[Joint House and Senate Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
FEDERAL STUDENT AID: PERFORMANCE - BASED ORGANIZATION REVIEW
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON GOVERNMENT OPERATIONS
OF THE
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
AND THE
SUBCOMMITTEE ON HIGHER EDUCATION ON WORKFORCE TRAINING
OF THE
COMMITTEE ON EDUCATION AND THE WORKFORCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 18, 2015
__________
Serial No. 114-85
(Committee on Oversight and Goverment Reform)
__________
Serial No. 114-34
(Committee on Education and the Workforce)
Printed for the use of the Committee on Oversight and Government Reform
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
http://edworkforce.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
JASON CHAFFETZ, Utah, Chairman
JOHN L. MICA, Florida ELIJAH E. CUMMINGS, Maryland,
MICHAEL R. TURNER, Ohio Ranking Minority Member
JOHN J. DUNCAN, Jr., Tennessee CAROLYN B. MALONEY, New York
JIM JORDAN, Ohio ELEANOR HOLMES NORTON, District of
TIM WALBERG, Michigan Columbia
JUSTIN AMASH, Michigan WM. LACY CLAY, Missouri
PAUL A. GOSAR, Arizona STEPHEN F. LYNCH, Massachusetts
SCOTT DesJARLAIS, Tennessee JIM COOPER, Tennessee
TREY GOWDY, South Carolina GERALD E. CONNOLLY, Virginia
BLAKE FARENTHOLD, Texas MATT CARTWRIGHT, Pennsylvania
CYNTHIA M. LUMMIS, Wyoming TAMMY DUCKWORTH, Illinois
THOMAS MASSIE, Kentucky ROBIN L. KELLY, Illinois
MARK MEADOWS, North Carolina BRENDA L. LAWRENCE, Michigan
RON DeSANTIS, Florida TED LIEU, California
MICK MULVANEY, South Carolina BONNIE WATSON COLEMAN, New Jersey
KEN BUCK, Colorado STACEY E. PLASKETT, Virgin Islands
MARK WALKER, North Carolina MARK DeSAULNIER, California
ROD BLUM, Iowa BRENDAN F. BOYLE, Pennsylvania
JODY B. HICE, Georgia PETER WELCH, Vermont
STEVE RUSSELL, Oklahoma MICHELLE LUJAN GRISHAM, New Mexico
EARL L. ``BUDDY'' CARTER, Georgia
GLENN GROTHMAN, Wisconsin
WILL HURD, Texas
GARY J. PALMER, Alabama
Sean McLaughlin, Staff Director
David Rapallo, Minority Staff Director
Katie Bailey, Government Operations Subcommittee Staff Director
Sharon Casey, Deputy Chief Clerk
------
Subcommittee on Government Operations
MARK MEADOWS, North Carolina, Chairman
JIM JORDAN, Ohio GERALD E. CONNOLLY, Virginia,
TIM WALBERG, Michigan, Vice Chair Ranking Minority Member
TREY GOWDY, South Carolina CAROLYN B. MALONEY, New York
THOMAS MASSIE, Kentucky ELEANOR HOLMES NORTON, District of
MICK MULVANEY, South Carolina Columbia
KEN BUCK, Colorado WM. LACY CLAY, Missouri
EARL L. ``BUDDY'' CARTER, Georgia STACEY E. PLASKETT, Virgin Islands
GLENN GROTHMAN, Wisconsin STEPHEN F. LYNCH, Massachusetts
COMMITTEE ON EDUCATION AND THE WORKFORCE
JOHN KLINE, Minnesota, Chairman
Joe Wilson, South Carolina Robert C. ``Bobby'' Scott,
Virginia Foxx, North Carolina Virginia
Duncan Hunter, California Ranking Member
David P. Roe, Tennessee Ruben Hinojosa, Texas
Glenn Thompson, Pennsylvania Susan A. Davis, California
Tim Walberg, Michigan Raul M. Grijalva, Arizona
Matt Salmon, Arizona Joe Courtney, Connecticut
Brett Guthrie, Kentucky Marcia L. Fudge, Ohio
Todd Rokita, Indiana Jared Polis, Colorado
Lou Barletta, Pennsylvania Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada Northern Mariana Islands
Luke Messer, Indiana Frederica S. Wilson, Florida
Bradley Byrne, Alabama Suzanne Bonamici, Oregon
David Brat, Virginia Mark Pocan, Wisconsin
Buddy Carter, Georgia Mark Takano, California
Michael D. Bishop, Michigan Hakeem S. Jeffries, New York
Glenn Grothman, Wisconsin Katherine M. Clark, Massachusetts
Steve Russell, Oklahoma Alma S. Adams, North Carolina
Carlos Curbelo, Florida Mark DeSaulnier, California
Elise Stefanik, New York
Rick Allen, Georgia
Juliane Sullivan, Staff Director
Denise Forte, Minority Staff Director
Jennifer Lynne Prescott, Professional Staff Member
Alissa A. Strawcutter, Deputy Clerk
------
SUBCOMMITTEE ON HIGHER EDUCATION AND WORKFORCE TRAINING
VIRGINIA FOXX, North Carolina, Chairwoman
David P. Roe, Tennessee Ruben Hinojosa, Texas
Matt Salmon, Arizona Ranking Minority Member
Brett Guthrie, Kentucky Hakeem S. Jeffries, New York
Lou Barletta, Pennsylvania Alma S. Adams, North Carolina
Joseph J. Heck, Nevada Mark DeSaulnier, California
Luke Messer, Indiana Susan A. Davis, California
Bradley Byrne, Alabama Raul M. Grijalva, Arizona
Carlos Curbelo, Florida Joe Courtney, Connecticut
Elise Stefanik, New York Jared Polis, Colorado
Rick Allen, Georgia
C O N T E N T S
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Page
Hearing held on November 18, 2015................................ 1
WITNESSES
Mr. James Runcie, Chief Operating Officer, U.S. Department of
Education
Oral Statement............................................... 8
Written Statement............................................ 10
Ms. Melissa Emrey-Arras, Director, Education, Workforce, and
Income Security, U.S. Government Accountability Office
Oral Statement............................................... 20
Written Statement............................................ 22
The Hon. Kathleen Tighe, Inspector General, U.S. Department of
Education
Oral Statement............................................... 43
Written Statement............................................ 45
Mr. Ben Miller, Senior Director, Postsecondary Education, Center
for American Progress
Oral Statement............................................... 60
Written Statement............................................ 62
Mr. Justin Draeger, President, National Association of Student
Financial Aid Administrators
Oral Statement............................................... 71
Written Statement............................................ 73
APPENDIX
Chairman Meadows Statement....................................... 124
Ranking Member Connolly Statement................................ 128
Chairwoman Foxx Statement........................................ 130
Ranking Member Hinojosa Statement................................ 132
RESPONSE from Mr. Runcie to Questions for the Record............. 138
RESPONSE from Ms. Emrey-Arras to Questions for the Record........ 200
RESPONSE from Inspector General Tighe to Questions for the Record 202
RESPONSE from Mr. Draeger to Questions for the Record............ 206
FEDERAL STUDENT AID: PERFORMANCE-BASED ORGANIZATION REVIEW
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Wednesday, November 18, 2015
House of Representatives,
Subcommittee on Government Operations,
Committee on Oversight and Government Reform, joint with
the Subcommittee on Higher Education and Workforce
Training, Committee on Education and the Workforce,
Washington, D.C.
The subcommittees met, pursuant to call, at 9:06 a.m., in
Room 2154, Rayburn House Office Building, Hon. Mark Meadows
[chairman of the Subcommittee on Government Operations]
presiding.
Present from the Subcommittee on Government Operations:
Representatives Meadows, Jordan, Walberg, Mulvaney, Buck,
Carter, Chaffetz, Connolly, Maloney, Clay, Plaskett.
Present from the Subcommittee on Higher Education and
Workforce Training: Representatives Foxx, Guthrie, Messer,
Curbelo, Stefanik, Allen, Kline, Scott, Hinojosa, Jeffries,
Adams, DeSaulnier, and Courtney.
Mr. Meadows. The Subcommittee on Government Operations of
the Committee on Oversight and Government Reform and the
Subcommittee on Higher Education and Workforce Training of the
Committee on Education and the Workforce will come to order.
And, without objection, the chair is authorized to declare
a recess at any time.
Today, we gather to review the Federal Government's first
performance-based organization, the Office of Federal Student
Aid.
In 1998, amendments to the Higher Education Act transformed
FSA into a Federal experiment, one that many don't realize is
still ongoing. Driving this transformation was an idea that
innovation would foster by bringing private-sector talent into
the government, giving that talent independence from the parent
agency, providing generous compensation, and then holding that
talent accountable.
Today's goal is simple. We are going to evaluate FSA's
performance since it was granted these responsibilities and
flexibilities.
There is no doubt that FSA is tasked with a far greater
responsibility today than ever could have been imagined or
anticipated in 1998. The Federal Student Aid system is vast,
complex, and growing.
In 1998, the Free Application of Federal Student Aid was
just being put on the World Wide Web. Today, FSA processes over
22 million applications annually, and 99 percent of those
applications are processed electronically.
In 1998, 3.8 million Pell grants were awarded annually,
costing $6.7 billion. Today, it is 8.3 million Pell grants that
are awarded by FSA annually, costing close to $32 billion.
In 1998, FSA owned and managed $45 billion in Direct Loans
outstanding principals, and the other $150 billion was funded
and owned by a public-private partnership in the FFEL program.
Today, FSA owns and manages a staggering amount of $1.18
trillion in Federal assets.
Now, while FSA's responsibility has increased dramatically,
there has not been an increase in accountability. Let's be
clear: Congress has not done its part. We created this thing,
and then walked away. Congress has only called the FSA's Chief
Operating Officer, the owner of the PBO, to testify three times
since 2010. This entire enterprise was set up for oversight,
but in the halls of Congress we need to do better.
Now, while I acknowledge Congress has to do its part, let
me be clear: FSA is failing to live up to its side of the deal,
as well. One only needs to consider the inspector general's
recent ``Management Challenges'' report for evidence that FSA
is failing to deliver. Each challenge the IG flagged this time
around was raised in last year's report, as well.
And these are not insignificant challenges but mission-
critical areas that FSA must manage effectively. These areas
include: improper payment reporting, oversight and monitoring,
and IT system development and implementation, of which we heard
in this very room yesterday some of the challenges there. And
I'm concerned that FSA made significant progress to be removed
from the GAO's high-risk list in 2005, but now it's
backsliding.
And I'm doubly concerned about the culture being fostered
by FSA. We will hear from school stakeholders today that the
working relationship with FSA has become so strenuous that it
is having an adverse effect on, ultimately, those people that
they should be serving: the students.
During the committee's hearing yesterday, the Department
received an F--an F--for its failure to effectively secure the
personal information of millions of students across the
country. Today, I suspect Washington may receive an F for
allowing the Office of Federal Student Aid to expand into
higher education. I'm not convinced it's been a healthy
endeavor for students, parents, or taxpayers.
But I look forward to hearing from our witnesses today and
now turn to the ranking member, the gentlewoman from New York,
Mrs. Maloney, for her opening statement.
Mrs. Maloney. Thank you so very much, Mr. Chairman, for
calling this important hearing.
As I understand it, the goal of today's hearing is to
examine the Office of Federal Student Aid within the Department
of Education. FSA is what is known as a, and ''performance-
based organization.'' These entities have greater independence
from the other agencies, more flexible hiring authority, and
additional contracting flexibility. And they generally are more
siloed from the rest of the other agencies.
Some have suggested that this was a Clinton administration
decision. In fact, the Clinton administration proposed this
concept for the Department of Commerce, but it was Congress
that created FSA within the Department of Education as a
performance-based organization in 1998.
The primary sponsors in the House of Representatives of the
legislation creating it as a performance-based organization
were Representative Buck McKeon, Representative William Clay,
Rep. William Goodling, and Rep. Dale Kildee.
During the markup of the legislation in committee, Buck
McKeon and said this:``For the first time, the day-to-day
management of our student aid programs will be in the hands of
someone with real-world experience in financial services. This
individual will be given the hiring and contracting flexibility
necessary to get results and will be paid based on performance.
For the first time, the Department's student aid assistance
will be run like a business, adopting the best practices from
the private sector and focusing on bottom-line results.''
Rep. McKeon's legislation passed the House with a broad
bipartisan vote of 414 to 4. In fact, every Member of Congress
who is here today and was serving when this legislation was
passed voted for it.
The reason was simple. A few years earlier, the Government
Accountability Office had added student loans to its high-risk
list of programs that are especially vulnerable to waste,
fraud, abuse, and mismanagement. As GAO stated at the time, the
program had, ''generally succeeded in providing access to money
for education,'' end quote, but was, and I quote, ``less
successful in protecting the taxpayers' financial interests.''
And as a result of significant work over the next few
years, by 2005 GAO was able to remove student financial aid
programs from its high-risk list, citing, ''sustained
improvements to address its financial management and internal
control weaknesses.'' That was great news.
I want to be clear that I agree that Congress should
examine whether it still makes sense today, 18 years later, to
keep FSA as a performance-based organization. As Rep. Connolly
said at yesterday's hearing, we may want to consider bringing
the Department up to date, particularly in the area of IT and
data contracts. That is something I hope we can explore today.
I also feel very strongly that we have to examine the
actions of the student loan servicers. In August, the Consumer
Financial Protection Bureau notified Navient, one of the
Nation's biggest student loan servicers, that after a 2-year
investigation it had enough evidence to indicate the company
violated consumer protection laws and was considering taking
legal action against the company for its late-fee practices,
among other potential abuses.
A year earlier, in 2014, Navient had to pay $60 million to
compensate tens of thousands of military servicemembers as part
of a settlement with the Department of Justice for a,
``nationwide pattern of violating the Servicemembers Civil
Relief Act.''
Navient also entered into a settlement with the Federal
Deposit Insurance Corporation for, ``deceptive and unfair acts
and practices.'' These included, and I quote, ``allocating
underpayments in a manner that maximizes late fees incurred by
consumers.''
Unfortunately, we do not have Navient or any other
servicers here today. I hope we will have the opportunity to
question them at a future hearing.
Finally, while this hearing today and our hearing yesterday
are important, the much more urgent priority for students in
this country is addressing the exploding cost of college and
the crippling debt students face when they graduate and enter
the workforce.
The Center on Budget and Policy Priorities issued a report
recently warning that 47 States are now, ``spending less per
student in the 2014-2015 school year than they did at the start
of the recession.'' In fact, the average State has cut spending
by 20 percent per student compared to the 2007 and 2008 school
year. As a result, GAO reports that, ``By fiscal year 2012,
tuition had overtaken State funding as a source of revenue for
public colleges.''
This is a national emergency. The Obama administration and
Democrats in Congress have tried to make significant
improvements. For example, we successfully converted student
loans to the Direct Loan Program, saving tens of billions of
dollars. The administration has made other proposals, but many
require statutory changes, so it is up to us here in Congress
to act.
