[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
GOVERNMENT-RUN STUDENT LOANS:
ENSURING THE DIRECT LOAN PROGRAM IS
ACCOUNTABLE TO STUDENTS AND TAXPAYERS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HIGHER EDUCATION
AND WORKFORCE TRAINING
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. House of Representatives
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, OCTOBER 25, 2011
__________
Serial No. 112-45
__________
Printed for the use of the Committee on Education and the Workforce
Available via the World Wide Web:
www.gpo.gov/fdsys/browse/
committee.action?chamber=house&committee=education
or
Committee address: http://edworkforce.house.gov
_____
U.S. GOVERNMENT PRINTING OFFICE
70-771 PDF WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON EDUCATION AND THE WORKFORCE
JOHN KLINE, Minnesota, Chairman
Thomas E. Petri, Wisconsin George Miller, California,
Howard P. ``Buck'' McKeon, Senior Democratic Member
California Dale E. Kildee, Michigan
Judy Biggert, Illinois Donald M. Payne, New Jersey
Todd Russell Platts, Pennsylvania Robert E. Andrews, New Jersey
Joe Wilson, South Carolina Robert C. ``Bobby'' Scott,
Virginia Foxx, North Carolina Virginia
Bob Goodlatte, Virginia Lynn C. Woolsey, California
Duncan Hunter, California Ruben Hinojosa, Texas
David P. Roe, Tennessee Carolyn McCarthy, New York
Glenn Thompson, Pennsylvania John F. Tierney, Massachusetts
Tim Walberg, Michigan Dennis J. Kucinich, Ohio
Scott DesJarlais, Tennessee Rush D. Holt, New Jersey
Richard L. Hanna, New York Susan A. Davis, California
Todd Rokita, Indiana Raul M. Grijalva, Arizona
Larry Bucshon, Indiana Timothy H. Bishop, New York
Trey Gowdy, South Carolina David Loebsack, Iowa
Lou Barletta, Pennsylvania Mazie K. Hirono, Hawaii
Kristi L. Noem, South Dakota Jason Altmire, Pennsylvania
Martha Roby, Alabama
Joseph J. Heck, Nevada
Dennis A. Ross, Florida
Mike Kelly, Pennsylvania
Barrett Karr, Staff Director
Jody Calemine, Minority Staff Director
SUBCOMMITTEE ON HIGHER EDUCATION AND WORKFORCE TRAINING
VIRGINIA FOXX, North Carolina, Chairwoman
John Kline, Minnesota Ruben Hinojosa, Texas
Thomas E. Petri, Wisconsin Ranking Minority Member
Howard P. ``Buck'' McKeon, John F. Tierney, Massachusetts
California Timothy H. Bishop, New York
Judy Biggert, Illinois Robert E. Andrews, New Jersey
Todd Russell Platts, Pennsylvania Susan A. Davis, California
David P. Roe, Tennessee Raul M. Grijalva, Arizona
Glenn Thompson, Pennsylvania David Loebsack, Iowa
Richard L. Hanna, New York George Miller, California
Larry Bucshon, Indiana Jason Altmire, Pennsylvania
Lou Barletta, Pennsylvania
Joseph J. Heck, Nevada
C O N T E N T S
----------
Page
Hearing held on October 25, 2011................................. 1
Statement of Members:
Foxx, Hon. Virginia, Chairwoman, Subcommittee on Higher
Education and Workforce Training........................... 1
Prepared statement of.................................... 2
Hinojosa, Hon. Ruben, ranking minority member, Subcommittee
on Higher Education and Workforce Training................. 3
Prepared statement of.................................... 4
Statement of Witnesses:
Bandre, Mark, vice president for enrollment management and
student affairs, Baker University.......................... 19
Prepared statement of.................................... 21
Day, Ron, director of financial aid, Kennesaw State
University................................................. 11
Prepared statement of.................................... 12
Hoover, Nancy, on behalf of the National Direct Student Loan
Coalition (NDSLC).......................................... 16
Prepared statement of.................................... 18
Runcie, James W., Chief Operating Officer, Office of Federal
Student Aid, U.S. Department of Education.................. 6
Prepared statement of.................................... 8
Additional Submissions:
Andrews, Hon. Robert E., a Representative in Congress from
the State of New Jersey:
Questions submitted for the record....................... 51
Mrs. Foxx:
Letter, dated Oct. 25, 2011, from the National Council of
Higher Education Loan Programs, Inc.................... 48
Questions submitted for the record....................... 49
Ms. Hoover:
Response to questions submitted for the record........... 52
Loebsack, Hon. David, a Representative in Congress from the
State of Iowa:
Question submitted for the record........................ 51
Mr. Runcie:
Response to questions submitted for the record........... 55
GOVERNMENT-RUN STUDENT LOANS:
ENSURING THE DIRECT LOAN PROGRAM IS
ACCOUNTABLE TO STUDENTS AND TAXPAYERS
----------
Tuesday, October 25, 2011
U.S. House of Representatives
Subcommittee on Higher Education and Workforce Training
Committee on Education and the Workforce
Washington, DC
----------
The subcommittee met, pursuant to call, at 10:00 a.m., in
room 2175, Rayburn, Hon. Virginia Foxx [chairwoman of the
subcommittee] presiding.
