[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                  EXAMINING GAO'S FINDINGS ON EFFORTS
                   TO IMPROVE OVERSIGHT OF LOW-INCOME
                   AND MINORITY SERVING INSTITUTIONS

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



                                HEARING

                               before the

                   SUBCOMMITTEE ON HIGHER EDUCATION,
                 LIFELONG LEARNING, AND COMPETITIVENESS

                              COMMITTEE ON
                          EDUCATION AND LABOR

                     U.S. House of Representatives

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

              HEARING HELD IN WASHINGTON, DC, MAY 27, 2010

                               __________

                           Serial No. 111-66

                               __________

      Printed for the use of the Committee on Education and Labor


                       Available on the Internet:
      http://www.gpoaccess.gov/congress/house/education/index.html




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                    COMMITTEE ON EDUCATION AND LABOR

                  GEORGE MILLER, California, Chairman

Dale E. Kildee, Michigan, Vice       John Kline, Minnesota,
    Chairman                           Senior Republican Member
Donald M. Payne, New Jersey          Thomas E. Petri, Wisconsin
Robert E. Andrews, New Jersey        Howard P. ``Buck'' McKeon, 
Robert C. ``Bobby'' Scott, Virginia      California
Lynn C. Woolsey, California          Peter Hoekstra, Michigan
Ruben Hinojosa, Texas                Michael N. Castle, Delaware
Carolyn McCarthy, New York           Vernon J. Ehlers, Michigan
John F. Tierney, Massachusetts       Judy Biggert, Illinois
Dennis J. Kucinich, Ohio             Todd Russell Platts, Pennsylvania
David Wu, Oregon                     Joe Wilson, South Carolina
Rush D. Holt, New Jersey             Cathy McMorris Rodgers, Washington
Susan A. Davis, California           Tom Price, Georgia
Raul M. Grijalva, Arizona            Rob Bishop, Utah
Timothy H. Bishop, New York          Brett Guthrie, Kentucky
Joe Sestak, Pennsylvania             Bill Cassidy, Louisiana
David Loebsack, Iowa                 Tom McClintock, California
Mazie Hirono, Hawaii                 Duncan Hunter, California
Jason Altmire, Pennsylvania          David P. Roe, Tennessee
Phil Hare, Illinois                  Glenn Thompson, Pennsylvania
Yvette D. Clarke, New York           [Vacant]
Joe Courtney, Connecticut
Carol Shea-Porter, New Hampshire
Marcia L. Fudge, Ohio
Jared Polis, Colorado
Paul Tonko, New York
Pedro R. Pierluisi, Puerto Rico
Gregorio Kilili Camacho Sablan,
    Northern Mariana Islands
Dina Titus, Nevada
Judy Chu, California

                     Mark Zuckerman, Staff Director
                Barrett Karr, Republican Staff Director
                                 ------                                

                   SUBCOMMITTEE ON HIGHER EDUCATION,
                 LIFELONG LEARNING, AND COMPETITIVENESS


                    RUBEN HINOJOSA, Texas, Chairman

Timothy H. Bishop, New York          Brett Guthrie, Kentucky,
Jason Altmire, Pennsylvania            Ranking Minority Member
Joe Courtney, Connecticut            John Kline, Minnesota
Paul Tonko, New York                 Michael N. Castle, Delaware
Dina Titus, Nevada                   Vernon J. Ehlers, Michigan
Robert E. Andrews, New Jersey        Judy Biggert, Illinois
John F. Tierney, Massachusetts       Bill Cassidy, Louisiana
David Wu, Oregon                     David P. Roe, Tennessee
Susan A. Davis, California           Glenn Thompson, Pennsylvania
Mazie Hirono, Hawaii                 [Vacant]
Marcia L. Fudge, Ohio
Jared Polis, Colorado
Pedro R. Pierluisi, Puerto Rico


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on May 27, 2010.....................................     1

Statement of Members:
    Guthrie, Hon. Brett, Senior Republican Member, Subcommittee 
      on Higher Education, Lifelong Learning, and Competitiveness     4
        Prepared statement of....................................     5
    Hinojosa, Hon. Ruben, Chairman, Subcommittee on Higher 
      Education, Lifelong Learning, and Competitiveness..........     1
            Prepared statement of................................     3
        Additional submission:
            McMillin, Sue, president and CEO, Texas Guaranteed 
              Student Loan Corp., prepared statement of..........    33
    Roe, Hon. David P., a Representative in Congress from the 
      State of Tennessee, question for the record................    40

Statement of Witnesses:
    Scott, George A., Director, Education, Workforce, and Income 
      Security, U.S. Government Accountability Office............     6
        Prepared statement of....................................     8
    Shireman, Robert M., Deputy Undersecretary, U.S. Department 
      of Education...............................................    15
        Prepared statement of....................................    16
        Response to question for the record......................    42


                  EXAMINING GAO'S FINDINGS ON EFFORTS
                   TO IMPROVE OVERSIGHT OF LOW-INCOME


                   AND MINORITY SERVING INSTITUTIONS

                              ----------                              


                         Thursday, May 27, 2010

                     U.S. House of Representatives

                   Subcommittee on Higher Education,

                 Lifelong Learning, and Competitiveness

                    Committee on Education and Labor

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 10:05 a.m., in 
room 2175, Rayburn, Hon. Ruben Hinojosa [chairman of the 
subcommittee] presiding.
    Present: Representatives Hinojosa, Tonko, Davis, Fudge, 
Guthrie, Biggert, and Roe.
    Also Present: Representative Scott.
    Staff Present: Jeff Appel, Senior Education Policy Advisor/
Investigator; Andra Belknap, Press Assistant; Calla Brown, 
Staff Assistant, Education; Jose Garza, Deputy General Counsel; 
Mike Kruger, Online Outreach Specialist; Sadie Marshall, Chief 
Clerk; Ricardo Martinez, Policy Advisor, Subcommittee on Higher 
Education, Lifelong Learning, and Competitiveness; Bryce 
McKibben, Staff Assistant, Education; Alex Nock, Deputy Staff 
Director; Kristina Peterson, Legislative Fellow, Education; 
Julie Radocchia, Senior Education Policy Advisor; Alexandria 
Ruiz, Administrative Assistant to Director of Education Policy; 
Ajita Talwalker, Education Policy Advisor; Stephanie Arras, 
Minority Legislative Assistant; Kirk Boyle, Minority General 
Counsel; Amy Raaf Jones, Minority Higher Education Counsel and 
Senior Advisor; Brian Newell, Minority Press Secretary; Susan 
Ross, Minority Director of Education and Human Services Policy; 
and Linda Stevens, Minority Chief Clerk/Assistant to the 
General Counsel.
    Chairman Hinojosa. A quorum being present, the committee 
will come to order.
    Pursuant to the committee rules, any member may submit an 
opening statement in writing which will be made part of the 
permanent record; and now I recognize myself, followed by 
Ranking Member Guthrie, for an opening statement.
    First, I would like to welcome my colleagues on both sides 
of the aisle to this important hearing on examining GAO's 
findings on efforts to improve oversight of minority serving 
institutions.
    I want to commend and recognize some of our colleagues on 
the Education and Labor Committee for their leadership in 
advancing the Student Aid and Fiscal Responsibility Act, known 
as SAFRA, enacted as part of a Health Care and Education 
Reconciliation Act of 2010. Since last fall, I have had the 
pleasure of working closely with Representatives Bobby Scott, 
Raul Grijalva, Dale Kildee, David Wu, as well as other members 
of the Congressional TriCaucus to ensure that SAFRA included 
targeted funding for Title III and Title V institutions.
    I want to thank GAO for the release of their report 
examining GAO's findings on efforts to improve oversight of 
low-income students and minority serving institutions.
    As many of you know, I have fought rigorously to increase 
Federal resources to MSIs throughout my tenure in Congress. 
Historically black colleges and universities, known as HBCUs, 
and Hispanic serving institutions, known as HSIs, as well as 
tribal colleges and universities and Alaska native serving 
institutions or native Hawaiian serving institutions and 
predominantly black institutions, as well as Asian American and 
Native American Pacific Islander serving institutions and 
Native American serving nontribal institutions are an 
invaluable segment of our Nation's higher education system. 
Each year they ensure access and affordability to millions of 
minority and low-income students and workers.
    Over the past 15 years or so, we have made significant 
strides in addressing the funding gap for these institutions. 
On March 30th, President Obama signed the Health Care and 
Education Reconciliation Act of 2010, providing $2.55 billion 
for Title III and Title V institutions. This is the largest 
investment ever in HBCUs and HSIs.
    At this time, I wish to acknowledge HBCUs for the 
tremendous job they have done in educating a large portion of 
our Nation's African American students. HBCUs prepare 
exceptional leaders in the fields of medicine, in law, science, 
technology, engineering, mathematics, teaching, and other areas 
where minority students continue to be underrepresented.
    According to the State of America's Black Colleges, HBCUs 
graduate 40 percent of all African American students receiving 
a 4-year STEM degree and 50 percent of African American 
teachers. HBCUs play an extremely vital role in our Nation's 
higher education system and serve as role models for other 
institutions of higher learning.
    We have also made substantial progress in supporting and 
developing the capacity of Hispanic serving institutions, known 
as HSIs. According to Excellencia in Education, a nonprofit 
organization which promotes success for Latinos in higher ed, 
HSIs enroll approximately half of all Latino undergraduates in 
the United States.
    In 1995, HSIs received an appropriation of only $12 
million. That was the first time that they were funded. They 
were one of a number of institutions receiving funding under 
Title III. Then, in 1998, we were successful in creating a 
separate title for HSIs to underscore the importance of these 
institutions to our Nation's growing Latino community. In 
fiscal year 2010, the developing Hispanic serving institutions 
program received an appropriation of $117 million; and the 
Promoting Post Baccalaureate Opportunities, our newly created 
graduate program for HSIs, received an appropriation of $22 
million.
    I am very proud of what our committee has been able to 
accomplish for all of our institutions of higher learning, and 
as we build on our successes and set goals for the next decade 
it is imperative that we have stronger mechanisms to monitor 
these Federal programs. We must have increased accountability 
and work with the United States Department of Education to 
improve annual monitoring and reporting requirements. Our 
students deserve the very best, and our institutions must 
provide exemplary leadership in managing these resources 
effectively. To achieve President Obama's goal of leading the 
world in college graduates by 2020, we must ensure that MSIs 
are doing their part to increase persistence, retention, and 
completion rates of all students.
    Based on the findings of the GAO report, four institutions 
used grant funds improperly; and that is a serious concern for 
me and for our committee. The GAO report is a great starting 
point for today's hearing, and I hope that we can have a robust 
discussion and learn more about these issues from our 
distinguished witnesses.
    With that, I say thank you; and I now yield to Ranking 
Member Guthrie.
    [The statement of Mr. Hinojosa follows:]

 Prepared Statement of Hon. Ruben Hinojosa, Chairman, Subcommittee on 
        Higher Education, Lifelong Learning, and Competitiveness

    I would like to welcome my colleagues, on both sides of the aisle, 
to this important hearing on ``Examining GAO's Findings on Efforts to 
Improve Oversight of Low-Income and Minority Serving Institutions.''
    I want to recognize some of our colleagues on the Education and 
Labor Committee for their leadership in advancing the Student Aid and 
Fiscal Responsibility Act (SAFRA), enacted as part the Health Care and 
Education Reconciliation Act of 2010.
    Since last fall, I have had the pleasure of working closely with 
Representatives Bobby Scott, Ra#l Grijalva, Dale Kildee, David Wu as 
well as other members of the congressional tri-caucus to ensure that 
SAFRA included targeted funding for Title III and Title V institutions.
    I want to thank the GAO for the release of their report: 
``Examining GAO's Findings on Efforts to Improve Oversight of Low-
Income and Minority Serving Institutions.''
    As many of you know, I have fought vigorously to increase federal 
resources to MSI's throughout my tenure in congress.
    Historically Black Colleges and Universities (HBCUs), Hispanic-
Serving Institutions (HSIs), Tribal Colleges and Universities (TCUs), 
Alaska Native-Serving Institutions or Native Hawaiian-Serving 
Institutions, Predominantly Black institutions, Asian American and 
Native American Pacific Islander-Serving Institutions and Native 
American-Serving Nontribal Institutions are an invaluable segment of 
our nation's higher education system.
    Each year, they ensure access and affordability to millions of 
minority and low-income students and workers.
    Over the past fifteen years or so, we have made significant strides 
in addressing the funding gap for these institutions. On March 30th, 
President Obama signed the Health Care and Education Reconciliation Act 
of 2010, providing $2.55 billion for Title III and Title V 
institutions. This is the largest investment ever in HBCUs and MSIs.
    At this time, I wish to acknowledge HBCUs for the tremendous job 
they have done in educating a large proportion of our nation's African-
American students.
    HBCUs prepare exceptional leaders in the fields of medicine, law, 
science, technology, engineering, mathematics, teaching, and other 
areas where minority students continue to be underrepresented.
    According to ``The State of America's Black Colleges'' HBCUs 
graduate 40 percent of all African-American students receiving a four-
year STEM degree and 50 percent of African-American teachers.
    HBCUs play an extremely vital role in our nation's higher education 
system and serve as role models for other institutions of higher 
learning.
    We have also made substantial progress in supporting and developing 
the capacity of Hispanic-Serving Institutions (HSIs). According to 
Excelencia in Education, a non-profit organization which promotes 
success for Latinos in higher education, HSIs enroll approximately half 
of all Latino undergraduates in the United States.
    In 1995, HSIs received an appropriation of just $12 million; they 
were one of a number of institutions receiving funding under Title III. 
In 1998, we were successful in creating a separate title for HSIs to 
underscore the importance of these institutions to our nation's growing 
Latino community.
    In FY 2010, the developing Hispanic-Serving Institutions program 
received an appropriation of $117 million, and the promoting post-
baccalaureate opportunities, our newly created graduate program for 
HSIs, received appropriations of $22 million.
    I am very proud of what our committee has been able to accomplish 
for all of our institutions. As we build on our successes and set goals 
for the next decade, it is imperative that we have stronger mechanisms 
to monitor these federal programs.
    We must have increased accountability and work with the U.S. 
Department of Education to improve annual monitoring and reporting 
requirements. Our students deserve the very best, and our institutions 
must provide exemplary leadership in managing these resources 
effectively.
    To achieve President Obama's goal of leading the world in college 
graduates by 2020, we must ensure that MSIs are doing their part to 
increase persistence, retention, and completion rates for all students.
    Based on the findings of the GAO report, four institutions used 
grant funds improperly and that is a serious concern for me.
    The GAO report is a great starting point for today's hearing, and I 
hope that we can have a robust discussion and learn more about these 
issues from our distinguished witnesses.
    Thank you, I now yield to Ranking Member Guthrie.
                                 ______
                                 
