    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

            IMPROPER PAYMENTS IN THE FEDERAL GOVERNMENT: STUDENT AID

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

                                 JOINT HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                             GOVERNMENT OPERATIONS

                                    AND THE

                                SUBCOMMITTEE ON
                           INTERGOVERNMENTAL AFFAIRS

                                     OF THE

                             COMMITTEE ON OVERSIGHT
                             AND GOVERNMENT REFORM
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 25, 2017

                                   __________

                               Serial No. 115-34

                                   __________

    Printed for the use of the Committee on Oversight and Government Reform

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                  Committee on Oversight and Government Reform

                         Jason Chaffetz, Utah, Chairman
    John J. Duncan, Jr., Tennessee       Elijah E. Cummings, Maryland,
    Darrell E. Issa, California              Ranking Minority Member
    Jim Jordan, Ohio                     Carolyn B. Maloney, New York
    Mark Sanford, South Carolina         Eleanor Holmes Norton, District of
    Justin Amash, Michigan                   Columbia
    Paul A. Gosar, Arizona               Wm. Lacy Clay, Missouri
    Scott DesJarlais, Tennessee          Stephen F. Lynch, Massachusetts
    Trey Gowdy, South Carolina           Jim Cooper, Tennessee
    Blake Farenthold, Texas              Gerald E. Connolly, Virginia
    Virginia Foxx, North Carolina        Robin L. Kelly, Illinois
    Thomas Massie, Kentucky              Brenda L. Lawrence, Michigan
    Mark Meadows, North Carolina         Bonnie Watson Coleman, New Jersey
    Ron DeSantis, Florida                Stacey E. Plaskett, Virgin Islands
    Dennis A. Ross, Florida              Val Butler Demings, Florida
    Mark Walker, North Carolina          Raja Krishnamoorthi, Illinois
    Rod Blum, Iowa                       Jamie Raskin, Maryland
    Jody B. Hice, Georgia                Peter Welch, Vermont
    Steve Russell, Oklahoma              Matt Cartwright, Pennsylvania
    Glenn Grothman, Wisconsin            Mark DeSaulnier, California
    Will Hurd, Texas                     John Sarbanes, Maryland
    Gary J. Palmer, Alabama
    James Comer, Kentucky
    Paul Mitchell, Michigan

                       Jonathan Skladany, Staff Director
                      Rebecca Edgar, Deputy Staff Director
                        William McKenna, General Counsel
                     Drew Baney, Professional Staff Member
                             Kiley Bidelman, Clerk
                     David Rapallo, Minority Staff Director
                     Subcommittee on Government Operations

                     Mark Meadows, North Carolina, Chairman
    Jody B. Hice, Georgia, Vice Chair    Gerald E. Connolly, Virginia,
    Jim Jordan, Ohio                         Ranking Minority Member
    Mark Sanford, South Carolina         Carolyn B. Maloney, New York
    Thomas Massie, Kentucky              Eleanor Holmes Norton, District of
    Ron DeSantis, Florida                    Columbia
    Dennis A. Ross, Florida              Wm. Lacy Clay, Missouri
    Rod Blum, Iowa                       Brenda L. Lawrence, Michigan
                                         Bonnie Watson Coleman, New Jersey
                                     ------

                   Subcommittee on Intergovernmental Affairs

                         Gary Palmer, Alabama, Chairman
    Glenn Grothman, Wisconsin, Vice      Val Butler Demings, Florida,
        Chair                                Ranking Minority Member
    John J. Duncan, Jr., Tennessee       Mark DeSaulnier, California
    Trey Gowdy, South Carolina           Matt Cartwright, Pennsylvania
    Virginia Foxx, North Carolina        (Vacancy)
    Thomas Massie, Kentucky              (Vacancy)
    Mark Walker, North Carolina

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on May 25, 2017.....................................     1

                                   WITNESSES

    Mr. John W. Hurt, Chief Financial Officer, Federal Student Aid,
      U.S. Department of Education, Washington D.C.
        Oral Statement...............................................     7
        Written Statement............................................     9
    The Hon. Kathleen S. Tighe, Inspector General, U.S. Department of
      Education, Washington D.C.
        Oral Statement...............................................    15
        Written Statement............................................    17
    Mr. Justin Draeger, President, National Association of Student
      Financial Aid Administrators (NASFAA), Washington D.C.
        Oral Statement...............................................    26
        Written Statement............................................    28