Present: Representatives Foxx, Kline, Petri, Biggert,
Platts, Roe, Thompson, Bucshon, Hinojosa, Tierney, Altmire,
Bishop, Andrews, Davis, Loebsack, and Miller.
Staff Present: Jennifer Allen, Press Secretary; Katherine
Bathgate, Press Assistant/New Media Coordinator; Casey Buboltz,
Coalitions and Member Services Coordinator; Heather Couri,
Deputy Director of Education and Human Services Policy; Daniela
Garcia, Professional Staff Member; Amy Raaf Jones, Education
Policy Counsel and Senior Advisor; Rosemary Lahasky,
Professional Staff Member; Brian Melnyk, Legislative Assistant;
Krisann Pearce, General Counsel; Mandy Schaumburg, Education
and Human Services Oversight Counsel; Linda Stevens, Chief
Clerk/Assistant to the General Counsel; Alissa Strawcutter,
Deputy Clerk; Kate Ahlgren, Minority Investigative Counsel;
Daniel Brown, Minority Junior Legislative Assistant; Jody
Calemine, Minority Staff Director; John D'Elia, Minority Staff
Assistant; Jessica Finkel, Minority Detailee--Education; Brian
Levin, Minority New Media Press Assistant; Melissa Salmanowitz,
Minority Communications Director for Education; and Michael
Zola, Minority Senior Counsel.
Chairwoman Foxx. A very strong quorum being present, the
subcommittee will come to order. Good morning and welcome to
today's subcommittee hearing. I would like to thank our
witnesses for joining us today. We appreciate the opportunity
to hear your perspective on the Department of Education's
implementation of the Direct Loan Program.
Nineteen months ago, the Democrat-controlled Congress
approved a federal takeover of the student loan industry to
help pay for the president's health care law. My Republican
colleagues and I were rightly concerned this political tactic
could have unintended consequences on the nation's students'
higher education institutions and our economy. Any time the
federal government assumes control over a private sector
industry, there can be national complications.
As the sole provider and guarantor of federal student
loans, the Department of Education is now one of the largest
banks in the nation. In fiscal year 2012, it is expected to
originate $124 billion in student loans. This is an enormous
responsibility for any company or organization, let alone the
agency also tasked with administering all federal education
programs.
When the transition to the Direct Loan Program began,
critics warned of a possible increase in student default loan
rates. In today's economic climate with reports of loan default
rates on the rise, this is something the committee should take
seriously.
Some are also concerned that growing default rates could be
further exacerbated by the elimination of helpful services
previously available through the now defunct Federal Family
Education Loan Program. These services, such as debt
counseling, default prevention programs, and financial aid
personnel training help to ensure financial aid officers and
students fully understood the loan terms and processes. Schools
and students must now rely on the Department of Education to
provide these services, which many complain are no longer being
offered or effectively administered.
The transition to the Direct Loan Program has also resulted
in a decline in customer service for students and financial aid
officers. Given the volume of students applying for loan
assistance, it has become difficult to speak to a program
administrator to ask questions or share concerns about the loan
process. Although the Department of Education had lofty
promises of strong customer service when this transition began,
many schools have voiced concerns about increasing instances of
problems and mistakes.
For example, earlier this month the Direct Loan Web site
crashed and users were able to see other students' personal and
financial information. The implications of this kind of Web
site malfunction are severe particularly when it affects
millions of borrowers nationwide.
Additionally, institutions have criticized the Department's
handling of student loan data. Some schools report they no
longer receive accurate or consistent information from the
handful of government loan servicers which limits their ability
to assist students with their loan options and terms.
As members of the Subcommittee on Higher Education and
Workforce Training, we have the responsibility to conduct
proper oversight to ensure the Direct Loan Program is meeting
the needs of higher education institutions, students, and
taxpayers. The witnesses with us today will provide interesting
insight into execution and accountability measures of the
program. I look forward to a productive discussion on this
important issue.
I now would like to recognize my distinguished colleague,
Rubin Hinojosa, for his opening remarks.
[The statement of Mrs. Foxx follows:]
Prepared Statement of Hon. Virginia Foxx, Chairwoman,
Subcommittee on Higher Education and Workforce Training
Good morning, and welcome to today's subcommittee hearing. I'd like
to thank our witnesses for joining us today. We appreciate the
opportunity to hear your perspective on the Department of Education's
implementation of the Direct Loan Program.
Nineteen months ago, the Democrat-controlled Congress approved a
federal takeover of the student loan industry to help pay for the
president's health care law. My Republican colleagues and I were
rightly concerned this political tactic could have unintended
consequences on the nation's students, higher education institutions,
and our economy. Any time the federal government assumes control over a
private sector industry, there can be national implications.
As the sole provider and grantor of federal student loans, the
Department of Education is now one of the largest banks in the nation.