    Mr. Guthrie. Thank you, Mr. Chairman. I appreciate you 
holding this hearing.
    And thank you, Mr. Scott and Secretary Shireman, for coming 
today. We appreciate you being here.
    This hearing is about the Government Accountability 
Office's recent findings concerning the Department of 
Education's oversight and monitoring of Federal funds intended 
to support low-income and minority serving institutions. 
Federal funds flow to these institutions primarily through 
programs authorized under Title III and V of the Higher 
Education Act. I look forward to hearing about GAO's 
examination of the Department's efforts to ensure taxpayers' 
funds are spent appropriately.
    The diversity that currently exists within the American 
higher education system is part of what makes our education 
system the envy of the world. The institutions that receive 
funds through these programs serve some of the most vulnerable 
students and those students perhaps in the most need of a 
postsecondary education. These students come from either low-
income, first-generation, or minority families that are often 
underserved in the higher education system. As a result, it is 
important to ensure the institutions being attended by these 
students are using Federal taxpayer dollars wisely.
    I am concerned by the GAO's findings that there still 
exists a lack of proper oversight regarding how program dollars 
are being spent. The institutions these programs are intended 
to support are already underresourced and may need additional 
assistance understanding all of the parameters that go with 
receiving a Federal grant. To ensure the success of these 
institutions, it is critically important every Federal dollar 
is spent properly.
    I recognize GAO did find the Department of Education has 
made some improvements in response to previous reports of fraud 
and its use of funds. However, I am concerned that as Congress 
has increased taxpayer support of these institutions the 
Department has not also increased its monitoring and oversight. 
Through its investigations, GAO found misuse of Federal funds 
at four of the seven institutions they visited, including one 
institution recommended by the Department as a model grantee.
    Our country is facing a difficult economic time, and just 
this week the Federal debt passed an historic $13 trillion. 
This year alone we are expected to run a Federal deficit of 
$1.5 trillion.
    For many Americans, including many low-income or minority 
students, higher education is the way to a better life. 
Congress recognized the public good advanced by providing 
Federal assistance to institutions that serve underprivileged 
students and spelled out how support was to be allocated to 
ensure students benefit from a quality education and taxpayers 
have confidence limited Federal resources are spent wisely.
    It is important that the Department of Education do its 
part to ensure these institutions are acting in accordance with 
the letter and spirit of the law. I look forward to hearing 
what steps the Department has done since the release of this 
report and why.
    And, with that, I thank the chairman for holding this 
hearing; and I yield back.
    [The statement of Mr. Guthrie follows:]

  Prepared Statement of Hon. Brett Guthrie, Senior Republican Member, 
       Subcommittee on Higher Education, Lifelong Learning, and 
                            Competitiveness

    Thank you Mr. Chairman.
    This hearing is about the Government Accountability Office's recent 
findings concerning the Department of Education's oversight and 
monitoring of federal funds intended to support low-income and 
minority-serving institutions. Federal funds flow to these institutions 
primarily through programs authorized under Title III and Title V of 
the Higher Education Act. I look forward to hearing about GAO's 
examination of the Department's efforts to ensure taxpayer funds are 
spent appropriately.
    The diversity that currently exists within the American higher 
education system is part of what makes our education system the envy of 
the world. The institutions that receive funds through these programs 
serve some of the most vulnerable students and those students perhaps 
in most need of a postsecondary education. These students come from 
either low-income, first-generation or minority families and are often 
underserved in the higher education system.
    As a result, it is important to ensure the institutions being 
attended by these students are using federal taxpayer dollars wisely. I 
am concerned by the GAO's findings that there still exists a lack of 
proper oversight regarding how program dollars are being spent. The 
institutions these programs are intended to support are already under-
resourced and may need additional assistance understanding all the 
parameters that go with receiving a federal grant. To ensure the 
success of these institutions, it is critically important every federal 
dollar is spent properly.
    I recognize GAO did find the Department of Education has made some 
improvements in response to previous reports of fraud and misuse of 
funds. However, I am concerned that as Congress has increased taxpayer 
support for these institutions, the Department has not also increased 
its monitoring and oversight. Through its investigations, GAO found 
misuse of federal funds at four of the seven institutions they visited, 
including one institution recommended by the Department as a ``model 
grantee.''
    Our country is facing a difficult economic time and just this week 
the federal debt passed an historic $13 trillion. This year alone, we 
are expected to run a federal deficit of $1.5 trillion. For many 
Americans, including many low-income or minority students, higher 
education is the way to a better life. Congress recognized the public 
good advanced by providing federal assistance to institutions that 
serve under-privileged students and spelled out how support was to be 
allocated to ensure students benefit from a quality education and 
taxpayers have confidence limited federal resources are spent wisely. 
It is important the Department of Education do its part to ensure these 
institutions are acting in accordance with the letter and spirit of the 
law.
    I look forward to hearing what steps the Department has done since 
the release of this report and with that, I thank the Chairman for 
holding this hearing and I yield back.
                                 ______
                                 
    Chairman Hinojosa. Before I introduce the panelists, I want 
to read into the record that all members will have 14 days to 
submit additional materials or questions for the hearing 
record.
    This subcommittee hearing on May 27, 2010, will hear from 
two witnesses. The first one I wish to introduce is Mr. George 
Scott, who is the Director, Education, Workforce, and Income 
Security issues for the United States Government Accountability 
Office. He is a frequent witness before our committee. He 
oversees the high-quality work that GAO provides for our 
committee in various areas of our jurisdiction.
    He is a graduate of North Carolina at Chapel Hill and has 
received several GAO management awards. George has been 
recognized for exemplary achievement in public administration.
    Once again, we are anxious to hear from you, sir, and we 
welcome you.
    Also, we will hear from Mr. Robert Shireman, who is the 
Deputy Under Secretary in the Department of Education. He is a 
leading expert on college access and financial aid. Prior to 
his appointment, he served on the Federal and Advisory 
Committee on Student Financial Assistance. Robert has served as 
staff for Senator Simon, and during the Clinton administration 
he served on the National Economic Council.
    He holds a bachelor's degree in economics from the 
University of California at Berkeley. He earned a masters 
degree from Harvard in education and the University of San 
Francisco in public policy.
    Thank you for being with us today.
    For those of you who have not testified before this 
subcommittee, let me explain our lighting system and the 5-
minute rule. Everyone, including members, is limited to 5 
minutes of presentation or questioning. The green light is 
illuminated when you begin to speak, and when you see the 
yellow light it means you have 1 minute remaining. When you see 
the red light, it means your time has expired and you need to 
conclude your testimony. Please be certain as you testify to 
turn on and speak into the microphones in front of you.
    With that, we will now hear from our first witness, Mr. 
Scott.

 STATEMENT OF GEORGE SCOTT, DIRECTOR, EDUCATION, WORKFORCE AND 
 INCOME SECURITY ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Scott. Mr. Chairman, Ranking Member Guthrie, and 
members of the subcommittee, I am pleased to be here today to 
discuss the Department of Education's oversight of grants to 
low-income and minority serving institutions.
    As you know, Title III and Title V of the Higher Education 
Act provide grants to strengthen and support these 
institutions. Given the challenges that many of these schools 
face, grants for these programs will continue to play an 
important role in helping them. Funding for these programs has 
increased significantly over the past 10 years, almost tripling 
from $230 million in 1999 to $681 million in 2009. Last year, 
we again reported on our long-standing concerns with 
Education's oversight of these grants. Today, I will discuss 
the Department's progress in addressing those concerns.
    In summary, Education has made some progress in 
implementing a systematic approach to grant monitoring and 
technical assistance, but much work remains to be done.
    GAO and Education's Inspector General have recommended 
multiple times that Education implement such an approach to 
better evaluate the performance of grantees. For example, in 
2004, we recommended that Education complete its electronic 
monitoring system and training programs to ensure its 
monitoring plans target at-risk grantees. In our recent report, 
however, we found that, while Education has taken some steps to 
better target monitoring, many of its initiatives have yet to 
be fully realized. Currently, Education is still in the 
processes of modifying its monitoring approach.
    To its credit, we found that Education has made progress in 
automating its monitoring tools and developing risk-based 
criteria. The redesigned system brings together information 
about a school's performance in managing all of its higher 
Education grants, increasing education's ability to assess the 
risk of grantee noncompliance.
    Another feature of the system is a monitoring index that 
identifies institutions that need heightened monitoring or 
assistance.
    Education has also taken steps to improve the technical 
assistance it provides to grantees and develop mechanisms to 
routinely collect and use grantee feedback.
    Despite progress in these areas, we found that Education 
still lacked a coordinated approach to guide its monitoring 
efforts. The Department recently developed a draft monitoring 
plan for Title III and Title V programs, but it has not 
consistently developed realistic and measurable targets for 
each of the activities in the plan. For example, Education 
commits to offering physical monitoring training, but it has 
not established measurable targets for how many staff will 
receive the training or how it will determine the effectiveness 
of the training. Without a comprehensive approach to 
monitoring, Education lacks assurance that grantees 
appropriately manage Federal funds, increasing the potential 
for fraud, waste, or abuse.
    We identified over $140,000 in questionable expenditures at 
four of the seven institutions where we conducted financial 
site visits. For example, at one institution, we identified 
significant internal control weaknesses and over $105,000 in 
questionable expenditures. These expenditures included almost 
$80,000 for student field trips to locations such as amusement 
parks. Grant funds were also used to purchase an airplane 
global positioning system, even though the school did not own 
an airplane.
    Education had recommended that we visit this school as an 
example of a model grantee. We referred the problems we found 
at this school to Education's Inspector General for further 
investigation. In response to our recommendation, the 
Department is following up on each of the questionable 
expenditures we identified during our visits.
    In conclusion, Education has taken steps to respond to our 
recent recommendations to improve grant oversight, but it is 
too early to tell if the Department has fully embraced a 
comprehensive risk-based approach to monitoring. The 
questionable expenditures we identified at some schools 
demonstrate the importance of Education having an effective 
monitoring and technical assistance program in place. Targeting 
oversight and assistance to grantees with the greatest risk is 
critical to ensuring that grant funds are used to improve 
institutional capacity and student outcomes. To do this 
effectively will require Education's sustained attention and a 
long-term commitment. We will continue to track the 
Department's progress in fully implementing our 
recommendations.
    Mr. Chairman, this concludes my prepared remarks. I would 
be happy to answer any questions that you or other members of 
the subcommittee may have. Thank you.
    [The statement of Mr. Scott follows:]

Prepared Statement of George A. Scott, Director, Education, Workforce, 
       and Income Security, U.S. Government Accountability Office

    Mr. Chairman and Members of the Subcommittee: I am pleased to be 
here today to discuss the Department of Education's (Education) 
oversight of grant assistance to schools that provide low-income and 
minority students with access to higher education. While higher 
education has become more accessible than ever before, students from 
some demographic groups still face challenges in attending college. In 
2007, for example, an estimated 58 percent of low-income students 
enrolled in college soon after completing high school, compared to 78 
percent of students from high-income families. Similarly, African 
American and Hispanic high school graduates enrolled at lower rates 
than white students. To help improve access to higher education for 
minority and low-income students, Titles III and V of the Higher 
Education Act, as amended, provide grants to strengthen and support 
institutions that enroll large proportions of these students.\1\
---------------------------------------------------------------------------
    \1\ Title III and V programs include three Title III, Part A 
programs: Strengthening Institutions, American Indian Tribally 
Controlled Colleges and Universities, and Alaska Native and Native 
Hawaiian Serving Institutions. They also include Title III, Part B 
Strengthening Historically Black Colleges and Universities, and Title 
V, Part A Developing Hispanic Serving Institutions. Throughout this 
testimony when we refer to Title III and Title V programs or grants, we 
are referring to these specific programs. Our review did not include 
Title III, Part A Predominantly Black Institutions, Title III, Part A 
Native American-serving, Nontribal Institutions, Title III, Part A 
Asian American and Native American Pacific Islander-serving 
Institutions, Title III, Part B Historically Black Professional or 
Graduate Institutions; Part D Historically Black Colleges and 
Universities Capital Financing; or Part E Minority Science and 
Engineering Improvement Program.
---------------------------------------------------------------------------
    Today I will discuss progress Education has made in monitoring the 
financial and programmatic performance of Title III and V grantees. In 
August 2009, we issued a report that discussed long-standing concerns 
regarding Education's oversight of these programs that limit its 
ability to ensure grant funds are used appropriately.\2\ This testimony 
is based on that report and updated information provided by Education. 
In developing that report, we analyzed data from grantees' annual 
performance reports detailing expenditures of fiscal year 2006 grant 
funds and conducted site visits at seven grantee institutions. We also 
interviewed officials at Education and reviewed grant program 
requirements and monitoring plans. We conducted the work for our August 
2009 report from September 2007 to June 2009 in accordance with 
generally accepted government auditing standards and updated this 
information from April to May 2010. Those standards require that we 
plan and perform the audit to obtain sufficient, appropriate evidence 
to provide a reasonable basis for our findings and conclusions based on 
our audit objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives.
---------------------------------------------------------------------------
    \2\ GAO, Low-Income and Minority Serving Institutions: Management 
Attention to Long-standing Concerns Needed to Improve Education's 
Oversight of Grant Programs, GAO-09-309 (Washington, D.C.: Aug. 17, 
2009).
---------------------------------------------------------------------------
Background
    Postsecondary institutions that serve large proportions of low-
income and minority students are eligible to receive grants from 
Education through programs authorized under Title III and Title V of 
the Higher Education Act, as amended.\3\ Institutions eligible to 
receive these grants include historically black colleges and 
universities, Hispanic-serving institutions, tribally controlled 
colleges and universities, Alaska Native-serving institutions and 
Native Hawaiian-serving institutions, and other undergraduate 
postsecondary institutions that serve large numbers of low-income 
students. In 2007, Congress authorized new programs for other 
categories of minority serving institutions, including predominantly 
black institutions, Native American-serving nontribal institutions, and 
Asian American and Native American Pacific Islander-serving 
institutions.\4\
---------------------------------------------------------------------------
    \3\ 20 U.S.C. Sec.  1051 et seq. and 20 U.S.C. Sec.  1101 et seq.
    \4\ These programs were first authorized in the College Cost 
Reduction and Access Act (Pub. L. No. 110-84) and reauthorized in the 
Higher Education Opportunity Act (Pub. L. No. 110-315). They received 
initial funding in fiscal year 2008 and were therefore not included in 
our review.
---------------------------------------------------------------------------
    Funding for Title III and V programs included in our review has 
increased significantly over the past 10 years. In fact, funding almost 
tripled from fiscal year 1999 to fiscal year 2009, increasing from $230 
million to $681 million (see table 1). In addition, fiscal year 2009 
funding for the three new Title III programs created in 2007 was $30 
million.

      TABLE 1.--TITLE III AND V FUNDING: FISCAL YEARS 1999 AND 2009
                          [Dollars in millions]
------------------------------------------------------------------------
                  Funding program                      1999       2009
------------------------------------------------------------------------
Title III, Part A, Strengthening Institutions.....        $60        $80
Title III, Part A, Tribal Colleges and                      3         53
 Universities.....................................
Title III, Part A, Alaska Native and Native                 3         32
 Hawaiian Institutions............................
Title III, Part B, Historically Black Colleges and        136        323
 Universities.....................................
Title V, Part A, Hispanic-Serving Institutions....         28        193
                                                   ---------------------
      Total.......................................       $230       $681
------------------------------------------------------------------------
Source: Appendix, Budget of the United States Government for Fiscal Year
  2001, ``Department of Education,'' (Feb. 7, 2000), at 362; Appendix,
  Fiscal Year 2011, (Feb. 1, 2010), at 376.