            IMPROPER PAYMENTS IN THE FEDERAL GOVERNMENT: STUDENT AID

                                  ----------

                             Thursday, May 25, 2017

                      House of Representatives,
     Subcommittee on Government Operations, joint with
         the Subcommittee on Intergovernmental Affairs,
                  Committee on Oversight and Government Reform,
                                                       Washington, D.C.
        The subcommittees met, pursuant to call, at 10:02 a.m., in
    Room 2154, Rayburn House Office Building, Hon. Mark Meadows
    [chairman of the Subcommittee on Government Operations]
    presiding.
        Present from Subcommittee on Government Operations:
    Representatives Meadows, Hice, Jordan, Ross, Blum, Connolly,
    Norton, Lawrence, and Watson Coleman.
        Present from Subcommittee on Intergovernmental Affairs:
    Representatives Palmer, Grothman, Foxx, Walker, Demings, and
    DeSaulnier.
        Mr. Meadows. The Subcommittee on Government Operations and
    the Subcommittee on Intergovernmental Affairs will come to
    order. And without objection, the chair is authorized to
    declare a recess at any time.
        Good morning, and welcome to everybody to this joint
    subcommittee hearing on improper payments at the Department of
    Education. Today's hearing is a continuation of the committee's
    work to oversee improper payments throughout the government and
    also as a continuation of the committee's oversight of the
    Federal Student Aid program.
        Improper payments is an important topic that doesn't get
    enough attention and is also critical for us to get it right.
    Addressing this area has been especially challenging at the
    Federal Student Aid, given the richness and complexity of the
    programming.
        Student aid disbursements, which total nearly $130 billion
    a year, are made in accordance with complex rules, some of
    which are too burdensome, and in conjunction with stakeholders
    at schools, contractors, and college access providers.
    Rightfully so, the inspector general, who we welcome today, has
    designated this area as a ``management challenge,'' quote, for
    the agency. This has been a management challenge for FSA since
    2012. Let's be clear, though. FSA has all the tools it needs to
    fix this problem.
        When Congress created FSA as a performance-based
    organization in 1998, it gave the organization all the
    flexibility necessary to get the job done, and in return, the
    statutory expectation was that FSA would be transparent and
    that Congress would hold it accountable.
        When FSA testified before this committee not too long ago
    in November of 2015, I said that Congress created this PBO and
    then walked away. I said we, Congress, didn't uphold our end of
    the bargain and pledged to continue with that oversight, and we
    have.
        Which brings me to my next point perhaps addressing the
    elephant in the room. We are looking forward to speaking with
    the head of FSA today, but regrettably, he resigned 24 hours
    ago. And that is too bad because under statute he was
    responsible to Congress for the operations of FSA, and we had
    questions.
        It is also a slap in the face to the millions of taxpayers
    who provided this gentleman with over $430,000, yes, $430,000
    in bonuses since 2010. With an investment like that, they
    deserve better.
        That said, I am pleased to welcome FSA's chief financial
    officer here today. We sincerely appreciate you coming, and I
    recognize that you only had 24 hours to prepare.
        I also look forward to working with Secretary DeVos to
    address the shortcomings of the student aid program, including
    improper payments. In fact, I spoke with her yesterday, and her
    commitment to getting this right was very reassuring. I am
    hopeful that as we look to swiftly appointing a new chief
    operating officer and a permanent one for the Federal Student
    Aid that we will be able to work very closely together and
    address some of the concerns the inspector general has pointed
    out.
        Today, however, we are focused specifically on improper
    payments, and I look forward to figuring out how we will really
    fix this problem. We need a meaningful dialogue, and we need to
    identify real solutions.
        And with that, I just again welcome all of you.
        Mr. Meadows. I will now recognize the ranking member, Mrs.
    Demings, for her opening statement.
        Mrs. Demings. Thank you so much, Mr. Chairman, for holding
    this very important hearing on improper payments, and I also
    welcome our witnesses and thank you for being here with us
    today.
        Loan services have had a lamentable record of taking
    advantage of the students who rely on them. For too long, they
    did this with few repercussions from the Department. But in
    2015, President Obama's Department of Education, Treasury, and
    Consumer Financial Protection Bureau announced a joint
    statement of principles on student loan servicing. These
    principles were developed to address the poor customer service
    scores and rampant borrower abuse. This guidance instructed the
    Department to consider the past performance of its loan
    servicing contracts.
        In one of her first official actions, Secretary DeVos
    rescinded that guidance. On May 19, Secretary DeVos announced
    her intention to hire a single loan servicer that will be
    solely responsible for managing the Nation's $1.3 trillion-plus
    student loan portfolio and will be able to subcontract to other
    companies. Apparently, the Trump administration intends to hire
    a fox to guard the hen house.
        The National Association of School Financial Aid
    Administrators serves 9 of every 10 undergraduates in the
    United States and has served the financial aid community for
    over 50 years. It recently reported that within Federal Student
    Aid office strategic planning is not happening as Congress
    intended.
        In May 2016 Government Accountability Office concluded that
    the Department of Education lacks comprehensive and comparable
    information on the nature of borrowers' complaints made to the
    Department and its contracted loan services, hindering its
    ability to track trends and address borrower concerns. In other
    words, the Department of Education was not capable of
    protecting student borrowers and preventing abuses by loan
    servicing companies.
        In response to the GAO report, the Department agreed to
    evaluate existing and alternative performance metrics and
    compensation strategies as part of its ongoing student loan
    servicing procurement and reflect the results in future
    servicing contracts. Secretary DeVos seems to be retreating
    from that agreement and is moving the Department back to the
    bad old days.
        I look forward to hearing from the witnesses about specific
    plans that are being developed and what actions should be
    undertaken to ensure that student borrowers are provided the
    best services and loan servicers are given notice that the
    Department will not tolerate further abuses.
        Thank you so much, Mr. Chairman, and I yield back.
        Mr. Meadows. I thank the gentlewoman for her opening
    statement.
        I recognize the gentleman from Alabama, Mr. Palmer, for his
    opening statement.
        Mr. Palmer. Thank you, Mr. Chairman. And I want to thank
    the witnesses for being here. This is an important issue. It
    was an important issue to President Obama in July of 2010. He
    signed a bill, the Improper Payments Elimination and Recovery
    Act, because it is a drain on our resources. Every dollar that
    we send out improper payments is not just a dollar; it is a
    dollar plus interest because we are operating in deficit so it
    puts a huge constrain on our ability to fund the legitimate
    functions of government.
        It is a concept that is easy to understand. An improper
    payment is any payment that was made improperly, including
    payments made to the wrong person for the wrong amount to
    ineligible recipients and without supporting documentation. As
    a matter of fact, in the GAO's report, 54 percent of the
    improper payments that were made were because of insufficient
    documentation and inability to authenticate eligibility. That
    is not a heavy lift to correct that.
        What is hard to understand is how the Federal Government
    reported $144 billion of improper payments last year, $11
    billion of which was they didn't pay people enough, leaving
    $134.7 billion in overpayments. Since reporting began in fiscal
    year 2004, the Federal Government has reported $1.2 trillion in
    improper payments, and I would like to add again, Mr. Chairman,
    that would be plus interest.
        Unfortunately, the Department of Education, specifically
    the Office of Federal Student Aid, has tended in the same
    direction as the rest of the Federal Government in regards to
    increasing improper payments and is a good place to start to
    dig into this growing problem. I would also like to point out
    that in 2016 GAO found several examples of contract
    mismanagement that have led to confusion among the student loan
    servicers. GAO has specifically highlighted concerns over the
    quality of communications and unclear guidance from FSA to the
    services.
        The Department of Education inspector general is here to
    report for the third straight year the Department is not in
    compliance with Improper Payments Elimination and Recovery Act
    of 2010, as I pointed out, legislation that the President
    signed in July of 2010. By law, agencies are required to
    conduct risk assessments to determine if programs are
    susceptible to significant improper payments. Susceptible
    programs must report a statistically valid estimate of improper
    payments and other details about the causes and corrective
    actions taken by the agency.
        The IG has reported concerns about the methodology the
    Department uses to develop the estimate. The IG has also
    reported that the Department has not conducted effective risk
    assessments or used the risk assessments to appropriately
    designate programs. These failures are particularly concerning
    given the amount of money at risk.
        Last year, the Department reported more than $6 billion of
    improper payments from just two programs: Direct Loans and Pell
    Grants. The Office of Management and Budget has designed both
    programs has high-priority programs, which means they are among
    the 20 programs with the highest rates of improper payments in
    the Federal Government.
        However, the estimate that the Department reports is based
    on flawed methodology. The Department admits as much in its
    annual financial report, which says, ``The Department
    acknowledges that its alternative estimation methodology can
    lead to volatile improper payment estimates.'' How can we
    understand the risk and taxpayer dollars at stake when the
    Department is unable to provide effective estimates? The
    Department needs to take responsibility for the taxpayer
    dollars invested in the agency and do better.
        The Department reports that the improper payments are
    primarily a result of a failure to verify financial data and
    administrative errors made outside of the Department.
    Correction: The problem is the Department. It is responsible
    for the money. The Department is responsible for developing
    effective processes. The Department is responsible for ensuring
    that the schools and the students understand the process and
    that the process is not overly burdensome.
        We are here today to begin the process of helping the
    Department to assume this responsibility since it appears
    unable to do so on its own. We can't begin to fix the growing
    problem of improper payments across the government until
    agencies follow suit. And I look forward to working with my
    colleagues to do so.
        Thank you, Mr. Chairman. I yield back.
        Mr. Meadows. I thank the gentleman for his opening
    statement.
        The chair recognizes the gentleman from Virginia, the
    ranking member of the Subcommittee on Government Operations,
    Mr. Connolly.
        Mr. Connolly. I thank you, Mr. Chairman, and welcome our
    witnesses today.
        Today's hearing examines improper payments at the
    Department of Education, a very important topic, one that this
    committee has done a lot of work on, not only Department of
    Education but throughout the Federal Government. And we have
    reason to be concerned for a lot of reasons.
        The Department of Education inspector general has
    repeatedly reported on the Department's noncompliance with
    Improper Payments Information Act of 2002, the Improper Payment
    Elimination and Recovery Act of 2010, and the Improper Payments
    Elimination and Recovery Improvement Act of 2012. We must
    understand how the Department can improve its evaluation and
    targeting of improper payments and how it fails to comply with
    the law, in this case, three of them.
        However, the more pressing issue at the Department of
    Education and the one facing most Americans' checkbooks is the
    unethical abusive and predatory actions of student loan
    companies themselves. The Department distributes $125 billion
    in student assistance every year. With more than $1.3 trillion
    in loans on the books, it is in fact one of the largest
    financial institutions in the country.
        To manage the portfolio, the Department contracts with
    student loan companies. Last September, the OIG issued a report
    that found multiple student loan companies which were supposed
    to be assisting students were actually accessing and changing
    student log-on information as part of a predatory scheme to
    access their accounts, change their regular mail and email
    addresses, and even intercept correspondence.
        Specifically, the IG reported that the process for logging
    onto the Federal Student Aid website was, quote, ``being
    misused by commercial third parties to take over borrower
    accounts,'' unquote. It sounds like stealing to me. In one
    case, the IG warned that student loan companies changed the
    mailing address, phone number, and email address for borrowers
    so that it would be difficult for the borrowers to be contacted
    by their loan services.
        Less than two months ago on April 20th, the staff of this
    committee conducted a transcribed interview with the special
    agent in charge of this investigation and the IG's Office. The
    special agent warned that these companies were, quote,
    ``controlling thousands of accounts or creating thousands of
    accounts and controlling them.'' In other words, the very
    companies that were supposed to be helping students, as
    contracted by the Department of Education, were in fact abusing
    their trust in an egregious way.
        In January of this year, the Consumer Financial Protection
    Bureau filed suit against Navient, one of the largest student
    loan servicing companies in the United States, alleging that it
    steered high-risk borrowers into plans designed for those with
    short-term financial hardships, misrepresented the consequences
    of nonrenewal plans, and prevented some of the most financially
    vulnerable borrowers from securing the benefits of payment
    plans specifically intended for them.
        In response to documented abuse by loan servicers in the
    default rate of one default for every 29 seconds, the previous
    administration issued a memorandum requiring the FSA to do more
    to help borrowers manage and discharge debt. The new guidance
    put protections in place for borrowers by reducing the
    possibility that new contracts would be given to companies that
    had misled or otherwise harmed debtors.
        Unfortunately, the new Secretary of Education, Ms. DeVos,
    has rescinded those directives and instructed the FSA to move
    forward with awarding contracts to companies that have current
    lawsuits against them or have admitted in court to their abuses
    and have been fined millions of dollars. The elimination of
    these important protections by the Secretary herself allows
    student borrowers to be charged up to 16 percent of the
    principal and accrued interest owed on loans unless they enter
    the government's Loan Rehabilitation Program within 60 days of
    default.
        The Secretary also intends to shift to contracting with one
    loan servicer, one, which will potentially have subcontractors
    along with them. This policy would eliminate direct government
    oversight of many loan servicers. I would like to know how this
    new policy will provide better customer service and reign in
    loan servicer abuse. From the announcement by the Secretary, it
    appears the Department will in fact have less oversight of the
    loan servicers, not more, in this new model.
        The rollback of these vital protections and financial
    oversight, combined with recently announced budget by the
    President, represent a unilateral retreat from safeguarding the
    best interests of students and borrowers. Budget outlines a
    $9.2 billion or 13.5 percent cut to the Department of
    Education. The administration would eliminate the Federal
    Student Loan Forgiveness Program for public service workers,
    limit student loan repayment options, and end federally
    subsidized student loans.
        The actions of this administration constitute in my view an
    assault on education and economic opportunity. Education is an
    investment. The government has a return on that investment.
    When we shortchange that investment by leaving students to fend
    for themselves against unscrupulous loan services or withdraw
    Federal support for education, we diminish our expected return:
    the talented, well-educated workforce the United States so
    desperately needs in the 21st century as we move forward.
        With that, I yield back.
        Mr. Meadows. I thank the gentleman for his remarks.
        I will hold the record open for five legislative days for
    any member who would like to submit a written statement.
        I will now recognize our panel of witnesses. I am pleased
    to welcome Mr. Jay Hurt, chief financial officer for Federal
    Student Aid at the U.S. Department of Education; the Honorable
    Kathleen Tighe, inspector general of the U.S. Department of
    Education, welcome; and Mr. Justin Draeger, president of the
    National Association of Student Financial Aid Administrators.
    Welcome. Welcome back. Welcome to you all.
        Pursuant to committee rules, all witnesses will be sworn in
    before they testify, so if you will please rise and raise your
    right hand.
        [Witnesses sworn.]
        Mr. Meadows. Thank you. Please be seated. Let the record
    reflect that the witnesses answered in the affirmative.
        In order to allow time for discussion, we would appreciate
    if you would limit your oral testimony to five minutes.
    However, your entire written testimony will be made part of the
    record.
        Mr. Hurt, you are recognized for five minutes.

                           WITNESS STATEMENTS

                         STATEMENT OF JAY HURT

        Mr. Hurt. Thank you, Chairmen Meadows and Palmer, Ranking
    Members Connolly and Demings, and members of the subcommittees,
    for the opportunity to join you today. My name is Jay Hurt, and
    as the FSA CFO, I am the accountable--program accountable
    official for improper payments at Federal Student Aid.
        I am here to talk to you about improper payment estimates
    for the Pell Grant and Direct Loan Programs, the most recent
    audit of the Department's compliance with IPERA, and our work
    to minimize the level of improper payments in these two
    programs. As the largest source of student aid for
    postsecondary education in the United States, FSA delivered
    more than $125 billion in aid to more than 13 million students
    attending more than 6,000 schools last year.
        FSA must balance the simplicity and efficacy of the Federal
    student aid delivery process with the need to protect taxpayer
    dollars. This balance has led us to create a highly automated
    and integrated aid delivery process with hundreds of controls
    to combat improper payments.
        We appreciate the partnership with our IG looking for
    opportunities to improve this process. In 2014, OMB approved
    our alternative improper payment estimation methodology for
    Pell Grant and Direct Loan Programs. This methodology leverages
    data collected through FSA program reviews, avoids significant
    costs that would otherwise be required for separate testing at
    schools if FSA were to use statistical sampling techniques and
    integrates the improper payment estimation into core FSA
    monitoring functions.
        In June 2016, FSA submitted updates to the alternative
    sampling methodology to OMB in response to findings from the
    IG's fiscal year 2015 IPERA Compliance Audit Report. OMB
    approved the revised estimate methodology in October of 2016.
    As a result of the changes to the methodology, and as a likely
    result of the inherent variability of the methodology, the
    fiscal year 2016 estimated improper payment rate for the Pell
    Grant and Direct Loan Programs increased over the estimates
    produced in fiscal year 2015 and were higher than the targets
    set in fiscal year 2015.
        The improper payment rates are primarily based on the
    assessment of completed program reviews. Schools are selected
    for a program review based on risk-based criteria. Only a small
    set of schools are selected for review randomly, typically
    less-risky schools. Because all schools are not randomly
    selected for review, the extrapolation of findings from these
    reviews does not produce an estimate that is representative of
    the full population of payments. In order to eliminate the
    variability of the estimate to the tolerance level prescribed
    by current OMB guidance, FSA would need to spend millions more
    on its improper payment estimation process and impose
    significant burdens on roughly 1,000 schools. If FSA were to
    divert resources from the higher-risk program reviews to the
    randomly selected reviews, we would essentially be giving up
    the identification and recovery of improper payments in order
    to improve our estimates.
        Although fiscal year 2016 IPERA Compliance Audit Report
    identified the Department as noncompliant with IPERA due to
    missing its improper payment reduction targets, the IG found
    that the Department's improper payment reporting, estimates,
    and methodology were generally accurate and complete. FSA has
    developed robust internal controls to prevent, detect, and,
    where appropriate, recover improper payments. In designing
    controls, FSA strives to strike the right balance between
    providing timely and accurate payments to students and ensuring
    that controls are not overly costly and burdensome.
        In fiscal year 2016, FSA documented and assessed 328
    controls to detect and prevent improper payments and found that
    97 percent were designed and operating effectively. FSA has
    also identified corrective actions to address the root causes
    of improper payments. For example, FSA annually reviews
    verification procedures that require schools to verify specific
    information reported on the FAFSA form by student aid
    applicants. These school verification procedures are an
    effective control, avoiding hundreds of millions annually in
    actual improper payments.
        Despite our continuous efforts to reduce improper payments,
    it would be misleading for us to leave Congress and the public
    with the impression that zero percent improper payment rate is
    feasible. In its 2016 Global Fraud Study, the Association of
    Certified Fraud Examiners found that the typical organization
    loses 5 percent of revenues in a given year as a result of
    fraud. As currently defined by OMB, improper payments include
    much more than fraud. Using this definition, FSA's estimated
    combined fiscal year 2016 improper payment rate is 4.85
    percent.
        I appreciate the opportunity to provide you with this
    information, and I welcome any questions you have.
        [Prepared statement of Mr. Hurt follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

         Mr. Meadows. I thank you, Mr. Hurt.
        We now recognize you, Ms. Tighe, for five minutes.