In fiscal year 2012, it is expected to originate $124 billion in
student loans. This is an enormous responsibility for any company or
organization, let alone the agency also tasked with administering all
federal education programs.
When the transition to the Direct Loan Program began, critics
warned of a possible increase in student loan default rates. In today's
economic climate, with reports of loan default rates on the rise, this
is something the committee should take seriously.
Some are also concerned that growing default rates could be further
exacerbated by the elimination of helpful services previously available
through the now defunct Federal Family Education Loan Program. These
services, such as debt counseling, default prevention programs, and
financial aid personnel training, helped ensure financial aid officers
and students fully understood the loan terms and process. Schools and
students must now rely on the Department of Education to provide these
services, which many complain are no longer being offered or
effectively administered.
The transition to the Direct Loan Program has also resulted in a
decline in customer service for students and financial aid officers.
Given the volume of students applying for loan assistance, it has
become difficult to speak to a program administrator to ask questions
or share concerns about the loan process. Although the Department of
Education had lofty promises of strong customer service when this
transition began, many schools have voiced concerns about increasing
instances of problems and mistakes.
For example, earlier this month, the Direct Loan website crashed
and users were able to see other students' personal and financial
information. The implications of this kind of website malfunction are
severe, particularly when it affects millions of borrowers nationwide.
Additionally, institutions have criticized the department's
handling of student loan data. Some schools report they no longer
receive accurate or consistent information from the handful of
government loan servicers, which limits their ability to assist
students with their loan options and terms.
As members of the Subcommittee on Higher Education and Workforce
Training, we have a responsibility to conduct proper oversight to
ensure the Direct Loan Program is meeting the needs of higher education
institutions, students, and taxpayers. The witnesses with us today will
provide interesting insight into execution and accountability measures
of the program. I look forward to a productive discussion on this
important issue.
I now recognize my distinguished colleague, Ruben Hinojosa, for his
opening remarks.
______
Mr. Hinojosa. Thank you, Chairwoman Foxx.
I also want to welcome and thank our distinguished
witnesses for joining us today. It is a pleasure to see you,
and we look forward to your presentations.
Today's hearing will provide us with an update of the U.S.
Department of Education's remarkably successful transition from
the Federal Family Education Loan Program, better known as
FFELP, to the Direct Loan Program. As ranking member of this
subcommittee, I am pleased that about 6,000 schools are using
the Direct Loan Program.
Enacted as part of the Health Care and Education
Reconciliation Act of 2010, the Student Aid and--SAFRA, which
is the Student Aid and Fiscal Responsibility Act, took both
steps to expand accessibility and affordability in higher
education by ending the taxpayer subsidized federally
guaranteed Federal Family Education Loan Program and replaced
it with the William D. Ford Federal Direct Loan Program.
SAFRA, a tremendous victory for students, families, and
taxpayers, made Federal college loans more stable and efficient
at no cost to the taxpayers, reinvested billions of dollars
into student financial aid programs such as Pell Grant, and
supported President Obama's college access and completion
goals.
On July 1, 2010, eligible students began borrowing directly
from the Department of Education and no longer paid new
subsidies to banks to make loans. Under the DL programs,
student lending remains a federal program, and the Department
of Education continues to work with the private sector and
nonprofits to service student loans.
In terms of oversight, while the Department of Education's
Office of Inspector General has conducted several reviews of
the transition to DL programs, I understand that none of these
reviews have identified material issues associated with the
transition. Instead, the reviews demonstrate that the
Department has led a seamless and successful transition to the
DL program. In fact, the first report found that the Office of
Federal Student Aid took actions to monitor student loan market
conditions and estimate the impact of the significant changes
on DL origination and servicing demands. FSA also took actions
to expand existing DL processing systems, awarded four
contracts to assist in servicing potential log-in increase and
appeared to have access to sufficient resources to assist
schools with the ability to transition to the DL program and
maintain FSA's compliance monitoring activities.
The second report found that although there was a variance
between the actual and the projected monthly activity in the
DL's origination process, the level of risk in exceeding the DL
origination capacity was low.
The final report found that FSA took actions to ensure the
effective processing of student loans as a result of the 100
percent transition to the DL program.
The OIG also concluded that the FSA had been providing
appropriate technical assistance to help impacted schools
successfully transition to the DL program.
While I am encouraged by the OIG's findings, we must be
vigilant in protecting the taxpayer investment in higher
education programs. Today, I am eager to hear more about the
transition from our panel of witnesses and about how the
Department is ensuring accountability to students and
taxpayers.
With that, Madam Chair, I yield back.
[The statement of Mr. Hinojosa follows:]
Prepared Statement of Hon. Ruben Hinojosa, Ranking Minority Member,
Subcommittee on Higher Education and Workforce Training
Thank you, Chairwoman Foxx. I want to welcome and thank our
distinguished witnesses for joining us.
Today's hearing will provide us with an update of the U.S.
Department of Education's remarkably successful transition from the
Federal Family Education Loan Program (FFELP) to the Direct Loan
Program (DL). As Ranking Member of this Subcommittee, I am pleased that
about 6,000 schools are using the Direct Loan Program.