    While the institutions included in these programs differ in terms 
of the racial and ethnic makeup of their students, they serve a 
disproportionate number of financially needy students and have limited 
financial resources, such as endowment funds, with which to serve them. 
The Higher Education Act outlines broad goals for these grants, but 
provides flexibility to institutions in deciding what approaches will 
best meet their needs. An institution can use the grants to focus on 
one or more activities to address challenges articulated in its 
comprehensive development plan, which is required as part of the grant 
application and must include the institution's strategy for achieving 
growth and self-sufficiency. Under Education's program guidance, 
institutions are allowed to address challenges in four broad focus 
areas: academic quality, student support services, institutional 
management, and fiscal stability. For example, funds can be used to 
support faculty development; purchase library books, periodicals, and 
other educational materials; hire tutors or counselors for students; 
improve educational facilities; or build endowments.
Long-Standing Deficiencies in Grant Monitoring and Technical Assistance 
        Limit Education's Ability to Ensure That Funds Are Used 
        Properly and Grantees Are Supported
 education has made limited progress toward implementing a systematic 
            approach to monitoring and technical assistance
    GAO and Education's Inspector General have recommended multiple 
times that Education implement a systematic monitoring approach to 
better assess the fiscal and programmatic performance of Title III and 
V grantees. Such an approach would include implementing formal 
monitoring and technical assistance plans based on risk models and 
developing written procedures for providing technical assistance. In 
2004, for example, we recommended that Education complete its 
electronic monitoring system and training programs to ensure its 
monitoring plans are carried out and target at-risk grantees.\5\ In our 
2009 report, however, we found that while Education had taken some 
steps to better target its monitoring in response to our previous 
recommendation, many of its initiatives had yet to be fully realized. 
Accordingly, we recommended that the Secretary of Education develop a 
comprehensive, risk-based approach to target grant monitoring and 
technical assistance based on the needs of grantees. Education 
officials agreed with this recommendation and told us that they were 
working to implement it. At this time, however, Education is still in 
the process of modifying its monitoring approach and it is too early to 
determine the effectiveness of its efforts. Table 2 summarizes the 
status of Education's key monitoring initiatives, followed by a more 
detailed discussion of each initiative.
---------------------------------------------------------------------------
    \5\ GAO, Low-Income and Minority Serving Institutions: Department 
of Education Could Improve Its Monitoring and Assistance, GAO-04-961 
(Washington, D.C.: Sept. 21, 2004).

     TABLE 2.--A COMPARISON OF THE STATUS OF EDUCATION'S MONITORING
                      INITIATIVES IN 2004 AND 2010
------------------------------------------------------------------------
  Monitoring
  initiative       2004 status                   2010 status
------------------------------------------------------------------------
Implement      Education            Redesigned in fiscal year 2007
 electronic     implemented          because the original system did not
 monitoring     electronic           achieve its intended goal of
 system         monitoring of        presenting a comprehensive view of
                Title III and V      risk based on an institution's
                grantees at the      portfolio of higher education
                end of 2004.         grants from Education. The new
                                     system is now fully operational and
                                     allows for electronic storage of
                                     all grant file records.
------------------------------------------------------------------------
Establish      The program office   The program office for Title III and
 risk-based     for Title III and    V grants established preliminary
 criteria       V grants developed   risk-based criteria for all its
                risk-based           grant programs in fiscal year 2008.
                criteria in fiscal   Criteria were used to create a
                year 2003, but       monitoring index to identify
                used these           schools for additional monitoring,
                criteria             but only a small portion of these
                inconsistently       criteria were being utilized to set
                within the program   priorities at the time of our 2009
                office.              report. While Education officials
                                     recently told us that they plan to
                                     use the monitoring index to select
                                     half of the schools selected for
                                     site visits, they have not done so
                                     for visits conducted so far in
                                     fiscal year 2010.
------------------------------------------------------------------------
Develop        Following a fiscal   Once Education rescinded the
 monitoring     year 2002 effort     requirement to submit annual
 plans          to place greater     monitoring plans in 2006, the
                emphasis on          program office ceased to develop
                performance          monitoring plans. In response to a
                monitoring for all   new agency-wide requirement, the
                grantees, annual     program office has recently
                monitoring plans     developed a new monitoring plan for
                were developed to    fiscal year 2010 to help facilitate
                guide monitoring     a more coordinated and risk-based
                and technical        approach to monitoring and intends
                assistance.          to develop a monitoring plan
                                     annually; however, some of the
                                     monitoring activities lack
                                     realistic and measurable
                                     performance goals.
------------------------------------------------------------------------
Design         While program staff  The requirement for program officers
 comprehensiv   were required to     to complete a minimum number of
 e approach     complete at least    site visits was eliminated and few
 to site        two site visits      site visits have been completed
 visits         annually, the        since 2004. Most completed visits
                majority of staff    did not include financial
                did not fulfill      monitoring to determine whether
                the requirement.     program funds were properly used.
                Site visits that     Since our report, site visits in
                were conducted       2009 and 2010 have remained
                lacked a standard    limited.
                approach and
                varied in quality.
------------------------------------------------------------------------
Develop        Education developed  Education has developed courses to
 training for   a corrective         enhance its monitoring training,
 enhanced       action plan to       but as of our 2009 report, most
 monitoring     provide additional   staff had not completed coursework
                courses over a 3-    and one key course had yet to be
                year period to       offered. Education officials
                address training     recently told us that they have
                needs of its         developed two new training courses
                staff.               to address skill deficits
                                     identified by GAO; however, only
                                     about half of program staff have so
                                     far attended the two courses on
                                     programmatic and fiscal monitoring
                                     during site visits.
------------------------------------------------------------------------
Source: GAO analysis.

          electronic monitoring system and risk-based criteria
    In 2009, we found that Education had made progress in automating 
its monitoring tools and developing risk-based criteria. Specifically, 
Education redesigned its electronic monitoring system in 2007 to add 
several key enhancements which, if fully integrated into the oversight 
activities of program staff, have the potential to improve the quality 
and consistency of monitoring. The redesigned system brings together 
information about an institution's performance in managing its entire 
portfolio of higher education grants, increasing Education's ability to 
assess the risk of grantee noncompliance with program rules. Program 
officers can also enter into the system updates about a grantee's 
performance, based on routine interactions with the grantee. Because 
the system integrates financial and programmatic data, such as 
institutional drawdown of grant funds and annual performance reports, 
staff have ready access to information needed to monitor grantees. 
However, it will be important for Education to ensure that staff use 
the system to appropriately monitor grantee performance. For example, 
our 2009 report found that program staff did not consistently review 
the annual performance reports grantees are required to submit--reports 
that provide key information to determine whether grantees have 
demonstrated adequate progress to justify continued funding. Education 
officials reported that they have established new processes and a new 
form to ensure that staff review these reports as part of their regular 
monitoring activities.
    Another feature of the system is a monitoring index, implemented in 
2008, that identifies institutions that need heightened monitoring or 
technical assistance based on criteria designed to assess risk related 
to an institution's ability to manage its grants. For example, at the 
time of our 2009 report, an institution that had lost accreditation or 
had grants totaling more than $30 million was automatically prioritized 
for heightened monitoring, which could involve site visits or other 
contacts with the school. Since our 2009 report, Education has twice 
updated the index. For fiscal year 2010, Education officials told us 
they reduced the number of criteria to focus on those that it has found 
more accurately identify high-risk schools that are likely to be 
experiencing financial or management problems. The fiscal year 2010 
index has identified 64 institutions across all higher education grant 
programs for heightened monitoring, half of which participate in Title 
III or V programs.
                        annual monitoring plans
    Our 2009 report found that Education still lacked a coordinated 
approach to guide its monitoring efforts. In 2002, Education directed 
each program within the agency to develop a monitoring plan to place 
greater emphasis on performance monitoring for all grantees and to 
consider what assistance Education could provide to help grantees 
accomplish program objectives. However, Education rescinded the 
requirement in 2006 because the practice did not achieve the intended 
purpose of better targeting its monitoring resources, and Education 
officials told us the program office for Title III and V grants 
discontinued the development of annual monitoring and technical 
assistance plans.
    Since our report was published, Education required all major 
program offices to develop a monitoring plan for fiscal year 2010. 
Officials from the office responsible for administering Title III and V 
programs said they submitted a monitoring plan for review in February 
2010, and have been using the plan in draft form while waiting for it 
to be approved. The plan for Title III and V programs outlines 
Education's monitoring approach and describes various monitoring tools 
and activities--such as the monitoring index and site visits; how they 
are to be used to target limited monitoring resources to grantees that 
need it most; and an increased focus on staff training. The monitoring 
plan also includes a section on next steps and performance measures, 
but Education has not consistently developed realistic, attainable, and 
measurable targets for each of the monitoring tools and activities 
outlined in the plan. For example, Education developed specific goals 
for the number of site visits and technical assistance workshops it 
would conduct, but it will consider these goals attained if it 
completes at least 75 percent of them. Additionally, under staff 
training, Education commits to offering fiscal monitoring training 
sessions, but it has not established measurable targets for how many 
staff will receive the training or how it will determine the 
effectiveness of the training in meeting staff needs.
                              site visits
    With the implementation of an electronic monitoring system and 
risk-based monitoring index, Education now has tools to enhance its 
ability to select grantees for site visits, a critical component of an 
effective grants management program. Targeting grantees that need 
assistance or are at high risk of misusing grant funds is critical, 
given Education's limited oversight resources and the expansion of its 
grant oversight responsibilities with the addition of new Title III 
programs created in 2007. In our 2009 report, however, we found that 
overall site visits to Title III and V grantees had declined 
substantially in recent years (see table 3), and Education was not 
making full use of its risk-based criteria to select grantees for 
visits. Since our 2009 report, site visits to Title III and V grantees 
have remained limited, with six visits conducted in fiscal year 2009 
and five visits completed more than half-way through fiscal year 2010.

                TABLE 3.--SITE VISITS TO TITLE III AND V GRANTEES, FISCAL YEARS 2003 THROUGH 2010
----------------------------------------------------------------------------------------------------------------
                                                        2003   2004   2005   2006   2007   2008   2009  2010 \a\
----------------------------------------------------------------------------------------------------------------
Number of site visits................................     26     18      6     10      1      5      6        5
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of Department of Education data.

\a\ Completed as of May 2010. Education conducted an additional site visit in 2010 to an institution that
  participated in one of the grant programs not included in our review. Education officials told us that they
  plan to conduct eight additional site visits in fiscal year 2010.

    One former senior Education official told us that site visits had 
declined because the program office had limited staff and few had the 
requisite skills to conduct financial site visits. To obtain the 
experience and skills needed to conduct comprehensive site visits, 
Education leveraged staff from another office to conduct site visits 
for Title III and V programs in 2008, but Education officials recently 
told us that staff from that office have been dispersed and are no 
longer available to conduct site visits. They also told us they 
anticipate hiring four new program officers during the summer of 2010, 
but it is unclear what effect such hiring will have on Education's 
ability to conduct site visits.
    Our 2009 report also found that the program office for Title III 
and V grants was not fully using its monitoring index to select high 
risk schools for site visits. Aside from referrals from the Inspector 
General, Education officials told us they selected schools for fiscal 
year 2008 and 2009 site visits based on the total amount of higher 
education grants awarded (i.e. grantees receiving $30 million or more), 
which represented only 5 percent of the monitoring index criteria in 
these years. In response to our 2009 report, Education officials said 
that they would use the revised monitoring index to select half of the 
schools chosen for site visits. However, none of the five site visits 
completed so far in fiscal year 2010 was selected based on the 
monitoring index. Education officials told us that they have used the 
index to select five of the eight remaining site visits planned for 
2010, but these have not been scheduled yet. Using its monitoring index 
to select fewer than half of its site visits does not seem to be a 
fully risk-based approach, leaving open the possibility that Education 
will not target its limited resources to those grantees most likely to 
experience problems.
                             staff training
    In our 2009 study, we reported that Education had made progress in 
developing grant monitoring courses to enhance the skills of Title III 
and V program staff, but skill gaps remained that limited their ability 
to fully carry out their monitoring and technical assistance 
responsibilities. For example, Education had developed courses on 
internal control and grants monitoring, but these courses were attended 
by less than half of the program staff. Senior Education officials also 
identified critical areas where additional training is needed. 
Specifically, one official told us that the ability of program staff to 
conduct comprehensive reviews of grantees had been hindered because 
they had not had training on how to review the financial practices of 
grantees. As a result, our 2009 report recommended that Education 
provide program staff with the training necessary to fully carry out 
their monitoring and technical assistance responsibilities. Education 
agreed with the recommendation and has developed additional training in 
key areas. Specifically, Education developed two courses on how to 
conduct programmatic and fiscal monitoring during a site visit, but 
only about half of the program officers have attended both courses so 
far. Education has also established a mentoring program that pairs new 
program officers with experienced staff. While Education is taking 
steps to develop training in needed skill areas, implementing an 
effective monitoring system will require sustained attention to 
training to ensure that all staff can perform the full range of 
monitoring responsibilities.
                          technical assistance
    While Education provides technical assistance for prospective and 
current Title III and V grantees through preapplication workshops and 
routine interaction between program officers and grant administrators 
at the institutions, our 2009 report found that it had not made 
progress in developing a systemic approach that targeted the needs of 
grantees. According to one senior Education official, technical 
assistance is generally provided to grantees on a case-by-case basis at 
the discretion of program officers. Grantees we interviewed told us 
that Education does not provide technical assistance that is consistent 
throughout the grant cycle. Several officials complimented the 
technical assistance Education provided when they applied for grants, 
but some of those officials noted a precipitous drop in assistance 
during the first year after grants were awarded. During the initial 
year, grantees often need help with implementation challenges, such as 
recruiting highly qualified staff, securing matching funds for 
endowments, and overcoming construction delays. In the past, grantees 
had an opportunity to discuss such challenges at annual conferences 
sponsored by Education, but Education did not hold conferences for 3 
years from 2007 to 2009, despite strong grantee interest in resuming 
them. According to Education officials, resource constraints prevented 
them from holding the conferences in those years.
    To improve the provision of technical assistance, our 2009 report 
recommended that Education disseminate information to grantees about 
common implementation challenges and successful projects and develop 
appropriate mechanisms to collect and use grantee feedback. In 
response, Education held a conference for all Title III and V grantees 
in March 2010, with sessions focused specifically on best practices. 
Education officials told us that they plan to organize another 
conference in 2011 and said they will explore the use of webinars to 
share information with grantees that may be unable to attend. Education 
has also created an e-mail address for grantees to express concerns, 
ask questions, or make suggestions about the programs. The address is 
displayed on every program Web page and is monitored by an Education 
official not associated with the program office to allow grantees to 
provide anonymous feedback. In addition, Education officials reported 
that they have developed a customer satisfaction survey that the Office 
of Management and Budget has approved for distribution. The survey will 
be sent to new grantees and grantees that are near the end of their 
grant period and will obtain feedback on the quality of information 
provided before a grant is approved, the quality of technical 
assistance provided, and satisfaction with communications with the 
program office.
Education Lacks Assurance That Grant Funds Are Used Appropriately
    Without a comprehensive approach to target its monitoring, 
Education lacks assurance that grantees appropriately manage federal 
funds, increasing the potential for fraud, waste, or abuse. In our 2009 
report, we reviewed financial and grant project records at seven 
institutions participating in Title III and V programs in fiscal year 
2006 and identified $142,943 in questionable expenses at 4 of the 7 
institutions we visited (see table 4).\6\
---------------------------------------------------------------------------
    \6\ Questionable expenses are expenditures that appear to have been 
made for incorrect amounts, for unauthorized purposes, or for personal 
use. They can be inadvertent errors, such as duplicate payments and 
calculation errors, or violations of grant agreement terms, such as 
payments for unsupported or inadequately supported claims or payments 
resulting from fraud and abuse.

