I think so far 
we have collected only $300,000.
    There are protections, and this is true whether it is 
administrative wage garnishment or any other debt. All of the 
creditor agencies have a responsibility to look at special 
cases and many of them have cases where they don't refer debts 
to us because of hardship. That is their responsibility and 
they do that.
    For administrative wage garnishment, one of the processes 
in place is that if someone requests a hearing, they have to 
have a hearing and processes are set up to hear whether or not 
the debt is legitimate and there are hardship cases as well. I 
think built into all these processes are a lot of protections. 
I think that is true whether it is administrative wage 
garnishment or any of the other offset programs.
    In your example, if they came into the agency and would 
have been granted a hardship, I don't know, but that is 
something that certainly all agencies have and I know they take 
that seriously.
    Mr. Towns. Thank you, Mr. Chairman.
    Mr. Platts. Ms. Blackburn.
    Ms. Blackburn. Thank you, Mr. Chairman. Thank you to all of 
you for being here. I feel like I have been up and down and in 
and out of this hearing but I appreciated the fact most of you 
submitted your testimony in advance and gave us a chance to 
prepare for this. Those of us tremendously interested in the 
efficiencies of government and in proper reforms of government 
are definitely interested in what you do and what you have to 
say.
    Mr. Campbell and Mr. Osendorf, I wanted to congratulate you 
on moving your debt collections from 75 percent to 97 percent. 
I think that is something that is noteworthy and deserves to be 
pointed out.
    Ms. Loonin, if I could being with you. Going to your 
testimony and talking about the student loan debt collections 
which it always amazes me that these can go on for decades 
without payment. I have read through and I apologize that I 
arrived late and did not hear all your testimony.
    Would you talk a bit about the deceptive, unfair and 
illegal conduct that you reference on page 5 in the testimony 
and the complexity of the student loan payment as you see it or 
the program in collecting the debt and people not understanding 
who they pay this to. Are you referencing the program that 
handled by the banks, by the consumer banks or are you 
referencing student loans that are handled by the Department? 
Where do you find the greatest confusion and misunderstanding?
    Ms. Loonin. It occurs in both programs, with private debt 
collectors as well as some cases where it could be the 
guarantee agency doing the collecting or even the department. 
To be honest, I haven't done a comparison study of these so it 
would be more anecdotal I suppose.
    The abuses seem to be greater not with the direct loan 
program but with the FFEL, the program where the banks are 
guaranteeing loans in other words, but I haven't done any sort 
of comparison study of that.
    Ms. Blackburn. I would be interested in knowing that if at 
some point you had someone who could place some energy on that. 
I think as we look at loan programs in other agencies, knowing 
that and the insight you could provide there would be helpful 
indeed. I think as we look at reforms, having the opportunity 
to look at lessons learned serves us well.
    Ms. Loonin. We can certainly try to track that with all the 
advocates we work with as well and put something together.
    Ms. Blackburn. That would be great.
    Also if you would speak a bit about the allowance, the DCIA 
allowing Federal agencies to offset certain Federal benefits in 
regard to Social Security?
    Ms. Loonin. Is there anything specific?
    Ms. Blackburn. Talk with me a bit about in your testimony 
you reference that being an extraordinary power. Of course it 
is and the fairness issue there, do you think that is a good 
precedent, do you think that is the right thing to do, 
attaching the Social Security payments or not, or how do you 
see that playing out long term?
    Ms. Loonin. I think it seems to me it is here to stay and 
if anything, it is probably getting broader in terms of what 
can be taken from Social Security. My personal opinion on that 
is probably that in some cases that might be acceptable. My 
problem really is focusing on the lowest income people and the 
most vulnerable people. Perhaps for Social Security retirement 
recipients who are getting higher benefits or higher payments, 
there might be some role for the program there but my concern 
is there has been sort of a steady erosion of what used to be 
pretty much an absolute principle that Social Security benefits 
could not be offset by private or public creditors.
    Ms. Blackburn. Mr. Chairman, may I ask another question?