Enacted as part of the Health Care and Education Reconciliation Act
of 2010, the Student Aid and Fiscal Responsibility Act (SAFRA), took
bold steps to expand accessibility and affordability in higher
education by ending the taxpayer-subsidized, federally guaranteed
Federal Family Education Loan Program (FFELP) and replacing it with the
William D. Ford Federal Direct Loan (DL) Program.
SAFRA, a tremendous victory for students, families, and taxpayers,
made federal college loans more stable and efficient at no cost to
taxpayers, reinvested billions of dollars into student financial aid
programs such as Pell Grants, and supported President Obama's college
access and completion goals.
In July 1, 2010, eligible students began borrowing directly from
the Department of Education and no longer paid new subsides to banks to
make loans.
Under the DL Program, student lending remains a federal program and
the Department of Education continues to work with the private sector
and non-profits to service student loans.
In terms of oversight, while the Department of Education's Office
of Inspector General (OIG) has conducted several reviews of the
transition to DL program, I understand that none of these reviews have
identified material issues associated with the transition.
Instead, the reviews demonstrate that the department has led a
seamless and successful transition to the DL program.
In fact, the first report found that the Office of Federal Student
Aid (FSA) took actions to monitor student loan market conditions and
estimate the impact of the significant changes on DL origination and
servicing demands.
FSA also took actions to expand existing DL processing systems;
awarded four contracts to assist in servicing potential volume
increase; and appeared to have access to sufficient resources to assist
schools with the ability to transition to the DL program and maintain
FSA's compliance monitoring activities.
The second report found that although there was a variance between
the actual and the projected monthly activity in the DL's origination
process, the level of risk in exceeding the DL origination capacity was
low.
The final report found that FSA took actions to ensure the
effective processing of student loans as a result of the 100 percent
transition to the DL program. The OIG also concluded that the FSA had
been providing appropriate technical assistance to help impacted
schools successfully transition to the DL program.
While I am encouraged by the OIG's findings, we must be vigilant in
protecting the taxpayer investment in higher education programs.
Today, I am eager to hear more about the transition from our panel
of witnesses and about how the Department is ensuring accountability to
students and taxpayers.
Thank you.
______
Chairwoman Foxx. Pursuant to Committee Rule 7(c), all
subcommittee members will be permitted to submit written
statements to be included in the permanent hearing record.
Without objection, the hearing record will remain open for 14
days to allow statements, questions for the record, and other
extraneous material referenced during the hearing to be
submitted in the official hearing record.
It is now my pleasure to introduce our distinguished panel
of witnesses.
Mr. James Runcie was appointed as the Chief Operating
Officer for the Office of Federal Student Aid on September 15,
2011. Before joining the Department of Education, Mr. Runcie
served as co-head of Equity Corporate Finance of UBS investment
bank.
Mr. Ron Day is the Director of Financial Aid at Kennesaw
State University. Prior to Kennesaw State University, Mr. Day
served in the same capacity at several other schools.
Ms. Nancy Hoover has been Denison University's Director of
Financial Aid for more than 17 years. She is the immediate past
national chair of the National Direct Student Loan Coalition.
Mr. Mark Bandre has served as Vice President for Enrollment
Management and Student Affairs for Baker University since June
2010 after having served in similar capacities at other
schools.
Before I recognize you to provide your testimony, let me
briefly explain our lighting system. You will have 5 minutes to
present your testimony. When you begin, the light in front of
you will turn green. When 1 minute is left, the light will turn
yellow. And when your time has expired, the light will turn
red, at which point I would ask that you wrap up your remarks
as best as you are able. After you have testified, members will
each have 5 minutes to ask questions of the panel. And of
course your submitted remarks will be made a part of the
record.
I would now like to recognize Mr. Runcie for 5 minutes.
STATEMENT OF JAMES W. RUNCIE, CHIEF OPERATING OFFICER, OFFICE
OF FEDERAL STUDENT AID, U.S. DEPARTMENT OF EDUCATION
Mr. Runcie. Thank you, Chairwoman Foxx, Congressman
Hinojosa, and other distinguished committee members, for the
opportunity to testify before the committee.
My name is Jim Runcie, and a little over a month ago I was
appointed by Secretary of Education, Arne Duncan, to be the
Chief Operating Officer of the Department's Federal Student Aid
Office.
Federal Student Aid, or FSA, is responsible for
implementing and overseeing the federal student financial
assistance programs. I am here today to discuss the transition
from two major federal student loan programs to 100 percent
direct lending. I also want to share with you the many new
processes and programs that have been implemented by the
Department to ensure appropriate stewardship of taxpayer funds
and the continued integrity of the student aid programs.
Let me begin by providing some context. As you know, the
decline of the financial markets that began in 2007 directly
affected student lending by severely restricting the
availability of capital for private lenders to make federally
supported student loans. This potentially could have left
millions of students without the funds needed to finance their
education. Many schools observing the economic and financial
landscape at the time began the process of transitioning to the
DL program. In fact, the number of schools entering the DL
program increased by 52 percent in the 19 months prior to
President Obama's proposal to originate all federal student
loans through a single loan program.