The most critical higher education challenge confronting
our Nation is how students will pay for the ever-increasing
cost of college. I hope we can focus at least some of today's
discussion on this issue, and I hope we will hold another
hearing in the near future to address this critical challenge.
Again, I thank you for focusing on one of the most
important issues in our country, the education of our young
people.
Thank you, and I yield back.
Mr. Meadows. I thank the gentlelady.
I now welcome and recognize the chairman of the
Subcommittee on Higher Education and Workforce Training of the
Committee on Education and the Workforce, the gentlelady from
North Carolina, Dr. Foxx, for her opening statement.
Ms. Foxx. Thank you, Mr. Meadows.
Good morning, everyone, and welcome to this joint hearing.
The title of the committees are too long.
I thank Chairman Meadows for working with our committee on
an issue that is critical to serving the best interests of
students, families, and taxpayers. I'm a firm believer that
collaborative efforts such as this are what most often produce
the practical solutions the American people deserve.
We all know that the current Federal financial system is
broken. That deserves repeating. We all know that the current
Federal financial aid system is broken. National student loan
debt is at an all-time high, and a complex patchwork of grant,
loan, and repayment programs has become so difficult to
navigate that it often discourages individuals from pursuing a
higher education.
Students, families, and taxpayers deserve better. That's
why simplifying and improving student aid remains a leading
priority as Congress continues its work to strengthen higher
education. Addressing the challenges within the Federal
financial aid system is an important part of that effort and
one we have discussed extensively in our subcommittee.
But that's not why we are here today. Instead, we are here
to examine the agency tasked with managing the system, the
Office of Federal Student Aid, or FSA. That agency is
responsible for administering every Federal loan, grant, work-
study, and repayment program under Title IV of the Higher
Education Act. In other words, FSA is in charge of delivering
billions of taxpayer dollars to millions of eligible students,
as well as managing more than a trillion dollars of outstanding
student loan debt.
Additionally, the agency is expected to provide guidance
about financial aid policies to thousands of colleges and
universities and has the authority to revoke an institution's
ability to participate in the aid programs should they not
comply with that guidance. Needless to say, FSA plays an
enormous role in the higher education system and has the
ability to help or disrupt the lives of students.
In the 1990s, the Government Accountability Office
designated FSA as a, ``high-risk agency with longstanding
management problems,'' To improve the efficiency and
effectiveness of FSA and to mitigate the mishandling of limited
resources moving forward, Congress in 1998 converted the agency
to a performance-based organization that would have to meet
specific objectives under the Higher Education Act.
Nearly two decades and trillions of dollars later, many
would argue FSA is not achieving the intended results. It's our
job to find out why and identify opportunities for reform to
ensure taxpayer dollars are well-spent and students are well-
served.
Numerous reports reveal FSA is rife with inefficiencies
that have led to a lack of communication with students,
institutions, and loan servicers; improper payments; inaccurate
reporting of data; failure to ensure borrowers are aware of the
repayment options available to them; mismanagement of
contractors and vendors; poor customer service--and I could go
on, but we only have a limited time.
After the last comprehensive review of the agency in 2008,
the Department of Education's Office of Inspector General found
FSA has failed to meet its responsibility as a performance-
based organization, such as developing a 5-year performance
plan with external stakeholders and establishing annual
performance reviews for the agency's top executives.
Due to these and other failures, the inspector general
noted that FSA, ``has been unable to realize the expected
benefits of the initiatives and has hindered its progress in
meeting the requirements of the Higher Ed Act.''
This is about more than checking boxes. When FSA fails to
fulfill its responsibility, it jeopardizes hardworking
taxpayers' money intended to help students. We need to demand
better. As Congress works to strengthen higher education, we
must ensure the Office of Federal Student Aid is serving the
best interest of students, families, and taxpayers.
I look forward to hearing from our witnesses about how to
achieve just that. Thank you for joining us today.
And thank you again, Chairman Meadows, for working with us
on this important hearing.
Before I concluded my opening remarks, I do want to
recognize our colleague Congressman Hinojosa, who announced
last week his decision not to seek reelection after serving
nearly 20 years in Congress. As the ranking member of the
Subcommittee on Higher Education and Workforce, Mr. Hinojosa
has been an ardent champion for students, families, and
workers. Mr. Hinojosa is to be commended for his service to our
country, and I wish him and his family all the best in the
years ahead.
I yield back.
Mr. Meadows. I thank the chairwoman for her eloquent words,
and now recognizing the gentleman of which we owe a debt of
gratitude to, the ranking member of the Subcommittee on Higher
Education and the Workforce, the gentleman from Texas, for his
opening statement.
Mr. Hinojosa. Thank you, Chairman Meadows and especially
Chairwoman Foxx, for your very kind and generous remarks. I
really appreciate everything you said, and we will visit on
that.
I also want to thank Ranking Member Maloney for holding
this important hearing.
Today's joint committee hearing will examine the Office of
Federal Student Aid as a performance-based organization and the
management and administration of these programs. And I want to
welcome our distinguished panel of witnesses for joining us
this morning to share their views on how the Federal Government
can continue to best serve our students.
As we have heard this morning, the Office of Federal
Student Aid, known as FSA, became a PBO as part of the 1998
reauthorization of the Higher Education Act and was the first
PBO established by Congress to manage the operational functions
supporting financial aid programs. This model was crucial for
the Department of Education to provide necessary services to
our students and to ensure efficiency and accountability.
While the focus of today's joint hearing is on FSA's
performance as a PBO, some of my colleagues may attempt to
discredit FSA, the Federal Student Aid, and its work in
successfully transitioning to the Direct Loan Program. In my
view, the Department's move to direct lending in 2010 continues
to provide students with a streamlined loan origination system,
and it provides the Department with better oversight against
fraud, waste, and abuse.
Ladies and gentlemen, I must underscore that, while there
is always room for improvement, I understand that FSA has been
working to address areas of improvement for quite some time.
And I want to emphasize three points which contributed to
address the need to improve accessibility and affordability of
higher education.
First, we must remember that FSA is the largest provider of
financial aid for students in the United States. In 2015, FSA
delivered approximately $128 billion in federal student aid to
nearly 12 million students at 6,100 institutions of higher
education, amounts that had never been reached before in our
country's history.
Secondly, I'm also aware that FSA has worked diligently to
ensure students are receiving their financial aid funds in a
timely manner so that they can pay for their education and be
ready on the first day of classes.
Thirdly, FSA is responsible for managing programs that ease
the burden of student loan debt for borrowers. FSA plays a
vitally important role in helping borrowers repay their student
loans through income-driven repayment plans.
At the same time, I must express my concerns regarding
student loan servicers. Several investigations and reports,
including a report issued by the Consumer Financial Protection
Bureau, have found that Federal student loan servicers have not
provided appropriate services and guidance and protections to
borrowers.
So, with this in mind, I applaud the Obama administration
for taking steps to make college more affordable for students
and families by issuing a StudentAid Bill of Rights to give
every borrower the right to an affordable repayment plan.
Furthermore, every borrower has the right to quality customer
service, reliable information, and fair treatment.
Along those same lines, the Departments of Education, the
Treasury, and Consumer Financial Protection Bureau issued
``Joint Statement of Principles on Student Loan Servicing'' in
September of this year. This is a positive step in the right
direction. I wish to remind my colleagues that every student,
regardless of their socioeconomic status, has an equal
opportunity to both secondary education and access to financial
aid.
As you are aware, tuition costs and student loan debt have
risen exponentially, surpassing the $1.2 trillion that
Chairwoman Foxx mentioned. We must do all that we can to help
borrowers repay their debt.
With that, I look forward to hearing from our distinguished
guests on these matters, and I yield back.
Mr. Meadows. I thank the gentleman.
I will hold the record open for 5 legislative days for any
members who wish to provide and submit a written statement.
Mr. Meadows. We will now recognize our panel of witnesses.
I'm pleased to welcome Mr. James Runcie, who currently
serves as the Chief Operating Officer at the U.S. Department of
Education. Mr. Runcie served as the Deputy Chief Operating
Officer of FSA from 2010 to 2011 and Acting Chief Operating
Officer of the Department of Education until his full
appointment in 2012.
Welcome.
I welcome Ms. Melissa Emrey-Arras--is that correct? All
right. She serves as the Director of Education, Workforce, and
Income Security at the Government Accountability Office. She
oversees national studies on both K-through-12 and higher
education issues.
I welcome back Ms. Kathleen Tighe, who currently serves as
the Inspector General at the U.S. Department of Education. Ms.
Tighe also chairs the Council of Inspector Generals on
Integrity and Efficiency and in 2011 was appointed by President
Obama to the Recovery Accountability and Transparency Board and
the Government Accountability and Transparency Board.
Welcome.
I welcome Mr. Ben Miller, who currently serves as the
senior director of postsecondary education at the Center for
American Progress. Mr. Miller previously served as the director
for higher education at New America as well as a senior policy
advisor in the Office of Planning, Evaluation, and Policy
Development at the Department.
And I also welcome Mr. Justin Draeger, who currently serves
as the president and CEO of the National Association of Student
Financial Aid Administrators. In this capacity, he serves as
the primary voice of the NASFAA and the liaison between the
3,000 financial aid offices and Congress and the Federal
Government.
Welcome to you all, and thank you for being here.
Pursuant to Oversight and Government Reform Committee
rules, all witnesses will be sworn in before they testify. So
I'd ask that you please rise and raise your right hand.
Do you solemnly swear or affirm that the testimony that
you're about to give will be the truth, the whole truth, and
nothing but the truth?
Thank you. Please be seated.
Let the record reflect that all witnesses answered in the
affirmative.
And in order to allow time for discussion, we would
appreciate if you would please limit your oral testimony to 5
minutes. However, your entire written statement will be made
part of the record.
Mr. Runcie, you are recognized for 5 minutes.
WITNESS STATEMENTS
STATEMENT OF JAMES RUNCIE
Mr. Runcie. Thank you, Chairman Meadows, Chairwoman Foxx
and Ranking Members Maloney and Hinojosa and members of the
committee, for the opportunity to discuss Federal Student Aid
as a PBO. My name is James Runcie, and I serve as FSA's Chief
Operating Officer.
FSA is the largest source of federal student aid for
postsecondary education in the U.S. During fiscal year 2015, we
delivered more than $127 billion in aid to more than 13 million
students attending approximately 6,100 postsecondary
institutions. During this time, we processed nearly 20 million
FAFSAs. Our loan portfolio is currently more than $1.2
trillion, with 42 million individual recipients and 193 million
loans.
We use a public-private partnership that leverages almost
1,300 Federal employees and more than 12,000 contracted
employees.
Since FSA became a PBO, we have had numerous successes in
transforming the delivery of student aid. FSA has responded to
rapidly changing landscapes in the delivery of federal student
aid.
To accommodate growth and mitigate risk, FSA contracted
with four private-sector servicers, who levy their commercial
practices to expedite the delivery of services. As a result of
the capital markets' decline in 2008, we injected $112 billion
into the markets, ensuring that every student that depended on
federal student aid received it.
We updated our systems, increased capacity, and provided
training to thousands of financial aid professionals at
thousands of schools to move to 100-percent direct lending. And
we entered into agreements with not-for-profit loan servicers.
We successfully implemented 11 NFPs, and we did all of these
things with no negative impact to students and families.
The PBO contracting flexibilities allow us to structure
contracts in a way that include performance requirements and
protections for students and borrowers. Spurred in part by the
PBO legislation and landmark procurement laws passed by
Congress, FSA has been a government leader in delivering its
mission through the adoption of commercial solutions and
systems.
This year, FSA achieved $150 million in cost avoidance
through successful contract negotiations. We have saved $105
million since 2009, thanks to the culture of accountability
established by the PBO. We are proud to have earned 14
consecutive annual clean financial statement audit opinions.
While we have strengthened our financial position, we also
have strengthened our program compliance process to ensure the
proper administration of federal student aid funds. We have
increased efforts to detect fraud in the FAFSA, and we have
significantly reduced the time to complete the online
application--more than 1 hour in 2009--to less than 24 minutes
in 2015.
The FAFSA is but one integrated application among many in
our complex operating environment. In 2015, we documented and
assessed more than 2,600 internal controls across 36 business
processes. We found that 96 percent of these controls are
designed and operate effectively. The remaining 4 percent had
immaterial deficiencies, for which we have established
corrective actions.
Within the last several years, we have effectively launched
and implemented major modifications to our operating
environment due to legislative, regulatory, and policy changes.
Examples include but certainly are not limited to the IRS Data
Retrieval Tool, new income-driven repayment plans, the 150-
percent Direct Subsidized Loan limit, and a comprehensive
enterprise data warehouse.
Through the recent Cyber Sprint, FSA has made significant
progress in implementing additional protections to customer
data. In addition, implementation of CyberArk at our Virtual
Data Center, completed last month, has remediated many of our
audit access control findings.
The need for Federal aid will continue to grow, and FSA
must continue to adapt. We must be in a position to continue
responding to rapid regulatory market changes, to recruit and
retain specialized talent, to negotiate commercial contracting,
and to provide the most effective program compliance in order
to continue to fulfill our mission.
Taking full advantage of each authority granted as a PBO
was a critical element to our mission success. The employees
that I represent at FSA are focused on the future of the
organization--a future that includes the early availability of
the FAFSA in October 2016; implementing prior-prior; repay and
servicing improvements; launching a new student complaint
system; expanding our oversight capacity; and increasing
security of our systems.
I appreciate the opportunity to provide the committee with
an overview and welcome any questions that you may have today.
Thank you.
[prepared statement of Mr. Runcie follows:]
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Mr. Meadows. Thank you, Mr. Runcie.
Ms. Emrey-Arras, you are recognized for 5 minutes.
STATEMENT OF MELISSA EMREY-ARRAS
Ms. Emrey-Arras. Thank you. I am pleased to be here today
to discuss the results of our work examining FSA's efforts to
monitor and oversee the Direct Loan Program.
FSA administers the Direct Loan Program and oversees the
performance of contractors supporting this program. These
contractors include loan servicers responsible for billing and
other services, as well as companies managing the Department's
defaulted loan information system.
To address longstanding management weaknesses, the Higher
Education Act was amended to establish FSA as the first PBO. A
PBO is intended to transform the delivery of public services by
committing to achieving specific, measurable goals with targets
for improvement in exchange for being provided with more
flexibility to manage its operations.
Accordingly, FSA's strategic plan includes several goals
focused on monitoring contractors and serving the needs of
borrowers. However, recent questions have been raised about
FSA's management of the Direct Loan Program, including its
oversight of contractors.
In March 2014, we found that FSA's limited planning and
oversight of its IT contractor prevented Education from
providing timely benefits to borrowers who completed loan
rehabilitation. Loan rehabilitation allows borrowers who make
nine on-time monthly payments in 10 months to have a default
removed from their credit reports. However, no rehabilitations
were processed from October 2011 until April 2012 due to issues
with FSA's IT system, and FSA officials said they needed until
January of 2013 to clear the resulting backlog.