    Ms. Shaw, the Department of Education has more than $20 
billion in debts more than 180 days over due and I think $556 
million listed as currently not collectible. My question for 
you is why has the Department been negligent in following the 
requirements of DCIA for debt referrals that are 180 days past 
due?
    Ms. Shaw. I am sorry, I missed the middle part of the 
question.
    Ms. Blackburn. Why have you been negligent in following the 
requirements of DCIA for debt referrals more than 180 days past 
due and why would you consider the $556 million to be not 
collectible?
    Ms. Shaw. If you don't mind, I would like to get a detailed 
written response to that question and forward it to the 
subcommittee.
    Ms. Blackburn. That would be fine if you would like to do 
that. When we look at these numbers and we see there is that 
amount of money considered to be not collectible, it is 
important for us to ask those questions because the taxpayers 
ask us.
    Ms. Shaw. Absolutely. I understand the nature of the 
question and the reason for the question. I just want to be as 
accurate and precise in my response as I possibly can.
    Ms. Blackburn. Include this in your response. If you are 
using private collection agencies and the fee they are pulling 
to collect those debts, if you would list those for us, and 
also if you are using wage garnishment to collect those debts.
    Ms. Shaw. I will include all that in the written response.
    Ms. Blackburn. Thank you, Mr. Chairman.
    Mr. Platts. Ms. Loonin, in your testimony in looking at the 
issue of if we are being fair, if you can give us more detailed 
examples as opposed to the kind of anecdotal understanding of 
what has happened. The more detail you can provide, we 
certainly welcome that and share it with the Department of 
Education or whoever so they can do a good job of having 
oversight over their private collection agencies if abuses are 
occurring.
    One you reference specifically and I asked about earlier 
and I found the cite, about charging collection fees that 
exceed what is allowed by the contract, you have a footnote 
cite to a specific case, Padilla v. Payco General American 
Credits, a 2001 Federal court case. Could you give a little 
background on what happened there, what was the court's 
decision?
    Ms. Loonin. This is like a law school question.
    Mr. Platts. What I am trying to do is find out exactly was 
there a finding by the court that there was excessive payment 
made? Was that the court's decision? It seems to be what you 
are saying here. If that is the case, I want to ask Education 
either today or in followup what consequences occurred because 
of that.
    Ms. Loonin. I need to take another look at that decision. 
It is not a final decision. I believe it was at an earlier 
preliminary phase, either a motion to dismiss or an earlier 
phase of litigation. This was raised in the context of a Fair 
Debt Collection Practices Act violation. That was the issue. I 
apologize, I can't recall exactly off the top of my head but I 
have the case here.
    Mr. Platts. If you could followup in writing to the 
subcommittee on the specifics and if there was a finding by the 
Southern District of New York that there was a violation of law 
because I would like to followup with the Department, if that 
is the case, what happened in response to that collection 
agency for violating Federal law.
    I would also maybe caution that the way it reads here is 
there was a violation. I am assuming that is correct.
    Ms. Loonin. I apologize. I can't recall exactly but I will 
definitely get back on that. There have been some other cases 
specifically related to collection fee issues that I could 
provide as well. One in particular was a settlement agreement 
that was not a final decision but where the Department did 
acknowledge there were fees being charged above the rate in the 
promissory notes and did move for a long time to correct the 
problem after the lawsuit, so it wasn't an actual final 
decision. I can provide some of that information as well.
    Mr. Platts. That would be great and we would be glad to 
followup with the Department on those examples. My point is 
anecdotal references are helpful in the sense of raising 
awareness this may be going on, but we really can't provide an 
oversight role if we don't have specifics, so I would welcome 
those. As one as referenced after 12 years having made my last 
student loan payment, my wife beat me to the punch about a year 
and a half ago with her last graduate school payment, as one 
who took on the responsibility and fulfilled mine, I want 
others to do the same in fairness to everyone. In doing that, 
we want to make sure we are doing it in a fair and responsible 
way.
    That goes to maybe a broader question as far as the 
safeguards in place. Where we use private collection agencies, 
is there some verbatim language we give the PCAs that they must 
include, like you referenced the 800 number, and I assume that 
is included in something that a PCA sends out that they give to 
the debtor that includes an 800 number? Is there language that 
the Department of Education or FMS that you approve saying in 
every statement you send out to collect or in every phone 
conversation you must read to say you have certain rights and 
protections and if you believe they are being violated, is that 
type language required to be included?