As the number of schools moving to the DL program
increased, we took steps to make sure that FSA had the capacity
to assume additional direct loan volumes. Beginning in 2008, we
increased our standby loan origination capacity to ensure it
could handle expected volumes. We also augmented our back-end
servicing capacity with the award of loan servicing contracts
to four private sector companies. The structure of these
contracts ensures that borrowers will have access to better
counseling to help manage their student loan obligations.
Borrowers will also receive the highest quality service at the
lowest possible cost to taxpayers.
In the summer of 2009, FSA began reaching out to schools
that were considering joining the DL program. In October, we
implemented a comprehensive training plan designed to assist
schools with the transition. I can report to the committee that
every school wishing to originate a direct loan has been able
to do so. Last year, the Department made $102 billion in direct
loans to 11.5 million students and parent borrowers. This
transition from a dual program structure increased the Direct
Loan Program disbursements from $42.6 billion in the 2009-2010
academic year to $102.2 billion the following year.
With the number of schools participating in direct lending
came the need to significantly increase our program's support
efforts. We increased staff to provide oversight and compliance
to ensure that taxpayer funds are being used as intended. In
addition, we continued to enhance our processes to identify at-
risk schools. This will ensure the highest integrity in the
student aid programs.
We are also taking steps to improve accuracy of information
provided by students and families through the Free Application
for Student Federal Aid, or FASFA. This includes the new IRS
data retrieval tool which provides greater accuracy of the
financial information provided by applicants, and new
regulations will help the Department and institutions better
target the verification of student reported data.
We augmented our risk management capacity within FSA to
better identify and mitigate systemic, operational, and
business vulnerabilities. Additionally, we are enhancing our
security efforts with those organizations charged with
compiling and storing student aid data. With the growth in
federal student aids borrowing base, we are also increasing our
customer outreach, default prevention, and risk management
efforts.
Last year, FSA established its customer experience office,
which is charged with managing customer advocacy, financial
literacy, and consumer protection. We also updated our student
loan counseling for borrowers and provided incentives to our
new private sector loan servicers to better counsel borrowers
in an effort to reduce defaults.
Ultimately, it is the student aid recipients and their
families who are our customers, and we want to equip them with
the best tools and resources to make informed financial
decisions.
In an effort to support the transition to and, more
specifically, to enhance the financial literacy and
deprevention services for student borrowers, the Secretary of
Education invited sale program guarantee agencies to submit
proposals for voluntary flexible agreements, or VFAs. VFAs use
existing statutory authority to leverage private sector best
practices to improve efficiencies and customer service at no
additional cost to taxpayers. We look forward to working with
the guarantee agencies as they continue to provide services to
students and families.
A summary of our progress to date would be incomplete
without an acknowledgment of the student aid staff. I also want
to recognize financial aid professionals at institutions
participating in the DL program, including my colleagues on
this panel, for their tremendous efforts in enabling this
transition.
Thank you for inviting me to testify, and I am happy to
take questions.
[The statement of Mr. Runcie follows:]
Prepared Statement of James W. Runcie, Chief Operating Officer,
Office of Federal Student Aid, U.S. Department of Education
Thank you for the opportunity to testify before the Committee on
the Department of Education's office of Federal Student Aid's progress
in transitioning to the William D. Ford Federal Direct Loan Program
(Direct Loan Program). I believe that this transition has been and
continues to be a success, and I am pleased to appear before you today.
A little over a month ago, Secretary of Education Arne Duncan
appointed me as the Chief Operating Officer of Federal Student Aid.
Prior to this appointment, I held the position of Deputy Chief
Operating Officer of Federal Student Aid. By way of background, my
prior experience includes over 20 years in management and financial
services in the private industry. I was also a recipient of federal
financial assistance over 20 years ago while attending Harvard
University as a graduate student. I am honored to serve the very
programs that helped me to complete my education. It is a privilege to
be a part of an organization that supports student access to higher
education and workforce training.
Federal Student Aid is responsible for implementing and overseeing
the federal student financial assistance programs, authorized under
Title IV of the Higher Education Act of 1965 (HEA). These programs
represent the largest source of student aid for postsecondary education
in the United States. Last year, Federal Student Aid processed over 21
million applications for federal student aid and delivered roughly $150
billion in grant, work-study, and loan assistance to approximately 15
million postsecondary students and their families. Today, our loan
portfolio is valued at over $848 billion, with 36 million individual
borrowers and 146 million loans.
Federal Student Aid is not alone in these efforts; we are supported
by our public-private partnerships. Federal Student Aid's workforce
includes over 1200 employees supported by approximately 9,000 private
sector contract employees. In fact, approximately 84 percent of Federal
Student Aid's administrative budget goes to private-sector vendors. In
addition, we are supported by, and work closely with several offices
within the Department. As the numbers will tell, we efficiently manage
a high volume of work with our federal staff in an effort to be good
stewards of taxpayer money.