                            TABLE 4.--SUMMARY OF FINDINGS FROM FINANCIAL SITE VISITS
----------------------------------------------------------------------------------------------------------------
                                                                     Total dollars         Questionable grant
         Grantee\a\                         State                      reviewed                 expenses
----------------------------------------------------------------------------------------------------------------
A...........................  Texas............................              $300,438                     $2,127
B...........................  Puerto Rico......................               353,963                     29,258
C...........................  Illinois.........................               226,670  .........................
D...........................  Maryland.........................               427,180                    105,117
E...........................  Tennessee........................               175,388  .........................
F...........................  California.......................               108,977                      6,441
G...........................  North Dakota.....................               299,846  .........................
                                                                ------------------------------------------------
      Total.................  .................................            $1,892,462                   $142,943
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of grantee disbursement records conducted during site visits.

\a\ The seven institutions were selected using a nonprobability sample based on factors such as program
  participation, grant size, and geographic location.

    At one institution--Grantee D--we identified significant internal 
control weaknesses and $105,117 in questionable expenditures. A review 
of grant disbursement records revealed spending with no clear link to 
the grant and instances in which accounting procedures were bypassed by 
the school's grant staff. Of the questionable expenditures we 
identified, $88,195 was attributed to an activity designed to promote 
character and leadership development, of which more than $79,975 was 
used for student trips to locations such as resorts and amusement 
parks. According to the grant agreement, the funds were to be used for 
student service learning projects; instead, more than $6,000 of grant 
funds was used to purchase a desk and chair and another $4,578 was used 
to purchase an airplane global positioning system even though the 
school did not own an airplane. In purchasing the global positioning 
system and office furniture, a school official split the payments on an 
institutionally-issued purchase card to circumvent limits established 
by the institution. Officials at the institution ignored multiple 
warnings about mismanagement of this activity from external evaluators 
hired to review the grant. Education visited the school in 2006 but 
found no problems, and recommended we visit the institution as an 
example of a model grantee. We referred the problems we noted at this 
institution to Education's Inspector General for further investigation.
    Examples of the questionable expenditures we identified at three 
other institutions we visited included:
     At Grantee A, we were unable to complete testing for about 
$147,000 of grant fund transactions due to a lack of readily available 
supporting documentation. For one transaction that was fully 
documented, the grantee improperly used $2,127 in grant funds to pay 
late fees assessed to the college. Once we pointed out that grant funds 
cannot be used for this purpose, the college wrote a check to reimburse 
the grant.
     Grantee B used $27,530 to prepay subscription and contract 
services that would be delivered after the grant expired.
     Grantee F used more than $1,500 in grant funds to purchase 
fast food and more than $4,800 to purchase t-shirts for students.
    Our 2009 report recommended that Education follow up on each of the 
improper uses of grant funds identified.\7\ In response, Education 
conducted a site visit to one institution in November 2009 and approved 
its corrective action plans. Education officials also reported that 
they visited two other institutions in April 2010 and plan to visit the 
fourth institution before November 2010.
---------------------------------------------------------------------------
    \7\ We presented Education with the results of our analysis 
supporting each of our findings related to our grantee visits.
---------------------------------------------------------------------------
Concluding Observations
    We have recommended multiple times that Education implement a 
systemic approach to monitoring postsecondary institutions receiving 
Title III and V grants. As we reported in 2009, Education has made 
progress in developing tools--such as an electronic monitoring system 
and risk-based criteria--to assess potential risks, but it lacks a 
comprehensive risk-based monitoring and technical assistance approach 
to target its efforts. In the 9 months since our report was issued, 
Education taken some steps to respond to our most recent 
recommendations, but it is too early to tell if it has fully embraced a 
risk-based monitoring approach. For example, Education is still not 
relying on its risk-based monitoring index to target site visits to 
schools at highest risk. Until Education is fully committed to such an 
approach, Title III and V funds will continue to be at risk for fraud, 
waste, or abuse. The internal control weaknesses and questionable 
expenditures we identified at some grantees we reviewed demonstrate the 
importance of having a strong and coordinated monitoring and assistance 
program in place, especially as Education is called on to administer 
additional programs and funding. Targeting monitoring and assistance to 
grantees with the greatest risk and needs is critical to ensuring that 
grant funds are appropriately spent and are used to improve 
institutional capacity and student outcomes. To do this effectively 
will require Education's sustained attention and commitment. We will 
continue to track Education's progress in fully implementing our 
recommendations.
    Mr. Chairman, this concludes my prepared remarks. I would be happy 
to answer any questions that you or other members of the subcommittee 
may have.
                                 ______
                                 
    Chairman Hinojosa. At this time, we will hear from Deputy 
Under Secretary Shireman.

   STATEMENT OF ROBERT SHIREMAN, DEPUTY UNDERSECRETARY, U.S. 
                    DEPARTMENT OF EDUCATION

    Mr. Shireman. Thank you, Chairman Hinojosa, Ranking Member 
Guthrie, and members of the subcommittee, for the opportunity 
to testify about our efforts to strengthen minority serving 
institutions.
    We very much appreciate GAO's continuing review of our 
oversight of the Title III and V programs. The effectiveness of 
these institutions is critical to meeting the President's 2020 
goal for college completion. We know that we will not meet that 
goal if we continue business as usual, if institutions don't 
improve retention rates, graduation rates in their efforts to 
improve institutions; and that is the purpose of these funds 
for minority serving institutions, to improve academic quality, 
to improve institutional management, to improve the fiscal 
stability of the institutions so that they can best serve 
students.
    We have to manage this program well, also, as we encourage 
institutions to do the best job possible to manage their 
programs for students. That means providing targeted support 
and assistance to institutions where there is an indication 
that they need that kind of help. It means being responsive 
when we become aware of issues at institutions. And it means 
that we need to be aware of the same kind of learning 
organization that we want colleges to be, getting better and 
better at the work that we do with those institutions.
    On the particular issues that GAO raised in its report, we 
are pleased to say that we are now doing a better job of using 
data to target our grant monitoring. We now have a monitoring 
index for identifying institutions for possible review that 
looks at audit findings, accreditation findings, commercial 
credit scores, and other measures that goes into the index to 
help identify institutions for us to review.
    We also review annual performance reports from institutions 
that tell us how are they doing on the goals that they set out 
when they first received the grant so that we can respond when 
goals are not being achieved, benchmarks aren't being reached, 
or if money is being spent in ways that was not a part of the 
plan.
    We have increased our site visits. We expect 14 site visits 
of Title III and V institutions in this fiscal year, which 
compares to six that were done last year.
    We are following up on the improper use of funds that were 
identified in the GAO report. Three of four planned site visits 
have been done, and one more is planned.
    Training of our staff for monitoring and technical 
assistance has increased with a new orientation process, a 
mentoring process where we pair experienced staff with newer 
staff for site visits so that they can learn from those who are 
experienced. Mandatory internal controls training to all of 
these as part of the effort to make sure that our staff are 
well qualified to do the oversight and site visits at 
institutions that have been identified.
    And on the other two recommendations the GAO has made, 
disseminating lessons learned and getting feedback from 
institutions, we held in March, for the first time in 10 years, 
a project director's conference here in Washington with 1,000 
plus project directors from MSIs around the country to provide 
the kind of sharing of best practices across institutions and 
for us to be able to hear concerns and questions in an area 
that we can be more helpful on.
    We are enhancing our staffing and leadership in the office 
and even provided a way for institutions to provide us with 
anonymous feedback that we can then follow up on if they feel 
uncomfortable raising an issue directly with their program 
officer.
    All of this is part of an effort for us to be a stronger 
learning organization so that we can get better and better at 
what we do and figure out how we can help institutions to grow, 
improve, and graduate more students toward the President's 2020 
goal. Our goal here is not only to make sure that the funds are 
used appropriately but also to do all we can to make sure that 
they are used as effectively as it is possible.
    Thank you so much for the opportunity to testify, and I 
would be happy to take questions.
    [The statement of Mr. Shireman follows:]

    Prepared Statement of Robert M. Shireman, Deputy Undersecretary,
                      U.S. Department of Education