    Ms. Shaw. The Department of Education reviews all 
correspondence our collection agencies send out on our behalf. 
We make sure it is complete, accurate and clear with respect to 
the language used and the rights borrowers may have.
    Mr. Platts. That 800 number is included in there? There is 
an ease of accessing the system if they believe their rights 
have been violated?
    Ms. Shaw. If not on every single communication, on several 
of the communications depending on the timing of the 
communication and so on.
    Mr. Gregg. It is similar. When we get the debts for cross 
servicing, we send out the first letter and provide information 
to the debtor on their rights and what would be the next steps. 
They have our 1-800 number in that letter when it goes out. We 
get a lot of calls. I think we got 2.8 million last year in our 
Birmingham Debt Collection Center. Most of the calls are 
inquiring am I going to be offset this year? People know they 
have the debt, it is communicated to them and I guess the ones 
who get no, you are not, are happy and the others are not. A 
large percentage of our calls are those kind.
    Mr. Platts. Do you keep something similar, Ms. Shaw? You 
referenced in your call center, 12.5 seconds on hold was the 
average per call?
    Ms. Shaw. Yes.
    Mr. Platts. That is a remarkable standard, 12.5 seconds, in 
the sense of the volume of calls you are handling. Is it 
something similar as far as the efficiency of your system?
    Mr. Gregg. We have a very sophisticated call center that 
tracks all that. We are very close to that if we are not at 
12.5. During the tax payment season, we bring in people that we 
have hired for a period of time because we get peak volumes. We 
bring them in and they are trained so they come back year after 
year. It is a very sophisticated system.
    Mr. Platts. Mr. Gregg, a different area as far as your 
office's efforts with the Federal salary offset and while the 
wage garnishment is for non-Federal employees, internally we do 
it differently. Could you give me an overview of what 
percentage we use in your best estimate of agencies, 
departments are on board and participating in that program 
today?
    Mr. Gregg. We have most of the centralized paying agencies 
now participating. I think all of them except for GSA, which is 
going to be coming in by the end of this year. VA is currently 
not participating but they are going to be serviced by the 
Department of Interior under the consolidated payroll 
processing, and that is fine. There is no reason for them to 
switch and then get out of that business. So most of our 
payroll agencies are now participating. We have to continue to 
get the debts referred to them from all the other agencies.
    Mr. Platts. That is only a small number of agencies, paying 
agencies, right?
    Mr. Gregg. I think there are five.
    Mr. Platts. Right. There is a large number that are not. Of 
those that are not, it is the same instance if somebody is 
getting paid by the Federal taxpayer for their work but owe the 
Federal Government money, it seems like a pretty 
straightforward transaction to say, we need you to pay up.
    Mr. Gregg. I think I need to get back to you with a formal 
answer on that. For example, I think Education is still working 
on a consolidation. It is kind of complex because some of them 
do the offsets internally, but we are looking for a more 
efficient process through the consolidated salary offset, so I 
can provide you a more coherent, written answer.
    Mr. Platts. If you could give us kind of a detailed 
breakout of what agencies are because if we are going to 
private sector employees for wage garnishment, yet we are not 
doing it to our own employees, we are not setting a very good 
example ourselves.
    I want to expand on that a bit more with Education as well 
but Ms. Blackburn I believe you need to run off for a committee 
and had a question?
    Ms. Blackburn. That is correct. I need to run down the 
hall. If it is OK, I just have one more question.
    Secretary Campbell, I wanted to direct this to you. Knowing 
that you all had seen an improvement in your debt collection 
practices, I wanted to see if you could very quickly highlight 
three steps you feel made a big difference and what your 
recommendation would be to the other agencies that are looking 
to make these improvements if you were to say this, this and 
this were the lessons learned and the process that should be 
followed?
    Mr. Campbell. Centralization because that helps to develop 
a skilled work force and the skilled work force is the key. 