                     STATEMENT OF KATHLEEN S. TIGHE

        Ms. Tighe. Thank you very much. I apologize for my voice
    this morning. I'll try to speak loud.
        Thank you for inviting me here today to discuss the work of
    the Department of Education Office of Inspector General
    involving improper payments. Our work related to improper
    payments has evolved and increased over the years with the
    passage of several statutes, including the Improper Payments
    Elimination and Recovery Act of 2010. In these efforts, where
    we have identified instances of noncompliance with IPERA by the
    Department and weaknesses in the Department's efforts to
    measure, estimate, and report on improper payments, we have
    provided recommendations for improvement.
        In our recent improper payments audit covering fiscal year
    2016, we found for the third year in a row that the Department
    did not comply with IPERA. Like the previous two years, the
    Department did not meet the annual reduction target for the
    Direct Loan Program. This year, it also did not meet the annual
    reduction target for the Pell Program. The improper payment
    estimate for the Pell Program was 7.85 percent, or $2.21
    billion, which exceeded the reduction target of 1.87 percent.
    The improper payment rate for the Direct Loan Program was 3.98
    percent, or $3.86 billion, which exceeded the reduction target
    of 1.29 percent.
        This was not unexpected. As in response to my office's
    recommendations, the Department had revised its estimation
    methodologies for both the Direct Loan and Pell Programs to
    include estimates of inaccurate self-reported income and
    improper payments associated with ineligible programs and
    locations. The Department also expanded the number of program
    reviews it used.
        Although these revisions to its methodologies caused a
    significant increase in improper payments for both programs,
    tripling the estimate for the Direct Loan Program and
    quadrupling the estimate for the Pell Program, the increased
    rates show the progress the Department has made in its
    estimates and provide a more realistic picture where these
    programs are in terms of improper payments. This should result
    in better information for the Department to use when designing
    appropriate corrective action.
        Our recent audit also found for the first time that the
    Department did not conduct risk assessments that confirmed with
    the appropriate requirements to determine whether Department-
    managed grant programs and FSA-managed contracting activities
    may be susceptible to significant improper payments.
        Through its own risk assessment, the Department identified
    the rehabilitation services Administration Vocational
    Rehabilitation State Grants Program as a program that exceeded
    the established improper payments threshold. Single audits
    reviewed by the Department had identified questioned costs for
    the voc rehab program ranging from $31 million to $44 million,
    which are between 1.56 percent and 1.81 percent of program
    outlays all over the threshold. Yet despite these findings, the
    Department did not conclude the voc rehab program may be
    susceptible to significant improper payments and did not report
    the program in its fiscal year 2016 annual financial report, as
    it was required to do.
        Further, for FSA-managed contracting activities, the
    Department did not consider seven of the nine required risk
    factors. FSA-managed contracting activities accounted for 76
    percent of the Department's active contracts in 2016. For the
    Department-managed grant programs, the Department did not
    consider two of nine risk factors. As a result, these risk
    assessments did not comply with IPERA.
        Based on our findings, we made 10 recommendations to help
    the Department comply with IPERA and improve its improper
    payments reporting, estimates, and methodologies. With the
    exception of our recommendation pertaining to the voc rehab
    program, the Department indicated it will take action to
    respond to our recommendations.
        This concludes my testimony. I'm very happy to answer
    questions.
        [Prepared statement of Ms. Tighe follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Meadows. Thank you.
        Mr. Draeger, you are recognized for five minutes.