    Chairman Hinojosa, Ranking Member Guthrie and Members of the 
Committee: Thank you for the opportunity to testify about the findings 
of the Government Accountability Office (GAO) report ``Low-Income and 
Minority Serving Institutions: Management Attention to Long-standing 
Concerns Needed to Improve Education's Oversight of Grant Programs'' 
(GAO-09-309), as well as the opportunity to update you on the status of 
the transition to the William D. Ford Federal Direct Loan (Direct Loan) 
Program at minority-serving institutions (MSIs). The GAO report focused 
on the federal oversight of institutions of higher education that 
receive federal funds under certain programs authorized by Titles III 
and V of the Higher Education Act of 1965 (HEA).
    The GAO examined three programs under Title III, Part A of the HEA: 
the Strengthening Institutions program (SIP), the American Indian 
Tribally Controlled Colleges and Universities program (TCCU), and the 
Alaska Native and Native Hawaiian Serving Institutions program (ANNH). 
The Strengthening Historically Black Colleges and Universities program 
(HBCUs), under Title III, Part B of the HEA and the Developing Hispanic 
Serving Institutions program (HSIs) under Title V of the HEA were also 
reviewed by GAO.
    To be eligible for the Title III, Part A programs and the HSI 
program, an institution must have at least 50 percent of its degree 
students receiving need-based assistance under Title IV of the HEA, or 
have a substantial number of enrolled students receiving Pell Grants, 
and have low educational and general expenditures. The Secretary may 
waive these eligibility requirements under certain conditions. There 
are additional institutional eligibility requirements for the TCCU, 
ANNH, and HSI programs. TCCU applicants are limited to tribal colleges 
and universities, including institutions that qualify for funds under 
the Tribally Controlled College or University Assistance Act of 1978 or 
the Navajo Community College Assistance Act of 1978, or listed in 
section 532 of the Equity in Educational Land Grant Status Act of 1994. 
Under the ANNH program, an Alaska Native-serving institution must, at 
the time of application, have an enrollment of undergraduate students 
that is at least 20 percent Alaska Native students and a Native 
Hawaiian-serving institution must have an enrollment of undergraduate 
students that is at least 10 percent Native Hawaiian students. To be 
eligible to receive a grant under the HBCU program, an institution must 
have been established prior to 1964 and its principal mission must have 
been, and must still be, the education of Black Americans. To be 
eligible to receive funding under the HSI program, an institution must 
have an enrollment of undergraduate full-time equivalent students that 
is at least 25 percent Hispanic students at the end of the award year 
immediately preceding the date of application.
    The Title III and Title V programs are administered in the 
Institutional Development and Undergraduate Education Service (IDUES) 
division of the Department's Office of Postsecondary Education (OPE).
    GAO was asked to determine: (1) the characteristics of institutions 
eligible to receive grants under Titles III and V, including the 
characteristics of students served by these institutions; (2) any 
challenges that grantees face and how they spent Title III and Title V 
funds to address these challenges; and (3) to what extent the 
Department of Education monitors the financial and programmatic 
performance of Title III and Title V grantees and uses this information 
to target technical assistance.
    The Title III and Title V programs are intended to strengthen and 
support developing postsecondary institutions that enroll large 
proportions of low-income and minority student populations. The 
programs provide grants to help institutions improve their academic 
quality, institutional management, and fiscal stability. Demographic 
projections suggest that the minority student population will continue 
to increase. Thus, the federal government maintains a continuing 
interest in assisting Title III and Title V institutions meet these 
students' needs.
    The GAO study found that Title III and Title V eligible 
institutions enrolled a greater percentage of minority students than 
other institutions. Eligible institutions were also found to serve more 
low-income students than ineligible institutions. The report says, 
``Specifically, 44 percent of students enrolled in eligible 
institutions received Pell grants compared to 26 percent at ineligible 
institutions.'' Larger proportions of students at eligible institutions 
were found to attend part-time, and with the exception of students 
enrolling at HBCUs, to delay college enrollment. Eligible institutions 
also had lower retention and graduation rates than other institutions. 
Although grantees reported challenges in academic quality, student 
support, institutional management, and fiscal stability, GAO found that 
the majority of program funds were spent by grantees in the areas of 
academic quality and student support.
    GAO also reviewed the Department's monitoring of grantees under 
these programs. Historically, grants were monitored using several 
methods including site visits, reviews of annual and interim 
performance reports, desk monitoring, and the review of information in 
the Department's Grants Administration and Payment System (GAPS). In 
2002, OPE began using an electronic performance monitoring system to 
evaluate annual performance reports. Electronic monitoring of grants 
using OPE's e-Monitoring system began in 2004. Eventually, this system 
evolved into the Grant Electronic Monitoring System (GEMS), which was 
introduced in 2008. Currently, an e-Folder system is being piloted to 
file documents electronically, which also has the benefit of reducing 
the amount of paper used. In addition, the Department has recently 
introduced the G5 grants management system which is being used in 
conjunction with GEMS to enhance grant monitoring.
    Generally speaking, in the past, the Department did not make 
frequent site visits to grantees due to lack of travel funds. As a 
result, these programs were likely to be monitored using desk 
monitoring and reviews of annual performance reports. OPE's Program 
Monitoring Information Technology (PMIT) staff, who were trained in 
performance monitoring, conducted site visits for selected IDUES grants 
until 2004, when this unit was disbanded. Subsequently, OPE's Program 
Oversight Staff (POS) was established to assist program offices in 
their monitoring efforts. However, the responsibility for conducting 
programmatic and fiscal site visits was recently transferred from POS 
to the OPE program offices, and efforts are under way to enhance the 
staffing of the program offices.
    GAO had previously reported on the Department's administration of 
Title III and Title V programs in 2004 (GAO-04-961) and 2007 (GAO-07-
926T), finding that the Department had made limited progress in 
implementing initiatives to enhance grantee monitoring and technical 
assistance. In the 2009 study, GAO concluded that the Department made 
limited progress in improving its monitoring and technical assistance 
efforts beyond what GAO recommended in its 2004 and 2007 studies, but 
has not implemented a systematic approach to coordinating these 
efforts. GAO also found that the Department's targeting of technical 
assistance remains limited. Based on its findings, GAO recommended that 
the Secretary of Education take five actions:
    1. ``Develop a comprehensive, risk-based approach to target grant 
monitoring and technical assistance based on the needs of grantees. In 
doing so, Education should take steps to ensure that all available 
tools, including its electronic monitoring system, risk-based criteria, 
site visits, and grantee annual performance reports, are fully 
integrated to better target its limited resources.
    2. Follow up on each of the improper uses of grant funds that were 
identified in the report.
    3. Provide program staff with the necessary training to fully carry 
out monitoring and technical assistance responsibilities.
    4. Disseminate information to grantees about common implementation 
challenges and successful projects to leverage the investment that has 
been made across the programs.
    5. Develop appropriate mechanisms to collect and use feedback from 
grantees. ``
    The Department agreed with GAO's recommendations.
    To that end, I appreciate the opportunity to be here today. I am 
happy to report that we have made progress in implementing GAO's 
recommendations. Our successes include:
    In response to Recommendation #1:
     We have developed a Monitoring Plan to target grant 
monitoring and technical assistance based on the needs of grantees. The 
plan uses a comprehensive approach to assess risk so that we can better 
target our resources and makes clear what the monitoring expectations 
are for the service unit. The main tool for risk assessment is the 
Monitoring Index, which is used to identify grantees for on-site 
reviews and additional desk monitoring. Six primary indicators are used 
to assess institutional risk: A-133 Audit findings, a missing A-133 
Audits, accreditation issues, a commercial credit score class of 4 or 5 
(severe delinquency measure), evidence of route payment/reimbursement 
(payments are routed to program office for approval), and inclusion in 
Federal Student Aid's (FSA) on-site review list. For FY 2010, we 
anticipate that 50 percent of on-site reviews will be at institutions 
that are deemed to be high-risk by using the Index. For FY 2010, using 
the Monitoring Index, 64 institutions have been identified as high 
risk, with 32 of those being Title III or Title V grantees. In addition 
to developing the risk-based criteria, we have expanded the use of 
OPE's GEMS which is used for post-award monitoring and recordkeeping, 
including the tracking of on-site monitoring review findings and 
reports and e-Folders. Desk monitoring by program officers, including 
using the Annual Performance Report (APR), as well as the targeted use 
of travel funds, are other methods by which integrated targeting of at-
risk grantees for monitoring and technical assistance is achieved. It 
should be noted that APRs are transferred from the web-based APR system 
into GEMS for all open grants.
     We are planning to conduct 10 more site visits for Title 
III and Title V programs in FY 2010. One site was previously identified 
by GAO (three have already been visited), 2 were identified through an 
IG complaint, and 5 were identified through the Monitoring Index. In 
addition, we are pairing experienced staff with new staff on site 
visits as part of new staff training initiatives.
     We are tying our resource allocation to risk by focusing 
our resources on grantees that need enhanced monitoring.
    In response to Recommendation #2:
     We are making progress in following up on GAO's findings 
of the improper use of grant funds at four institutions. We visited one 
institution, Wiley College, in November 2009. The site reviewer found 
that the College had made improvements in the areas addressed in GAO's 
findings, and found no evidence of policies, procedures, or activities 
that did not comply with applicable Federal laws and regulations. We 
visited two other institutions, University of Sacred Heart and Morgan 
State, and reports are being prepared by the site visit teams. 
Riverside Community College was scheduled to be visited May 16-21, 
2010, but the site visit was postponed due to a scheduling conflict. A 
new date has not been scheduled. It is expected that the site visit 
will be completed by August 30, 2010.
    In response to Recommendation #3:
     With regard to training, as I mentioned earlier, new 
program officers are paired with more experienced program officers as 
part of the new staff mentoring process. Also, in anticipation of 
several new hires in FY 2010, a comprehensive orientation process is 
being developed.
     IDUES staff participated in training specific to improving 
their staff monitoring and technical assistance responsibilities that 
included ``Programmatic Site Visit Training'' and ``Fiscal Monitoring 
Training.''
     Department -wide training to improve monitoring skills is 
also being developed by the Department's Risk Management Services, 
which will include ``Grants Management Training.'' Employees are also 
able to participate in Basic Federal Accounting classes and are 
required to take ``Internal Controls'' training.
    In response to Recommendation #4:
     IDUES held a project directors' meeting in March 2010 in 
Washington, DC that was attended by over 1,000 Title III and Title V 
project directors and personnel. The agenda included program-specific 
discussions and project presentations. Our plan is to have an annual 
project directors' meeting for these programs.
    In response to Recommendation #5:
     The Department has provided an e-mail address that allows 
grantees to provide anonymous feedback. The e-mail address appears on 
all IDUES grant program websites. As of March 1, 2010, 8 Title III and 
7 Title V-related e-mails were referred to the IDUES service director 
or a staff member for response.
    In sum, we have made good progress in improving our ability to 
monitor and provide technical assistance to Title III and Title V 
grantees and we will continue to expand our capacity to do so. The 
changes we are making should result in better information with which to 
provide oversight to these programs. I would like to conclude this part 
of my remarks by emphasizing that we will continue to implement GAO's 
recommendations in the coming months and years. Our ultimate goal is to 
increase the number of students accessing and completing a 
postsecondary education. MSIs play a critical role in our achievement 
of this objective.
Status of the Transition to the Direct Loan Program for Title III and 
        Title V Institutions
    As you know, the SAFRA, which was included in the Health Care and 
Education Reconciliation Act of 2010 (Public Law 111-152), provides 
that, after June 30, 2010, no new student loans will be made under the 
Federal Family Education Loan (FFEL) Program. Therefore, beginning July 
1, 2010, all new subsidized and unsubsidized Stafford Loans made to 
students, PLUS loans made to parents and to graduate and professional 
students, and consolidation loans will be made under the William D. 
Ford Federal Direct Loan Program.
    The Department is closely tracking the transition of Title III and 
Title V institutions into the Direct Loan Program and, by all accounts, 
the transition of these institutions is going well. A number of these 
schools have been processing Direct Loans already. In October 2009, we 
identified all schools that were still processing only FFEL Program 
loans and identified which of those schools were Title III or Title V 
institutions. As of May 20, 2010, of the approximately 300 institutions 
that meet the definition of a Title III or Title V institutions:
     121 schools need to transition to the Direct Loan Program 
(the rest are already participating)
     All 121 of these schools have submitted their notice of 
intent to participate in the Direct Loan program
     118 of these schools already process Pell Grants
     106 schools have attended training
     94 schools have tested for 2010-11.
Tracking Major Milestones
    The Department tracks each major milestone that Title III and V 
schools need to complete to participate in the Direct Loan Program to 
help gauge direct loan origination readiness and to ensure that all 
students who need a loan will receive one. These milestones include:
    1. Submission of ``Intent to Participate'' in the Direct Loan 
Program. Prior to the law being passed, each school interested in 
participating in DL had to submit to the Department a notice of its 
intent to participate in the Direct Loan Program. The initiation of 
this process triggers the assignment of a Point of Contact (POC) in the 
Department's office of Federal Student Aid (FSA) to help the school 
with Common Origination and Disbursement (COD) options, training, and 
testing. After the bill was signed, the Department identified the 
schools that had not submitted an Intent to Participate, assigned the 
POC, and the POC contacted each school. Moreover, Dr. Joel Harrell, 
Director of the Special Initiatives Service, has assigned one of his 
staff members to each Title III or Title V school that is transitioning 
into the Direct Loan Program. The COD POC staff and the Special 
Initiatives staff work closely together to assist schools in 
transition.
    2. Schools Already Processing Pell Grants. The Department is 
tracking each institution that is already processing Pell Grants 
through the COD System because this is an indication of their 
capability to process a Direct Loan.
    The COD System contains a ``Common Record'' that is used by all 
schools for submitting Pell Grant transactions to the Department. This 
same Common Record is used by schools to submit Direct Loan and other 
Title IV program transactions to the Department. Different data need to 
be submitted on the Common Record (Promissory Note status, Origination 
fees, etc.) that are specific to a Direct Loan. However, the record 
itself and the types of edits and rejects generated by a Direct Loan 
transaction, are much the same as the edits and rejects generated by a 
Pell Grant transaction.
    3. Training Attendance. The Department is tracking whether Title 
III and Title V school officials have received any FSA Direct Loan 
Program training.
    4. COD Testing. The Department tracks whether a school has tested 
with COD or whether the school's software provider has tested with COD. 
Testing allows a school or their software provider to send records to 
COD and see if the record is accepted. Testing assures the school that 
the direct loan record format is correct and that the schools software 
can successfully send and receive direct loan transmissions to and from 
COD.
    5. First Batch Monitoring. The Department monitors each school's 
``first batch,'' which means that when a school is prepared to start 
processing direct loans, staff check to be sure that the school's first 
batch of direct loan records is successfully transmitted to FSA. If 
there are rejects, staff works with the school and the school re-
submits the student records until all are successfully transmitted.
Direct Loan Transition Training
    Besides the many Direct Loan webinars, Regional Training, and 
association meetings in which training has been made available to 
schools, other training opportunities have or will be provided:
     FSA Staff have visited 3 of the 4 tribal institutions that 
participate in the student loan programs and provided default 
prevention training.
     On-site visits from the Special Initiative team have 
provided training support where needed.
     The Special Initiatives team follows the above milestones 
carefully and, if a school has not attended training, they work with 
the school to ensure that it registers for training.
     COD staff worked directly with groups of HBCUs in the 
Atlanta area to provide training and other support.
     On May 18-21, the Special Initiative staff, along with 
Training officers in the Denver Regional Office, sponsored an annual 
Tribal College workshop in the Denver Regional Office. The workshop 
included additional discussions and training with the 4 Tribal Colleges 
and Universities that participate in the student loan programs.
     From May 18 to June 28, the Department will present the 
HBCU Summer workshop series. These are one-day workshops across the 
southeast, east, and southwest areas of the country. The workshop has a 
module devoted to Direct Loans.
     In February, training was provided in three Puerto Rico 
cities. 90% of the Puerto Rican schools use the EDExpress product to 
process Title IV aid. The training provided information on Direct Loans 
and COD with a heavy focus on EDExpress as well as providing hands on 
training with the EDExpress tool. The training was done in Spanish.
     A full day of training is scheduled in the Dominican 
Republic for domestic schools that are in the Caribbean area.
    To summarize, the Department has taken a comprehensive and 
proactive approach to assisting the Title III and Title V institutions 
in the transition to the Direct Loan Program. We believe that all of 
these institutions will be ready and able to begin processing Direct 
Loans for their student borrowers for the coming award year.
    I would be pleased to respond to any questions that you might have.
                                 ______
                                 