Automation because you have to have the systems. One of the 
regrettable things for 3\1/2\ years, we were unable to help our 
friends at FMS because our systems wouldn't talk to theirs. It 
took a tremendous amount of effort. As I said, it would be 
centralization so that you get a skilled work force that is 
used to doing debt collection, the skilled work force itself, 
the care and feeding of that work force and the automation that 
goes with it. Because of the vast number of transactions, you 
couldn't possibly do this in a manual or semi-manual method.
    Ms. Blackburn. Mr. Osendorf, do you have anything you would 
add to that?
    Mr. Osendorf. To make it three, I would say centralization, 
automation, standardization. Once you get it all in one place 
and you automate it, everybody is treated the same from the 
debt collection standpoint, everybody gets the same notices, 
everybody is treated exactly the same through the process.
    Ms. Blackburn. Thank you. It reminds me of the old thing 
that simple usually works but doing the simple thing is 
generally hard.
    Thank you very much.
    Mr. Platts. I am going to pick up on the Federal salary 
offset. Mr. Campbell, you wanted to add something on that?
    Mr. Campbell. Yes, sir. I don't mean to say anything 
against what Commissioner Gregg said but I think he was in 
error about what VA does. We have been offsetting our own 
employees' salary since 1987. Under the Consolidated E-Payroll 
Project we will be going to the Defense Finance and Accounting 
Service and not Interior.
    Mr. Platts. Ms. Shaw, how about Department of Education 
employees' current status?
    Ms. Shaw. We also have been offsetting for years and 
Commissioner Gregg made reference to the process for 
consolidation and actually the Department of Education looks 
forward to working with Commissioner Gregg's team to make that 
happen. We are right in the middle of a major competition for 
common services for borrowers that kind of brings together our 
direct loan servicing, the origination of direct loans, 
consolidation loans and part of our collection process, and 
again, we are right in the middle of that competition, so as 
soon as that competition is over and the contracts are awarded, 
which we hope will be by the end of this fiscal year, we will 
begin to work to move toward that centralized process.
    Mr. Platts. As far as setting that example, today if 
somebody works at the Department of Education who is in default 
of a student loan say in the Student Loan Office, their salary 
would be offset by the Department of Education?
    Ms. Shaw. Yes, sir.
    Mr. Platts. I want to make sure we are leading by example.
    I recognize Mr. Towns.
    Mr. Towns. Thank you, Mr. Chairman.
    Ms. Shaw, in fiscal year 2001, a new program was started to 
help recruit and retain Federal workers by paying their student 
loans. Under the program, workers can receive up to $6,000 per 
year if they commit to 3 years of agency service. According to 
a recent article in the Government Executive Magazine, the new 
program hasn't been used too much and the Department of 
Education has yet to use it at all. Why haven't you been able 
to implement it in your department?
    Ms. Shaw. As the new Chief Operating Officer at Federal 
Student Aid, this issue was recently brought to my attention. I 
intend to investigate that and try to understand if there are 
barriers, how do we remove them. I have a few folks on my staff 
as a matter of fact who are interested in availing themselves 
of that program. I would like to make that happen for them if 
there are no barriers at the Department of Education.
    I don't have an answer to the question for you today as to 
whether there are barriers or it just hasn't made its way to 
the top of anybody's list to actually implement and 
operationalize but it is on my list to do and I would be happy 
to provide a written response to you.
    Mr. Towns. Thank you. I look forward to it.
    Mr. Gregg. Congressman Towns, if I might interject, I think 
that is really a great program. We have been using it at FMS 
for about a year now. I think as we try to compete for new 
employees with the private sector, I think it is a great tool. 
One of the barriers is that you have to find the money because 
it was passed, so the tradeoff is you may not hire four people 
but only three and provide some student loan aid but that is 
something that is kind of the nature of the beast and we 
recognize that. It is a great program and I think provides a 
great opportunity for us to compete better with the private 
sector.
    Mr. Towns. Mr. Campbell, you mentioned the vendee program. 
What is that?