My statement today provides additional findings from our
recently completed work on FSA's management of the Direct Loan
Program and will focus on how well FSA, one, provides
instructions and guidance to Direct Loan servicers, and, two,
monitors and documents calls between Direct Loan borrowers and
servicers.
In terms of FSA's instructions and guidance, we found that
FSA's communications to loan servicers are sometimes lacking,
resulting in inconsistent services to borrowers. Six of the
seven servicers we interviewed reported various issues
resulting from absent, unclear, and inconsistent guidance and
instructions.
For example, one servicer said there were no instructions
for how to apply over- or underpayments to borrower accounts.
If a borrower has multiple loans, some servicers spread an
overpayment amount evenly across the loans, while other
servicers target the higher-interest loans first.
Furthermore, FSA is not consistently sharing all
clarifications on Direct Loan Program instructions with all
servicers. Accordingly, we are recommending today that FSA
review and improve how it provides instruction and guidance to
servicers.
In terms of FSA's call-monitoring process, we found that
FSA's monitoring has methodological weaknesses and is poorly
documented. For example, we found that FSA monitors far fewer
outbound calls than inbound calls, even though one servicer
told us that it makes 60 times more outbound calls than inbound
calls, and that outbound calls are made to borrowers who are
often delinquent and at risk of default.
Also, the methodology for selecting calls for review is not
well-defined, and it relies on servicers to implement, with no
verification from FSA to ensure its integrity. Accordingly, we
are recommending today that FSA implement a more rigorous
methodology for monitoring calls.
In addition, we found weaknesses in how FSA documents the
results of its call monitoring. For example, some recent
monitored calls did not consistently track errors over time. In
addition, the monthly summary reports only capture errors if
four or more occur in the same call. If a servicer fails to
answer all of the borrower's questions but does not compound
this problem with three additional errors, the report does not
capture this information. Accordingly, we are recommending
today that FSA improve documentation of its call monitoring.
FSA faces challenges in the Direct Loan Program that affect
its ability to function effectively as a PBO. If FSA fails to
strengthen its instructions and guidance to servicers and
improve call monitoring, differences between servicers will
persist that could financially hurt borrowers or risk the
integrity of the program.
Thank you. This concludes my statement.
[Prepared statement of Ms. Emrey-Arras follows:]
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Mr. Meadows. Thank you.
Inspector General Tighe, you are recognized for 5 minutes.
STATEMENT OF THE HON. KATHLEEN TIGHE
Ms. Tighe. Thank you all for inviting me here today to
discuss the work of the Office of Inspector General involving
the U.S. Department of Education's Office of Federal Student
Aid as a performance-based organization.
As many of you know, the Federal Student Aid programs have
long been a major focus of our audit and investigative work, as
these programs are large, complex, and susceptible to fraud and
abuse. We look to promote efficiency and effectiveness in FSA
programs and operations and, in doing so, help to protect
America's students from harm and help safeguard the taxpayers'
investment in higher education.
As already noted during this hearing, FSA delivered about
$130 billion in student aid this year to 13 million students
and managed an outstanding loan portfolio that has grown to
$1.2 trillion. This makes FSA one of the largest financial
institutions in the country.
As a PBO, FSA is responsible for managing both the
oversight and administrative functions that support these
programs. In 2008, we determined that FSA was not completely
fulfilling its responsibilities as a PBO in the areas of
systems integration, cost reduction, and planning and
reporting. The work we have performed since 2008 has focused in
significant part on areas within FSA's oversight and
administrative responsibilities.
That work continues to identify problems in FSA's oversight
of program participants. For example, our 2015 audit found
weaknesses in FSA's process for performing program reviews,
including that staff did not adequately document fiscal testing
for timely disbursements or determine whether schools had
implemented Direct Loan quality assurance systems, and there
was limited evidence of supervisory reviews, all of which may
leave FSA with limited assurance that program reviews are
appropriately identifying and reporting instances of
noncompliance.
Another 2015 audit found that FSA's followup process for
OIG's external audits was not always effective because audits
were not always closed timely and FSA did not always maintain
appropriate documentation to show that corrective actions were
completed. Not ensuring corrective actions are taken as quickly
as possible allows deficiencies to continue to exist, and the
risk remains that related programs were not effectively managed
and that taxpayer funds are not being used as intended.
FSA, as a PBO, also has the responsibility for managing the
administrative functions of the Title IV programs. Recent OIG
work has identified weaknesses in this area. For example,
results from our recent improper payments audits found that FSA
has not taken full advantage of the Improper Payments
Elimination and Recovery Act to identify and reduce improper
payments in the Pell grant and Direct Loan Programs. We have
identified issues with FSA's improper payment methodologies
that render its improper-payment estimates for these programs
inaccurate, incomplete, and unreliable.
OIG worked conducted over the last several years has also
identified weaknesses in FSA's contract management--an area of
concern, as FSA relies heavily on contractor support to
accomplish the purposes of the PBO.
We have seen weaknesses in FSA's monitoring of its debt
management system, its contracts with the Title IV servicers,
and its contracts with private collection agencies. We have
identified issues such as not ensuring contract milestones were
met, lack of proper invoice validation, the failure to confirm
the adequacy of deliverables, and the failure to ensure
adequate IT security of contractor-operated systems.
Without improved contractor monitoring, FSA has limited
assurance that it is receiving the products and services it is
paying for, impacting both students' and taxpayers' interests.
My written testimony provides more detailed information on
these findings as well as other examples of our recent work
that shows that FSA needs to improve its oversight and
management so as to ensure Title IV programs are serving the
interests of students.
For the next reauthorization of the Higher Education Act,
Congress may want to consider adding specific requirements for
oversight and contract management to the purposes and functions
of the PBO and require FSA's performance plans to establish
measurable goals and objectives in these areas.
My office is committed to working with FSA, the Department,
and Congress to address the areas of risk within the Federal
Student Aid programs to reduce fraud and abuse.
Thank you very much.
[Prepared statement of Ms. Tighe follows:]
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Mr. Meadows. Thank you, Inspector General. And thank you
for your insightful report.
Mr. Miller, you are recognized for 5 minutes.
STATEMENT OF BEN MILLER
Mr. Miller. Good morning. Thank you, Chairman Meadows,
Chairwoman Foxx, Ranking Member Maloney and Ranking Member
Hinojosa and members of the committee, for having me today.
This month marks the 50th anniversary of the Higher
Education Act, landmark legislation that has made our country
stronger by allowing millions of low- and middle-income
Americans to access and afford college.
But, today, the growing price of college threatens to
undermine the goals of the Higher Education Act. State
disinvestment keeps driving public tuition higher, no longer
can part-time work afford tuition bills, and family incomes
have stagnated. As a result, Federal student loans are now the
norm for people in college. Today, over 40 million Americans
owe a collective $1.18 trillion in Federal student loans.
Seventy percent of bachelor's-degree graduates borrow for
college.
Under current law, the Federal Student Aid office, or FSA,
cannot fix the underlying conditions that leads students to
borrow. But a strong, effective, and efficient FSA is still
important for students. It can help them apply for aid easily,
get dollars to them when they need it, guide them through the
repayment process, and protect them from bad actors lurking
throughout the system.
In the last several years, FSA has done a lot to meet these
goals. It has made applying for aid simpler and faster by using
skip logic on questions and allowing for the easy importation
of tax data. Next fall, it will implement a policy change known
as prior-prior-year that helps families apply for aid sooner
and better plan for college costs. This idea has bipartisan,
bicameral support. FSA has also implemented repayment options
that allow borrowers to make affordable payments based upon
their income.
Perhaps the greatest sign of FSA's recent successes was the
2010 transition following legislation that required all Federal
loans be issued by the Department of Education. FSA worked with
thousands of institutions to make this change in just 3 months,
and students saw no interruption in their flow of aid dollars.
This change also saved taxpayers money by no longer having to
pay expensive subsidies and guarantees to lenders, in exchange
for offering an undifferentiated product whose terms were set
by Congress.
These are all important developments that have helped the
government's benefits work better for the students who receive
them. They show FSA's strong commitment to getting dollars to
students quickly and on time. And they show the importance of
having an agency structure with clear goals for efficiency and
effectiveness.
Still, there are places where Federal Student Aid can be
strengthened, possibly through changes to its structure. For
one, FSA and Congress must determine how to better use
oversight tools and accountability metrics to protect students
from institutions that take advantage of them.
Yesterday's announcement that 85,000 former Corinthian
students may be eligible for loan discharges and Monday's
nearly $100 million settlement between the Federal Government
and the Education Management Corporation show the importance of
early action to weed out bad colleges. The government alleged
EDMC improperly compensated recruiters in an operation where it
sought anyone with ``a Pell and a pulse,'' yet the company
still received billions in Federal aid over the last several
years.
Second, FSA should demand its contractors better serve
students. Today, it contracts with four companies that service
the majority of student loans and is required to work with
several others through a congressional earmark. In the mid-
2000s, the inspector general found that three of the four main
servicers and several of the earmarked ones had improperly
billed the government millions of dollars for inflated loan
subsidies. One of them also settled a claim by the U.S.
Department of Justice for overcharging servicemembers.
These are servicers whose prior behavior suggests the need
for significant scrutiny to protect students and taxpayers.
Fortunately, the move to direct lending and the fact that these
individuals are all contractors means that FSA can address
these challenges through changes much more easily than it could
in the old bank-based system.
Finally, the public and policymakers need additional
performance data about institutions, servicers, and the loan
portfolio. In particular, greater information about loan
delinquency by institution, outcomes for borrowers in
forbearance, and what happened to borrowers before they
defaulted would help guide policy changes that better serve
students. A greater use of data for risk analysis could also
lead to new pricing structures for servicers and collectors
that reward them for helping the most vulnerable borrowers.
But strengthening FSA cannot be our only strategy for
addressing affordability. We must act to address the underlying
structural problems that drive up price and debt. We must
tackle State disinvestment and encourage colleges to improve
and spend sensibly. Doing so is the best way to ensure the
Higher Education Act continues to meet its goals for the next
50 years.
Thank you again for having me today, and I look forward to
your questions.
[Prepared statement of Mr. Miller follows:]
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Mr. Meadows. Thank you, Mr. Miller.
Mr. Draeger, you are recognized for 5 minutes.
STATEMENT OF JUSTIN DRAEGER
Mr. Draeger. Chairman Meadows and Chairwoman Foxx, Ranking
Members Maloney and Hinojosa, thank you for inviting me to
testify today.
Collectively, NASFAA's 3,000 member schools serve 90
percent of all undergraduates in this country. And the issues I
will describe today are not isolated incidents. One out of
every three schools has reported to NASFAA significant
operational shortfalls with FSA that, unfortunately, have only
worsened in recent years.
As institutions, we view ourselves as partners with FSA,
and we celebrate their successes, particularly in regards to
simplifying the financial aid form and improving their
counseling tools. But these successes notwithstanding, FSA is
consistently falling short in other areas, particularly in
their partnerships with institutions, and that has detrimental
effects on students.
In our written remarks, we have included several examples
of this lack of partnership, including one where FSA took
unilateral action last year without consulting schools that
resulted in some students being mistakenly placed into student
loan repayment while they were actually still in school.
Now, schools are reluctant to complain about this
disservice because FSA ultimately holds all the cards in terms
of a school being able to offer financial aid funds to
students. The underlying perception to our members is that you
keep your complaints to a minimum or you risk a Federal program
review. And this feeds into a second major issue with FSA, its
lack of accountability to partners or the public.
The most pervasive problems at FSA--and this has been
reported by over a thousand schools in each of your districts,
serving 6.5 million students--are long delays in program
participation agreement changes, long delays in closing out
program reviews, delayed guidance in relation to deadlines that
institutions have to meet, and even publishing simple
benchmarks about how long it should take to get responses on
compliance issues.
These issues have been going on for years. In fact, in
2012, we provided input to FSA about how they could improve
their service to partners. Yet, still today, FSA's strategic
plans continue to lack appropriate performance metrics that
could be used to measure progress on these issues.
Of the many examples that we have provided in our written
testimony, the most recent example that can be found that
highlights these issues is in FSA's implementation of gainful
employment reporting. And for those of you who might be
unfamiliar, the Department recently defined what it means to be
gainfully employed, which is a statutory criteria schools have
to meet in order to offer financial aid for certificate
programs.
The entire rollout process can be described as nothing less
than a time-consuming debacle that took already-limited time
away from counseling students.
In response to schools' complaints about this process, FSA
officials are quick to point out that schools had 9 months to
meet this massive data reporting requirement, which, quite
frankly, is intellectually dishonest. We have provided a
timeline in my written testimony, also available here in the
room, that shows that FSA didn't even begin issuing operational
guidance until 3 months after the final regulations were
published.
Then, in the space of 5 months, leading right up to the
deadline, FSA issued roughly 300 pages of additional
implementation guidance, the bulk of which included a technical
reference guide--all of it being issued and updated right up to
the reporting deadline. Then, as that reporting deadline came
and went, FSA continued to issue guidance on compliance.
And here's where it gets truly disturbing. At the same time
that ED was continuing to issue guidance to schools, they began
sending a series of threatening letters to all types of
schools--4-year public, private, community colleges, and
proprietaries--threatening them with administrative
incapability findings, a term that basically means that
students at those schools could lose financial aid.
Now, FSA claims that schools showed a shocking lack of
compliance, without even considering the idea that it was
perhaps their own rollout and timing that contributed to the
bulk of these problems. As it turns out, most of these schools
were not out of compliance. They simply had data reporting
errors that produced conflicting results at FSA.
Eventually, 10 weeks after these deadlines and after two
threatening letters, FSA finally released a tool that schools
could actually use to determine whether all the data conflicts
had been resolved.
And, of course, how does this ultimately affect students?
Well, one financial aid administrator in Ohio summarized it
best when she said, ``GE reporting has been an incredibly
frustrating experience--an experience in wasted time that could
have been more productively spent helping our students and
families.''
Despite these examples that we have cited here and as best
as we can tell, FSA continues, through self-assessment, to give
itself high marks, pay healthy bonuses, and avert
responsibility for these persistent issues. Now, we really do
see FSA as a partner, but partnership is not a one-way street.
We have provided several recommendations on ways that we hope
we can address these issues.
And despite FSA's many successes and despite my belief that
their staff are as dedicated to students as any financial aid
administrator in this country, I also believe we will continue
to have these problems until there are meaningful cultural and
structural changes at this agency.
Thank you.
[prepared statement of Mr. Draeger follows:]
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Ms. Foxx. [Presiding.] Thank you, Mr. Draeger.
And, again, thanks to all of our witnesses who are here
today.
I would now like to recognize Mr. Allen for 5 minutes for
questions.
Mr. Allen. Thank you, Madam Chairman.
And thank you, panel, for being here today to talk about
this very important work that you do. I mean, $1.18 trillion
outstanding in debt, serving 41 million borrowers, that's a big
job. And, certainly, we need to look at this very, very
carefully to see if we are getting the results that we want out
of this program.