    Chairman Hinojosa. Thank you.
    I would like to begin the questioning, and my question will 
be to George Scott.
    Mr. Scott, the GAO has done many programmatic and fiscal 
reviews of institutions. In your experience, have you seen 
whether on-site reviews are more effective than electronic 
monitoring by the sponsoring agencies? And as part of that 
question, is it more productive to have a combination of 
methods or is there a point at which costs become the 
determining factor in oversight?
    Mr. Scott. Mr. Chairman, given the limited resources that 
Education faces, we certainly believe it is important that the 
agency have a range of tools at its disposal, including the 
electronic monitoring capability.
    That said, though, it is not just important to have a 
capability. It is how you use the information that is generated 
from the various systems that the Department has available. 
That is why I believe it is very important that they continue 
to develop a risk-based approach so they could best target the 
limited resources to those institutions that present the 
highest risk to the program.
    Chairman Hinojosa. Is there enough money in the budget to 
be able to send monitors to campuses?
    Mr. Scott. We didn't look at the resources broadly 
available to the office that conducts these oversights. We will 
note that the number of program officials in that office have 
been relatively flat, I believe.
    That said, despite the limited resources, it is always 
important for agencies to continue to look for opportunities to 
improve the effectiveness and efficiency of the activities, 
given the limited resources that are available to them; and 
that is why we have continually been pressing the Department to 
make sure it is fully utilizing the tools it has and making 
sure that it fully addresses skills gap among its staff so that 
it be best prepared to provide effective oversight and 
monitoring of these institutions.
    Chairman Hinojosa. And my last question to you, sir, is 
Title III and Title V institutions are eligible to participate 
in the direct student loan program. With billions of dollars 
flowing to these institutions over the next 10 years, what 
recommendations do you think are absolutely necessary for the 
Department to conduct high-quality financial site visits and 
electronic monitoring so that we can have a good grasp of how 
the use of these fiscal resources is being done?
    Mr. Scott. Mr. Chairman, thank you for that question.
    As I said in my statement, it is most important for the 
Department to develop a comprehensive risk-based approach to 
targeting these institutions. In the long term, it is really 
going to take a sustained focus and long-term commitment to 
develop and maintain such an effective monitoring program. I 
think the prior GAO recommendations will provide a good road 
map that the Department can take and use to start to improve 
and continue to improve its oversight. So I believe that to the 
extent the Department starts to fully implement the various 
recommendations that we previously laid out, I think that is a 
good start for how they can improve their overall oversight.
    Chairman Hinojosa. Thank you.
    Mr. Shireman, I see that you gave us some good, effective 
numbers that I can relate to; and I will ask you some 
questions. The GAO reported that 44 percent of students 
enrolled in eligible MSIs received PELL Grants compared to only 
26 percent of students at ineligible institutions. Does the 
Department have evidence that the students receiving the PELL 
Grants at MSIs depend on the funds for access, persistence, and 
graduation?
    Mr. Shireman. Certainly students that receive PELL Grants 
are relatively low-income and so those funds help them to be 
able to afford tuition, to be able to focus on their studies 
without having to work excessively that might undermine their 
ability to persist in college and graduate. So we think that 
those PELL Grants are a very important tool for the students 
and institutions to promote enrollment, retention, and 
graduation.
    Chairman Hinojosa. Well, it is cost efficient to allocate 
your oversight resources according to those institutions who 
are showing risk factors. It is also important to allocate 
resources to disseminate the findings so those institutions are 
having success in highest-quality performance. So my question 
is, does your management staff try to balance your resources 
for both purposes?
    Mr. Shireman. Certainly we are enhancing our efforts in 
that area. The first big example of this was the project 
director's meeting of more than a thousand participants in 
March to share best practices. That not only helps the 
institutions to hear from each other and hear about best 
practices. It helps our program officers to hear about what is 
going on in institutions around the country so that when they 
are working with an institution they can cite examples and they 
can connect people to leaders of other institutions who might 
be able to assist them in implementing best practices that have 
been implemented at that other institution.
    Chairman Hinojosa. My time has run out, and so I am now 
going to recognize Mr. Guthrie.
    Mr. Guthrie. Thank you very much.
    Thank you, Secretary Shireman. I have a couple of 
questions.
    One, in your testimony, you talked about implementing the 
recommendations from the report. Are you all planning to--the 
Department planning to fully implement all recommendations from 
the 2004--and, if so, what is the timeline in that respect?
    Mr. Shireman. I believe so. I would need to take another 
look at each and every line in the report to see if there are 
maybe some things that might be difficult to implement. But 
certainly the thrust of everything in that report are things 
that we know need to be addressed.
    Mr. Guthrie. Do you know when? I mean, what your time line 
is?
    Mr. Shireman. Well, some of this is about being a learning 
organization and getting better and better. So we have already, 
for example, implemented a monitoring index. We will learn over 
time whether that can be improved. So in some ways it is an 
ongoing type of process.
    Mr. Guthrie. So you don't have recommendation this and here 
is the timeline to do that?
    Mr. Shireman. I certainly expect that this fiscal year we 
will be largely--we will largely have complied, addressed--I 
mean, we will have visited all of the institutions where there 
were questions about spending that was inappropriate. We will 
have increased the number of site reviews, implemented 
training, you know. Then, beyond that, we need to get better, 
because that won't be enough. I mean, I would agree with the 
comment that we made a good start, but there is still more to 
do.
    Mr. Guthrie. I do have a question. It was in your written 
testimony, actually. And you talked about the Department has a 
special initiative team, and that is being disbursed to help 
schools transition to the direct loan program. Who is on the 
team and who is the team made up of and what is their special 
purpose?
    Mr. Shireman. A team led by Joel Harrell, who is in our 
Atlanta office, experienced and knowledgeable with the 
financial aid programs, as well as MSIs, and well known in the 
MSI community. So they are our lead in making sure that the 
MSIs have the information and resources they need to be able to 
implement the financial aid programs effectively.
    Mr. Guthrie. There is still concern--because I want to ask 
Mr. Scott a question, but we still have concern as Cash for 
Clunkers all of a sudden the Transportation Department in that 
case was overwhelmed with applications. We are still concerned 
about what is going to happen this fall, so we are still going 
to be looking at that. But I don't want to get into the direct 
loan. It is a different issue for another day, but I know that 
was in your testimony.
    Mr. Scott, you were listening to the testimony, and you 
have seen what the Department has been doing. When you see the 
progress that has been made, are you comfortable with the 
progress that has been made? Are you optimistic that they are 
getting a handle on this situation?
    Mr. Scott. As I mentioned in my oral statement, we will 
continue to monitor the Department's progress in addressing our 
recommendations.
    One of the concerns we have is, over the years, they have 
sort of made progress and then we have sort of seen regression. 
So what we are looking for is a long-term, sustained commitment 
to improving the oversight and effectiveness of these programs. 
So that is why we are going to continue to monitor these 
programs and continue to ensure the Department is making 
progress.
    Mr. Guthrie. Are you optimistic about that?
    I know if you look at it over time--obviously, Mr. 
Shireman, those guys are newer than--over time, are you 
optimistic about what you have seen? Because I know you can't 
be held accountable for what happened over 2 years ago, but 
where we are going forward.
    Mr. Scott. I certainly want to give the Department credit 
for the steps it has taken recently to address our recent 
recommendations. But, as I said, what we are looking for here 
is a long-term commitment to improving its oversight and 
monitoring of these grantees. These institutions are very 
dependant on many of these funds, so it is very important for 
the Department to make sure it is well positioned to both 
provide the technical assistance these schools need but also 
have an effective and credible oversight presence among the 
grantees. So that is what we are looking for, is this long-
term, sustained focus and commitment to improving the oversight 
of these grant programs and the technical assistance it 
provides to the schools.
    Mr. Guthrie. I think it might have been you, actually, as 
well, but we had testimony from other types of schools, not in 
the full committee, about just misuse of funds or 
misappropriation of applications for funds. And I guess you 
could go in every government department, because we all have to 
watch funds and where we are going with it. So I guess my 
question is, are you looking at implementation just for these 
Title III and Title V schools? It seems maybe there is an 
overall issue with the way funds are being spent and how we 
need to monitor as well.
    Mr. Scott. The focus of this study was for the recipients 
of the Title III and Title V grants.
    Mr. Guthrie. Are there specific unique characteristics with 
these funds that have to be monitored differently? I know when 
we were looking it was a different type of school and different 
group before.
    Mr. Scott. For these visits, we just selected a range of 
schools, a total of seven, to go in and sort of conduct what we 
call our financial testing and internal controls; and that is 
how we identified some of the problems.
    Mr. Guthrie. I guess what I am trying to point out is that 
we found seven schools, had problems in four. Well, I think we 
had a different class of schools, a different group of schools, 
and we can have problems there. So it is not just these 
particular schools have problems. It seems like it is more 
widespread with other type of issues as well.
    I just want to say that specifically for the historically 
black college or at least Title II and Title V schools, it is 
not unique to these types of schools, we seem to have them in 
other schools as well. I think it was prior to we were looking 
at some ways some things were done. I think you testified on 
that, actually.
    Mr. Scott. Yes.
    Mr. Guthrie. Thanks.
    Chairman Hinojosa. At this time, I would like to recognize 
the gentlelady, Congresswoman Davis from California.
    Mrs. Davis. Thank you, Mr. Chairman.
    Thank you to both of you for being here.
    I wonder if you could just talk a little bit more about 
staff training for this and what is required and whether you 
feel more confident. In fact, I understand there has been more 
training, but how are you actually monitoring that people are 
getting that? And for those who are engaged in the process who 
have not been especially trained, how do you then have 
confidence that they are really looking for the right things 
and being able to pull out what is required over and above even 
the actual--like the actual technical criteria that you are 
looking at?
    Mr. Shireman. Well, we have implemented an orientation 
training process and then, as I mentioned, pairing new program 
officers with experienced program officers. Also, providing 
this opportunity for institutions to provide anonymous input to 
us, which gives us a greater opportunity to hear about 
situations where perhaps they are not getting clear answers but 
may be reluctant to raise that directly with the staff.
    And I would say there is also an internal effort more 
broadly than this office to create a more supportive 
operating--it is no secret that the staff satisfaction surveys 
government-wide, our Office of Postsecondary Education overall 
comes out relatively low government-wide. And that is an issue 
that we have from the very beginning of the administration been 
taking on and trying to--doing what we can to build the kind of 
camaraderie and feedback and leadership that is needed so 
people aren't just focused on checking the boxes to get through 
the day, but that we are tapping into their creativity to think 
about how can we help these institutions improve, what are the 
lessons that we can share, they want to do those things.
    Mrs. Davis. How important is that to the monitoring effort 
itself? I mean, do you see that as a fairly significant issue, 
that there should be a high enough satisfaction level? And I 
guess looking at whether or not people feel overwhelmed by the 
number of institutions that they have to be evaluating, is it a 
matter of not being able to have enough time with each one? 
Obviously, you are not getting to all of them.
    Mr. Shireman. And this is part of the reason for the 
targeting efforts and why GAO's assistance here in recommending 
that we use tools to help target our oversight, so that we can 
identify through our monitoring index, through the annual 
performance reviews the institutions where our time could be 
used most effectively and can more easily determine the 
institutions that perhaps don't need that time and effort. That 
will also help us to identify where we might need to enhance 
staffing levels either temporarily or over the long term.
    Mrs. Davis. Mr. Scott, this obviously was mentioned in your 
report as well, and you referenced it. How critical do you see 
that to the overall need to improve in this area?
    Mr. Scott. I certainly believe that continuing to enhance 
the technical proficiency of the staff to conduct these reviews 
is very critical.
    As we mentioned, we went to a school that the Department 
had previously gone to not too far ahead of when we went; and 
our staff found significant problems where the Department staff 
found none. And so to that extent I think it does point to the 
importance of continuing to develop both programmatic and 
fiscal review proficiency among the staff at the Department. It 
is critical that you not only do the visits but you do them in 
such a way that provides you some assurance that grant funds 
are being properly used.
    So I believe staff training and commitment to staff 
training and skilling up the people at the Department is very 
critical to whether or not they are going to succeed in 
providing sufficient oversight of these grants.
    Mrs. Davis. Are we looking to the right people to be in 
those positions?
    Mr. Scott. Now, that is a questions I will hand over to Mr. 
Shireman.
    I think it is important--strategically, it is important for 
the Department to, first of all, identify what the critical 
needs are in terms of the professional competencies that are 
important for the staff to have, ensure that you recruit people 
with those competencies, and then support them through the 
professional development and training.
    Mr. Shireman. And those are the kinds of things that we 
have been looking for in our recent hires, and then also 
providing the kind of targeting training, like the mandatory 
training around internal controls, so that even if they are 
going mostly to share best practices they can be looking for 
the issues that might relate to----
    Mrs. Davis. I guess the question was, does this 
compensation align with the requirements that you are looking 
for?
    Mr. Shireman. I haven't looked at that specifically, but it 
is designed to, in terms of the kind of background that we are 
looking for from folks and their experience on the scale is 
supposed to match up.
    Mrs. Davis. Thank you.
    Chairman Hinojosa. The gentlelady's time has expired.
    At this time, I would like to recognize Mr. Roe from 
Tennessee.
    Mr. Roe. Thank you, Mr. Chairman.
    I guess the way I am going to approach this is what is the 
problem; and the problem, as Chairman Hinojosa pointed out, is 
that we need to have more minorities and Hispanics attending 
colleges and to support that. And the goal at present, which is 
to have the highest graduation--college graduation rate in the 
world by 2020 is a noble, tremendous goal. So those are our 
problems.
    Chairman Hinojosa has also accurately pointed out he has 
supported this, and we have gone from 200 something million to 
over two-thirds of a billion dollars. That is a 20 percent 
increase per year in funding for these programs.
    And I know you all are into the oversight. Mr. Scott, I 
know you are. But the idea I would look at is we are looking at 
graduation rates, and in the last 10 years has that changed for 
retention and graduation rates? In other words, we are putting 
this money in there. Has it actually worked? I haven't heard 
anybody mention that.
    I have known that we bought T-shirts and GPS systems and 
all that, and rightfully so to look at that to see that we are 
not wasting the money. But has the goal been accomplished? And, 
if not, why hasn't it been accomplished?
    Mr. Shireman. We absolutely have not seen the kind of 
progress in graduation rates, retention rates that will get us 
to that 2020 goal. And that is a large reason why we have 
elevated this, the whole issue of completion and persistence. 
And as we continue to implement existing programs and any new 
programs that we do need to take a serious look at how do we 
help institutions learn from each other, implement best 
practices, improve the number of students that are being served 
and who actually reach graduation.
    Mr. Roe. And as we have I think 511 schools that have 
received grant money, there have got to be some in there that 
are doing better than others; and I would be looking at those, 
I would think. And continuing to pour money at schools that are 
not succeeding, I would say either you get up to these 
practices or the money cuts off. I think that is where you 
really hit the nail on the head. As of right now, I don't know 
whether we are going up or down with this.
    I would like to point out that Tennessee didn't have any 
deficiencies. I would like to add that, Mr. Scott. But if you 
are looking at that 7 out of 511, is it a systemic problem or 
is it just not doing the job well, not monitoring the money 
well?
    Mr. Scott. The scope of our work in those financial reviews 
is very limited, so we can't sort of extrapolate the results of 
those studies to the broader pool of grantees.
    I would note, however, that some of the potential abuse or 
misuse of funds that we did identify were rather substantial; 
and from our perspective that increases the importance of the 
Department ensuring that it has an effective oversight 
mechanism in place for these grantees.
    Mr. Roe. Mr. Chairman, you are going to be leaving the 
Department soon, I hear, and will you remain on as a consultant 
to the Department of Education or transition into the private 
sector?
    Mr. Shireman. I have made--the big decision I made was I 
shouldn't make any big decisions until I am back home in 
California, so I will be figuring that out.
    Mr. Roe. If you do--and, obviously, I know you will be glad 
to get home--but will there be any post-employment restrictions 
on what you can do outside?
    Mr. Shireman. There are restrictions. I would be glad to 
get you whatever information about that, things like lobbying 
the Department of Education or things that I would not be 
allowed to do, as I understand the agreement.
    Mr. Roe. And I think the other thing, Mr. Chairman, and I 
certainly appreciate your--I come from an area, rural area in 
Tennessee, that we certainly need to increase not only minority 
but everyone in college. I mean, we really have a huge 
challenge in America of getting our educational level up for 
college.
    If you look at what every business will tell you, it is 
workforce development, workforce development, workforce 
development. They tell you that all the time. It is not 
salaries that are getting our jobs going overseas. It is the 
ability of our workforce to be able to do the job.
    And I think the concern I have in listening to this is, is 
all this money we are spending achieving the goal we want? I 
know that wasn't your purpose here, but of those 511 schools, 
universities, colleges, and technical schools--I am sure they 
got this--there are some that I bet you are doing a pretty good 
job. Did you identify any of these, Mr. Shireman?
    Mr. Shireman. That is certainly part of our effort, for 
example, around the conference, was to highlight best practices 
at different institutions, efforts where schools have been able 
to improve persistence and others can learn from that.
    But I would agree with the overall framing from Chairman 
Hinojosa about accountability. We do need to improve our 
accountability overall both for the use of the funds but also 
for the ongoing improvement that we absolutely need.
    Mr. Roe. Is there a mechanism now in place to do that so we 
can see the institutions that are doing well? Do you know if 
there is a system?
    Mr. Shireman. We receive annual performance reports from 
institutions lined up against the goals that they set out for 
their grants. So that is one tool, that we have to identify 
institutions that are and aren't making progress. That helps us 
to then target our assistance but also identify those projects 
that perhaps can be shared more broadly.
    Mr. Roe. Thank you, Mr. Chairman.
    Chairman Hinojosa. Before I recognize the next Member of 
Congress, I wanted to say to Mr. Roe that, coming from an area 
that is 80 percent Hispanic, an area that I had to go to court 
and sue the State of Texas for not investing in regions like 
mine and other Members who serve deep south Texas, the 
difference has been that, instead of putting up with three 
decades of double-digit unemployment by investing in colleges 
and universities, we have seen the enrollment triple and we 
have seen the results of graduates where we produced just in 
one college in Edinburg over 1,000 engineers. We have gone from 
300 students to 1,500 students in the school of engineering. 
And the same thing applies in HBCUs and other HSIs throughout 
the country. But you have to invest if you are going to be able 
to raise the level of education attainment and thus attract 
businesses to create the jobs.
    Listen, I was sworn in with a 23 percent unemployment rate. 
I saw it drop down to 6 percent, after 35 years of double-digit 
unemployment down to 6 percent in 2007.
    So this is the best investment we can make in the future. 
And I can assure you that it is crumbs compared to how much 
money we are spending for all these 600 institutions who do not 
qualify for a designation of an HBCU or as an HSI.
    Just one example. NSF, National Science Foundation, gets $7 
billion. MSIs received 3 percent of that amount of money to do 
research. So we need to close the gap, and I think that what we 
are doing in this committee is outstanding.
    And now I would like to call on the next person. I think it 
is Mr. Scott from Virginia.
    Mr. Scott of Virginia. Thank you. Thank you, Mr. Chairman.
    Mr. Scott, when you followed the money, did you follow just 
the Federal money, the Federal grant money and not their 
general budget generally, just the Federal dollars?
    Mr. Scott. Yes. We just looked at the Federal money 
associated with the grants at these institutions.
    Mr. Scott of Virginia. Now, how did they compare--how did 
the questionable grant expenses compare to other colleges and 
universities?
    Mr. Scott. The number of institutions we conducted 
financial reviews at were seven. We found problems at four. It 
was very limited in scope.
    Mr. Scott of Virginia. I mean, compared to what? I mean, 
you found no problems at three. So I mean if you had randomly 
selected some other colleges and gone through their books, what 
would it have looked like?
    Mr. Scott. I can't speculate on that.
    Mr. Scott of Virginia. So this might not be any worse than 
anywhere else?
    Mr. Scott. Well, that is why we--as part of the scope of 
methodology of our report we talk about the fact that our 
findings at these schools are not representative of the school 
population at large.
    Mr. Scott of Virginia. Or it could be that schools, all the 
colleges and universities, have messed up books and this 
doesn't reflect poorly on them. They are just like everybody 
else.
    The gentleman from Texas mentioned NSF grants. When a 
college gets one of those multi-million dollar grants, isn't 
there a percentage kind of set aside for administration that 
the college can kind of do what they want to with?
    Mr. Shireman. I know some grants work that way. I don't 
know on these whether that is true.
    Mr. Scott of Virginia. Well, on these, every little penny 
has to be accounted for. The administration of them is on your 
own dime. When you get a research grant, don't most research 
grants have money you are going to account for and the other 
just kind of gets dumped in the till for general administrative 
expenses?
    Mr. Scott. I do believe that is correct. Some of the bar 
grants do have some set aside for administration.
    Mr. Scott of Virginia. Now, you have all but one of the 
schools at questionable grant expenses less than 10 percent. If 
they had a 10 or 20 percent kind of administrative slush fund, 
they would have done better than everybody else, is that right?
    Mr. Scott. I just want to follow up on your question about 
set-asides for administrative overhead. Staff just sort of let 
me know that oftentimes it is based on the type of grant. It is 
generally grant specific as to whether or not and to what 
extent there is a set-aside for administration expenses.
    Mr. Scott of Virginia. And what is that set-aside 
percentage?
    Mr. Scott. It will vary by grant.
    Mr. Scott of Virginia. What does it get up to? Twenty 
percent? Thirty percent?
    Mr. Scott. I am not aware of that.
    Voice. Ten percent.
    Mr. Scott of Virginia. Ten percent? It might be 10 percent?
    Mr. Scott. Generally, 10 percent.
    Mr. Scott of Virginia. So if six of the seven were under 10 
percent, they would be kind of in the same ball park like 
everybody else that got 10 percent. If we had put in there that 
you would get the grant and you could spend 10 percent for an 
administrative slush fund, all but one would have been in 
compliance, is that right? What are the strings attached to the 
Title V grants? Are we talking about what commitment did the 
school make as a condition of receiving a Title V grant? I 
guess Mr. Shireman.
    Mr. Shireman. The institution is required to review its 
academic and fiscal needs, its situation, management 
improvements that might be needed, develop plans for 
improvement, identify how they intend to use the funds from the 
Department of Education, and that is basically what their 
proposal consists of.
    Mr. Scott of Virginia. And the grant will be to fund the 
proposal?
    Mr. Shireman. The grant is to fund the project or projects 
that they identified that emerge from the review that they have 
done.
    Mr. Scott of Virginia. So you can measure whether or not 
they have complied with what they said they were going to do 
with the money?
    Mr. Shireman. We can measure whether they spent the money 
on the things that they said they were going to spend it on 
and, to some degree, the outcomes from that spending.
    Mr. Scott of Virginia. Now, the GAO report mentions 
technical assistance. What help with bookkeeping and accounting 
does the Department of Education provide for colleges and 
universities that may be challenged in these areas?
    Mr. Shireman. I don't--I will get back to you on to what 
extent that is actually--to what extent we have run into issues 
around accounting and whether we have been provided assistance. 
I don't know the answer to the question.
    Mr. Scott of Virginia. Mr. Scott, the problems you found, 
were they bookkeeping and accounting problems or theft 
problems?
    Mr. Scott. The problems we identified ranged as we laid out 
both in the report and the testimony. Given that these schools, 
you know, as part of receiving these grants, you know, have an 
agreement that they will spend the money in a way that is 
consistent with the grant they received. The things we found--
and referred in one case to the Department of Education 
Inspector General, in other cases, we also referred them over 
to the Department of Education--from our perspective were a 
misuse of funds. And so were not consistent with the grant 
application under which they have received the grants, and so 
that is why we forwarded the information to the Department of 
Education.
    Mr. Scott of Virginia. If you went to the Department of 
Education, that is one thing. If you went to the Department of 
Justice, I think that would suggest something else.
    Thank you, Mr. Chairman.
    Chairman Hinojosa. The next congresswoman I would like to 
recognize is Congresswoman Biggert from Illinois.
    Mrs. Biggert. Thank you, Mr. Chairman. Thank you for 
holding this hearing.
    My question is to Mr. Shireman. You know, I share your 
concern for ensuring access to higher education for minorities 
and low-income students. That is why I would like to address 
another group of institutions that disproportionately serve 
low-income and minority students, and that is proprietary 
schools.
    As you know, I am very concerned about the Department's 
proposal to define gainful employment based on the 8 percent 
debt-to-income ratio. And, specifically, this definition would 
limit access to students who are the very subject of this 
hearing, because proprietary schools have a disproportionate 
number of low-income and minority students.
    You know, I have got several of these schools in my 
district; and one of them, looking at the nursing, they decided 
that they wanted to do nursing because there is such a need for 
nurses. And in the last few years they have had at least 95 
percent retention; 96 percent graduate, and 98 percent to 100 
percent have been employed.
    Now, that disclosure shows me that I think this is a school 
that is doing its job, and I just see that there is almost a 
discrimination against the proprietary schools and having a 
limit of 8 percent. Now, this school would not be able to teach 
nursing under this 8 percent rule, because you start as a nurse 
at a very low level. It goes up, but it doesn't work out that 
this would be possible.
    So I was hoping that you would specifically address the 8 
percent rule. From what I understand, the genesis for this came 
from one single study in 2006 by the college board. So could 
you provide the committee with a better understanding of the 
full impact of this proposal?
    Mr. Shireman. Thank you, Congresswoman.
    During the negotiated rulemaking process, we put a number 
of ideas on the table, including some around retention and 
graduation and placement rates, much like the great figures you 
heard from the one institution. We did raise an 8 percent 
number that was cited in 2000 by the National Center of 
Educational Statistics as the common rule being used by 
mortgage companies in looking at student loan debt; an American 
Council on Education report in 2004 that named a number of 
prior reports as indicating 8 percent as a standard. So it was 
the commonly used number that we put on the table for 
discussion.
    Since that time, we have heard much useful input from 
Congress, as well as from institutions around the country. We 
are considering that input.
    The next phase of the negotiated rulemaking process is for 
us to have a proposed rule around all of the issues that were 
part of the negotiated rulemaking. There will then be further 
feedback and input from the public on that proposed rule before 
there is any final rule.
    I can assure you that we have heard the input, are 
analyzing the issues and the questions, and that there are 
further steps in the process to make sure that anything is well 
thought out and that the input is considered.
    Mrs. Biggert. Meanwhile, this puts the schools in an 
uncertain position for what is going to happen. I know that 
many of us, those on this committee as well as others, met with 
Secretary Duncan not too long ago; and we have discussed this 
several times with him.
    I worry about discrimination. For example, I have a school 
such as this, and yet the colleges don't have to follow the 
same rules as this. One of the colleges in my area started a 
law school a few years ago, and for 2 years not one person 
having gone to the college was able to pass the bar in 
Illinois. This shows there is a difference. They got their 
student loans without having to do something like this.
    When is the notice of proposed rulemaking going out?
    Mr. Shireman. I can't say for sure. I expect it in the next 
few weeks, but it is sometimes hard to predict exactly when 
things get through the whole process.
    Mrs. Biggert. Why isn't enhanced disclosure, for example, 
the numbers that I have from the school, combined with rigorous 
study to determine the full extent of any student debt problem? 
If people don't pass the bar, they are not going to go to that 
school. And that is exactly what happened. If they don't find 
employment when they go to a school that promises good return, 
why is that insufficient to meet the Department's goal?
    Mr. Shireman. Enhanced disclosure is among the useful 
suggestions that we have gotten over the past several weeks and 
is part of what we are considering right now.
    Mrs. Biggert. Thank you.
    I yield back the balance of my time.
    Chairman Hinojosa. At this time, I would like to recognize 
Congresswoman Marcia Fudge from Ohio.
    Ms. Fudge. Thank you, Mr. Chairman; and I thank both 
gentlemen for being here today.
    Mr. Scott, you mentioned that the Department has developed 
monitoring plans but that some of the activities actually lack 
realistic or measurable performance goals. So on what do you 
base the success or failure of programs?
    Mr. Scott. A couple of examples we highlight. For example, 
they have a goal of ensuring that 75 percent of the site visits 
they are planning are completed. Ideally, you would like to 
complete all of the site visits you are hoping to complete.
    We also point to training. They are committed to providing 
this training. There are not clear goals as to how many staff 
are going to get the training and how they are going to assess 
the effectiveness of the training. So what we are looking for 
is the Department not only to have plans but to also have 
mechanisms in place to hold itself accountable for achieving 
these plans. From our perspective, that is an important part of 
ensuring that this long-term commitment to improving the 
oversight of the grantees occurs.
    It is important that the Department not only hold the 
schools accountable for how the grant funds are being spent but 
also hold itself accountable in terms of the oversight of these 
grant funds.
    Ms. Fudge. Speaking to that latter point, I know over the 
years there have been many, many recommendations as to how 
these things could be done better. What happens to those 
recommendations?
    Mr. Scott. We actually track them. We track recommendations 
made to agencies and completed over a number of years. At least 
annually, GAO goes back to agencies and asks, what progress, if 
any, have you made on these recommendations?
    We have actually conducted a number of studies in this 
area. Especially over the last few weeks, we have been in a 
very active dialogue with the Department to understand exactly 
what progress they have made on the various recommendations we 
have put forward.
    Ms. Fudge. Mr. Chairman, I would like to yield the balance 
of my time to Mr. Scott.
    Mr. Scott of Virginia. I thank the gentlelady for yielding.
    Mr. Scott, the goals you have suggested are procedural 
within the Department of Education. Do you have any way of 
ascertaining whether the college is actually meeting goals of 
educating students and graduating them in a reasonable length 
of time?
    Mr. Scott. Clearly, the Department, as part of the annual 
performance reports, for example, can look at those reports and 
determine is the school meeting the goals of the grant.
    One of the concerns that we had was when we looked at some 
of the annual performance reports, some of them are incomplete, 
some of them had inaccurate information. There wasn't any 
indication from our perspective that the Department was 
regularly using these reports to help guide its oversight. I 
believe the Department may be doing a better job now of using 
those reports.
    So our point is it is not enough just to have the tools at 
your disposal. You really have to effectively use those tools 
to help bolster your oversight.
    Mr. Scott of Virginia. Did your analysis look into the fact 
of whether the program was effective? I think you were looking 
at whether the money was spent for the purpose for which it was 
listed, but did you go into whether or not these programs were 
effective in helping to educate the students?
    Mr. Scott. No, that was beyond the scope of our study.
    One of the things that it is important for the Department 
to do, though, is develop outcome-oriented performance measures 
that can help exactly answer that question.
    Mr. Scott of Virginia. You mentioned some specific 
expenditures that were questionable. One was a trip to resorts 
and another a GPS. Mr. Shireman indicated that the proposal--I 
assume it is a line item budget that is being funded. How was 
the trip listed on the budget? What was that money supposed to 
be used for and what was the GPS money supposed to be used for?
    Mr. Scott. My assumption is that the money should have been 
used consistent for the grants for which the school received 
funds.
    Mr. Scott of Virginia. You don't have the information in 
front of you?
    Mr. Scott. No, I don't. I don't have the actual grant in 
front of me.
    Mr. Scott of Virginia. So in that sense it is not a fair 
question, but if somebody made an inappropriate expenditure, 
the money must have come from some line item on their own 
proposal.
    Mr. Scott. The crack staff here behind me let me know that 
the money was supposed to be spent on leadership development.
    Mr. Scott of Virginia. Is that what the line item said, 
``leadership development''?
    Mr. Scott. There is a range of activities that the money 
can be used for. The money that was in question here was 
supposed to be designated for leadership development.
    Mr. Scott of Virginia. Mr. Shireman, when you approve a 
proposal, do you let a line item be as vague as ``leadership 
development'' or do you require more specific suggestions as to 
exactly how the money is going to be spent?
    Mr. Shireman. I would have to take a look. I don't know how 
detailed we have been in the spending plans.
    Mr. Scott of Virginia. Thank you.
    Ms. Fudge. Mr. Chairman, I yield back.
    Chairman Hinojosa. I believe it was you, Secretary 
Shireman, who mentioned commercial credit scores. I don't know 
how those compare with personal credit scores. I know a 700 or 
higher is considered good for a person and that over 800 is 
excellent. Tell me a little bit about commercial credit scores 
as they apply to our colleges.
    Mr. Shireman. I am definitely not an expert on commercial 
credit scores, but my understanding is that they get at 
questions of how much of a risk would it be for a lender, for 
example, to make a loan to that college in terms of their 
likelihood over the long term to be able to repay. For anything 
more detailed than that, I would be happy to look into that.
    Chairman Hinojosa. Would you look into that and share that 
with me?
    Mr. Shireman. Sure.
    Chairman Hinojosa. Not having any other members of the 
committee here to ask questions, I would like to read a 
statement into the record.
    Without objection, I ask unanimous consent to enter into 
the record a brief report from Sue McMillin, President and CEO 
of the Texas Guaranteed Student Loan Corporation. Ranking 
member Guthrie has been provided a copy in advance of this 
request. Without objection, it will become part of the record.
    [The information follows:]