    Mr. Campbell. The Vendee Loan Program, we have numerous VA 
mortgage loans. When the mortgageholder defaults, we end up 
taking back the property, we then sell these vendee loans to 
the market. Three times a year we go to New York and sell these 
vendee loans. The Secretary of Transportation back in January 
of this year decided that we would no longer have that program, 
so the delinquencies from the Vendee Loan Program should 
disappear in the very near future.
    Mr. Towns. Mr. Campbell, in October 2001, the Vietnam 
Veterans of America submitted testimony to this subcommittee 
regarding what seemed to be abusive practices by the VA in 
collecting debts from veterans. Basically, they said the VA 
often attempted to collect debts related to co-payments for 
medical care from veterans while the veterans were 
simultaneously making claims through the Veterans Benefit 
Administration for a service-connected illness, a process which 
can take a long time, in fact years in some instances. Are you 
aware of this problem and what are you doing to address it?
    Mr. Campbell. No, sir, I was not aware of the problem until 
you just mentioned it and I will look into it. Unfortunately, 
medical co-payments, first party payments, are generally 
collected individually at each medical center. We have over 160 
medical centers, so this is the first it has been brought to my 
attention. As soon as I get back, I will talk to Dr. Roswell, 
the Under Secretary for Health, to see if this is a pervasive 
problem.
    Mr. Towns. Thank you. You will get back to us with the 
information?
    Mr. Campbell. Yes, sir.
    Mr. Towns. On that note, I yield back, Mr. Chairman.
    Mr. Platts. Thank you, Mr. Towns.
    I want to look at the issue of use of information 
technology. A number of you mentioned the best way to address 
bad debt is to make sure we are not making bad loans in the 
first instance and those who had that bad track record. I know 
there is a greater effort, and Mr. Gregg, you referenced the 
debt check system you are putting in place and having more 
information available to other agencies.
    One of the administrative challenges appears to be is when 
an agency refers to FMS for collection in the Treasury Offset 
Program, that is only going to stay there 10 years because of 
the statutory 10-year limit with the exception of student loans 
in your system. So somebody maybe looking for a loan 12 years 
from now, that may not show up because you are not able to 
collect it. First, is that an accurate understanding on my part 
and if so, is there an effort to try to somehow in the Treasury 
Offset Program to have the debt still be there, even though it 
can't be collected, it still would be a bar from future debt 
being taken by that debtor?
    Mr. Gregg. Our view is that we ought to have the debt check 
program contain the debts that we are actively working. We run 
into some risk if we go beyond that. First of all, we don't 
have that rolled out all the way so I am a bit reluctant to go 
beyond that. Plus, there are some other sources of information. 
Agencies have the opportunity to check with credit bureaus and 
the opportunity to check with the HUD system, the CAIVRS 
system, so I think the combination of the debt check, there 
will be a lot of debts in there, and the CAIVRS and the Credit 
Bureau reporting will provide a lot of information to those 
lending agencies.
    With the debt check program, right now we only have SBA 
there and it is kind of one at a time but our next enhancement 
will allow agencies to come in with a bulk file, however many 
they want to check and run that against our program which will 
be much more efficient.
    Mr. Platts. Realizing you are still in the early stages of 
this debt check system, that in the long term you look at 
somehow still identifying debts that have been referred to you 
and basically you own even though you no longer will go after 
them because of statutory limitation they are still identified 
as being debts not fulfilled, not collected, so that long term, 
not necessarily in these current years, but 15 years from now 
if that system is still in place, rather than having to 
recreate a new system where after 10 years you are done with 
them, so then they go to somebody else, start over and have to 
create new systems, it seems you could maintain them. It means 
your data base continues to grow.
    Mr. Gregg. That is something we can take a look at. We 
struggled so much in the early years of this program, I have 
been pretty reluctant and we have had a lot going on. It is one 
of those things where I hate to turn someone loose on that with 
so many other things that are more immediate. There could be a 
way we could do that where we could separate the active debts 
we are working from those that are no longer active. We can 
take a look at that some time in the future.
    Mr. Platts. Ms. Shaw, as far as student barred from getting 
loans, they are not defaulted on any past loans. That is the 
law but it does happen that some students slip through. Could 
you give us your best guess of why that happens, what is the 
shortfall in our system of checks and balances that someone in 
default isn't being made eligible for a new loan?