                      STATEMENT OF JUSTIN DRAEGER

        Mr. Draeger. Mr. Meadows, Mr. Palmer, Mrs. Demings, Mr.
    Connolly, thank you for the invitation to testify today. As has
    been pointed out, NASFAA represents financial aid
    administrators at 3,000 public, private colleges, universities,
    and trade schools across the United States.
        Financial aid administrators really sit at the nexus
    between policy and practice, and so we like to believe that our
    perspective can add value as how things that emanate from
    Washington, D.C., affect students on the ground.
        An improper payment can be the result of fraud or it can be
    the result of error, and from an institutional perspective,
    we've made some progress on both of those fronts in recent
    years. Concerning fraud, some of the most recent institutional
    practices that have been implemented to combat fraud include
    more stringent academic progress monitoring to make sure
    students are moving through their program; with help from the
    Department of Education, tracking students who are attending
    multiple institutions; smaller disbursements made to students
    on an ongoing basis; more in-depth one-on-one counseling; and
    more faculty involvement to track attendance to make sure
    students are actually attending the courses they are taking
    financial aid for.
        But one of the greatest challenges in dealing with improper
    payments within the student aid programs is really in our
    efforts to drive down improper payments, we don't want to
    simultaneously and sometimes inadvertently drive out the very
    students that we're trying to help. So I want to offer two
    real-life contrasting examples of--that have come up in recent
    years.
        First, as has been pointed out by the other folks on the
    panel, one of the root causes of improper payments is
    unverified financial data from an applicant that is put on
    their financial aid application. To correct this issue, the
    Department of Education, the IRS several years ago implemented
    an IRS data retrieval tool, which was really a win-win because
    it allowed students to automatically import their data
    automatically verified by the IRS into their application,
    lowered barriers for students, and decreased improper payments.
        As the folks on the subcommittees are aware, though, in an
    unfortunate twist, that tool was taken down in March because it
    detected fraud. And without that tool being operational and
    securely operational, improper payments will likely increase
    and students will have larger-than-necessary barriers in
    completing their applications. Still, though, the DRT is a good
    example of a tool that automated a process to lower improper
    payments and serve students and families.
        On the other hand, sometimes when we try to drive down
    improper payments, students and schools are subjected to very
    burdensome regulations and requirements that have pretty
    questionable outcomes and results. For example, the Department
    found that 15 percent of all financial aid applicants who said
    they did not file a tax return actually did end up filing a tax
    return. And on the face of it, that sort of error is
    disconcerting.
        So the Department began requiring students to provide
    documentation from the IRS that they did not file a tax return.
    As it turned out, that process was ridiculously complex and
    archaic and required 10 business days for students to request a
    transcript from the IRS through the U.S. Postal Service. In
    2015, 2016, 2017, that sort of archaic process can at best
    delay financial aid and at worst, as schools reported, disrupt
    enrollment.
        And the one unanswered question in all of this is did any
    of the changes that resulted from this requirement actually
    reduce improper payments? That question was not answered, at
    least publicly to the institutions that had to implement this
    for students.
        Unfortunately, a solution that was under consideration
    where the IRS and the Department would, just behind the scenes
    through a database match, automatically determine whether
    somebody had filed a tax return has since been scrapped.
        I want to offer in my last minute here just a few
    suggestions. One is that we would like to encourage the
    Department to continue to leverage technology whenever
    possible, to take the burden off the students and rely on other
    Federal or State databases as much as possible to verify
    student eligibility. This has to be done, of course, securely.
        Second, we need a better partnership with the Department of
    Education to work closely together so that any new requirements
    or data collection requirements go through some sort of testing
    first so that we understand the impact on students and schools.
    Audit and program reviews must be issued in a timely way, and
    the Department should consider a voluntary program where
    schools can come forward with errors without fear of reprisal,
    fines, and liabilities in the spirit of partnership to fix
    improper payments.
        And finally, we need congressional help to simplify
    everything from the application to the formula determining
    student eligibility.
        Thank you for your time and schools stand with you in
    wanting to ensure the right dollars are going to the right
    students.
        [Prepared statement of Mr. Draeger follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Meadows. Thank you all for your testimony.
        The chair recognizes the gentlewoman from North Carolina, a
    leader in educational issues, Dr. Foxx, for five minutes.
        Ms. Foxx. Thank you very much, Mr. Chairman. And I want to
    thank our witnesses for being here today and providing
    testimony on this very, very important issue to all Americans.
    When you hear about $3.86 billion in fraud, that affects every
    person in this country, not just the people who are applying
    for financial aid.
        Mr. Hurt, FSA testified before this committee earlier this
    month on the suspension of the FAFSA's IRS data retrieval tool,
    the DRT, which Mr. Draeger referred to. That tool is touted for
    curbing improper payments by providing for more accurate
    financial data reporting by applicants.
        In response to the DRT being down, new flexibilities were
    announced by the Department on April 24 for borrowers,
    including removing the requirement for institutions to collect
    documentation for verification of non-filing applicants. How is
    the Department balancing these flexibilities while also
    attempting to improve its improper payment rate management? And
    do you expect improper payments to rise given the Department's
    reliance on manual reporting and backend verification during
    the DRT suspension?
        Mr. Hurt. Thank you, Congresswoman Foxx. Yes, we do--during
    the--the DRT actually assisted--it was a win-win situation. It
    assisted with the reduction of improper payments, it reduced
    burdens on schools, and it reduced burden to applicants. While
    we are working on the security of the tool, we are providing
    alternative means--information about alternative means to
    obtain your tax information. We're also--we did provide some
    relief to schools around the verification requirements. And we
    do expect that there will be some impact on improper payments.
    That is--that's a given. That's what the DRT was meant to do.
    But we are trying to balance--to your point and the point of
    Mr. Draeger, we're attempting to balance the burden on schools
    and the denial of service to the most needy with the--
    offsetting the improper payments that come.
        Ms. Foxx. Thank you. You know, you said earlier that zero
    mistakes is unrealistic. That is not what the American people
    expect out of their government, especially, again, when you are
    dealing with the money of hardworking taxpayers. And so I find
    it very, very frustrating when you say we can't have a
    program--I don't use an ATM card but the banks have ATM
    machines. I bet their improper payments are a whole lot lower
    than the improper payments of the Department of Education. And
    I think we should strive for zero mistakes.
        You are not dealing with your own money, you are dealing
    with somebody else's money, and I want the people in the
    Department to remember that every day.
        So going back to that, the inspector general has flagged
    improper payments as a management challenge every year since
    2012, but during that time, OMB has designated the programs as
    highly susceptible for significant improper payments. What
    concrete steps have you taken to reverse this trend, whether it
    be combatting fraud or reducing human or systemic errors? Why
    haven't they worked? And what is so wrong with your office that
    you can't move in a more timely fashion?
        Mr. Hurt. For the past three years, we have been
    noncompliant with IPERA. The noncompliance is based on the fact
    that we have missed our estimates, our targets, and there's a
    number of reasons for that. One of them is the fact that we've
    been changing the methodology to address the findings from the
    IG. The IG has given us in '14 and '15--fiscal year 2014 and
    2015 they gave us 19 recommendations, and we did implement all
    19 to improve our estimates.
        Part of the issue is, though, the variability of the
    issue--of the estimates and the need to increase cost to the
    taxpayer and burden on schools to be able to improve on the
    estimate. We--it would be a significant burden on schools and
    cost to taxpayers simply for the improvement of the estimate.
    Instead, we spend more effort and money on an annual basis on
    the actual improvement of the controls themselves.
        So, for example, this past year we implemented early--what
    was referred to as Early FAFSA and Prior-Prior. That was a
    change to the FAFSA that it was done earlier and it allowed
    applicants to utilize prior-prior--tax payment information that
    was already complete. Both of those things allowed them to be
    more accurate in their filing and didn't require them to come
    back and file kind of corrections. So what that did was
    improved our improper payment as--it--actually, the controls
    over real improper payments as opposed to just the estimate.
        Ms. Foxx. Thank you. Mr. Chairman, I know my time has
    expired, but I would like to say I will be submitting some
    questions to some of the panelists for their response. Thank
    you, Mr. Chairman, for your indulgence.
        Mr. Meadows. I thank the gentlewoman. And as we have those
    questions, we will give each of you 30 days to respond to those
    and get it back to the committee.
        The chair recognizes the gentleman from Virginia, Mr.
    Connolly, for five minutes.
        Mr. Connolly. I thank the chair. I thank our panel for
    being here. And I certainly agree with my friend Ms. Foxx that
    the goal should be to strive to move to zero in terms of
    improper payments. Depending on how one counts their $150
    billion of improper payments, Federal Government-wide every
    year, that sound right to you Inspector General Tighe, around
    that?
        Ms. Tighe. Yes, it's quite large.
        Mr. Connolly. But if you were to stretch it out over a 10-
    year period and if we could ever get it close to zero and
    dedicated just, you know, the savings to deficit reduction, it
    would be a good down payment.
        Ms. Tighe. It would be.
        Mr. Connolly. And it wouldn't cut any programs and it
    wouldn't raise any taxes. So the more efficient we can get, the
    better off we are going to be from a fiscal point of view and
    the discipline of efficiency. So I agree with Ms. Foxx in
    making that point.
        Ms. Tighe, I began by citing your report that consistently
    the Department of Education has failed to comply fully with the
    Improper Payments Information Act of 2002, the Improper
    Payments Elimination and Recovery Act of 2010, and the Improper
    Payments Elimination and Recovery Improvement Act of 2012. Is
    that accurate?
        Ms. Tighe. That is accurate.
        Mr. Connolly. Mr. Hurt, why is that the case? These are the
    laws?
        Mr. Hurt. We--over the years, we have taken the
    recommendations from the IG and modified the methodology.
    That's one of the reasons why the rate differs from the actual
    target. We--the way the IPERA works, we cannot go back and
    modify the target when the methodology changes. So as we've
    become more inclusive of our estimates, our estimates include
    looking for more risks in the estimates, and they grow. The
    targets don't grow. Therefore, when we miss the targets, by
    definition, we're noncompliant. So that's one reason they--
    we've been noncompliant.
        And the other is just the nature of the estimate is--it
    is--we base it on existing work and monitoring work within the
    Federal Student Aid, so that monitoring work is a targeted--
    most of our work is targeted to high-risk areas, and it's not
    randomly selected. And we do that because we want to find
    improper payments. We want to get--find opportunities to fix.
        Mr. Connolly. Ms. Tighe--I am sorry, because I am running
    out of time. Ms. Tighe do you agree with Mr. Hurt's explanation
    for why the Department is not in compliance?
        Ms. Tighe. Well, yes, for the most part. I would say that
    until this past year our recommendations made in our peer
    reports weren't always necessarily followed by the Federal
    Student Aid. That changed this past year when they did take our
    recommendations from our '14 and '15 reports, which were very
    similar in findings and decided to I think do better root-cause
    analyses and then also then plot out a strategy for dealing
    with those. I do think Federal Student Aid is in a better place
    right now than it was a couple of years ago.
        Mr. Connolly. Okay. I am going to run out of time, so let
    me get to--that is good to hear. Let me get to this issue,
    though, of private companies engaging in clearly unethical if
    not illegal behavior. How widespread is that, and what is the
    relationship between that behavior and improper payments?
        Ms. Tighe. Well, I think the--we've certainly seen the
    issue--you saw the--you mentioned the report that we did last
    summer. We consider it to be a problem that keeps reoccurring.
    I think the relationship to improper payments is not all that
    clear. It's certainly bad behavior, and what I would worry
    about, it's really for the borrowers' accounts who are taken
    over. And I think there could be a relationship between--which
    do not affect the Direct Loan and Pell Programs directly, but
    the fact that they're cut off sometimes from their own servicer
    and not able to make good choices on their loans is a problem.
        Mr. Connolly. Mr. Hurt, why wouldn't the Department just
    cut off any company that engages in that kind of behavior?
        Mr. Hurt. We ----
        Mr. Connolly. Why would we continue to contract with a
    company that is clearly behaving I would argue illegally?
        Mr. Hurt. The--I probably should draw a distinction between
    that activity, which is done by third-party providers, and
    our--the loan servicing companies that contract with the
    Department of Education. The findings around third-party
    providers are not our loan servicing companies. They are--they
    can be unscrupulous actors, and we are cooperating fully--