One of the things that I hear in my district is that there
are lots of jobs, very good-paying jobs available. And I have
been amazed, at my short time here in Congress and on this
Educational and Workforce Committee, that there is such a
disconnect between the business community or manufacturing or
the job creators and those in the education business. And
somehow we've got to bring those together, because we've got
students that are getting an education without the idea of
perhaps what they are going to do and how they are going to pay
this money back.
With that, Mr. Runcie, I'd like to start out with my first
question. The bipartisan budget agreement just signed into law
allows the Federal Government and its contractors to use
predictive dialing to reach borrowers on their cell phones in
order to help them avoid or get out of default.
Can you discuss the administration's views on how this
technology will aid FSA's efforts to assist these struggling
borrowers?
Mr. Runcie. Sure.
You know, part of the difficulty of making sure that
students do not go into default or late-stage delinquency is
being able to reach them. You know, that is sometimes the
biggest impediment to making sure that they can get the tools
and the resources they need to address some of their default
management, you know, issues.
And so that is a tool that would be helpful in order to
increase some of the efficiencies around reaching out and
getting these students and borrowers to act. We've got income-
based repayment, we've got lots of tools that they can use that
we've rolled out over the last couple of years. And the ability
to reach them so that they're aware of these through something
like TCPA would be tremendously helpful.
Obviously, you know, that's going to take some time to
implement, and it's going through a process now, but we stand
ready to use that type of technology to address those issues.
Mr. Allen. So, in other words, the administration is in
favor of using this method to get in touch with the students in
accordance with the bipartisan budget agreement?
Mr. Runcie. I'm just saying that it would--I believe so,
but, just from an operational standpoint, it would help
outcomes.
Mr. Allen. Okay. Thank you, sir.
Ms. Emrey-Arras, like I said, we're 41 million borrowers,
$1.18 trillion. And the GAO found that the FSA is lacking,
resulting in inconsistent and ineffective programs for
borrowers.
How has the lack of guidance and communication affected
servicers' ability to assist our borrowers?
Ms. Emrey-Arras. Basically, servicers treat borrowers
differently. So you could have the same borrower with the same
financial circumstances, and they might get completely
different advice, depending on which servicer they contact.
This is because Education has not provided consistent
instructions and guidance to servicers on how to apply payments
like underpayments and overpayments, how to deal with different
types of income documentation, and the like. So there is really
missing instruction that could really help ensure consistency
and serve borrowers.
Mr. Allen. Has the FSA been diligent in oversight of this
issue?
Ms. Emrey-Arras. We believe that FSA could do more. For
example, servicers we spoke with said it would be very helpful
to have a manual, which would be just very simple in terms of
what the instructions are for implementing the program to make
sure that there is consistency.
So that is something that we have put out there as part of
our recommendation to provide guidance, that FSA consider
having a basic operations manual for servicers.
Mr. Allen. Uh-huh. As the chair of our hearing said this
morning, Congress obviously needs to step it up. What can
Congress do?
Ms. Emrey-Arras. Well, we haven't made any recommendations
to Congress in this testimony. I will defer to others on that
point.
Mr. Allen. Okay. All right.
Well, I'm just about out of time, so I'll yield back the
balance of my time.
Ms. Foxx. Thank you, Mr. Allen.
Mr. Hinojosa, you are recognized for 5 minutes.
Mr. Hinojosa. Thank you, Madam Chair.
My first question is to Mr. Runcie.
I understand that many borrowers are unaware of the Federal
Government's income-driven repayment plans. What is the FSA
doing to increase awareness about income-driven repayment plans
that I mentioned?
Mr. Runcie. There are a number of things that, you know,
we're doing, but what I want to emphasize is the rate of growth
in the takeup in income-based repayment. It's been phenomenal.
So a significant percentage of the portfolio and a growing
percent is now using income-based repayment.
A lot of that has to do with we've had targeted email
campaigns. We've changed the incentive structure for our
servicers. We've created Web sites with information about
income-based repayment. We've worked with Treasury and Intuit
in terms of mechanisms and activities that create awareness
around these programs.
So we've done a lot, but, more importantly, the outcomes
are evidencing that the outreach and the awareness that we're
putting out there is making a difference.
Mr. Hinojosa. I'll be back to you.
Mr. Ben Miller, as you know, student loan debt stands at
the $1.2 trillion that has been repeated over and over again.
In your expert opinion, what steps has the Obama administration
taken to expand accessibility and affordability in higher ed?
Mr. Miller. So there's been a number of important steps.
And, I mean, obviously, the best form of student loan debt
is no student loan debt. And this is something where the Obama
administration has done a lot, especially beginning with the
Recovery Act, where it invests in a lot of additional money in
Federal Pell grants to help the lowest-income students.
It then followed that up in 2010 with additional money for
Pell grants by ending the bank-based loan system, which
allowed, I believe, about $36 billion to go to Pell grants.
The result is that, before this administration came in, the
Pell grant had been a largely stagnant maximum award. It has
now gone up by a little bit over $1,000, which has meant a lot
for low-income students.
In addition, several of the income-driven repayment plans
that have already been discussed have been important for
helping borrowers manage their debt so that, now, basically any
borrower who enters repayment knows that they will be able to
cap their loan payments at about 10 percent of their
discretionary income. If they engage in public service, they'll
be able to get forgiveness after 10 years, and, otherwise,
they'll be able to get forgiveness after between 20 and 25
years.
Mr. Hinojosa. I agree with you. Those are very good things
that occurred. I was chairman of the committee, and so I agree
with you, because we were addressing what the presidents of
universities and the chancellors of university systems told us
needed to be done.
My third question is to Mr. Runcie.
Several investigations have found that Federal student loan
servicers whose contracts are managed by OSS may not be
providing appropriate services. In September this year, 2015,
the CFPB published a 150-page report detailing those servicers'
issues and policy recommendations to fix the management of loan
servicing.
What is FSA doing to ensure that those servicers are using
due diligence in managing their portfolio?
Mr. Runcie. Yeah, and I believe the CFPB report also
included information around sort of private loan servicers, as
well.
But, you know, FSA has--in October of 2014, we came out
with a new incentive structure and pricing model that we
provided to all of the servicers, the TIVAS as well as the
NFPs. And the structure of those contracts and the way the
pricing is, it puts a tremendous amount of economic value on
keeping students in repayment----
Mr. Hinojosa. Excuse me. Time is running out. Can members
of this committee, of the two committees, get copies of that
latest instruction manual that you are discussing here?
Mr. Runcie. Yes, we can provide the----
Mr. Hinojosa. Well, let me say that, as time is running
out, I want to say that this is amazing to me, a business as
big as higher education, where we are talking about billions
and trillions of dollars, that we don't have penalties for some
of these that are violating the rules, like the one that just
took bankruptcy and was shut down.
What is the name of that organization, that university?
Corinthian.
Mr. Runcie. Yeah.
Mr. Hinojosa. All of this to say that it seems to me that
Congress should give instructions that the people who violate,
as they are, should receive penalties that are to the
individuals who are making those decisions. There should be
fines and imprisonment. There has to be something that is going
to stop this.
It was back before 2010, and if I may quickly say, that we
were seeing students getting student loans at 10 and 12 percent
from banks and other groups, even from universities. New laws
came in, as were pointed out, that we could make direct loans
at 5 percent. And then, of course, the lobbyists came down on
us real hard to stop doing that because their banks were not
making all that money with guaranteed Federal loans.
So we really need to really put in some time and come up
with penalties that are going to stop that type of
decisionmaking that was going on.
I yield back.
Ms. Foxx. Now, Mr. Meadows, you're recognized for 5
minutes.
Mr. Meadows. Thank you, Madam Chairman.
Mr. Runcie, I'm going to come directly to you. The oral
testimony Ms. Emrey-Arras and Ms. Tighe was kinder than perhaps
the written testimony that I've seen. And so I'm going to come
to you because my role is more oversight, not as much on the
policy side of things.
So how much do we pay out in improper payments every year?
Mr. Runcie. Well, we have improper payment estimates. So we
don't actually make payouts. Right? So, for instance, we have--
--
Mr. Meadows. But you have oversight. You're the COO. And so
as we look at the improper payments, how much do the American
taxpayers--can they recognize in terms of improper payments?
Mr. Runcie. So improper payments there are two categories.
There are direct loans and Pell.
Mr. Meadows. Combined, what's the total?
Mr. Runcie. The combined total is about $1.8 billion of
estimated improper payments. That's done through sampling
techniques, and we look at information and then extrapolate
that it would be one point----
Mr. Meadows. Well, I've only got 5 minutes. So let me
interrupt you.
If that's your official testimony, I guess my question is,
is how do you know? Because you've changed the methodology,
didn't you, Mr. Runcie, on how you evaluated improper payments?
Mr. Runcie. That methodology was approved by OMB. So----
Mr. Meadows. You changed it in fiscal year 2013.
Mr. Runcie. That's right.
Mr. Meadows. And then the improper payments amount doubled.
Is that correct? That's the information I have----
Mr. Runcie. We changed.
Mr. Meadows. --from about $2 billion to about $4 billion?
Mr. Runcie. No, it's about $2 billion. I'm not sure the
timeframe that you're talking about, but the estimated improper
payment----
Mr. Meadows. How many times have you changed the way that
you figure improper payments, Mr. Runcie?
Mr. Runcie. Once since I've been at FSA. So we changed it--
--
Mr. Meadows. Well, I'm going to give you a chance to check
with your folks behind you. Because I have information that
would indicate you've changed it twice.
Mr. Runcie. Okay. So what I'm saying is that when we change
the improper payment methodology, it's based upon some analysis
that we do. That analysis was--we had some disagreement in
terms of the appropriateness of----
Mr. Meadows. I'd say major disagreement. So let me go on a
little bit further. So let me interrupt because I need to get
to an answer here.
Mr. Runcie. Okay.
Mr. Meadows. Here's my concern. You have improper payments
of about $2 billion under a scenario that you're--and I'm
rounding off. You change the scenario after that same method of
calculating it showed that you had $4 billion in improper
payments, and you go retroactively to OMB and say: We want a
new process to be able to evaluate that. Is that in general
terms how it worked?
Mr. Runcie. My understanding is OMB is the authority. They
sign off on it. It is----
Mr. Meadows. I agree.
Mr. Runcie. And it is appropriate.
Mr. Meadows. All right. So are you following OMB
guidelines? Be careful how you answer.
Mr. Runcie. OMB has approved the methodology that we use
for----
Mr. Meadows. Are you using their approved methodology?
Mr. Runcie. That's what we used for 2015 and 2014.
Mr. Meadows. Okay. So let me ask you this, then. Their
methodology, from what I understand, would include a sample
size of 300. And yet according to the information I have,
you're only analyzing 79 cases, which is statistically not
accurate. It's not even following what OMB has indicated. Are
my numbers correct?
Mr. Runcie. I don't have the numbers----
Mr. Meadows. Ms. Tighe, are they correct?
Ms. Tighe. FSA originally went to OMB with a sample size of
about 311 reports. I believe they did get permission to, when
they realized they weren't going to have that sample size, they
went and got permission to use draft reports. But that dropped
them to about 90 reports instead of 311.
Mr. Meadows. Yeah. I show 79 plus 21, so--is the numbers
that I show.
So, Mr. Runcie, let me tell you why I'm troubled by this.
Let's put it in education terms. It's like a student is going
through and taking an SAT and we're getting certain trends. And
then all of sudden we don't like the trends we see and we
change the goalpost, we change the way that we do the
methodology, so that the SAT scores look a little bit better.
Would you not agree that that's what the Department of
Education has done?
Mr. Runcie. We're a performance-based organization. We have
an obligation to continue to refine, innovate, and look at best
practices.
Mr. Meadows. All right. In the 24 seconds that I have left,
at what point will you start to comply with the OMB guidance on
how we're to have a sample size with 300? At what point are you
going to do that?
Mr. Runcie. The methodology that we use has been approved
by OMB.
Mr. Meadows. Okay. That's your testimony. All right. Here's
what I would ask you to do is report back to this committee
with OMB and see if they're in compliance. And I would ask the
inspector general and GAO to see if they concur with your
decision.
And I appreciate the patience of the chair.
Ms. Foxx. Thank you, Mr. Meadows.
Ms. Plaskett, you're recognized for 5 minutes.
Ms. Plaskett. I think----
Ms. Foxx. We're alternating between Education and
Oversight. So it is your time.
Ms. Plaskett. Thank you. I don't want to, you know, mess up
the protocol. Thank you so much.
Ms. Tighe, yesterday at the Oversight and Government Reform
Committee you testified that a company in Georgia, a
subcontractor, refused to give your office access to
information you needed. Is that correct? This was regarding a
Federal Information Security Management Act?
Ms. Tighe. That's correct.
Ms. Plaskett. Okay. And you testified that the name of the
company that refused to give you that access was TSYS. Is that
correct?
Ms. Tighe. That's correct, TSYS.
Ms. Plaskett. And who's the prime contractor since that----
Ms. Tighe. Accenture.
Ms. Plaskett. This is a government contract paid for by
taxpayer funds to a subcontractor?
Ms. Tighe. Yes.
Ms. Plaskett. And did you ask for TSYS, for a copy of the
contract? And if so, did they give it to you?
Ms. Tighe. Well, there's many layers of issues. We asked
for--after we were--did not get the complete information we
needed to audit the system that they were operating, we asked
FSA for a copy of the contract between Accenture and TSYS. They
suggested initially that we go directly to Accenture ourselves
and get a copy of it. I personally thought it was FSA's
responsibility because the subcontractor was operating their
system and that they should go get a copy. They were not able
to do that.
Ms. Plaskett. But wouldn't--I mean, I know that you want to
go talk about the Department. But this is a contractor and a
subcontractor to the government.
Ms. Tighe. Yes.
Ms. Plaskett. And don't they have a responsibility to give
you that information when you ask for it? That's a yes or a no.
Do they have a responsibility to give you that information?
Ms. Tighe. Yes.
Ms. Plaskett. And so what is the mechanism that you have in
place to ensure that they do that rather than going to the
Department, but to get that information from the contractor?
Ms. Tighe. Well, my mechanism when they don't supply
information to me is to do a subpoena. I have----
Ms. Plaskett. And have you done that?
Ms. Tighe. I have not done that in this case yet, no.
Ms. Plaskett. Do you plan on doing that?
Ms. Tighe. For the contract, I don't know. We have
contemplated--I mean, my biggest concern was not the contract
itself. My biggest concern is the information that we needed to
do our vulnerability assessment of the mainframe on which the
common origination disbursement system rests in Columbus,
Georgia, that we were not able to do because TSYS did not give
us all the information we needed. That information I may yet
subpoena.
Ms. Plaskett. But, I mean, I have a fundamental problem
with a contractor or subcontractor to the government, the
United States Government, not giving the inspector general
information when they're asking for it.
Mr. Runcie, from the Department's perspective, don't your
contractors and subcontractors have an obligation to give that
information to the IG?
Mr. Runcie. I believe so.
Ms. Plaskett. And when do you think the subpoena power
should be enforced to make sure that that happens?
