[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:]
    
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    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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