         Prepared Statement of Sue McMillin, President and CEO,
                  Texas Guaranteed Student Loan Corp.

    Mr. Chairman and Members of the Subcommittee: My name is Sue 
McMillin; I serve as President and CEO of Texas Guaranteed Student Loan 
Corporation (TG). On behalf of TG and its Board of Directors, I am 
pleased to submit to the Subcommittee, for your consideration and entry 
into the record, testimony related to today's hearing on Minority-
Serving Institutions (MSIs) of Higher Education.
    TG's testimony does not address directly the issues outlined in the 
Government Accountability Office report Low-Income and Minority Serving 
Institutions--Management Attention to Long-standing Concerns Needed to 
Improve Education's Oversight of Grant Programs. Rather, TG is pleased 
to provide contextual data and insights into the invaluable role of 
MSIs in serving Texas students, and especially those from low-income 
and first-generation college families. TG also respectfully submits its 
suggestions for support services and technical assistance needed to 
maximize the efforts of MSIs and other institutions in ensuring student 
success and adequate administration of the federal student aid 
programs.
    Established in 1979, TG is a public nonprofit organization that 
serves institutions and students in Texas and other states. For 
purposes of today's hearing, I will focus my testimony on TG's role as 
the designated guaranty agency and administrator of the Federal Family 
Education Loan Program (FFELP) for the State of Texas.
    TG has extensive experience working with Historically Black 
Colleges and Universities (HBCUs), Predominantly Black Institutions, 
Hispanic-Serving Institutions (HSIs), and emerging HSIs. TG believes 
that its story of dedication to mission and its 30-year history of 
service to MSIs shed a positive light on the value-added programs and 
services that nonprofit entities, like TG, provide to MSIs and students 
who are underrepresented in postsecondary education.
Background
    The State of Texas benefits from a rich depth and breadth of MSIs. 
The state is home to an estimated 47 HSIs, nine HBCUs, one 
Predominantly Black Institution,\1\ and an estimated 42 emerging 
HSIs.\2\ St. Phillip's College in San Antonio has the distinction of 
serving as both an HBCU and an HSI. The nine HBCUs had a combined fall 
2008 enrollment of 31,504 students: 62% was African American, 21% was 
Hispanic, 14% was White, and the remaining 3% was composed of Asian 
American and foreign students.
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    \1\ A Predominantly Black Institution is a public or private 
nonprofit institution with an undergraduate enrollment composed of 40% 
or greater African-American students.
    \2\ Emerging Hispanic-Serving Institutions (HSIs): Serving Latino 
Students. Excelencia in Education, 2010. http://www.edexcelencia.org/
research/emerging-hispanic-serving-institutions-hsis-serving-latino-
students
---------------------------------------------------------------------------
    Most of the HSIs in Texas (57%) are public 2-year schools. The next 
largest group (23%) is public 4-year schools, followed by private not-
for-profit 4-year schools (15%). The HSIs in Texas had a combined fall 
2008 enrollment of 442,282 students: 9% was African American, 55% was 
Hispanic, 27% was White, and the remaining 9% was composed of Asian 
American students, foreign students, and students of unknown race. MSIs 
play a critical role not only in educating the next generation of 
leaders, but also in developing the intellectual and human capital of 
their communities. They are critical in preparing the local and 
regional workforce, and together play an important role in building a 
strong economic foundation for the state.
    The significance of MSIs is especially evident in the state's 
master plan for higher education, known as the Closing the Gaps 
plan.\3\ The Texas plan includes two notable goals: increasing student 
enrollments by an additional 630,000 students, and increasing 
certificate and degree completions by 50%, between 2000 and 2015. The 
state's ability to meet those goals will continue to depend largely on 
the capabilities of MSIs.
---------------------------------------------------------------------------
    \3\ Closing the Gaps: The Texas Higher Education Plan. Texas Higher 
Education Coordinating Board, 2005. http://www.thecb.state.tx.us/
index.cfm?objectid=858D2E7C-F5C8-97E9-0CDEB3037C1C2CA3
---------------------------------------------------------------------------
    The graphs below (see page 5) show the target higher education 
enrollments compared to actual enrollments over the 15-year period of 
the plan, for the state overall, for African American students, and for 
Hispanic students.\4\
---------------------------------------------------------------------------
    \4\ Closing the Gaps 2009 Progress Report. Texas Higher Education 
Coordinating Board, 2009. http://www.thecb.state.tx.us/
index.cfm?objectid=858D2E7C-F5C8-97E9-0CDEB3037C1C2CA3