Before I discuss the Department's process in transitioning FFEL
Program lending to the Direct Loan Program, I would like to quickly
highlight some of the other work Federal Student Aid is doing to
support students as they pursue education and training beyond high
school.
First, we have greatly simplified the Free Application for Federal
Student Aid (FAFSA) as part of our overall strategy to increase access
to postsecondary education and meet President Obama's goal of having
``the best educated, most competitive workforce in the world'' by 2020.
Federal Student Aid redesigned our online application--FAFSA on the
Web--with improved ``skip-logic'' and expanded the availability of the
Internal Revenue Service Data Retrieval Tool. These improvements
reduced the time for families to complete the application by
approximately one third. FAFSA on the Web allows financial aid
applicants and their parents to retrieve, directly from the Internal
Revenue Service, certain income and other information they had reported
on their federal income tax returns and to automatically transfer that
information to their FAFSA. This not only makes it easier for families
to complete the application, but it also increases the accuracy of the
information used to determine a student's eligibility for federal
student aid. Aid applicants are taking note of these changes. Last
quarter, the FAFSA received a score of 90 from the American Customer
Satisfaction Index, which is a national economic indicator of customer
evaluations of the quality of products and services available to
household consumers in the United States. The average government score
is 75, and scores above 88 are considered ``outstanding.''
Another improvement I would like to highlight is the smooth
completion of the Federal Family Education Loan (FFEL) Loan Purchase
Programs, which resulted from the authority given to the Secretary of
Education in the Ensuring Continued Access to Student Loans Act of 2008
(ECASLA). As you know, the decline in the financial markets that began
in 2007 directly affected student lending by severely restricting the
availability of capital for private lenders to make federally supported
student loans. This crisis had the potential to leave millions of
students without the funds needed for a postsecondary education. We
have many of you on this Committee to thank for ensuring students had
access to these funds.
As a result of Congressional action, the Administration established
the ECASLA Loan Purchase Programs. By authorizing the Department to
purchase eligible federal student loans, the ECASLA Loan Purchase
Programs provided FFEL lenders with the capital necessary to make
Stafford and PLUS loans for the 2008--09 and 2009--10 academic years.
The purchase of new loans under the ECASLA Program was completed on
October 15, 2010 after the Department purchased almost $109 billion in
FFEL Program loans representing approximately 85 percent of all FFEL
loans disbursed during that period. In addition to these programs, the
Department also guaranteed another $41 billion in FFEL Program loans
financed by an asset-backed commercial paper conduit
These are just a few of the many achievements Federal Student Aid
has accomplished in the past few years, while continuing to provide
record amounts of aid at lower incremental cost to more students than
ever before. I am very proud to report these achievements to the
Committee today.
The primary reason I am here today is to discuss Federal Student
Aid's efforts to ensure a smooth transition of the FFEL Program to 100
percent Direct Lending. I also want to discuss the many processes and
programs that have been implemented by the Department to ensure
appropriate stewardship of taxpayer funds and the continued integrity
of the student aid programs.
On March 30, 2010, President Obama signed the Health Care and
Education Reconciliation Act, P.L. 111-152. The provisions that
prescribed the significant changes to the Title IV program are referred
to as the SAFRA Act. The SAFRA Act ended new lending under the FFEL
program beginning July 1, 2010. While the SAFRA Act ended new FFEL
lending, it is important to note that 77 million FFEL Program loans
totaling almost $490 billion and representing over 23 million borrowers
still exist today.
I am pleased to report that the transition to 100 percent Direct
Lending was a success and the Department made $102.2 billion in Direct
Loans to 11.5 million recipients during academic year 2010-2011. This
transition from the FFEL Program to the Direct Loan Program resulted in
a 140 percent year-over-year increase in Direct Loan Program
disbursements in the 2010-11 academic year.
Beginning in 2007, the decline in the credit markets compelled a
number of schools to move to the Direct Loan Program and many FFEL
lenders to advocate for federal assistance in securing loan principal
for new originations. In fact, the number of schools entering the
Direct Loan Program increased by 52 percent in the nineteen months
prior to the February 2009 release of President Obama's 2010 budget
proposal to originate all Stafford, PLUS and Consolidation loans via a
single loan program. As the number of schools moving to the Direct Loan
Program increased, we initiated steps to ensure Federal Student Aid had
the capacity to assume additional Direct Loan volume. Beginning in
2008, we increased the Direct Loan origination capacity of our Common
Origination and Disbursement system. We accomplished this through a
series of three upgrades that improved the system's infrastructure and
increased call center and system operations support.
In 2009, the volume of loans sold to the Department by FFEL lenders
under the ECASLA loan programs quickly grew, while at the same time
schools continued their migration to the Direct Loan Program. With
front-end Direct Loan volumes increasing, we augmented our back-end
servicing capacity with the award of four loan servicing contracts to
our Title IV additional servicers (TIVAS): private sector companies--
Nelnet Servicing, LLC; Great Lakes Educational Loan Services, Inc; SLM
Corporation (Sallie Mae); and the Pennsylvania Higher Education
Assistance Agency. These contracts provided the Department with the
capacity necessary to support the anticipated increase in the number of
loans owned by the Department. The structure of these contracts ensures
that borrowers will receive the highest quality of service at the
lowest possible cost to the taxpayer. Today, the Department's federally
held portfolio with the four servicers is more than $125 billion in
Direct Loans and over $100 billion in outstanding principal and
interest on FFEL loans purchased by the Department through the ECASLA
programs.