    actually collaborating with our IG colleagues to identify bad
    actors in those scenarios and take actions and put in controls
    to avoid that from happening.
        Mr. Connolly. My time is up but I see Ms. Tighe wanted to
    comment on that and then I will ----
        Mr. Meadows. And I want you to comment on that.
        Mr. Connolly. Yes. Thank you.
        Ms. Tighe. Thank you. I--Mr. Hurt is correct is that we are
    talking about in our report and what I was just talking about
    are third-party--they're really people pretending to be--
    companies pretending to be loan consolidators. The loan
    services who the Department contracts with are different than
    that. But nevertheless, these bad actors need to be dealt with.
    And we did our report and we made really two major
    recommendations because we'd like to be able to prosecute some
    of these people. And one of those things was simple--very
    simple fix of changing the banner--the log-in banner on the
    website. And we made that recommendation a while ago now, and
    I'm happy to say I think FSA just implemented it I think last
    week, and that's a good thing. But ----
        Mr. Meadows. When did you make that recommendation?
        Ms. Tighe. It was September a year ago I think. And I could
    be wrong on that, so let me check on that.
        Mr. Connolly. No need to rush into these things, Mr.
    Chairman.
        Ms. Tighe. Yes.
        Mr. Connolly. Okay. Well, this whole area of the topic we
    are going to pursue perhaps in some subsequent questioning, but
    I thank you all for your testimony, and thank you for your
    indulgence, Mr. Chairman.
        Mr. Meadows. I thank the gentleman for his insightful
    questions.
        Before I recognize the chairman of the subcommittee, I want
    to recognize a delegation that came in from the European
    Parliament Committee on Budgetary Control. I want to welcome
    you from across the pond and say thank you for being here and
    certainly for your willingness to share your ideas and allow us
    to share ours. So welcome.
        And with that, I recognize the chairman of the
    subcommittee, the gentleman from Alabama, Mr. Palmer.
        Mr. Palmer. I would like to welcome the members of the
    European Parliament as well.
        Now to get back to business, FSA did not meet three of its
    performance goals, Mr. Hurt, two of which specifically related
    to customer service. There are only two performance metrics
    that evaluate customer service, so FSA did not meet either of
    its customer service goals. What is causing this failure?
        Mr. Hurt. So the goals that you referenced, one was the
    American Customer Satisfaction Index. That is the--it's a way
    that we can measure customer satisfaction that is consistent
    with what many ----
        Mr. Palmer. My question is what caused the failures. So I
    don't need a description.
        Mr. Hurt. Sorry.
        Mr. Palmer. Not to be rude, but just for sake of time,
    please.
        Mr. Hurt. So the causes were twofold for the ACSI score.
    One was there was a methodology change. We--to be more
    consistent with the way the score is calculated with others in
    the industry, we switched to--it was either from phone to an
    email interaction. I think that's the way it went. That was one
    way--one cause. Another cause was most likely things associated
    with changes to the way we work. For example, we implemented
    FSAID to improve security, and that more than likely had an
    impact on satisfaction as well. So we had to--back to that
    tradeoff of ensure some security for our applicants and the
    folks--our customers that use our service, but it was at the
    detriment to some extent to the satisfaction and ease with
    which those good actors can use it.
        Mr. Palmer. To what extent do you consider how you can
    improve service to help reduce administrative errors by others
    that cause improper payments? So when I look at the GAO report
    where most of these improper payments occur, and this may or
    may not apply in this situation, but it is just insufficient
    documentation, inability to authenticate, process errors. I
    think that is what we are talking about now.
        Mr. Hurt. The bulk of the errors or the--probably the most
    significant is around errors of eligibility. So it's
    misreported income or misreported other aspects on the
    application. We do do--that's what the DRT helps us greatly
    with. It does help us with the misreporting of income. In
    addition to DRT, school verification can be very helpful in
    identifying mistakes in eligibility. So that's where a lot of
    our focus is on that, but there's ----
        Mr. Palmer. When you talk about misreported income, Mr.
    Draeger, how much of that is fraud? In your testimony you
    mentioned that student fraud ring activity had increased 82
    percent from 2009 to 2013. How much of that is fraud and how
    much of an ability do we have to catch that?
        Mr. Draeger. It's difficult for me to give an exact
    percentage of how much is fraud versus just honest mistakes.
    What we will say--what we see on campuses are that those who
    are interested in committing fraud have a very specific and
    targeted way that they pursue their fraudulent activities. And
    in recent years, schools have found ways to then defend against
    that sort of fraud. A lot of times when it comes to improper
    payments with income reporting, it's--it appears to be honest
    mistakes, confusion about which tax years students or families
    should be using. So to the extent that this can be automated
    and we can get a secure IRS data retrieval tool back working,
    that seems to be one of the best solutions ----
        Mr. Palmer. General Tighe, you want to comment on that?
        Ms. Tighe. Yes, I do. I would just point out one thing we
    need to keep in mind is the DRT is a fine tool, and we would
    totally agree with that. It is not going to catch fraud because
    people who want to defraud the government, the fraud rings we
    were talking about, based on--usually representing your income
    to be zero, they aren't using the DRT so it's not going to help
    with that.
        Mr. Palmer. So the checks go directly to the fraudsters and
    not to the schools?
        Ms. Tighe. Well, the checks, yes, will go to the credit
    balance--the balance that doesn't cover tuition and room and
    board will go to the students and to the--and the students
    really aren't students; they're fraudsters.
        Mr. Palmer. Getting off maybe just a little bit if the
    chairman will indulge me, is there instances of fraud where
    there are fake institutions? I mean, we have had this with
    Medicaid where there are people filing for Medicaid
    reimbursements and they were nonexistent entities. Does that
    happen in this case, General Tighe? Do we know of any of that?
        Ms. Tighe. I'm not aware.
        Mr. Palmer. Okay. Let me ask you one other quick question.
    In your fiscal year 2016 audit finds issues in the Department's
    report in estimates and methodology. What did you specifically
    find with regard to challenges with the estimates?
        Ms. Tighe. Specifically, we found a couple of things, which
    were that they didn't--they included some program reviews that
    weren't geared toward finding improper payments. So they would
    deal--like there was one that dealt with a cohort default rate,
    so that should have been excluded from the sample of program
    reviews, and there were issues like that. We did recalculate
    the improper payments rate estimate, and those--correcting for
    those mistakes really only made a marginal increase in the
    improper payment rate, so we did not consider them to be hugely
    significant errors, but they were errors that they need to deal
    with.
        Mr. Palmer. Thank you. I yield back.
        Mr. Meadows. I thank the gentleman.
        The chair recognizes the ranking member, Mrs. Demings, for
    a generous five minutes.
        Mrs. Demings. Thank you so much, Mr. Chairman.
        Inspector General Tighe, back to your report from March of
    2016, I believe the report pretty much found that the
    Department knowingly misled the public, that they misled the
    public about the findings in its own review of loan services
    and potential widespread abuses, including charging active-duty
    servicemembers high interest rates on student loans. Your poll
    found that one of these companies, Navient, charged nearly
    78,000 members of the military interest in excess of the 6
    percent cap permitted by a law specifically designed for
    servicemembers. Is that pretty much correct?
        Ms. Tighe. That's correct.
        Mrs. Demings. Navient continues to service loans for the
    Department today. Is that correct?
        Ms. Tighe. Yes, that's correct.
        Mrs. Demings. I am wondering if this company, considering
    its history, may be too big to fail. I am wondering if no
    matter what the abuses, the Department of Education will
    continue to contract with them. Last week, Secretary DeVos laid
    out her vision of the loan servicer model. As we all know, the
    loan servicer model allows the one prime contractor to
    subcontract out portions of the portfolio or manage the whole
    itself.
        Mr. Hurt, currently, four loan servicers have submitted
    proposals for the opening bidding process: Navient, FedLoan
    Servicing, and a combination of Nelnet and Great Lakes
    Educational Loan Services. Is that correct to your
    understanding?
        Mr. Hurt. It is.
        Mrs. Demings. Can you explain the separation between the
    procurement arm of FSA and the management side, and who is
    going to make the determination as to the award of the
    contract?
        Mr. Hurt. It's my understanding that ultimately the
    contracting officer is the one with the warrant so they make--
    they will make the final decision, but it'll be based on a
    recommendation from a technical evaluation panel and a cost
    evaluation panel.
        Mrs. Demings. Can you explain the separation between the
    procurement arm of FSA and the management side?
        Mr. Hurt. The procurement--the acquisitions office is an
    office within Federal Student Aid, so they report--the head of
    acquisitions reports directly to the chief operating officer.
        Mrs. Demings. Reports directly to them?
        Mr. Hurt. Yes, ma'am.
        Mrs. Demings. Okay. It seems that one loan servicer under
    contract managing the entire portfolio, the Department would
    have no recourse if the servicer commits any number of abuses
    we have spoken to today. It will be maybe too big to fail. How
    will this huge--excuse me. In fact, it appears that there are
    subcontractors under the loan prime contractor. The
    subcontractors will be only accountable to the prime, leaving
    the Department with even less oversight than it has today.
    Would you agree with that or no?
        Mr. Hurt. No, ma'am. We have--the rerelease of the
    modification for the procurement has thousands of requirements
    and has performance metrics that we'll use to hold the--any new
    servicer accountable for their role. Any subcontractors that
    report to the prime, that is a relationship between the prime
    and the sub, but we will hold the prime accountable for all
    metrics and all service that they provide for borrowers.
        Mrs. Demings. Okay. Check my time. President Trump proposed
    a $9.2 billion or 13.5 percent cut to the Department of
    Education. How will this huge cut affect the Department's
    ability to oversee these services?
        Mr. Hurt. The Department just issued their budget a few
    days ago. That's something that we will--we have yet to analyze
    from an operational perspective.
        Mrs. Demings. So you are not sure how the cuts, the 13.5
    percent cut will affect your ability to oversee this process,
    not yet?
        Mr. Hurt. I'll have to take that question and get back to
    you.
        Mrs. Demings. Okay. Ms. Tighe, given your experience over
    the last seven years, are you confident that the Department can
    cut its funding and simultaneously improve the management of
    its largest contract in the history of the Department?
        Ms. Tighe. Well, I think budget cuts that would cut
    resources--let me back up. One of our management challenges
    historically has been oversight and management of the various
    entities that the Department has to oversee and manage, whether
    it's contractors or grantees, and I think that it's going to be
    a challenge for the Department if resources are cut in those
    areas to maintain a level of sufficient monitoring and
    oversight that is needed.
        Mrs. Demings. Thank you so much.
        And, Mr. Chairman, thank you for your generous five
    minutes. I yield back.
        Mr. Meadows. I thank the gentlewoman.
        The chair recognizes the gentleman from North Carolina, Mr.
    Walker, for five minutes.
        Mr. Walker. Thank you, Mr. Chairman.
        Again, welcome to our guests across the Atlantic Ocean. We
    are always happy to see you guys.
        Mr. Hurt, as the chief financial officer now, I know you
    haven't had a lot of time to prepare, but I have got a few
    questions specifically on the data retrieval tool. It has been
    offline since March the 3rd, 2017. Do you expect it to be
    offline for financial aid filing purposes until October or
    when?
        Mr. Hurt. The data retrieval tool will come up with a mass
    encrypted solution for the '18/'19 FAFSA on October 1. That's
    the--that's when the cycle starts for '18/'19.
        Mr. Walker. Okay. And how does the outage affect improper
    payments for calendar year 2017, this year?
        Mr. Hurt. For calendar year 2017, we would expect that the
    improper payments will increase related to the lack of DRT
    being--or DRT not being available.
        Mr. Walker. So, I mean, your best word on record is that
    these improper payments will continue to increase until
    basically this is back online. Is that correct?
        Mr. Hurt. They will--the portion of improper payments that
    the DRT was actually helping us to avoid will for that period
    of time until October 1 for--well, for 2017/18, unfortunately,
    the improper payments will increase.
        Mr. Walker. So yes. That is painful to hear. The Department
    announced new flexibilities for schools working with students
    given the data retrieval tool outage. Can you talk about these
    new flexibilities? What were they?
        Mr. Hurt. For schools they--specifically, I believe the
    school verification on income, the--it was--the old
    requirement--or the requirement normally is to get a specific
    tax transcript from the IRS and now we will require a signed
    tax form essentially.
        Mr. Walker. Okay. What do you propose or how will the
    Office of Federal Student Aid ensure that improper payments do
    not suffer during the DRT outage? Do you have any advice? I
    mean, what are we to do in the meantime?
        Mr. Hurt. We are--one of the things we can do and we're--
    we've been working on is to increase our communication through
    our numerous channels to the applicant to help them use these
    alternative ways to get their tax information. We do that
    through our StudentAid.gov. We do that through social media. We
    do that through our communication and coordination with student
    advocacy groups. So we're using multiple avenues to attempt to
    train or assist the applicants in this period.