The Challenge Ahead
    For more than two decades, TG has conducted extensive research in 
the areas of college access, student financial aid, and student loan 
delinquencies and defaults, among other areas. Moreover, TG publishes, 
in collaboration with the University of Nebraska-Lincoln, a quarterly 
refereed journal on student access and success.\5\ TG's research and 
experience allow it a unique window into issues and education areas 
that pose potential challenges for higher education in Texas and, in 
particular, for MSIs.
---------------------------------------------------------------------------
    \5\ Enrollment Management Journal: Student Access, Finance, and 
Success in Higher Education. http://www.tgslc.org/emj/
---------------------------------------------------------------------------
    Provided below are selected findings from the February 2010 edition 
of TG's State of Student Aid and Higher Education in Texas, an annual 
report provided to education stakeholders and policymakers. TG found 
that:
     The Texas poverty rate is the sixth highest in the nation; 
about 16.5% of Texans lived in poverty in 2008, compared to 12.9% of 
the people in the U.S.
     The child poverty rate in Texas was 22.6%, compared to 
17.3% in the U.S, in 2008.
     Texas ranks second to last in high school completion; in 
2008, 20% of Texans aged 25 and older did not have a high school 
diploma, compared to 13% of people in the U.S.
     Nearly 3 million people in Texas aged 25 and older never 
completed a high school education. Hispanics, who made up more than 
one-third of the Texas population in 2008, are the least likely to 
obtain a high school diploma. Of Hispanics aged 25 and older, 41% have 
not finished high school.
     Economically disadvantaged high school graduates in Texas 
are less likely to enroll in college. Nearly 60% of Hispanic high 
school graduates and 50% of African American high school graduates are 
economically disadvantaged (as determined by students' eligibility for 
free or reduced lunch).
     Texas students are highly reliant on loans; in academic 
year (AY) 2007-08, 65% of aid in Texas came from loans (compared to 55% 
in the U.S.) and 34 % came from grants (compared to 44% in the U.S.), 
including state and institutional grants.
Loan Delinquencies and Defaults
    TG continuously studies and reports its findings on student loan 
borrowing and repayment trends as a service to institutions and 
education stakeholders and as a means of informing its own efforts in 
delinquency and default prevention. TG has published and continues to 
publish studies that individually and collectively examine default 
rates and borrowing patterns for Texas institutions, all schools in 
TG's loan portfolio, MSIs, and individual institutions. TG publishes 
reports that examine short-term and long-term (over seven years in 
repayment) rates for delinquency and default for its entire portfolio 
and certain schools that TG serves.
    One report on MSIs,\6\ attached to TG's testimony, examines student 
loan borrowing among HBCUs and HSIs. When measured in both short-term 
and long-term periods, student loan delinquency and default rates at 
these institutions paint a picture of the continuing need to provide 
support services to these students.
---------------------------------------------------------------------------
    \6\ Profile of Minority-Serving Institutions in Texas: A Study of 
Historically Black College and Universities and Hispanic-Serving 
Institutions. Texas Guaranteed Student Loan Corporation, 2010. http://
www.tgslc.org/publications/


    More than half of students who attended MSIs and went into 
repayment on their TG loans in FY 2002 were delinquent on those loans 
by the end of FY 2003. The delinquency rates at MSIs continue to 
increase to 55% at 3 years out and 61% at 7 years out. More than 67% of 
students who attended HBCUs and went into repayment on their TG loans 
in FY 2002 were delinquent on those loans by the end of FY 2003. This 
increased to 70% delinquent by the end of FY 2004 (3-year rate), then 
to 75% by the end of FY 2008 (7-year rate).


    Almost 8% of students who attended an MSI and went into repayment 
on their TG loans in FY 2002 defaulted on those loans. When the 
analysis is extended one year, TG finds that the cohort default rate 
increases to 11.8%, and this jumps to 21.6% for the 7-year default 
rate.
    Again, the default rates at HSIs are very similar to the overall 
MSI rates, but the rates at HBCUs are much higher than those at HSIs.
Federal Student Loan Borrowing
    The chart below shows the levels of federal student loan volume 
among students attending MSIs during academic year 2007-2008. Students 
at Texas MSIs borrowed a total of $874.7 million, compared to $3.8 
billion borrowed by students at all Texas institutions in FFELP and 
FDLP.


----------------------------------------------------------------------------------------------------------------
                                                                  FFELP AY 07-08   FDLP AY 07-08  Total AY 07-08
----------------------------------------------------------------------------------------------------------------
Texas Minority-Serving Institutions.............................    $861,259,764     $13,485,902    $874,745,666
Texas Historically Black Colleges and Universities..............    $177,297,910              $0    $177,297,910
Texas Hispanic-Serving Institutions.............................    $691,493,227     $13,485,902    $704,979,129
----------------------------------------------------------------------------------------------------------------

Median Borrower Indebtedness in Texas
    Overall, the median borrower indebtedness (MBI) of students leaving 
MSIs in FY 2008 was $10,375. The MBI at HBCUs was $15,000 and the MBI 
at HSIs was $9,775. This difference is expected based on the dominant 
school types of each group. Most of the HBCUs are 4-year universities, 
mainly private not-for-profit, while most of the HSIs are 2-year public 
colleges. Four-year universities are more expensive than 2-year 
colleges, which accounts for much of the difference in MBI, and 
students attending 4-year universities also tend to attend for a longer 
time, and so end up having more years of borrowing.
Paying for College--Aid and Work
    Students attending HSIs in Texas in AY 2007-08 were significantly 
less likely to expect help from their parents to pay for tuition and 
fees, compared with students attending schools not designated as HSIs. 
Sixty-four percent of students at non-HSIs expected help from their 
parents, compared to 53% of students at HSIs. The students at HSIs and 
HBCUs were also significantly more likely to have a Pell grant, 
compared to their non-HSI and non-HBCU counterparts (23% at non-HSIs 
and 33% at HSIs; 25% at non-HBCUs and 51% at HBCUs). In line with this 
finding, those students at HSIs and HBCUs had significantly lower 
median incomes than their non-HSI and non-HBCU counterparts ($47,844 at 
non-HSIs and $28,880 at HSIs; $40,793 at non-HBCUs and $26,991 at 
HBCUs).
    Students attending HSIs in Texas in AY 2007-08 were significantly 
less likely to work to earn spending money compared to students 
attending non-HSIs (79% versus 71%). Students attending HSIs were 
significantly more likely to work to pay for living expenses compared 
to students attending non-HSIs (82% versus 76%). Students attending 
HBCUs in Texas were significantly more likely to work to send money 
home, compared to students attending non-HBCUs (12% versus 6%).
MSIs and Student Loans
    HSIs and HBCUs in Texas enroll hundreds of thousands of students 
each year, with the majority of these being minority students. These 
students have more risk factors that lead them to drop out of school, 
compared to White students, making them more likely to default on their 
student loans.
    These institutions, which have traditionally participated in the 
FFELP, have been able to rely on the support of their local, often 
state-based, FFELP partners for the provision of support services and 
programs, including delinquency and default prevention, training, 
financial literacy, and enrollment management. To the extent the need 
for these services will continue as MSIs fully transition into direct 
lending, TG would welcome the opportunity to work with the department 
to identify and address those gaps in services.
    TG's experience with HBCUs shows that with concentrated efforts, TG 
can have a meaningful, positive impact in the form of lowering 
delinquency and default rates. TG invites the Subcommittee to review 
two reports, detailing TG's work with HBCUs beginning in 1999, 
immediately after Congress eliminated the exemption for HBCUs from 
federal cohort default rate sanctions established in the early 1990s. 
TG asserts that these successes among HBCUs can be replicated at other 
MSIs and non-MSIs.
    Links to the reports are provided below:
    Breaking New Ground: The Texas Historically Black Colleges and 
Universities Default Management Consortium. Texas Guaranteed Student 
Loan Corporation, 2004. http://www.tgslc.org/pdf/HBCU.pdf
    Lowering Student Loan Default Rates: What One Consortium of 
Historically Black Institutions Did to Succeed. Education Sector, 2010. 
http://www.educationsector.org/research/research--show.htm?doc--
id=1169156
    The following excerpt from the report by the Education Sector 
captures adequately the challenge faced by HBCUs and the real potential 
for successfully addressing cohort defaults:

          But the experience of the Texas HBCUs, along with a new 
        statistical analysis of cohort default rates, suggests that 
        dangerously high default rates for institutions that serve at-
        risk students are not inevitable. From the initial financial 
        aid package to providing individual counseling on loan 
        repayment when students leave, institutions can take steps to 
        help students avoid default. Schools can also maintain contact 
        with students after they leave campus, communicating with them 
        about when they need to begin repayment and where they should 
        send their repayment checks * * *

    Such `default aversion' strategies helped a number of HBCUs 
significantly lower their loan default rates and avoid losing 
eligibility for federal financial aid the last time the federal 
government imposed tough new default rate standards. Their story is one 
of teamwork, collaboration, and relationship-building and proves that 
when institutions are armed with the tools, resources, support, and 
commitment needed to lower default rates, they can do so successfully.
    With the recent HEOA amendment and a worsening economic outlook, 
all colleges can learn from the efforts of these schools. Their success 
is not only applicable to other similar institutions, but to all 
schools that serve those students most at risk for default and who are 
committed to helping them succeed.
    Default aversion strategies, moreover, are just one part of the 
solution. Institutions that make increasing graduation rates a priority 
will also help their students repay their student loans. Put simply, 
students who graduate are less likely to default. As institutions face 
the next default rate challenge, those that combine default aversion 
strategies with strategies for degree completion will be in the best 
position to not only reduce their default rates now and in the future, 
but to improve the overall success of their institutions and their 
students.
TG as a Catalyst for Success
    As documented in the reports Breaking New Ground and Lowering 
Student Loan Default Rates, student loan delinquencies and defaults can 
be successfully managed if the federal government utilizes local 
entities with the expertise, experience, and relationships with 
students and schools to assist the government in administering the 
federal student loan program. This is especially important with respect 
to MSIs because of their unique and important role in educating many 
first-generation college students from low-income backgrounds who rely 
on student loans to finance their postsecondary educations.
    The Texas HBCU Default Management Consortium referenced in the 
above reports became a reality because of TG's support and active 
participation. TG helped organize the consortium, served as a resource 
to HBCUs, and designed a holistic model for providing technical 
assistance and support to all institutions. At the request of the U.S. 
Department of Education (ED), TG created a new program, Achieving 
Systemic Default Aversion, and received ED's specific approval to use 
funds from the interest earnings on the Federal Reserve Fund, from 
Section 422(h) of the Higher Education Act of 1965, as amended, to 
implement these strategies. The program's initial focus was on Texas 
HBCUs. The chart below shows the progression of cohort default rates 
among these HBCUs from FYs 1995 -2007.\7\
---------------------------------------------------------------------------
    \7\ Texas Guaranteed Student Loan Corporation.
    
    
    TG is positioned to continue to provide these services to MSIs and 
other institutions under the Federal Direct Loan Program (FDLP) or in 
any future federal student loan environment. On March 5, 2010, TG 
outlined its capabilities to assist institutions and began discussions 
with ED's office of Federal Student Aid to identify ways in which TG 
can provide needed services for the immediate challenge of helping 
institutions effectively transition into the FDLP.
    TG looks forward to its ongoing and future collaboration with ED 
and appropriate state agencies to ensure that intermediate and longer-
term services--to include financial literacy, delinquency and default 
prevention, proactive assistance toward the realization of programmatic 
borrower benefits by student loan borrowers and technical assistance--
are available to all MSIs as well as other institutions. Thank you 
again, Mr. Chairman, for the opportunity to submit my testimony for the 
subcommittee's consideration.
                                 ______
                                 
    Chairman Hinojosa. In my closing statement, I would like to 
thank our witnesses for their testimony as well as my 
colleagues on this committee for their questions and comments 
today. This has been a very productive and informative hearing.
    I commend the Department of Education for taking initial 
steps to address the GAO recommendations. I am also glad to 
hear that the Department of Education has been working with 
Title III and Title V institutions in their transition to the 
direct loan program.
    As we continue to increase accessibility and affordability 
in higher ed, I urge the Department of Education to act on the 
GAO's recommendations and fully implement a systematic 
monitoring system for Title III and Title V programs in a 
timely manner. We must strive for excellence and set high 
expectations for all of our postsecondary institutions if our 
Nation hopes to lead the world in college graduates by 2020.
    As we continue to build the capacity of MSIs, the 
Department of Education must continue its effort to improve 
programmatic and fiscal monitoring of grantees and provide 
technical assistance to assist Title III and Title V 
institutions in achieving the highest levels of quality, 
accountability, and success. I cannot underscore the critical 
role that these institutions play in educating large 
proportions of low income and minority student populations. I 
am pleased to hear we are making progress.
    As previously ordered, members will have 14 days to submit 
additional material for the hearing record. Any member who 
wishes to submit follow-up questions in writing to the 
witnesses should coordinate with majority staff within the 
requisite time.
    Without objection, this hearing is adjourned.
    [Question for the record to Mr. Shireman and his response 
follows:]

                             [Via Electronic Mail],
                                             U.S. Congress,
                                      Washington, DC, June 4, 2010.
Mr. Robert Shireman, Deputy Undersecretary,
Office of the Undersecretary, U.S. Department of Education, 400 
        Maryland Ave. SW, Washington, DC.
    Dear Mr. Shireman: Thank you for testifying at the Higher 
Education, Lifelong Learning, and Competitiveness Subcommittee Hearing 
on, ``Research Examining GAO's Findings on Efforts to Improve Oversight 
of Low-Income and Minority Serving Institutions,'' on May 27, 2010.
    A Committee Member has an additional question for which they would 
like a written response from you for the hearing record.
    Representative Phil Roe (R-TN) has asked that you respond in 
writing to the following question:
    Mr. Shireman, as we discussed during the hearing, you are leaving 
the Department soon with several outstanding student loan and higher 
education issues and rulemakings that you have had significant 
involvement in crafting. As you acknowledged, there are post-employment 
rules and restrictions that apply to Administration personnel at your 
level of seniority. Can you detail what rules and restrictions apply to 
your situation and whether they limit your ability to discuss, and 
possibly influence, future policy decisions after you leave government 
service? Also, while you indicated you have not made any decisions on 
future employment, are you in conversations with the Department of 
Education about being kept on as a consultant after your official 
separation date?
    Please send an electronic version of your written response to the 
questions to the Committee staff by close of business on June 9, 2010. 
If you have any questions, please do not hesitate to contact the 
Committee.
            Sincerely,
                                   George Miller, Chairman.
                                 ______
                                 
                                 
                                 
    [Whereupon, at 11:15 a.m., the subcommittee was adjourned.]

                                 
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