Mr. Runcie. That's not my call. But what I will say is that
we tried everything that we could. I mean, I think we worked
with the inspector general, OCIO. We got the prime, we got the
subcontractor, we got our contracting officer. We had a number
of people exert a maximum amount of effort to get them to
provide the information that the inspector general wanted. And
I was disappointed that we couldn't get that.
Ms. Plaskett. So can the Department withhold funds from not
just the subcontractor but primarily the contractor, Accenture,
until it complies with the request of the inspector general?
Mr. Runcie. Our contract is with Accenture. And if----
Ms. Plaskett. Because they haven't given the information
either. Have they? Accenture.
Mr. Runcie. Well, it's not their information. It's the
information that the subcontractor----
Ms. Plaskett. Well, the contract itself. Right? Would be
for Accenture.
Mr. Runcie. Yes. But the contract--my understanding, based
upon conversations with our contracting officer, is that is a
commercial contract between Accenture and TSYS. We don't have
the contractural right to get that contract.
Ms. Plaskett. What do you say to that, Ms. Tighe?
Ms. Tighe. I'd say that view is interesting in light of the
fact that TSYS is in charge of operating one of most
significant data systems that FSA has.
Ms. Plaskett. Well, you know, I know that the chairman of
Oversight and Government Reform, Mr. Chaffetz, yesterday talked
about writing a letter to the subcontractor. I think that a
letter also needs to probably be written to the contractor in
this case.
Ms. Tighe. I would agree.
Ms. Plaskett. Okay. Thank you.
I have no further questions. Thank you.
Ms. Foxx. Thank you very much.
Mr. Guthrie, you're recognized for 5 minutes.
Mr. Guthrie. Thank you, Madam Chairwoman. I appreciate
that. And I appreciate you all being here. This is a timely
subject to me. I have one child that just left college, one in
college, and one we just did a college tour, and you sit there,
as they say, the cost of attendance. And you're saying: How do
people do this? It is very difficult. And it's something that I
know we're involved in doing.
And so since you're kind of peers with my age group, I have
a lot of--that's why I hear a lot of parents talk about the
affordability of college. So it is on a lot of people's minds.
A lot of that happens at the State level, I get it. But having
an adequate and a good service program. And I can't go without
pointing out, because I started talking about this in 2009, and
I still say it again: $10 billion of Federal money that's paid
by students back to the Federal Government. So the profit from
operating the program goes to pay for the Affordable Care Act.
So that's almost $1 billion a year goes to pay--so I just want
to remind people that money that students pay for their
colleges is diverted to the Affordable Care Act. So almost $10
billion over 10 years. That's over 10 years.
So, Mr. Runcie, I want to ask you a question. Throughout
the GAO's testimony, there are numerous examples of FSA falling
short in its management and oversight of servicing contracts. A
major consequence of the oversight deficiencies is that
borrowers in turn face inconsistent experiences in services.
This is a far-reaching consequence that FSA, as a performance-
based organization, is tasked with fixing. Keeping in mind that
until these problems are rectified borrowers will continue to
lack the kind of service required by FSA's PBO designation. And
I have a few questions based on that.
When will the clearer guidance to help servicers interpret
income documentation be ready?
Mr. Runcie. So, I just want to give you some context in
terms of why there may be some differences between, you know,
the servicers and how they, you know, treat specific incidents.
Right? So we had to stand up the TIVAS, the four servicers, in
a pretty short window. And we allowed them to use their
commercial practices and their commercial, you know,
operations. And because of that there are variations. And those
servicers also provide those services to the FFEL program. So
there were inconsistencies there from a servicing perspective.
But in order for us to quickly ramp up to deal with the volume
that we did, we had to leverage our commercial operations.
There were differences in some of their practices. Those
differences still exist. And we provided guidance and
clarification for some of those. But ultimately we're entering
into a recompete process that will start in January of 2016.
And through that process we're going to be able to do some
things like standardize common practices, have common branding,
and to address some of those issues.
Mr. Guthrie. Okay. So I understand that. And I understand
how quick, because it all happened in the Affordable Care Act
quickly. We had discussed it in this committee for a while, but
it kind of just came into being because of the money needed to
pay for the Affordable Care Act.
So when will the--so I understand the problem. So when is
it going to be fixed?
Mr. Runcie. Well, first of all, some of this stuff has
been--some of the things we can address we've addressed, like
the capitalization of interest. Other things like over and
underpayments that were mentioned before, we're working with
CFPB. They're an organization that understands some of the
issues around what the best practices in terms of dealing with
that. So, you know, I don't have a specific timeframe. But I
would say within 2016 certainly.
Mr. Guthrie. Within 2016.
Mr. Runcie. Yeah.
Mr. Guthrie. And then also the servicers expressed for a
common manual, I think we talked about it a little earlier with
Ms. Tighe, similarly to those that exist with.
Mr. Guthrie. FFEL in order to help solve consistency. Do
you have plans to have a common manual? And when will that be
ready.
Mr. Runcie. Yeah. The common manual will be something that
based upon our recompete strategy we'll be able to put
together. However, the common manual that existed before, there
were still differences between the way those servicers who used
the common manual, you know, addressed borrower issues. So I
think the platform that we're--the place we're looking to go is
to be able to standardize a number of processes as we go
through recompete process.
Mr. Guthrie. Is there a date that you think----
Mr. Runcie. Well, the recompete process is going to start
2016, January 2016. That's our target. The contracts themselves
wind down--the existing contracts today wind down in 2019. So
there would be a transition period.
Mr. Guthrie. Okay. I'm about to run out of time, but real
quick, I have a bill that--we've seen, particularly Indiana
University be extremely successful with financial accounting.
So I have a bill, H.R. 3179. But my understanding in the law
that currently requires financial counseling, but I think up to
40 percent of the students interviewed said that they don't
remember, recall, ever being financially counseled. So we know
that financial counseling makes a difference. It does in the
Indiana model anyway, and the Indiana University has been very
successful. Is there a plan to fix that problem under the
current law? We're trying to change the law, but is there a
plan to fix where we are under the current law?
Mr. Runcie. Yeah, I mean, you know, there are policy
changes that can be made. But clearly we--our exit counseling--
it does make a huge difference. I think the multiple's you're
two times less likely to miss a payment if you go through
counseling, at least our counseling that we have in place. And
so we have a lot of the tools. You know, I'm not sure what the
hit rate is in terms of, you know, people actually using those
tools, but it is a requirement.
Mr. Guthrie. Thank you. My time has expired.
Ms. Foxx. The gentleman's time has expired.
Mr. Scott, you're recognized for 5 minutes.
Mr. Scott. Thank you, Madam Chair.
Mr. Runcie, we've heard from a number of sources that the
FAFSA form is so complicated that a significant number of
people are not applying to college or not getting the aid to
which they're entitled. They are a lot of suggestions in
simplifying the form. One is using prior-prior year taxes. Have
you adopted that?
Mr. Runcie. Yes, Congressman Scott, we have a project
timeline and a plan, and we've allocated resources to have
prior-prior instituted by October of 2016. And that would be a
tremendous opportunity to increase access and make it simpler
and easier for people to complete the FAFSA.
Mr. Scott. Another recommendation was to have easier access
to Internal Revenue information. Have you adopted that policy?
Mr. Runcie. Yes, I mean, we have--you know, the income--we
have the DRT tool, which is a data retrieval tool that allows
for automatic retrieval of the tax information right into your
FAFSA form, as well as for income-based repayment for those
repayment plans. You can also leverage the automatic IRS tools.
Mr. Scott. So that's available now?
Mr. Runcie. Yes, that is available now.
Mr. Scott. What about if you are eligible for a means-
tested program, are you using that recommendation?
Mr. Runcie. I'm sorry, for what tested?
Mr. Scott. Means-tested, like foods stamps or other kinds
of income-based programs. If you're eligible for those programs
that you would have a simplified FAFSA form?
Mr. Runcie. I'm not sure on that. I'm going to have to come
back to you on that, Congressman Scott.
Mr. Scott. Are there any additional changes that you will
be recommending that might need congressional action?
Mr. Runcie. Not at this time. I think we're just really
focused on making sure that we can hit the prior-prior and then
move the FAFSA form from January to October. Historically the
FAFSA form has been available in January. This is a tremendous
change because while you're applying for school in the fall,
you can now know how much you're eligible to get in terms of
financial aid. That's going to make a lot of difference in
terms of people having the understanding that they can actually
be able to go to college. So that's a huge, huge step.
Mr. Scott. We had a question about allocation of payments
when a person has multiple loans. How were those allocated in
terms of whether or not the payment goes to those loans with
higher interest rates?
Mr. Runcie. Yeah. So that's where there has been some
flexibility. And that's the issue that we're working on with
CFPB and other agencies who have expertise in terms of what
would be the best practices for borrowers. So that is an issue
that we're focused on and we're going to address, you know, as
soon as we establish what the best practices are and make that
commonplace across----
Mr. Scott. Are there any efforts to participate in outreach
to maximize the number of students applying for financial aid
or to inform students of various repayment plans rather than
just react to their applications?
Mr. Runcie. Yeah. So we have targeted outreach campaigns.
So we do emailing. We have a lot of social media, whether it's
Twitter, you know, Facebook, YouTube. So we leverage that
infrastructure to provide as much information about our
repayment plans as possible.
In terms of the front end, in terms of the takeup in FAFSA,
we have a FAFSA completion project and a FAFSA completion tool
that we've used to create more FAFSA filers, a greater
percentage of high school seniors filing FAFSAs, which is an
indication as to whether you will enroll in college.
Mr. Scott. In terms of efficiency, are there any
investments that you need to make in terms of equipment or
software that would help you become more efficient that you
don't have funding for?
Mr. Runcie. You know, I think--well, we're in the process
of establishing enterprise data warehouse, which is one of the
things that we're trying to leverage, create an infrastructure
where we can use more data to have more predictive analysis, as
well as to look at how we can improve ourselves operationally.
Also, from a program compliance standpoint, we would be able to
leverage some of that data to, you know, find out where there's
more risk. I think our issue is the entire infrastructure needs
to grow, and in order to be able to grow the infrastructure and
have the type of security, and some of the other things that we
need, we're going to need additional resources.
I saw the budget, the Senate and the House budget. I don't
know if it's appropriate to bring that up, but with that
shortfall, there may be certain things that we will not be able
to deliver.
Mr. Scott. If you could give us the details on what you
could not deliver without the money, that'd be helpful.
Mr. Runcie. Okay. Terrific. Thank you.
Mr. Scott. Thank you, Mr. Chairman.
Ms. Foxx. Thank you, Mr. Scott.
Mr. Walberg, you're recognized for 5 minutes.
Mr. Walberg. Thank you, Madam Chairman. Thank you to the
panel for being here.
Mr. Runcie, when was the last time FSA released a
performance plan?
Mr. Runcie. We released our strategic plan--I believe it
was updated--I believe we released it--if it hasn't been
released, it will be released within the next month.
Mr. Walberg. Before that when was the last plan released?
Mr. Runcie. We update our strategic plan every year. Every
few years we have what we call a full strategic plan where we
do an environmental scan. We solicit market information. We
talk to----
Mr. Walberg. But when was the last plan that was
introduced? Because I understand it's supposed to be every 5
years. Correct?
Mr. Runcie. Yeah.
Mr. Walberg. When was the last plan?
Mr. Runcie. The last plan--I think we just issued one
this--within the next month I think we're issuing a plan. And
before that we issued a plan in 2012. In 2012. So in 2012 we
issued a strategic----
Mr. Walberg. It wasn't 2010? When it was supposed to be
back in 2010, it wasn't released until 2012?
Mr. Runcie. I know in 2012 we released a plan. I'll have to
get you that information. I want to be precise. But----
Mr. Walberg. I'd appreciate that.
Who'd you consult with when creating these plans?
Mr. Runcie. Well, what we do is we do a bunch of market
research. We do environmental scans. And then there is a 30-day
notice period where we send out the plans so stakeholders can
provide comment on the plan. And that's why I'm a little bit
confused. Because I know we sent a plan out, I believe,
September of this year with a 30-day notice period so that we
could get comments back on the plan. And we've done that
historically and we've gotten comments. I don't believe this
year we got a single comment.
Mr. Walberg. Who would you normally consult with?
Mr. Runcie. Stakeholders that represent, you know, student
groups. So student associations, school associations the Hill.
So we would send that out to those stakeholders.
Mr. Walberg. Mr. Draeger, when did the FSA consult you
about it's 2015 plan?
Mr. Draeger. The last time that we were consulted by FSA
was in 2012 where we highlighted for them the participation
agreement delays, the delays in closing out program reviews,
delays in guidance.
Mr. Walberg. So that was 2012.
Mr. Draeger. Correct.
Mr. Walberg. Not presently for the 2015 plan?
Mr. Draeger. We continue to raise the issue, but outside
the context of an update to their plan.
Mr. Walberg. In your experience, has FSA consistently
consulted with schools, with leaders, with students, and other
stakeholders prior to implementing a new plan?
Mr. Draeger. That has not been our experience, and we have
not heard from schools that have been consulted directly
either.
Mr. Walberg. Mr. Runcie, then, by statute you're required
to consult interested parties prior to implementing a new plan.
Did you consult NASFAA? And I guess would you say NASFAA's an
interested party?
Mr. Runcie. Well, my records, which I checked before I came
here, indicate that we sent a notice to Justin Draeger, who is
the head of NASFAA. So it was sent to him this year.
Mr. Walberg. Well, we got a conflict here. So if you could
supply us with accurate information as to that letter----
Mr. Runcie. We will supply that to you.
Mr. Walberg. We'd appreciate that because Justin is shaking
his head saying he's never received that letter.
Mr. Runcie. I understand that. And I will provide you the
information.
Mr. Walberg. Mr. Draeger, in your testimony you discuss how
the working relationship between schools and FSA has become so
strenuous that it's ultimately hurting students. Can you
elaborate a bit more and discuss potential solutions?
Mr. Draeger. Yeah. I think one of the starkest examples has
been the delays in the Department of Education in getting to
schools all sorts of guidance which we've highlighted in our GE
reporting example. Closing out program reviews. We have an
instance where a large public 4-year school submitted all
documents for a program review in October 2012. It wasn't until
May 2015 that they were ever informed that their documents were
being reviewed.
So we have significant timeframes where basically these
program reviews aren't being closed out. It's perpetually
hanging over the heads of these schools. And no entity, public
or private, can operate with that level of uncertainty.
Mr. Walberg. What recourse do they have if they're having
problems in getting action from FSA. And I guess who can they
appeal to as well?
Mr. Draeger. Yeah. The structure of FSA is such that there
really is no appeal for the school. FSA provides all the
guidance. They do all the program reviews. They make the
determination about who can and can't participate in the Title
IV programs.
Mr. Walberg. So it's a black hole. If it doesn't work for
them, ultimately they have no recourse.
Mr. Draeger. We're not familiar with any benchmarks that
are published. There's no recourse beyond going back to the
same entity that you've been trying to work with.
Mr. Walberg. My time's expired. Thank you for your
testimony.
Mr. Runcie. So is it possible for me to address that with
the----
Ms. Foxx. I'm sorry, but the time is up.