        Mr. Walker. I guess time will tell how successful those
    options are.
        Inspector General Tighe, first of all, thank you for being
    here. You are probably not feeling your best today but ----
        Ms. Tighe. No.
        Mr. Walker.--I am glad you are being such a trooper today.
    This week, news broke that the data retrieval tool was misused
    in a criminal personal manner in September of 2016 by a
    Louisiana man who was targeting personal information on Donald
    Trump. Can you confirm this reporting?
        Ms. Tighe. Yes.
        Mr. Walker. Okay. The data retrieval tool is clearly a
    valuable tool to Federal Student Aid to assist with ease of
    processing for students--we know that--and also to program
    integrity measures such as curbing improper payments. However,
    the data retrieval tool is without a doubt also a high-value
    target for cybercriminals. How do we strike that balance, the
    right balance between program integrity, efficient service to
    students and schools, and then also the cybersecurity concerns?
        Ms. Tighe. I should point out that the--in the matter you
    talked--you spoke about with the criminal case involving the
    misuse of the DRT to get--try to get the President's
    information, it was--they were unsuccessful in achieving that.
    They did not have enough information to trigger access of the
    AGI available. And I'm also happy to say that it was noticed by
    the IRS and they immediately brought it back to us. And we
    have--and that resulted in somebody's arrest and then
    prosecution, which is a good thing.
        Mr. Walker. Sure thing.
        Ms. Tighe. But I think it's an important tool, but I do
    think it's good that the Department and the FSA is--are looking
    at ways of keeping the tool viable but still protecting it
    against its misuse. I mean, the masking will help the DRT
    misuse problem, but we also have to stay one step ahead of the
    bad guys, right ----
        Mr. Walker. Yes.
        Ms. Tighe.--because, you know, they're always thinking of
    things. And we would also like to see the Department, who has a
    recommendation that was in our report that Ranking Member
    Demings noted was--they need to do more proactive analytics
    related to usage on the FAFSA online and--because there were
    patterns that I think they could have seen of bad guys.
        Mr. Walker. Thank you, General Tighe. I appreciate your
    work.
        Mr. Chairman, I yield back.
        Mr. Meadows. I thank the gentleman.
        The chair recognizes the gentlewoman from the District of
    Columbia, Ms. Eleanor Holmes Norton.
        Ms. Norton. I thank the chairman for this hearing.
        And I am interested in the issue of accountability because
    we are not dealing with a new issue, although the inspector
    general report came out in September about the misuse of the
    Department's own systems to take advantage of students. Now,
    the students are going to be under a lot of pressure because of
    substantial cuts to subsidized student loan programs that at
    least are being proposed. I certainly hope the appropriators do
    the right thing, though.
        The inspector general's report was fairly emphatic that the
    systems were taken advantage of, Department systems were taken
    advantage of. Then, the Consumer Financial Protection Bureau
    and I believe jointly with the Department did a public inquiry
    and found a plethora, a huge number of complaints regarding
    loan servicers. I do want to quote the finding. They found a
    huge number of complaints, the Department itself. It already
    had the inspector general's report, but the finding was,
    ``Current saving practices may not meet the needs of borrowers
    or loan-holders.'' What does that mean? It seems a modest way
    to frame what has been under discussion at this hearing. What
    does that mean, ``may not meet the needs of borrowers or loan-
    holders''? Mr. Hurt?
        Mr. Hurt. I'm not sure--Congresswoman Norton, I can
    speculate what the--about the meaning of that particular phrase
    ----
        Ms. Norton. Well, it was a joint inquiry by the Consumer
    Financial Protection Bureau and the Department so that is why I
    am asking you what you meant to say. I am interested in
    accountability here.
        Mr. Hurt. As for--if it relates to the servicer practices
    and the work to improve servicer practices, the modification
    that just came out for the loan servicing competition, again,
    it includes requirements, many of which are requirements or
    suggestions that have been made to us to improve borrower
    outcomes. So we expect that the outcome of this procurement
    will, in fact, have significant improvements to borrower
    outcomes while still balancing the cost to taxpayers.
        Ms. Norton. Thank you, Mr. Hurt. Now, the Consumer
    Financial Protection Bureau has filed a suit against your
    largest services, Navient, with rather strong and serious
    allegations that it withheld information about income-based
    programs and then that they could have lowered borrowers'
    monthly payments, then pushed borrowers into forbearance while
    of course they were continuing to accrue interest. Are you
    familiar with the allegations of the Navient lawsuit?
        Mr. Hurt. I am familiar with the allegations.
        Ms. Norton. The reason I ask because I don't expect you to
    comment on those allegations--the reason I ask is that
    apparently you had nine borrowers before, and there is a
    proposal to have only one borrower now. Why would you want to
    go down to one borrower? And that that could be Navient, which
    is of course the biggest of them and the one that is now
    ensconced in litigation.
        Mr. Hurt. We're looking at this--the new modifications to
    the procurement are looking at one loan servicer so that with a
    more robust set of requirements and performance metrics that we
    can hold that servicer accountable. So the procurement is
    actually meant to improve service. But part of the issue of
    having multiple servicers is it also spreads the oversight out
    a bit thinner. It ----
        Ms. Norton. Was there any competition among them?
        Mr. Hurt. The incentives structure for the previous--for
    the four--or for the previous servicers, there was based on--
    there was competition associated with--or allocations were made
    based on metrics, allocation of new servicers. So there were
    incentives in that previous procurement.
        In the one we're looking for, we also were--are looking to
    have metrics and adjust metrics to address many of the borrower
    outcomes that we're seeking and were recommended to us.
        Ms. Norton. Well, I recognize that there are a number of--
    there is a competition and that there are a number of
    applicants for this role, but I think the Department will be
    under very severe pressure if Navient, in the sconce of being
    involved in a lawsuit, is made in charge essentially as the
    prime contractor of all the subcontractors.
        And I thank you, Mr. Chairman.
        Mr. Meadows. I thank the gentlewoman.
        The chair recognizes the gentleman from Ohio.
        Mr. Jordan. Thank you, Mr. Chairman.
        Today's hearing highlights exactly what American taxpayers
    hate about the Federal Government. Ms. Tighe, isn't it true
    that last year there were $144 billion in improper payments
    across the government? Isn't that accurate?
        Ms. Tighe. That sounds accurate.
        Mr. Jordan. Yes, and the trend is up, right? So that number
    has been growing?
        Ms. Tighe. Yes.
        Mr. Jordan. Growing over the last four years?
        Ms. Tighe. Yes.
        Mr. Jordan. And one of the most egregious agencies that is
    part of that overall number is the guy sitting beside you, the
    Department of Education, is that correct?
        Ms. Tighe. Well, it's not actually ----
        Mr. Jordan. It's in the top five, right?
        Ms. Tighe. I think top five.
        Mr. Jordan. Yes, top five. And the trend is the same with
    them. Overpayments have been increasing over the last several
    years. Is that right?
        Ms. Tighe. Yes.
        Mr. Jordan. And ----
        Ms. Tighe. Certainly this past year.
        Mr. Jordan. Yes. In the Direct Loan and the Pell Grant
    areas, they have both been trending up. And you sent them a
    letter where you said something like it was a management--they
    had improper payments at the Department were a management
    challenge. Is that right? You sent a letter to them?
        Ms. Tighe. That's correct.
        Mr. Jordan. Yes. And it basically said they weren't
    complying with the law, right, this IPERA law?
        Ms. Tighe. Correct.
        Mr. Jordan. Yes. So $144 billion across government, one of
    the most egregious agencies within that $144 billion is the
    Department of Education. Their trend is up. You sent them a
    letter saying, hey, get your act together; you are not even
    complying with the law, right?
        Ms. Tighe. Yes.
        Mr. Jordan. All that is true?
        Ms. Tighe. Yes.
        Mr. Jordan. And three weeks ago, we had a hearing and we
    find out that in the Direct Loan program they had to shut down
    their DRT on the FAFSA issue, and they failed to comply with
    another law there to notify Congress in the proper way and at
    the proper time. Is that true?
        Ms. Tighe. Well, the notification I think may be a more
    ambiguous issue, but ----
        Mr. Jordan. Exactly. Yes. I mean, we had that hearing--so
    this is now two hearings in a row this committee has had with
    the Department of Education has not complied with two Federal
    laws. And, oh, by the way, the increase in improper payments
    continues to rise.
        And here is the kicker. Mr. Hurt, your boss, the guy we
    asked to come, Mr. Runcie. You know Mr. Runcie, Mr. Hurt? Do
    you know a Mr. Runcie?
        Mr. Hurt. Yes, sir.
        Mr. Jordan. Yes, and he was your boss?
        Mr. Hurt. Yes, sir.
        Mr. Jordan. Yes. And he was asked several times to come in
    front of this committee and talk about this situation. Is that
    true?
        Mr. Hurt. Yes.
        Mr. Jordan. Yes. And instead of coming in front of this
    committee, what did Mr. Runcie decide to do? Do you know?
        Mr. Hurt. Mr. Runcie resigned.
        Mr. Jordan. Resigned, yes, the night before, right, he is
    supposed to come. It is the night before we were going to send
    him a subpoena he decided to resign. Do you know why he would
    do that, Mr. Hurt?
        Mr. Hurt. I can't speculate for Mr. Runcie.
        Mr. Jordan. How about you, Ms. Tighe? Do you know why he
    might do that?
        Ms. Tighe. I do not know.
        Mr. Jordan. Mr. Hurt, did Mr. Runcie receive any bonus
    payments over the last few years for his stellar job of not
    complying with two Federal laws, improper payments that
    continue to increase and have increased over the last three
    years? Did he receive any bonus payments for his job
    performance?
        Mr. Hurt. I think the chairman referenced bonus payments. I
    personally don't have--I'm not involved in Mr. Runcie's
    bonuses.
        Mr. Jordan. Yes. Ms. Tighe, did he get some bonus payments?
        Ms. Tighe. I'm not aware of Mr. Runcie's bonus payments
    either. I'm sorry.
        Mr. Jordan. Yes. Well, it is our understanding that there
    were several thousand--last year alone $75,000 bonus. Ms.
    Tighe, do you know if Mr. Runcie was at the top of the Federal
    pay scale?
        Ms. Tighe. I do not know that.
        Mr. Jordan. Yes. My guess he was at the top of the Federal
    pay scale, got his $75,000 bonus last year, and over the last
    six years, bonuses totaling $432,815 for a guy who can't comply
    with two laws, it asked to come testify in front of this
    committee, and instead of coming to testify in this committee
    to answer for what took place at the Department of Education,
    one of the most egregious agencies in overpayments or improper
    payments, instead of doing all that, he just decides to resign
    on the spot. Man, no wonder the American taxpayers are fed up
    with our Federal Government and the way this place operates.
        I think, Mr. Chairman, we should have Mr. Runcie in here. I
    think we should go ahead and subpoena the guy and bring him in
    here to answer some of these questions. I mean, again, you just
    walk through it, $144 billion across government, the agency
    that is maybe one of the most egregious offenders of
    overpayments is the Department of Education, two laws they
    don't comply with. That trend is going up. The who is
    responsible is asked several times to come in front of this
    committee, and instead of coming in front of this committee, he
    up and resigns. And to add insult to injury, he has been
    receiving bonus payments the last six years that total
    $432,815. This is amazing. This is why we have this committee,
    to get to the bottom of these kind of things. But Mr. Runcie
    should be in front of the committee.
        And frankly, whoever was responsible--my guess it was Mr.
    Duncan who was responsible ultimately, the former Secretary of
    Education, in allowing these bonus payments to be given to Mr.
    Runcie, should be in front of this committee as well and say
    why was he given this kind of bonus, taxpayer dollars, when
    there is billions of taxpayer dollars that go unaccounted for
    that are under his watch.
        So, Mr. Chairman, with that, I would yield back the balance
    of my time.
        Mr. Meadows. I thank the gentleman.
        Mr. Hurt, let me follow up one quick question. I mean,
    don't you think Mr. Runcie could have illuminated some of the
    questions that you have been unable to answer today? Do you
    think he would be the appropriate person to answer some of
    these questions?
        Mr. Hurt. Chairman Meadows, I can't speak to ----
        Mr. Meadows. But don't you work for him?
        Mr. Hurt. I did.
        Mr. Meadows. Okay. So wouldn't he have some knowledge of
    improper payments?
        Mr. Hurt. He would have some knowledge.
        Mr. Meadows. It is a softball question, Mr. Hurt.
        Mr. Hurt. Yes, sir.
        Mr. Meadows. I am not trying to trap you.
        Mr. Hurt. He would have some knowledge of improper
    payments.
        Mr. Meadows. And so shouldn't he have some I guess
    responsibility to come before Congress and help us understand
    why the record is so deplorable?
        Mr. Hurt. That's for Mr. Runcie to answer, not me.
        Mr. Meadows. No, I am asking you. You are the sworn
    witness. Don't you think he could have helped?
        Mr. Hurt. That's for Mr. Runcie to answer, Mr. Chairman.
        Mr. Jordan. Mr. Chairman?
        Mr. Meadows. Yes?
        Mr. Jordan. Mr. Runcie has been able to go out and talk to
    the press. He can't talk to a congressional committee with
    oversight responsibilities for the very fact he is allowed all
    kinds of billions of dollars of improper payments ----
        Mr. Meadows. Well ----
        Mr. Jordan.--to go out but he can talk to the press. He
    can't come talk to us? That is why we need to subpoena the guy.
        Mr. Meadows. Well, we have votes, and so I am going to give
    you about 30 minutes to think of a better answer, Mr. Hurt,
    okay, because I am going to come back to that. We were going to
    adjourn, but at this point we are going to just recess subject
    to the call of the chair. And for planning purposes so you can
    get some additional tea, Ms. Tighe, we are looking at about 30
    minutes. So the committee stands in recess.
        [Recess.]