While Federal Student Aid's systems and processes were ready to
support the increase in Direct Loan volume, many schools still required
assistance in transitioning to the Direct Loan Program.
In summer 2009, Federal Student Aid began offering assistance and
guidance as schools contemplated joining the Direct Loan Program. We
established the Direct Loan Task Force to provide dedicated technical
assistance to schools transitioning into Direct Lending.
In October 2009, the Department implemented a comprehensive
training plan to assist schools transitioning to the Direct Loan
Program. That same month, we launched our Direct Loan Webinar Training
Series for domestic schools. This consisted of a suite of six different
modules on multiple aspects of administering the Direct Loan Program.
We established and published the Direct Loan Source, a monthly
newsletter for schools considering a transition to the Direct Loan
Program. In December 2009, we hosted over 5,300 financial aid
professionals at our annual conference--providing detailed Direct Loan
training. We offered Direct Loan training again at our 2010 annual
conference, with over 5,700 attendees. We also conducted Regional
Direct Loan Training Conferences in 15 cities across the Nation,
serving almost 2,600 financial aid professionals. Additionally, our
team traveled to 10 cities to offer training to foreign schools
personnel.
I can report to the Committee that all eligible institutions of
higher education in the United States wishing to participate in the
Direct Loan Program have successfully transitioned and are able to
provide Direct Loans to students at their institutions. Today,
approximately 5,800 domestic institutions are participating in the
Direct Loan Program.
The SAFRA Act also amended the HEA to provide eligibility for
domestic students attending foreign institutions to borrow under the
Direct Loan Program. Today, 400 foreign schools now participate in the
Direct Loan Program. Every foreign school wishing to originate a Direct
Loan has been able to do so.
We are also taking additional steps to augment our loan servicing
capacity. The Department is now implementing the SAFRA Act provision
that providing mandatory funding for the Department to allow certain
non-profit servicers to service Direct Loans. Final pricing was
announced on April 19, 2011. To date, 15 entities representing 26 not-
for-profit servicers and 30 states have entered into memoranda of
understanding with the Department, and one servicer has entered into a
contract with the Department and already received its first allocation.
We anticipate that other not-for-profit servicers will come on line
over the next year.
With the knowledge that most schools participating in the Direct
Loan Program would have fewer than two years experience in
administering the Direct Loan Program, we significantly increased our
program support and compliance efforts. Our program support staff
continues to assist with account reconciliation and technical support.
We also increased staff to provide oversight and compliance in this
area to ensure taxpayer funds are being used as intended. In addition,
we are reviewing existing policies and procedures for identifying at-
risk schools and practices, further enhancing our ability to ensure
integrity of the program.
As already mentioned, Federal Student Aid is taking steps to
improve the accuracy of information provided through the FAFSA. This
includes the new IRS Data Retrieval Tool which ensures greater accuracy
of financial information provided by applicants as well as the
resulting aid eligibility determination. New regulations, effective
July 1, 2012, help institutions better target the verification of
student-reported data for student aid recipients. We are also
developing targeted verification techniques leveraging enhanced skip
logic functionality within future versions of the aid application.
We also augmented our risk management capacity within Federal
Student Aid to identify and mitigate systemic, operational and business
vulnerabilities. Additionally, we are enhancing our security of student
aid data to protect FSA systems and student data.
With the growth in Federal Student Aid's borrower base, we are also
increasing our customer outreach, default prevention and risk
management efforts. Last year, Federal Student Aid established a Chief
Customer Experience Officer, whose role is to manage the overall
customer experience. This officer is responsible for, among other
things, customer advocacy, financial literacy and consumer protection.
We have also updated our financial counseling for new borrowers, and
have provided incentives for our new loan servicers to reduce defaults.
Ultimately, it is student aid recipients who are our customers, and we
want to equip them with information to make informed financial
decisions.
Finally, with the growth in the number of federal student loans
owned by the Department comes greater risk for a higher number of
defaulted borrowers whose accounts must be serviced. Over the years, we
have increased the number of debt collection vendors under contract to
23, and are implementing a new default management system that features
more flexibility and greater analytics to increase the effectiveness of
our debt collection efforts.
In an effort to support the continued transition from FFEL to
Direct Loans, the Secretary invited FFEL Program guaranty agencies to
submit proposals for Voluntary Flexible Agreements (VFAs) in late May).
As authorized by the HEA, VFAs use existing authority to leverage
private sector best practices to improve efficiencies and customer
service in the administration of the Title IV programs, while reducing
the cost to the American taxpayer. As of August 1, 2011, the Department
received a total of 22 proposals, representing 24 guaranty agencies.