Mrs. Maloney.
Mrs. Maloney. I first would like to give him the time to
address this.
Mr. Runcie. Thank you. I appreciate that.
So there may be anecdotes, but what I have is a folder of
facts. I have the statistics on the cycle time for all our
program reviews, our recertification applications. And so I'll
just give you an example of why that--it's important to look at
the facts. Just let me just put it this way.
So there was a 72 percent decrease in our cycle time, the
days to conduct a program review, between 2011 and 2015. Last
year the program review--we did 291 program reviews, and
average processing time was 249 days. And as I mentioned, that
was a significant reduction.
If you look at the recertification applications which are
another point of contact with the schools, those are down
significantly as well over the years. If you look at the
approval applications, double digit percent reductions in the
response time.
So when you're looking at a hundreds of actions, and if you
look at the totality of it, there are about 2,000 interactions
with the schools, all of those cycle times have been down
significantly over the last 4 years. We can provide you with
the information. So this anecdotal information about our
performance is just not accurate.
Mrs. Maloney. Thank you.
First of all, I would like to be associated with the
comments of Dr. Foxx in support of our friend Ruben Hinojosa,
and express my gratitude for his leadership and friendship.
We've had the opportunity to serve together on the Financial
Services Committee where he served with great distinction as he
did in the overall body for his district. We will miss you, and
I'm sad you're leaving.
I have a series of questions on the principles on student
loan servicing. I understand others have expressed interest in
it. And if I don't have a chance to finish, I'd like to place
them in the record for a response later.
Ms. Foxx. Without objection.
Mrs. Maloney. Mr. Runcie, according to the Consumer
Financial Protection Bureau, student loan debt is now at $1.2
trillion, and is now second only to mortgage debt. It is now
even higher than credit card debt, which is staggering. So this
is really incredible to see this type of large consumer debt
growing in our country.
And earlier this year the Department of Education joined
the CFPB and the Department of the Treasury in soliciting
information about student loan servicing from public. And one
key complaint raised by numerous respondents was, ``Servicers
of both private and Federal student loans may not inform
borrowers experiencing financial hardship about available
alternative repayment plans.'' We need to address this, and end
this, and make sure students know all their alternatives. And
how does your office examine whether servicers are providing
repayment information to borrowers that is complete, accurate,
timely, and also includes alternatives?
Mr. Runcie. Yeah. So and we have to--and, yeah, I agree
with some of the findings that were mentioned today. We monitor
calls. You know, but we could do that more efficiently, have
more consequences around the call monitoring that we do.
As I mentioned before, in October of 2014 we changed the
structure so there's a tremendous incentive on the part of the
servicers to make sure that they keep--they inform borrowers of
all their repayment plans so that they could stay current on
their obligations. That was--you know, so we're still in the
process of seeing the impact of that pricing change. But we're
committed to making sure that we adjust that model to make sure
that we have the proper incentives in place so the servicers
will provide all the information they can about their repayment
plans.
Separate from that, you know, we're doing our part in terms
of our outreach, our communication, and, you know, leveraging
our Web sites and so forth.
Mrs. Maloney. Okay. How much of loan servicers'
compensation is currently based on achieving specific customer
service standards?
Mr. Runcie. Well, we have surveys. So there's a customer
survey that is a component that's used. And based upon how they
perform when we blend the customer survey along with some of
the other components, for instance, you know, the percentage of
loans that are in current repayment and certain other
attributes, we look at that, but we also look at the survey
results to see how they're performing from a customer
perspective. And that determines their allocation which
determines their economics. So we do use that as a part of our
model.
Mrs. Maloney. Okay. Thank you. My time has expired. Thank
you, and I place the rest of my questions into the record to be
answered. Thank you.
Ms. Foxx. Thank you, Mrs. Maloney.
Ms. Stefanik, you're recognized for 5 minutes.
Ms. Stefanik. Thank you, Madam Chair.
I represent a number of higher education institutions in
northern New York ranging from SUNY schools to community
college to private colleges. And I've visited every single one
of them. And one of the conversations that I frequently have
with students is that student aid programs are complex and
challenging for them to understand.
And my question is for Mr. Runcie. One of the statutory
purposes of the Federal student aid PBO is to make aid programs
more understandable for students and their families. However,
just last month GAO released a report that found many eligible
borrowers aren't even aware of income-driven repayment plans,
and therefore aren't able to make the decision to lower their
payments and reduce the risk of defaulting on their loans.
How are you addressing this failure, and how are you
educating servicers to make sure they can accurately explain
this maze of repayment options to borrowers so they can access
the help they need to repay these loans?
Mr. Runcie. Yes, I mean, so part of it is the overall
complexity of student loan programs. So there are a lot of
statutory programs. Certain things that we don't have control
over. So it makes it much more difficult to make a decision
about what the right repayment plan is.
In terms of income-driven repayment, we put out a targeted
campaign that yielded pretty impressive results. We are doing
another targeted campaign once we come out with REPAY. REPAY is
an income-driven program that's going to expand the available
universe of people that can participate in income-based
repayment by another five million.
So on the heels of that, we're going to make sure that we
send out a targeted email campaign. We've worked with other
parties, as I mentioned before, Treasury, in terms of the
income tax process. We've worked with Intuit in the past. So
we're going to leverage partners and our own infrastructure and
the servicers as well. Because, as I mentioned before, we
changed the pricing model there.
So there are lots of things that we have done and that we
plan to do. But I think what's most important is that since we
started taking these actions, you can see the significant
increase in the adoption of income-based repayment. So while
there may be some folks that aren't aware, our hope is that as
we continue to roll out our communications plan and our
information, we will strengthen the universe of people who
aren't aware. But, you know, I think we're continuing to push
on that, you know, on that front, and we've made some
tremendous, I think, progress.
Ms. Stefanik. Well, I agree with you. Students have to be
made aware of this. And this is a generational crisis that we
are facing here with historic amount of student debt. And as a
Millennial myself this is pushing off our next generation of
leaders from buying their first home, from being able to save
for the future. So I suggest we fix this program so that our
young people are able to make good decisions and not default on
their student loans.
My next question is for Mr. Draeger. In your testimony, you
talked about the importance of accountability. And the lack of
accountability, which is a key part of a PBO, tremendously
erodes the good will between institutions and FSA. And you
reference reporting requirements. Besides the gainful
employment reporting disaster that you referenced in your
testimony, have there been other instances where unclear
guidance or poor communication made it challenging for schools
to do their jobs?
Mr. Draeger. There have been several examples where schools
have tried to seek guidance from the Department of Education as
deadlines loomed, whether it's with reporting requirements
dealing with subsidized Stafford loan limitations which went
into effect in the last year. The interesting--I'm also dealing
in facts. We have 20 percent of our schools have reported
operational shortfalls. That's a real number. Twenty percent
representing six and a half million students where they cannot
do their jobs because of the operational shortfalls that I've
cited in my testimony.
The accountability thing, to me, is most acute when you
look at the Department's last annual report where they
acknowledge that they failed to achieve 2 out of 13 of their
strategic objectives dealing with customer service to schools,
customer service to students.
But then in the very next paragraph they detailed those
failures as successes. They said, ``Given the volume of new
requirements over the past year, the small reduction in these
scores on this metric is an indication of the success of FSA's
outreach and support efforts.'' The problem with self-
assessment is even when the Department fails them, deem it a
success.
Ms. Stefanik. Thank you. I yield back.
Ms. Foxx. Thank you.
Dr. Adams, you're recognized for 5 minutes.
Ms. Adams. Thank you, Madam Chair. And I want to thank the
leadership of both subcommittees for this hearing. And I want
to thank the witnesses as well.
I spent 40 years in the classroom, Bennett College in
Greensboro, so higher education is a tremendous interest of
mine.
So let me just piggyback on the last question about default
and--because institutions are penalized as well, in addition to
the students, and the things that they can do when they leave.
So let me ask Ms. Emrey-Arras, do you believe that our
institutions of higher education should play a role in better
counseling students on these programs, or should it be up to
Congress and the administration to increase the participation
in the programs? And if so, what should they look like?
Ms. Emrey-Arras. We haven't looked specifically at the role
of schools. However, we have looked at the role of servicers
and the Department in educating borrowers about repayment
options. And while I agree with Mr. Runcie that the takeup rate
has increased in terms of income-based repayment options, there
is still a very wide gap between those that are eligible and
those that, in fact, participate.
And part of the challenge is that although there are in
fact targeted campaigns, as Mr. Runcie mentioned, there is not
an across-the-board notice to people when they enter repayment
about these options. So that simply telling people when they
start repaying what the options are is not happening across the
board. And that needs to be done.
Ms. Adams. Thank you.
Mr. Runcie, if you could--what's your response to the
institutions of higher education and their role?
Mr. Runcie. Well, in terms of--so, yes. You know, the
institutions, there is exit counseling and some institutions do
a pretty fabulous job in terms of exit counseling where they
make sure that the students understand the obligations and the
consequences of defaulting.
You know, we also obviously, you know, are involved from a
servicing standpoint. We reach out and we provide information.
If you look at the cohort default rates for all schools,
whether they're proprietary schools or private schools or
HVCUs, those cohort default rates have all dropped about 20
percent within the last two cohorts, which is a tremendous,
tremendous reduction.
So whether it's the schools or the Department of Education,
you know, there has been a noticeable impact in terms of the
reduction in the cohort default rates.
Ms. Adams. Okay. Sounds like both should be involved.
But, Mr. Miller, since the 2008 economic downturn, many
states have made significant cuts in funding for higher
education. In North Carolina, our general assembly, and I was a
part of that at one time, and our governor have made gutting
higher education a regular activity. I didn't support that. But
in my hometown of Greensboro, the University of North Carolina
at Greensboro has eliminated, for example, 390 class sections
or about six percent of its course offerings to offset a $4
million budget cut. So can you speak to the effect of a State
disinvestment on increased college tuition costs and greater
student loan debt, especially for low-income students?
Mr. Miller. Essentially what we're seeing in this country
now is a great cost shift where it used to be that States
viewed public higher education as a public good they should be
subsidizing and making affordable for all students. That is
increasingly not the case. Essentially what's happening is that
institutions such as the one as you described, their cost of
providing the education is not really growing, and they're
probably keeping it level.
Instead, all that's happening is the State is pulling money
out and asking students to make up the difference themselves.
And the effect of this essentially is you're making students
borrow. And even worse, you're increasing the risk of trying
college for low-income people.
To get back to your question about default rates,
essentially this is what we're seeing, that a lot of our
defaults are coming from borrowers who try college for maybe a
semester or two and they drop out. A study from the Association
of Community College Trustees found that most borrowers in
defaults from Iowa community colleges owed a little bit under
$5,000. And so essentially what we've done is we've slashed
State funding, raised tuition, made college almost like a
lottery ticket for students, where if they graduate, they'll
probably repay. And if they drop out, they will find themselves
in dire financial straits.
Ms. Adams. Oh. Okay.Thank you very much. I'm about out of
time. Madam Chair I yield back.
Ms. Foxx. Thank you.
Mr. Carter, you're recognized for 5 minutes.
Mr. Carter. Thank you, Madam Chair. And thank all of you
for being here.
Ms. Tighe, let me start with you if I could. You're the
inspector general of the Department of Education. How many
investigations do you conduct on FSA?
Ms. Tighe. We do a number of investigations related to the
programs and operations of FSA. But as far as FSA employees,
not that many.
Mr. Carter. Okay. And I'm more concerned about the
operations than I am----
Ms. Tighe. I don't have the numbers, and I can get back to
you on specifics. But it's a good part. We do annually about
250 to 300 investigations we have open. I imagine probably over
half of those relate to FSA programs and operations. That's my
guess, and I will be happy to give you specific numbers later.
Mr. Carter. Okay. It's my understanding that there are four
different areas that FSA is obligated to. Do you know if
they're meeting their obligations in those four areas that are
outlined in the statutes?
Ms. Tighe. Well, I mean, we have, as I've testified,
concerns, particularly over their management, their oversight
of their--the various participants in their programs, and also
in the management of their regular day-to-day activities. As
far as the program participants where we see our greatest risk
of fraud, one of areas we've highlighted in the last few years
is our still growing problem of fraud rings. These are fake
students who prey upon our distance education programs and
particularly in our low-cost community colleges pretending to
be students signing up for classes and getting disbursements of
Federal student aid.
We did a report to FSA a few years ago with a number of
recommendations that FSA do some system enhancements and other
things to address this problem. FSA has taken some steps, but
we're still seeing the problem grow.
Mr. Carter. Okay. What can we do? What can we do in this
committee, what can we do in Congress, to help you with that?
Ms. Tighe. I think one of the areas that actually is within
your all's responsibility, one of the issues that drives the
costs are the cost of attendance. I think there's a statutory
requirements related to that. We need to be looking at the
difference--is all the money that you need when you go to a
brick and mortar school and you have to have room and board the
same that you need if you already have a job and a house and
you're doing an online program from home. Do you need the same
amount of money disbursed to you? Because if we can reduce the
amount of money that goes out that is not needed, first of all,
you reduce the debt, but you also reduce the attractiveness of
the programs for fraudsters.
Mr. Carter. Okay. Mr. Runcie, let me ask you. It appears
that a lot of the problems that we see in the student loan
industry is being laid at--the blame is being laid on the
servicers. But aren't you in charge of the servicers? I mean,
don't you have direct responsibility for that?
Mr. Runcie. Certainly I have and we have direct
responsibility for that. But again, you know, what we're
talking about are a number of findings, and they're issues that
we continue to address and we've done--and I think throughout
the course of this testimony I've highlighted some things that
we've done to address that.
Mr. Carter. But it seems to me all I'm seeing here is
finger pointing. And, look, you know, this is a serious
problem. Now, unlike my colleague, I'm not a Millennial, but
I'm an employer. And I see students coming out--I'm a
pharmacist. And I see pharmacy students coming out with
$150,000, $200,000 in student debt. And I see them coming out
and they tell me: Well, my goal is to have it paid off in 6
years. Six years. And that's good if they can do that. But can
you imagine? I mean, what are we doing? What are we doing to
help with this situation?
Mr. Runcie. Well, Congressman Carter, I think the overall
statutory environment--you know, there are statutory limits.
And some of those limits are high. We don't control some of the
policies that allow for students to get the types of debt that
they sometimes incur. What we've tried to do is through GE,
CDRs, and other accountability metrics make sure that
institutions don't prey upon students by loading them up with
debt with no ability to get a job they couldn't manage those
debts.
Mr. Carter. And I understand that. But I'm a little bit
frustrated by the finger pointing here, I'll tell you.
Ultimately the responsibility lies with you guys, and you have
to make sure that the servicers are doing their part.
Mr. Runcie. Absolutely.
Mr. Carter. Thank you, Madam Chair. I yield back.
Ms. Foxx. Thank you, Mr. Carter.
Mr. Clay, you're recognized for 5 minutes.
Mr. Clay. Thank you, Madam Chair. And thank you all for
being here today.
This year President Obama issued an executive order that
sets forth a student aid bill of rights. This included specific
directives to agencies to increase protections for student loan
borrowers.