        Mr. Meadows. The subcommittees will come back to order.
    Thank you so much for your flexibility. I appreciate you coming
    here.
        The chair recognizes the gentleman from Wisconsin, Mr.
    Grothman, for five minutes.
        Mr. Grothman. Thanks. Mr. Hurt, I would like to ask you a
    couple questions. Your annual financial report stated,
    ``Recovery audits to recapture improper payments would not be
    cost-effective.'' Why did you decide to exclude these audits
    from your payment recapture program? It would seem to be fairly
    obviously you would want to use them. Do you have a comment on
    that?
        Mr. Hurt. A few years ago, Congressman Grothman, we did
    actually--the Department actually used a recovery audit,
    attempted a recovery audit, and we eventually--the Department
    abandoned it because it was finding so little. It was focused
    on the contract, contract management or contract management
    activities.
        Mr. Grothman. When there are overpayments, give me a
    typical example of an overpayment. How is an overpayment made?
    Give me a ----
        Mr. Hurt. Overpayments might occur in, let's say, the loan
    consolidation process. So when someone--when I say I want to
    consolidate my loans, I'm going to consolidate them on the 10th
    of March. If I end up consolidating on the 12th of March, then
    I will have--but if I don't consolidate on the exact day, I
    could--that could result in an overpayment or an underpayment
    based on the timing of when the actual consolidation occurred.
        Mr. Grothman. We are talking about $120 million a year. I
    would think that is a relatively small amount. When I look at
    this graph here that says $120 million a year in overpayments,
    give me a typical example of how you work your way up to $120
    million. Or, Mrs. Tighe, you can weigh in if the answer is not
    satisfactory.
        Mr. Hurt. Most of the overpayments--the most significant
    root cause for overpayments is actually issues around
    eligibility. That could be misreported income on the FAFSA or
    misreported data on the FAFSA. That's usually the--probably the
    most impactful or the biggest root cause for improper payments.
        Mr. Grothman. And right now, looking--by the way, Ms.
    Tighe, do you agree with that or do you have anything to add?
        Ms. Tighe. I'm sorry. Excuse me?
        Mr. Grothman. Do you agree with that or do you have
    anything to add?
        Ms. Tighe. No. Well, I agree that the largest--or one of
    the two largest drivers of improper payments for Federal
    Student Aid is eligibility issues, misreported income. And
    that's why we made a recommendation that they needed to include
    information related to that in the improper payments
    calculation.
        Mr. Grothman. Do you ever catch people who are getting, you
    know, two different forms of aid, you are not supposed to get
    them both at the same time? Is that ever a problem?
        Ms. Tighe. Well, we catch people getting all sorts of aid
    they shouldn't be getting. That's been looking at issues like
    our fraud rings where people are getting Pell Grants and
    student--and Direct Loan disbursements that they are not
    entitled to has been an active part of our criminal caseload.
        Mr. Grothman. Did you ever convict anybody?
        Ms. Tighe. Yes, we do.
        Mr. Grothman. What happens to them?
        Ms. Tighe. Well, they go to jail.
        Mr. Grothman. Oh, wow. Okay.
        Ms. Tighe. And sometimes pay the money back.
        Mr. Grothman. Okay. Good. I notice here, you know, it
    varies from year to year but usually the amount paid back from
    the amount identified is, you know, not that great. I mean, one
    year we did better but it seems a lot of times most recently it
    is under 20 percent. Do you want to comment on that? I mean, is
    there a way you can dial that up a little bit or what is your
    opinion on that, getting less than 20 percent of what we
    identify--and I assume we identify only a fraction of what is
    done.
        Mr. Hurt. I think you are referring to the $120 million in
    the AFR of assessed liability. Is that--if that's true, then
    these are actual improper payments we identified during our
    program reviews, our compliance audits, or the IG's audits. We
    will assess a liability to whomever the bad actor--or the
    individual or school in some cases that is due to pay us back,
    and then we'll collect on that.
        Mr. Grothman. Is it usually the school or the student?
    Probably usually the student?
        Mr. Hurt. I don't have the data ----
        Mr. Grothman. Or sometimes the school? Sometimes the
    school, too, is at fault?
        Mr. Hurt. There are times when the--I better let the
    inspector general speak to school.
        Ms. Tighe. Well, we do audits sometimes on compliance with
    the title IV requirements, and we do see schools that may not
    be complying with the regulations properly and disbursing money
    properly or returning the money properly, and that incurs a
    liability to the Department.
        Mr. Grothman. Okay. And I will go back. The most recent
    year here you say identified $119 million and recovered $20
    million, 17 percent recovery rate. Do you just want to comment
    on that? I mean, are you just with young people who don't have
    money? What do you do to put a lien on them or what is going on
    there?
        Mr. Hurt. It's treated as a receivable, and we will employ
    many tools to collect. And it will--that's how much has been
    recovered thus far is another way to look at that, too. So we
    will employ a number of Treasury--alternatives would be
    treasury offset against their--whatever--any payments that are
    coming out of Treasury. That could be IRS tax refunds, things
    like that. We will employ administrative wage garnishment,
    other tools mostly through Treasury to collect on that money.
        Mr. Grothman. Okay. Thank you very much.
        Mr. Meadows. I thank the gentleman.
        The chair recognizes himself for a series of questions.
        So, Ms. Tighe, let me come back to you. You had talked
    about how people need to be prosecuted earlier, you know, in
    terms of when we find these things. I mean, how do we go about
    this? I mean, have we prosecuted many?
        Ms. Tighe. Well, I mean, we have prosecutions all the time.
    I mean, we have right now about 250--over 250 active criminal
    investigations.
        Mr. Meadows. Right.
        Ms. Tighe. About 60 percent of those relate to the Federal
    Student Aid operations and programs. I think that we certainly
    see, you know, the big areas for us within that. The fraud
    rings, we talked about that and we do see prosecutions. But
    sometimes the dollar levels on those don't justify me spending
    the resources, so we end up referring those to the Federal
    Student Aid to take administrative action. But we do see
    prosecutions ----
        Mr. Meadows. So do they take the appropriate action?
        Ms. Tighe. I know that they have been following up on some.
    I would--I am not ----
        Mr. Meadows. On a scale of 1 to 10 with 10 being the most
    appropriate, how would you rate their actions?
        Ms. Tighe. Well, I think I'd have to give a different scale
    because I'm not sure what they're doing with our referrals, and
    I think it's something ----
        Mr. Meadows. Well, since we are talking about education --
    --
        Ms. Tighe.--we need to sit down with ----
        Mr. Meadows. If you are going to talk about education, give
    them a letter grade A through F.
        Ms. Tighe. Well, I will give them the grade of I am not
    sure. I know that they have taken some action on some of the --
    --
        Mr. Meadows. So do you not see it being a problem if the
    inspector general is not sure? Does that mean that you don't
    have enough information ----
        Ms. Tighe. I don't have enough information. It's actually
    an area I've been wanting to sit down and talk to FSA about.
        Mr. Meadows. All right. So if it is an area that you want
    to talk to FSA about, and since it was made very clear earlier
    today that all of these problems apparently are the problems of
    Ms. DeVos, would you agree with that?
        Ms. Tighe. Well, no, this is--I think the issues related to
    referrals of ----
        Mr. Meadows. Didn't they happen before she was even
    confirmed ----
        Ms. Tighe. Yes.
        Mr. Meadows.--into her position. All right. Let's be clear
    about what it is and what it is not because it is very easy for
    us to start to go after a new Secretary who--all of these
    things that you are talking about I don't know that even we had
    President Trump in the White House at that point when you were
    identifying these areas of concern, did we?
        Ms. Tighe. No.
        Mr. Meadows. All right. So if we are looking backwards and
    we are looking at these issues, tell me about program review
    and where we are in terms of you being able to make a good
    analysis. Do we have good audits? Do we have what we need
    there?
        Ms. Tighe. We did do a review a couple of years ago, I
    believe in 2015, that found a number of issues related to the
    program review process.
        Mr. Meadows. And Mr. Runcie got right on those and fixed
    them all, did he not?
        Ms. Tighe. Well, they did do a couple of things. They did
    implement a quality kind of assurance process where they
    reviewed--the program reviews themselves ----
        Mr. Meadows. All right. So they did quality assurance ----
        Ms. Tighe. The problem was ----
        Mr. Meadows. Since we are talking about improper payments
    ----
        Ms. Tighe. Yes.
        Mr. Meadows.--quality assurance, I guess that is why the
    Direct Loan Program went from $1.28 billion up to $3.86 billion
    in improper payments, and the Pell Grant Program went from $562
    million to $2.2 billion because we put in additional quality
    assurance.
        Ms. Tighe. Well, no, I don't think that's the reason. The
    issue we had, which I should explain, with the quality
    assurance process was that they had recommendations for
    improvement but they didn't require the managers to take
    action. And that was one of the findings in our report.
        Mr. Meadows. So they would make recommendations but they
    wouldn't have to act on those recommendations?
        Ms. Tighe. Well, at that point we were looking at it they
    did not have a process in place to act on them, no.
        Mr. Meadows. Do they now?
        Ms. Tighe. I would have to get back and check on that. As
    part of our audit resolution process, I am not sure what the
    status of that recommendation is.
        Mr. Meadows. Would you say that as part of your audits
    there is a whole lot of outstanding issues that still need to
    be made?
        Ms. Tighe. Yes, that's fair to say.
        Mr. Meadows. All right. So on a scale of 1 to 10--I will
    give you a different one. On a scale of 1 to 10, how much work
    is left to be done to satisfy those outstanding issues with 10
    being the most amount of work and 1 being hardly any?
        Ms. Tighe. Well, I'd say, you know, they're at a 5. They've
    done some work to--trying to resolve some of our audits in the
    past year, but there are still some ways to go.
        Mr. Meadows. All right. So this is a performance-based
    organization, is it not, a PBO?
        Ms. Tighe. Yes, it is.
        Mr. Meadows. All right. So that means compensation is
    directly related to performance?
        Ms. Tighe. As I understand it, yes.
        Mr. Meadows. Okay. So let me ask it a different way.
    Compensation should be directly related to performance?
        Ms. Tighe. Yes.
        Mr. Meadows. So have you seen any correlation between the
    compensation and the performance? Because I cannot find any.
    And so I am just trying to get to the facts here.
        Ms. Tighe. I am not privy to compensation, knowledge about
    the senior leadership of those ----
        Mr. Meadows. So if you are not, how do you properly
    oversee--if we are a performance-based organization, how would
    you properly oversee whether we are actually doing that or not?
        Ms. Tighe. Well, we do look at a number of issues related
    to FSA, and we've made a number of recommendations ----
        Mr. Meadows. So who is overseeing that?
        Ms. Tighe.--for improvement.
        Mr. Meadows. Is that you, Mr. Hurt? Are you overseeing
    whether people get the proper compensation based on
    performance?
        Mr. Hurt. No. Performance ----
        Mr. Meadows. I didn't think so. So who is?
        Mr. Hurt. The performance evaluations for the chief
    operating officer would be determined by the Department senior
    leadership, and then within the Federal Student Aid,
    performance is evaluated and awarded based on a process
    consistent with the Department's award process but done by the
    operating committee essentially ----
        Mr. Meadows. All right.
        Mr. Hurt.--at FSA.
        Mr. Meadows. Maybe I am confused, but what the heck does
    that mean? I mean, I don't understand how--if I am going to
    explain that to the American people, when you say ``consistent
    with other things,'' why would a COO get a bonus of $75K last
    year when your improper payments went through the roof?
        Mr. Hurt. I can't speak towards the ----
        Mr. Meadows. Did you get a bonus?
        Mr. Hurt. I did, sir.
        Mr. Meadows. Performance bonus?
        Mr. Hurt. Yes.
        Mr. Meadows. So Mr. Runcie said that improper payments are
    all your responsibility. Is he accurate with that?
        Mr. Hurt. I am the program accountable official for
    improper payments related to ----
        Mr. Meadows. So why did you get a bonus then paid to you
    based on these what I would call abysmal results?
        Mr. Hurt. I think the results are based on the--it's an
    estimate that's based--that's published in the AFR, and the
    estimate is--it essentially went up because of a changed
    methodology, inclusion of more root causes in the methodology
    ----
        Mr. Meadows. So you are saying it is just we started
    reporting it better and it is not really any worse?
        Mr. Hurt. I'd say we're ----
        Mr. Meadows. You are under sworn testimony. And let me tell
    you, you are talking to a guy that looks at the numbers and I
    am going to go back and look at them. So are you saying the
    improper payments are no worse today in fiscal year 2016 than
    they were in fiscal year 2015?
        Mr. Hurt. I'm saying the rates went up based on a change to
    methodology and based on the inherent variability of the
    methodology. So the methodology--because we focus our funds and
    our resources on high-risk program reviews, we don't have
    sufficient randomly sampled numbers of reviews and audits to be
    able to produce a statistically valid estimate. We would have
    to make a management decision to divert our resources from
    going after improper payments and assessing liabilities to
    coming up with a better estimate to do that.
        Mr. Meadows. So what you are saying is you would have to
    take time to figure out how to measure if you are doing a good
    job or not?
        Mr. Hurt. We'd have to take money away from finding
    improper payments to be able to produce a better estimate.
        Mr. Meadows. All right. And so would you say that having
    7.85 percent of improper payments in the Pell Grant program is
    a good job?
        Mr. Hurt. I say 7.85 percent improper--improper payment