    Ms. Shaw. Certainly the Department uses best efforts to 
make sure that people don't slip through but we do have the 
National Student Loan Data System and in that system is a 
repository of all defaulted student loan borrowers. During the 
application process for a student, that system that processes 
Federal student aid applications communicates and does data 
checks against this National Student Loan Data System to see if 
there are any prior defaulted loans and if there are, that 
applicant may not receive Federal aid until that default is 
cleared up.
    Perhaps people can slip through due to timing of reporting 
to that National Student Loan Data System by guarantee agencies 
and the timing of when they report to the system, sort of a 
crossing in the night kind of effect. If an application comes 
in the day before the defaulted data is reported, it might as 
you say sneak through. It will get caught later but we 
absolutely try to prevent that.
    Mr. Platts. The current law as far as someone applying for 
a student loan does not bar an applicant from a student loan if 
they have a SBA loan they are in default of or other Federal 
loans other than student loans? That doesn't currently bar them 
from a student loan, correct?
    Ms. Shaw. I believe that to be true. Yes, that is correct.
    Mr. Platts. Is there a position in the Department whether 
there should be consideration given that if you are looking to 
borrow money from the Federal taxpayers for a student loan that 
you are in good stead in the Federal Government in any other 
area as well?
    Ms. Shaw. I am not aware of a current position by the 
Department but I can go back and check and see if there is one 
and report back to the subcommittee. If there is not a current 
position, perhaps I can put it on the radar scope.
    Mr. Platts. I appreciate that. It is a balance because 
education is something we want to encourage all to pursue and 
sometimes people are down and out on their luck and education 
is a chance to get back on their feet but in trying to promote 
personal responsibility, if you owe the taxpayers money and yet 
you want to turn to them for financial assistance, in some way 
identifying there is some outstanding liabilities that need to 
be taken care of, maybe it is something we need to look at so 
we don't just look at student loan defaults but others as well.
    Mr. Gregg, using technology and as you get to Debt Check 
and things and it addresses how we contact debtors, is there an 
effort to consolidate if there is more than one debt owned, 
type of debt by single individual that we are trying to 
consolidate so that we are not contracting to two or three 
different PCAs so that individual debtor is being contacted in 
various manners, different parties as opposed to by one?
    Mr. Gregg. That is fairly complicated and it is one of the 
features we will have in our Fed Debt Program that is going to 
be implemented in 2005 because that has been raised; it is not 
something we can do with our current system but it is being 
built into the system that we are in the process of building 
right now.
    Mr. Platts. I appreciate your patience. I think we covered 
all the areas I had hoped to and with the other Members as 
well. I would appreciate those who are going to followup to do 
so and expand on the information.
    I want to thank all of you for being here today and 
offering your testimony. Clearly when you look at the numbers, 
we have made tremendous strides and Ms. McCarthy's efforts and 
my predecessor, Chairman Horn, in their efforts with the 1996 
act have paid great dividends for American taxpayers. We want 
to be conscious of the consumer protection issues raised. It 
sounds like we are doing our best with our notice to consumers 
of their rights and protections they are entitled to. Where 
there is a failing in that area, I am glad to inquire of 
whatever department it is to see what repercussions then flow 
to the culpable party and we hold someone who is violating 
Federal law in whatever sense accountable.
    We have had an informative meeting and I look forward to 
working with Mr. Towns and the whole committee to continue to 
oversee the advance in the debt collection area on behalf of 
American taxpayers as we try to find a way to do right by 
citizens whether it be a new prescription drug benefit, 
education funding or whatever it may be, ensuring those who owe 
dollars to the Federal Government and thus to the taxpayers are 
fulfilling their obligations allows us to do more for those in 
need and those we are seeking to assist.
    I appreciate each of your for your efforts within the 
government and outside the government making sure the 
government is acting in a responsible fashion as well.
    The record will remain open for 2 weeks for additional 
information to be submitted and this meeting stands adjourned.
    [Whereupon, at 4:17 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional information submitted for the hearing record 
follows:]

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