Mr. Runcie, can you briefly describe the specific rights
the administration believes students should have.
Mr. Runcie. Yes. So some of the principles, making sure
that students have access to financial aid, that they are not
harmed, and that, you know, we give them the tools to make sure
that they can repay their obligations. Those are some of the
general points. But under that there were certain specifics
around making sure that there's common branding, that students
can make complaints. So we're putting together a comprehensive
complaint system so if students and borrowers have complaints
we can log them, we can track them, and we can be responsive
and use those to make sure that we make changes to benefit
students and borrowers. So there's a litany of different things
that are in there. A lot of those will be probably addressed as
we go through our recompete process and through some of the
outreach that we plan on doing.
Another thing was sort of transparency and providing
awareness. And, you know, we've already had some targeted email
campaigns with notifications to students and borrowers. So
we're looking to get more information out to them so that they
can make better decisions.
Mr. Clay. And the administration has also proposed critical
improvements to Federal student aid that requires statutory
changes. And that means it's up to Congress to act. For
example, the administration has proposed eliminating the tax
liability for certain discharged student debt.
Mr. Runcie, can you tell us why this proposal is important?
Mr. Runcie. Yeah. It's important because, you know, if we
eliminate--depending on how much debt we're talking about, it
could be a substantial burden, economic burden. So, you know,
let's say, for instance, someone had a situation where they
were falsely misled, took out loans, and eventually those loans
were discharged. It would be very difficult to accept that
someone would get a large tax bill, you know, after the fact.
And so, you know, it's important so that we can actually
produce a real make hold. It wouldn't be a real make hold if
you had a large tax obligation at the end.
Mr. Clay. And statutory changes are required to implement
this proposal.
Mr. Runcie. Yes. That's right.
Mr. Clay. And Congress has not enacted these changes yet.
Have they?
Mr. Runcie. No. Not as far as I know.
Mr. Clay. And the administration has also proposed
statutory changes to create stronger protection for student and
borrowers from the predatory practices of some student loan
assistance companies. For example, some firms charge high fees
for services that students can access for free from government
Web sites. And, Mr. Runcie, Congress has not enacted these
proposed changes to protect borrowers from such predatory
practices. Has it?
Mr. Runcie. No.
Mr. Clay. And so we must act too and protect these
borrowers from some of these practices. You know, and I listen
to my colleague, Mr. Carter, talk about what you all are doing.
But I also realize too that at the State level budgets are
strained, State budgets are strained, which means less money
for these colleges. And it also means that they have to raise
fees in order to sustain.
And does anyone on the panel have any opinions about the
actual cost of going to school now and what maybe we can do to
kind of tamp that down? Mr. Miller.
Mr. Miller. Yeah, I mean, absolutely. That's the biggest
problem is that by the time FSA gets to the borrower, they've
already picked up the loan and the underlying conditions have
already occurred to put them in a bad spot. I mean, I think our
biggest problem is right now, the Federal Government is handing
out a lot of dollars, and it's doing its part to help support
higher education. It doesn't demand anything from States or
institutions about what it does.
And so it says it's okay to a State to say: We're going to
slash all our money and charge a maximum Pell recipient, the
lowest income person in college, thousands of dollars. There
are single moms out there who might be walking away with
$57,000 in loan debt because ther's nothing from the Federal
Government to ask that schools and--I'm sorry. Schools,
institutions, and States do their part. And it's a problem. The
Federal Government cannot unilaterally achieve affordability.
Mr. Clay. And the ultimate impact is that it puts college
out of reach for low and moderate income students.
Mr. Miller. Correct. It puts it out of reach and it also
makes it much riskier for the people who try it and it doesn't
work out.
Mr. Clay. Thank you. I yield back, Madam Chair.
Ms. Foxx. Thank you very much.
Mr. Curbelo, you're recognized for 5 minutes.
Mr. Curbelo. Thank you, Madam Chairman. And I thank both
the committee chairmen and all the witnesses for this wonderful
opportunity to discuss this important issue. I'll just say
briefly before my questions that we must do more to make sure
that young people have all of the information they need to make
rational choices before taking out a loan, before making a
decision on what their path in higher ed should be. I get calls
and I have encounters all the time with young people who are
frustrated by this system and who are, quite frankly, trapped
in this system.
Ms. Emrey-Arras, I want to ask you, your testimony mentions
FSA has not clarified how services should apply overpayments
and underpayments--servicers, overpayments and underpayments to
student loan balances. And FSA is now working with CFPB to
establish a consistent approach to disseminate to servicers.
But last month CFPB released a report saying servicers are not
appropriately applying underpayments. Where do you see FSA's
responsibility for ensuring payments are applied correctly?
Ms. Emrey-Arras. We believe that FSA needs to instruct
servicers on how to officially apply underpayments and
overpayments. They're operating in a vacuum right now. Some do
it one way, some do it another way. And borrowers are treated
differently. So we think the responsibility lies on FSA to come
up with consistent guidance to have it be one single program.
Mr. Curbelo. Mr. Runcie, would you like to respond to that?
Mr. Runcie. I agree with that. And what we want to do is if
we're going to make it uniform and create a standard, we want
to make sure that we have best practices and the best
information. So we're working to make sure we get it right when
we put it out there.
Mr. Curbelo. Thank you.
And, Mr. Runcie, I want to ask you about heightened cash
monitoring. Could you discuss briefly what the standards are
for putting institutions under this type of a program, either
HCM1 or HCM2. And also what institutions can do to be removed
from this status once it's been applied by the Department?
Mr. Runcie. Yeah. It varies. You know, they are put on for
a number of reasons. But ultimately, you know, there's a issue
that needs to be resolved or potentially, you know, students
and the Federal taxpayer may need to be protected. So it gives
us an additional level of monitoring so we could actually
monitor enrollment and cash flows and things like that.
Mr. Curbelo. But what specifically can trigger that
decision to go into an HCM1 or an HCM2?
Mr. Runcie. It could be some financial--for instance, maybe
there's a delay with their financial statements. There's an
issue with issuing their financial statements that would
trigger, you know, putting them on, you know, heightened cash
monitoring. It could be something in a program review that
comes out that we, you know, about the way they deal with, you
know, return of Title IV. It could be a number of different
things. And once it's triggered, you know, there's a heightened
cash monitoring.
Mr. Curbelo. So it's probably fair to say that the
Department has fairly broad discretion in terms of when to
apply heightened cash management?
Mr. Runcie. I think that's right.
Mr. Curbelo. Okay. By the way, Mr. Runcie, I'm not sure if
you're aware, but there's a education leader by your last name
in South Florida who is very well regarded in that community.
Mr. Runcie. I won't disassociate myself from my--he's my
borrower.
Mr. Curbelo. Thank you very much for being here today.
Madam Chair, I yield back.
Ms. Foxx. Thank you very much.
Mr. Courtney, you're recognized for 5 minutes.
Mr. Courtney. Thank you, Madam Chairman. And thank you to
the witnesses.
And Mr. Draeger, again, I always appreciate hearing your
input. Your folks on the ground, you know, are really right
there at the front trenches sort of dealing with this crisis of
higher ed affordability. And the input, I think, is always
really appreciated.
I want to again just sort of underscore one point that you
made which is that the FSA actually did a very good job in
terms of implementing the direct student loan program. And I
don't think that for those who maybe don't follow this stuff
like a box score like some of us, I mean, that was a huge
transformation of the student loan program where, again, we
eliminated the loan origination wasteful spending that existed
in the old system.
And as Mr. Miller pointed out, the savings that was
generated for that we were able to plow back into Pell to the
tune of about I think it was $36 or $38 billion. And they
actually did a pretty good job in terms of making that work.
And, you know, I would just note that that didn't happen,
though, just because of FSA. It's because Congress acted. We
passed the Student Aid and Fiscal Responsibility Act as part of
the budget reconciliation process with the Affordable Care Act.
But we have to be a partner in terms of trying to help solve
this problem. You know, the overhang of $1 trillion of student
loan debt which is being carried by college graduates right now
is something that Congress can actually do something.
When you look at the interest rates, these legacy loans
that were written 10 years ago, 15 years ago in terms of the
private student loans and compare them to what's out there for
consumer credit in terms of, you know, 30-year mortgages or
credit cards, I mean, it's outrageous that people are still
repaying loans at six, seven, eight, sometimes nine and ten
percent in the low interest environment that we're in today.
I just checked for SNCs this morning. The Treasury yield
rate is 2.16 percent. So the government, is only paying 2.16
percent to borrower. But it's still receiving--government, you
know, loans, public loans, at a far higher interest rate.
We have a bill, H.R. 1484, the Bank on Students Emergency
Student Loan Act which would allow people to refinance down
their high interest rate loans to 3.8 percent. We have 184--
excuse me, 181 cosponsors in the House and yet the majority
just refuses to move forward on this measure. And, yes, there
will be a loss of revenue to the government in terms of
allowing people to pay a lower rate of interest than what
they're paying right now.
But I would argue that the purpose of the Stafford Student
Loan Program was not to generate revenue to the Federal
Government. And, frankly, that's what the powers that be in the
House are clinging to. And that's why this bill so far, in any
case, has not moved forward.
But CBO has told us that it will save conservatively about
50 to $60 billion in repayment costs to people who are carrying
these high interest loans.
Mr. Courtney. And the Pew Research institute showed us the
damage that's doing to America's society. People are delaying
getting married. They are delaying having kids. They are
delaying buying houses because they are carrying these high-
interest rate rate loans which again, in every other sector of
the economy, people can write down those kinds of rates. We do
it with home mortgages. We do it with even credit cards. And
yet, people are trapped in student loans. And Congress,
frankly, has the key to open the door to fix that.
So in any case, I'm going to get off my soapbox here a
little bit because--again, I appreciate those comments on the
direct student loan program.
On gainful employment, I just want to make sure I
understood. You seemed to suggest that after that back and
forth which sounded pretty rough, that you sort of have found
some equilibrium in terms of, you know, the reporting
requirements?
Mr. Draeger. Schools are finally--we're finally given a
tool 10 weeks after the reporting deadline that allowed them to
see whether there were any additional conflicting data. So
after some of the back and forth with the Department, threats
of administrative capability, schools were eventually given the
tool to figure out whether they were in compliance.
Mr. Courtney. Well, I'm glad to hear that. And again, I,
you know, feel your pain because I know it was probably pretty
onerous. But again, I would just sort of say from this side of
the witness table, you know, when we are talking about Title IV
which is I think $128 billion was the number that was tossed
out there every year, I mean, frankly, I think the taxpayers
should know that it is being used in a productive manner. And
the gainful employment rules, in my opinion, are just, frankly,
responsible governance in terms of saying that people who get
benefit from this, which are some of these higher Ed
institutions that are in the headlines today, they shouldn't be
part of the program. And the only way we are going to learn
that is by having measurements, accountability which the
gainful employment program was designed to do.
So, you know, I thank your members for their, you know,
persistence in terms of working that issue through. And with
that I yield back, Madam Chairman.
Ms. Foxx. Thank you very much. Mr. Connelly, you are
recognized.
Mr. Connolly. Thank you, Madam Chairman. I thank you for
being so gracious. Mr. Runcie, you are aware of the fact that
we had a hearing yesterday on especially the deployment, or
lack thereof, of IT in the Department of Education, especially
with respect to student loans.
Mr. Runcie. Yes, sir.
Mr. Connolly. And part of Ms. Tighe's testimony involved
the fact that some contractors, subcontractors with the
Department did not allow her office access because they were
afraid, given the fact that they had private clients as well as
Department of Education clients, that the one could compromise
the other. Well, okay, but we have got to be worried about the
fact that a lot of our data involving the public sector is in
their hands, and the IG has to have access to it, and frankly,
so do you. Have you looked into that issue?
Mr. Runcie. Yes, I was very much a part of that process. We
did----
Mr. Connolly. You don't mean by that preventing Ms. Tighe
from action?
Mr. Runcie. No, no, no. Facilitating----
Mr. Connolly. Right, right.
Mr. Runcie. Trying to facilitate the process. As a matter
of fact, Ms. Tighe, myself, the Department, OCIO, the prime,
subcontractor, our contracting officer, we put a maximum amount
of effort and pressure on both the prime and the subcontractor
to get access to the information that the Inspector General
required.
Ultimately, we didn't have a contractual mechanism to get,
I guess in this particular instance, the contract between the
prime and the sub. There were other issues too, in terms of the
comprehensive nature of the user IDs that were provided or were
not provided. So, you know, so at the end of the day, I was
just as disappointed as I think the Inspector General was, but
we didn't have a vehicle to make them provide us the
information.
Mr. Connolly. Well, let me just say, there needs to be a
contractual vehicle. I'm sorry, Ms. Tighe.
Ms. Tighe. Yes, I think the vehicle is a contractual
vehicle that would allow audit access. I mean, the real part of
the problem, maybe even more than our access, is the
Department, or FSA has a contractor operating in a major system
and it has absolutely no visibility into the IT security of
that system. That's the problem.
Mr. Connolly. I think that you're absolutely right, Ms.
Tighe, and that's the problem, Mr. Runcie. God forbid, but the
data on 58 million folks who have student loans or had student
loans, let's, in theory, say in the hands of the private
sector, and they don't allow us access to it, and that gets
compromised, you know, that's more than an uncomfortable
position for you and your colleagues. And so that's why this is
important. It's not just something nice to do, or following
protocol. It's essential if we are going to ensure that we have
security with respect to our database, our database. So I think
that's got to be addressed.
One final question. Also what came up yesterday was the
history of why FSA is a PBO because we had a lot of frustration
over why can't you access this, and why can't you access that
for the CIO. Well, because Congress by statute created FSA as a
PBO. Are we going to take a fresh look at that as to whether
that still makes sense, that's 1997 legislation, and Madam
Chairman, once Mr. Runcie answers, I will, as promised, yield
back.
Mr. Runcie. So the FITARA, and the PBO, they are not
mutually exclusive. All right, so the Department-level OCIO can
have visibility, a level of control, and you know, be a part of
the investment management and project management process that
we have for our IT infrastructure. We have worked with the
Department CIO and put together a plan that was submitted to
OMB where he would have exactly that. And I'm not sure what the
status is, but my understanding is it is close to being
approved. That will not undermine our flexibility as a PBO.
I think as a PBO, given all the changes both regulatory,
statutory, and administrative initiatives, we need the
flexibilities to be able to respond to all of those changes
within short windows. But it does not exclude FITARA.
Mr. Connolly. It better not.
Mr. Runcie. I hear you loud and clear.
Ms. Foxx. The gentleman yields back.
Mr. Connolly. I do.
Ms. Foxx. Thank you. It is now my turn. And as I indicated
at the beginning of this to a couple of our witnesses, there's
so much that we need to get out and so little time.
Mr. Runcie, I just want to be clear on something that has
been said and alluded to. Ms. Tighe indicated that one of the
things that can be done is that we not allow students to borrow
more money than they actually need for their college. However,
it's my understanding that institutions aren't allowed to stop
students from borrowing money they don't need, and if they try
to stop them, or take too much time trying to counsel them, the
school hears about it from you, and tells them to stop doing
that. Is that correct?