    rate, anything above zero is something we should be striving to
    bring down.
        Mr. Meadows. Great answer to a question I didn't ask. I am
    asking you is 7.85 improper payment rate a good job, Mr. Hurt?
        Mr. Hurt. The blended rate, if you look at both Pell and
    Direct Loan, was 4.85.
        Mr. Meadows. And so are you saying 4.85 is good?
        Mr. Hurt. Four-point-eight-five compared to the--the
    industry estimates they lose about 5 percent to fraud, which is
    a much narrower ----
        Mr. Meadows. What industry?
        Mr. Hurt. Private industry. So the American Certified Fraud
    ----
        Mr. Meadows. Mr. Hurt, let me just tell you, I told you I
    would try to go easy on you and I am going to go easy on you,
    but you are going to have to answer my question. Are you
    willing to answer my question?
        Mr. Hurt. Yes, sir.
        Mr. Meadows. All right. Is 7.85 a good number or a bad
    number, yes or no? Just tell me what it is, good or bad?
        Mr. Hurt. It's a number we need to address for sure.
        Mr. Meadows. We are going to wait until you answer it. Is
    it a good number or a bad number?
        Mr. Hurt. It's a bad number.
        Mr. Meadows. All right. If it is a bad number, at what
    point is it a good number where Inspector General Tighe can
    applaud you and say this is great?
        Mr. Hurt. The only way to produce a statistically accurate
    number is to divert our resources from finding--actually
    finding improper payment and bringing down the real amount of
    improper payments to producing a more valid estimate.
        Mr. Meadows. All right. Justin, will you--maybe you can
    help me see how the PBO is working or not working, Mr. Draeger,
    if you can help us maybe have a little clarity here.
        Mr. Draeger. So from our perspective, Mr. Palmer asked
    earlier about the metrics that FSA did not meet when it laid
    out its strategic objectives. And I would say the answer is
    pretty simple. The objectives they did not meet, at least two
    of the three were focused solely on customer service and
    stakeholder engagement.
        And so I think one of the underlying issues with a
    performance-based organization--and FSA was the first
    performance-based organization in 1998--we benchmarked other
    performance-based organizations that have been created since
    then, and they have a unique quality that is just lacking at
    FSA which are a specific oversight board. And if you are going
    to give a Federal agency private sector flexibility, then some
    of the private sector oversight needs to be there. And when you
    look at the other Federal PBOs, they have that in place. So I
    think it's a lot easier when you have a board in place that's
    helping align your strategic objectives to overall strategy to
    determine whether you're successful or not.
        Mr. Meadows. So what is wrong with what he said, Mr. Hurt?
        Mr. Hurt. FSA currently has oversight from many oversight
    bodies.
        Mr. Meadows. Apparently not enough, but go ahead.
        Mr. Hurt. We have oversight from the senior--Department
    senior management, from Office of Management and Budget, from
    Domestic Policy Council, from the inspector general, from
    multiple congressional oversight committees. So adding another
    layer of oversight would actually further--well, it would
    further confuse the oversight picture relative to private
    companies.
        Mr. Meadows. Mr. Hurt, so let me be clear. We are going to
    get to the bottom of this, and we are going to get it right.
    The American taxpayer and quite frankly students all across
    this country deserve to get it right. And, you know, you are
    sitting here today and Mr. Draeger just pointed out some things
    and I think there are two customer service matrices that are
    out there, and you are failing on both of them. So, I mean,
    when we really look at it--so your sworn testimony here today
    is that these abysmal reviews and the fact that you are not
    doing enough about improper payments are all a result of too
    much oversight?
        Mr. Hurt. No.
        Mr. Meadows. Well, I mean, that is kind of where you were
    going. You said you got all this oversight, and so are you
    suggesting that we just need to pull back on a little bit of
    oversight so the improper payments go down?
        Mr. Hurt. No, Chairman Meadows. My statement was in
    response to do we need another oversight board. That was the
    question I was answering.
        Mr. Meadows. All right. So at what point do you find Mr.
    Draeger's constituency satisfied from a customer service point
    of view? I mean, does it matter whether they are satisfied from
    a customer service point of view?
        Mr. Hurt. It matters that our partners in delivering
    financial aid to our student and borrower customers and
    taxpayer customers ----
        Mr. Meadows. So his constituency would give you what kind
    of a grade?
        Mr. Hurt. I believe actually that was one of our failing
    metrics out of three was ----
        Mr. Meadows. So he gave you an F?
        Mr. Hurt. The--I don't--it's a number based--it wasn't
    necessarily an F. It was a number-based metric, sir.
        Mr. Meadows. Okay. Was it below 60?
        Mr. Hurt. Specifically, it was--our goal was to have a 74.3
    to 77.3 ease of doing business, and we received a 72.3.
        Mr. Meadows. Okay. So a C minus depending on which grade
    scale you get to. So how are you going to get it up to where it
    needs to be?
        Mr. Hurt. We have numerous ways to interact with our
    consumer advocacy groups and our schools. We--a great example
    is the FAFSA Advisory Board that we--every year we're doing --
    --
        Mr. Meadows. So you are saying that that interrelationship
    is going pretty well?
        Mr. Hurt. I'm saying we have mechanisms to continue and
    then improve upon our relationship.
        Mr. Meadows. Okay. So, Mr. Draeger, would you say that the
    program reviews are going well, or do you consider those
    adversarial?
        Mr. Draeger. We asked our members that question a year ago
    in a survey. We received 1,000 institutional responses. Of
    those who had had a program review in the last five years, 30
    percent had reported that when--from the time they had their
    program reviewed, they did not have a final report in hand 12
    months later. So if the goal is to correct improper payments
    but these just continue to hang out there and hang out there,
    schools feel like they're under tremendous pressure with this
    perpetually hanging ax over institutional eligibility.
        We asked our members also in one word to describe their
    relationship with the Department of Education at the time, and
    I know that this wasn't under Mr. Hurt's leadership, but the
    words most cited were adversarial, adversarial, complicated,
    and 90 percent of the words that they provided were negative,
    not positive. And again, not under Mr. Hurt's leadership, but I
    do want to point out that since that hearing in October ----
        Mr. Meadows. November of 2015.
        Mr. Draeger.--of 2015 ----
        Mr. Meadows. I was here.
        Mr. Draeger.--Mr. Runcie refused to take meetings with
    myself or my board of directors who are acting financial aid
    administrators.
        Mr. Meadows. Hold on. You are saying that he left a hearing
    where he said that he was willing to address this and that he
    has refused to take any meetings with you? Is that your sworn
    testimony?
        Mr. Draeger. While the career staff at FSA have continued
    to enter dialogues, the Secretary's office in both
    administrations continued dialogue, the Under Secretary's
    Office continued dialogue, we specifically requested meetings
    with the chief operating officer, which ----
        Mr. Meadows. Well, I appreciate you sharing that because,
    Mr. Hurt, this is only partially on your watch. And I talked to
    Secretary DeVos yesterday because I was real concerned about
    students and making sure that students have what they need
    because really that is what this is all about. You don't even
    exist if we are not providing the kind of service to students
    that they deserve. And really, your having to come here in the
    last 24 hours with very little notice is a disservice to you,
    it is a disservice to those students.
        And what I guess is more appalling to me is that Mr. Runcie
    decided to not come back, has not met with Mr. Draeger when you
    have Secretaries of both administrations willing to do that,
    and then wants to avoid follow-up questions, some of which I
    know I asked personally of him back in November of 2015, some
    of which Inspector General Tighe has identified over and over
    and over again, and for him to suggest that it is all your
    fault or all Secretary DeVos' fault, you can't agree with that
    statement, do you, that it is all your fault or Secretary
    DeVos' fault?
        Mr. Hurt. I couldn't speak for what Mr. ----
        Mr. Meadows. Now, I have given you 40 minutes to come up
    with a better answer, Mr. Hurt, and I am sure you have talked
    to counsel, I am sure you have talked to everybody else, and
    they may not want you to say anything, but I would remind you
    you are under sworn testimony. We can compel you to answer the
    questions. So at this point is it totally your responsibility
    for what has happened on improper payments, totally and
    completely?
        Mr. Hurt. I am the program accountable official for direct
    ----
        Mr. Meadows. Great answer to a question I didn't ask again,
    Mr. Hurt. You are making this more difficult than you need to
    be. Is 100 percent of the responsibility yours, Mr. Hurt?
        Mr. Hurt. No, sir.
        Mr. Meadows. All right. Is 100 percent of it Secretary
    DeVos'?
        Mr. Hurt. No, sir.
        Mr. Meadows. So if that is the case, and we understand--and
    I agree with that--that 100 percent of it is not your fault,
    how do we fix it? How do we fix this problem where I am not
    coming back here with unbelievable billions of dollars,
    customer service reports that are not there, an inspector
    general's request for a number of things--which I understand
    she gave you a little bit of a pass because apparently in the
    last few days you have agreed to do that so I would assume that
    there is a new sheriff in town and so they are going to get it
    done. How do we make sure that this doesn't happen?
        Mr. Hurt. We stay vigilant on oversight, sir.
        Mr. Meadows. All right. So what is success going forward?
    So let me put it more bluntly. If you are going to get a
    performance bonus, at what number do we peg that to?
        Mr. Hurt. It's hard to peg it for improper payments to a
    number of ----
        Mr. Meadows. Well, it is not hard for the American people.
    The American people said if you lose over $3 billion, they
    would think that you should get a zero performance bonus. And I
    know that you don't agree with that, but at some point we are
    going to have to get to the bottom line, you know, and figure
    this out. So what is the number?
        Mr. Hurt. The estimate is variable based on the methodology
    so I can't come up with ----
        Mr. Meadows. Okay. Here is ----
        Mr. Hurt.--a number, sir.
        Mr. Meadows. Since we do have oversight capability, here is
    what I need from you, and I need you to take this back to the
    Secretary and make sure that we get it. We need to know the
    matrix for what performance, good performance, excellence
    performance, and poor performance is going to be for your
    senior management, for the new COO, whomever that maybe, for
    yourself, for the others, and we need to understand what the
    matrix is. We need to understand where customer services comes
    in and what it factors in with that as well. And if I ever hear
    about government officials not being willing to meet with key
    stakeholders because they are too busy collecting their check--
    you know, there was a song in the '70s. You know, I am dating
    myself. But it seems like that Mr. Runcie could be singing a
    song ``Take the Money and Run'' because that is what he has
    done and that is what the American taxpayers have seen it as,
    as an irresponsible way to hold government accountable for
    their actions.
        Now, I am not asking you to comment on that, but here is
    what I am asking you to do. We need to know when you are going
    to get the inspector general's recommendations done, a time
    frame, a specific time frame on what you are going to
    accomplish and how you are going to accomplish it. What is a
    reasonable amount of time to get that plan back to this
    committee?
        Mr. Hurt. The--I think there is a specific amount of time
    for us to develop our corrective action. I think that is coming
    due within a few months.
        Mr. Meadows. That is with her. I am saying a plan of action
    to this committee. Is 45 days enough to get a plan of action on
    how you are going to address that back to this committee?
        Mr. Hurt. Yes, sir.
        Mr. Meadows. All right. I see heads nodding in the back. I
    don't want to make a request that is too difficult, okay? All
    right. So we are going to do that.
        Mr. Meadows. The other part of that is is that--and I don't
    think you are going to get much resistance on this. We need to
    know what the performance matrices are and how we know when we
    are doing a great job, a good job, a mediocre job, and a poor
    job. And we need to make sure that compensation, since it is a
    PBO, is tied to that.
        And then lastly, I want to see how you pull in some of the
    comments. The next time I don't want to have 90 percent of the
    comments coming back negative. You don't either, do you, Mr.
    Hurt?
        Mr. Hurt. No, sir.
        Mr. Meadows. I didn't think so. All right. So Inspector
    General Tighe, I am going to close with this. I need you to
    help prioritize the recommendations you have made in terms of
    those open issues that are there from previous reports. It is
    critically important that we communicate those at the very top
    level with the Secretary and those that are going to implement
    it.
        Any change of administration there can be a drop of a baton
    so to speak. I don't want that to happen so I am asking you if
    you would get that to this committee as well.
        Ms. Tighe. Yes, we will.
        Mr. Meadows. Is 45 days enough for you?
        Ms. Tighe. Yes, it is.
        Mr. Meadows. Okay. We will do that and go there.
        Mr. Meadows. Lastly, I think it is appropriate for me to
    say, Mr. Hurt, I am not blaming you for this, but you are
    partially responsible. And in doing that, I am going to be
    myopically focused on results, all right? My favorite quote is
    ``No matter how beautiful the strategy, we must occasionally
    look at the results.'' So I don't want to hear about the great
    plan. I want to see about the results because I don't want to
    have another hearing like this, or if we have another hearing,
    I want us to be talking about and celebrating the successes
    that we have. Does that make sense to all of you? Do you think
    we can do that? Do I have your commitment to work diligently to
    do that?
        Yes. Let the record reflect that all witnesses answered in
    the affirmative.
        That being said, thank you so much. The committee stands
    adjourned.
        [Whereupon, at 12:35 p.m., the subcommittees were
    adjourned.]

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