Mr. Runcie. Well, I mean, there are statutory limits and
what the student is eligible for, you know, there is an
eligibility amount that they receive. And if they want to, my
understanding is if they want to use that full amount, you
know, in most cases they will have access to it. There is this
concept of professional judgment, but that's very specific, and
it doesn't address the issue that the institutions face, what
we're constrained with from our regulatory framework.
Ms. Foxx. Well, I have heard that from financial aid folks
myself that they feel very constrained to be able to give that
advice to students.
Mr. Draeger, in your testimony, you discussed the troubling
rollout of gainful employment reporting requirements and how
schools did not have the necessary guidance in order to
properly report their data. Even though FSA acknowledged they
didn't deliver guidance in an appropriate timeframe, they did
not provide any deadline extensions to schools trying to catch
up. You said schools are now starting to get responses, but do
you have any explanation for why they haven't until now? Have
they all heard back and been removed from a limbo not of their
own making?
Mr. Draeger. It's after letters have gone out to these
schools accusing them of noncompliance even though it looked to
be just data conflicts. It's not clear to us that any
widespread communication has gone back from FSA to schools
letting them know that everything is in the clear. I understand
that as of last night, some communications were going back out
to these schools saying that they had satisfied the data
conflict requirements.
Ms. Foxx. You think the fact that we were having this
hearing today might have had anything to do with the fact that
they got an answer last night at 7 p.m.?
Mr. Draeger. I think it makes a strong case that
accountability is needed outside of FSA's own self-assessments.
Ms. Foxx. Well, I would tend to agree with you.
Mr. Runcie, the FSA is charged with enforcing reporting
requirements and timely monitoring of institutions. You say
that you have facts and we are just looking at isolated
incidents. But there's one case where you took 7 years to
complete a program review for which no fines were imposed for
an additional 2 years. Then you imposed a fine of $10,000 for a
mistake by a school in categorizing a burglary as a larceny.
Based on these examples alone, it's clear to me that it's
unacceptable for an organization that has such vast
responsibility to make such arbitrary decisions.
I have some questions I'm going to submit to you because we
have so little time today, and I will be expecting a very
prompt response from you.
Ms. Foxx. But I think that based on the 35 outstanding
recommendations from the IG, multiple findings of deficiencies
by GAO, combined with the egregious insufficiencies we have
heard today, I'm extremely concerned about FSA's ability to
serve students, borrowers, and taxpayers as well. And you have
been given the high honor, in my opinion, of being a
performance-based organization, and you have not lived up to
that right that has been given to you.
And I would suggest to you that if you come to us and say,
you need more money to grow your infrastructure, that before
you ask for more money, you'd better show this Congress that
you have made some progress in straightening out your
operation. Because we expect students--you also said there have
been no negative impact to students and families and comment,
after comment, after comment in this room and in reports have
shown negative impact.
You get my ire up and the ire of a lot of members when you
start messing with our constituents.
Thank you, I yield back.
Mr. Jeffries, you are recognized for 5 minutes.
Mr. Jeffries. Thank you, Madam Chair. Mr. Runcie, you
testified earlier today, I believe, that there were
approximately $2 billion in improper financial aid payments. Is
that correct?
Mr. Runcie. Yeah, the improper payment calculation yielded
about $2 billion, but there weren't $2 billion in payments. It
was an estimation.
Mr. Jeffries. And is that an estimation on an annual basis
or is that an aggregate?
Mr. Runcie. That's an annual basis, or it was for 2015.
Mr. Jeffries. Can you explain the general nature of these
improper payments, or improper allocations?
Mr. Runcie. Yeah, so first of all, a third of the improper
payments could be--they could be underpayments, as well. So
it's just that it's not accurate. Right? So, for instance, you
know, if the information that was put in a FAFSA form was
wrong, and so a student received more or less, you know, in the
financial package, that would be considered an improper
payment. Right? So there are instances like that, and so, you
know, when we use a methodology to try to figure out how much
of that is out there, we come up with the $2 billion.
Mr. Jeffries. Now, what if any corrective actions have you
taken to sort of address this improper payment situation?
Mr. Runcie. Well, well, we have taken some of the
recommendations from the IG and GAO in terms of putting in
systems, edits. We have verification procedures that we put out
there. So there have been a number of things that have helped
the income. The IRS data retrieval has increased our ability to
address improper payments because there's less error for
inaccuracy, less room for inaccuracy, so there's some things
that we have done to try to address that.
Mr. Jeffries. Now, Ms. Tighe, you noted in your testimony,
I believe, that there was an increasing risk of people
attempting to fraudulently obtain Federal Student Aid in the
context of distance education programs. Is that correct?
Ms. Tighe. That's correct.
Mr. Jeffries. And a distance education program would be one
where activities is conducted either exclusively or primarily
over the Internet. Is that right?
Ms. Tighe. Yes, that's right.
Mr. Jeffries. In your view, what makes these particular
programs susceptible to an increased risk of fraud?
Ms. Tighe. Well, because all of the transactions are done
online. And so you don't know that the person who has signed up
for classes and applied for Federal Student Aid is intending--
they can misrepresent income. They can misrepresent their
identity. They can misrepresent their graduation status from
high school, and there's really no other way to check that
unless you go through some other more unusual verification
processes with the students.
But you have the ability--fraudsters do, of either
borrowing, or stealing identities, signing up for class,
applying for Federal student aid, getting disbursements of aid,
and then walking away.
Mr. Jeffries. Are there any steps that you would recommend
that Congress take or consider in combating this fraud problem?
Ms. Tighe. I think a couple of recommendations I would
address to you; one I talked about earlier which relates to
cost of attendance. Do we need to have the same amount of money
disbursed in distance Ed programs which typically are, you
know, working parents sitting at home, already own a house, and
you are not attending a brick-and-mortar school. Costs may be
different.
The second is, do we need to disburse the money at the
beginning of a semester term all at once? Can we do it over the
course of a semester or some other term? And that makes the
fraud less likely to happen if there is less money up front to
get.
Mr. Jeffries. And lastly, I think you also expressed
concern with the sort of sudden school closure phenomenon. Is
that right?
Ms. Tighe. Yeah, we did an inspection a few years ago to
look at, essentially, at FSA's readiness to deal with school
closures.
Mr. Jeffries. And what if any steps, I guess the Corinthian
College example would be----
Ms. Tighe. Yeah.
Mr. Jeffries. --a prominent case of the consequences of a
sudden school closure both on the student side and on the
taxpayer side. You know, is there anything that you would
recommend that Congress do in strengthening our ability to
address this situation?
Ms. Tighe. Well, I don't know. I mean, I think FSA, our
inspection certainly pointed to some areas that they needed to
work on. They had a group sort of that I think Mr. Runcie
mentioned, this publicly traded large school working group that
was supposed to be keeping abreast of these issues. It hadn't
met in the 3 years before it was created and then didn't meet
regularly for 3 years. They need to do a better job of
gathering financial information, and particularly from outside
sources, and not just within FSA. I think for Congress, I would
have to think about that.
Mr. Jeffries. Thank you, Madam Chair. I yield back.
Ms. Foxx. Thank you very much. Mr. Hinojosa, you are
recognized for any brief closing comments you would like to
make.
Mr. Hinojosa. Thank you very much, Chairman Foxx. I want to
make a statement and then a closing remark.
The congressional intent was for FSA to use best business
practices and the members of both of these committees have
intended to listen and learn to see how we can address the poor
performance of servicers. And being that the servicers failed
in their performance, why didn't FSA replace the prime
contractor Accenture, and the subcontractor, TSYS. I am going
to request, respectfully request, that Mr. Runcie, and Mrs.
Tighe give members of these two committees in writing, within
30 days, why the servicers' contracts were not canceled, and
new servicers given the Federal contract, just like we do in
business.
Mr. Hinojosa. I was president of a large company and I
remember having contracts with the Department of Defense to
supply food for them. And many who did not meet the
requirements were removed and a new provider given the
contract.
It seems to me that something as big as we are talking
about here with $1 trillion in debt, and the amounts that were
taken by the savings of getting rid of the middleman that were
the lenders of student college loans and replaced by the
Federal Government, where I, as chairman, was told that over a
10-year period we would save $96 billion, and with that, we
took apart and put it into Pell grants. It seems to me that
that should have been an action that should have been taken
immediately, not to wait for us to have this kind of a hearing
and see the weaknesses of the performance and that those people
were not removed immediately.
So in closing, let me say that I want to thank our
distinguished panel for being here this morning. Today we heard
those concerns, but we must not forget that it plays a vitally
important role in expanding college access and affordability.
Moving forward, I'm confident that FSA will continue to
strengthen its management systems and performance in order to
best serve our student borrowers. And with that I yield back,
Madam Chair.
Ms. Foxx. Thank you very much. Mr. Meadows, I would like to
recognize you for closing comments.
Mr. Meadows. Thank you, Madam Chair, and thank you for your
leadership on a number of areas that relate to higher
education. It's certainly not only this hearing, but it's been
recognized time and time again, your commitment to students,
and as you so accurately put it, our constituents. So I thank
you for your leadership.
Instead of doing a closing statement, I'm going to
hopefully ask for a few things to clarify and wrap up some of
this without going into a second line of questioning. But one
of the big areas that we did not address that Ms. Tighe was a
part of yesterday, was the whole cyber aspect because we had
Dr. Harris here yesterday. And one of the questions that came
up during that particular hearing made the potential liability
from a cyber standpoint just frightening, Mr. Runcie. And when
we asked Dr. Harris about some of the dashboard things that are
on the--what the Issa-Connolly bill, or as Mr. Connolly would
put it, the Connolly-Issa bill, it's--as we look at that
particular issue, Dr. Harris couldn't answer one thing and he
said that he didn't know, that we would have to ask FSA. And so
you're here today so I'm going to ask you very quickly.
Can you explain to these committees why there is no PIV
cards to protect from an encryption standpoint to protect this
some 139 million Social Security, unique Social Security
numbers that are there; why the very basic of encryption is not
employed? Because as your Chief Information Officer, he
couldn't answer it. So can you answer that?
Mr. Runcie. Yeah. Dr. Harris is the Department's CIO. We
have our own separate CIO who has 30 years----
Mr. Meadows. But he said this was your call.
Mr. Runcie. Oh.
Mr. Meadows. He couldn't even look. That's the reason I'm
asking you is because he said he couldn't look behind the
curtain; that you're the only one that could look behind the
curtain, so I'm asking you.
Mr. Runcie. So we've had two-factor authentication for some
time. Right? It was level 3.
Mr. Meadows. Yeah, but you went backwards. I was here
yesterday. I don't want to get into all of that. I guess let me
ask you this question more specifically. When can we count on
PIV cards being there, the basic encryption to protect all of
these student's Social Security numbers? When can we count on
that from your agency?
Mr. Runcie. By second quarter.
Mr. Meadows. Okay, by second quarter of next year? I mean,
let's make sure that we're talking about--I mean, second
quarter 10 years from now is a tough----
Mr. Runcie. Our target is the end of December, but there
may be some constraints that move us into the next quarter. So
that's why I meant that quarter.
Mr. Meadows. All right.
Mr. Runcie. January through March.
Mr. Meadows. All right, so in two quarters you will have it
done. All right. So let me go to one other thing that a lot of
people were excited about, this whole REPAY thing that here in
just a few weeks, I guess, is going to be there.
Do all the service providers, do they have what they need
to make the best decisions and all of that, and to implement
that, the contractors?
Mr. Runcie. Yes.
Mr. Meadows. And so you have been working on that as I
understand for a while. Is that correct?
Mr. Runcie. Yes, REPAY, the delivery of REPAY. Yeah.
Mr. Meadows. And so dating back as far as as, I guess, from
my records it showed that you had a proposed rule draft change
contract change that went out in May of 2015, is that correct?
Mr. Runcie. That sounds right.
Mr. Meadows. And then a final contract change that went out
in July of this year?
Mr. Runcie. I believe that's right.
Mr. Meadows. And so I'm a little confused, so help me with
this. And I don't understand the process. But since the
Secretary just put out the final rule on October the 30th, how
did you send out those contract changes before a final rule was
complete? I mean, was it just that we assumed that it was going
to not change?
Mr. Runcie. I know that we provided guidance. Because of
the window that we are talking about, it's obviously a tight
timeframe, so if we waited until the last minute to give any
sort of guidance or instruction----
Mr. Meadows. Well, but these aren't--these are contract
changes which is a lot difference than guidance and so are you
assuming that the rule that just became final was going to be
the final rule? Because on October 30, the final rule, it
wasn't exactly like the proposed rule. It actually changed.
Mr. Runcie. I will have to get back to you with a timeline.
Mr. Meadows. It sounds like we've got things backwards.
Mr. Runcie. Yeah, I can confirm the time line and get that
back to you.
Mr. Meadows. I yield back. I thank the chairwoman for her
patience.
Ms. Foxx. Thank you very much. This has been a very
interesting hearing to me, a very revelatory hearing, and I
want to thank Mr. Meadows for co-chairing this. And I want to
thank the OGR staff and our staff for putting the hearing
together.
There are a couple of things that have come up here that I
think are important to point out. One is the issue of
complexity. You know, I have been around in the Federal
Government business for a long time. I was the director of an
upward bound special services program at Appalachian State
University. We dealt with financial aid, and very concerned,
again, about what our students, what our students were getting
in financial aid.
When we talked today about FSA's management of our broken
financial aid system, I think it's important to remember that
in 1990 there was only one forbearance option, and two
repayment plans. In 2015, we have 13 forbearance options, 15
repayment plans, and the all new forgiveness programs.
It's clear, and Mr. Runcie, this is one area you and I
agree on, you mentioned you have tremendous complexity to deal
with. It's clear we have allowed the system to become far too
complex to serve students well. I believe it is the life of
bureaucrats to make things complex. I think this administration
has made things way too complex. And I think it's going to be
up to us to look for ways to make the system less complex
because it is clear, FSA cannot administer this program. And if
you cannot administer the program, your servicers cannot
administer.
And I agree with Mr. Carter. It appears that there is a lot
of blame being foisted upon the servicers. That's not where the
problem is, Mr. Runcie. The problem is with the leadership of
the FSA.
If you gave clear guidelines to the servicers, if you did
things in a timely fashion, we would not have this problem. And
even the complexity you have generated could be gotten through.
And there's no benefit to the servicers to not explain things
fully to students. I have inquired about that. The only problem
is, they don't have the guidance from you to be able to do it.
And it's so complex even financial aid administrators don't
understand it. That's not the way it should be. It's not the
way it should be.
Again, you are harming the people you are supposed to be
helping. And that has to stop. Again, I thank all of you for
being here today. I thank you for revealing a lot of things
that I think will be useful to us as we look to the
reauthorization of the HEA and I appreciate the time that
you've given us. This hearing is adjourned.
[Whereupon, at 11:36 a.m., the subcommittees were
adjourned.]
APPENDIX
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