The Department is currently reviewing these proposals. We look forward
to working with the guaranty agencies to continue to provide services
to students.
A summary of our progress to date would be incomplete without an
acknowledgment of the incredible efforts of the Federal Student Aid
staff. The dedication, professionalism and absolute commitment of this
team to ensuring students have the aid they need to achieve their
educational pursuits is truly inspirational. I would also like to
recognize financial aid administrators at institutions participating in
the Direct Loan Program for their efforts in making the transition a
success.
Thank you for inviting me to testify on the Department's progress
in the Direct Loan transition and for the opportunity to present the
steps we are taking to ensure that eligible students and their families
have access to Direct Loans they need, and taxpayers' investments are
protected. On behalf of the dedicated staff of Federal Student Aid, I
would like to reiterate our commitment to serving the Nation's students
and their families. I am happy to take any questions you may have.
______
Chairwoman Foxx. Thank you very much, Mr. Runcie.
I now recognize Mr. Day for 5 minutes.
STATEMENT OF RON H. DAY, DIRECTOR OF FINANCIAL AID,
KENNESAW STATE UNIVERSITY
Mr. Day. Good morning, Madam Chair, and other distinguished
committee members. I am Ron Day, Director of Financial Aid at
Kennesaw State University in Kennesaw, Georgia. Thank you for
the opportunity to testify about the successes and the
challenges of the William D. Ford Federal Direct Loan Program.
Today I will offer my perspectives on the transition
process from FFEL and the current strengths and weaknesses from
the now single federal loan program. As a current and former
board member and now serving as incoming chairman to the
National Association of Student Financial Aid administrators, I
want the share some national perspectives as well.
As an aid administrator for over 28 years, I have
previously been associated with both private and public
nonprofit schools that have participated in the FFEL program.
FFELP allows students and parents the opportunity to selecting
a lender of their choice from the private loan market. The
FFELP lenders assisted us in our schools and students with the
following--brochures and informational items, step-by-step
processes for applying and repaying, budget calculators, budget
advice, financial planning tools. One of the most helpful
things was default management counseling and management tools
that helped explain to students how to keep out of default, the
consequences of default, and the basic how to and why to repay
student loans. Their assistance was extremely valuable to our
students.
With the situation that occurred in 2008 with the financial
markets, we have consulted and many of the private lenders
decided to discontinue participation in the FFEL program. The
community became very unrested. Financial aid administrators
sought advice and direction but quickly realized that the
change of transition would not be as easy as turning on a light
switch.
We were faced with staffing concerns, how to implement a
transitional plan all within a relatively short time frame. We
were concerned about internal systems and our need to
reconfigure computer systems, yet we were compelled to begin
the planning process. And after gathering information, reading
materials, attending many workshops and seeking assistants from
campus administrators, key staff members and discussing with
units and divisions on my campus, I advised my administration
that we would be transitioning to DL in January of 2010.
The transition was not without bumps. We did need to
reconfigure our systems and not just our computer systems. We
had to formulate training and retraining activities and develop
communications plans for students and parents on new processes
and procedures. It was not an easy task for students. Being
transferred from liaison to liaison on the department level,
this required the daily need for conversations with area
colleagues.
Yet I can say that today I have not heard of any student
that was denied access to a student loan. The current process
is not perfect. I raise the following concerns:
Reporting must improve within the process. This causes
delay in disbursement of funds to students; better real time
processes should be solved. Additional streamlining is needed.
The FAFSA should and could double as a promissory note or at
least link for ease of completion to the document. Previously a
question was included on the FAFSA asking the student if they
wished to receive a student loan. Against the advice of the
financial aid community, it was removed. Default management
tools and assistance tools should increase, and educational
process for students is important to show how to prevent
defaulting on student loans.
Standardization must increase. Many of the previous FFELP
winners are now servicers. They have been allowed to implement
different policies and practices. There is no single
publication that has been released that easily tells students
about these differences.
Finding their loans between multiple servicers. There is no
single point of contact that should be available to students.
Because of multiple servicers of the DL program, students are
often uncertain about whether loans are being serviced. This
should be corrected as soon as possible with a centralized
phone system or Web site that easily sends students to their
servicer.
I do not see these challenges as insurmountable, and I feel
confident that as we partner together we can see positive
outcomes for students. I once more wish to express my gratitude
for the opportunity to offer you a glimpse into our
transitional process from FFELP to DL and to share some areas
that we belive require some immediate and additional
improvement. We, as aid administrators, see ourselves as
partners with you, and with the Department in ensuring that
nearly $150 billion in federal student aid is delivered
efficiently, accurately, and successfully to needy students.
The financial aid community is appreciative of you and your
willingness to hear our needs, struggles, and successes. Thank
you very much.
[The statement of Mr. Day follows:]
Prepared Statement of Ron Day, Director of Financial Aid,
Kennesaw State University
Good Morning Madam Chair and other distinguished Committee Members.
My name is Ron Day, Director of Financial Aid at Kennesaw State
University in Kennesaw Georgia--a 4-year public university located in a
suburb of metropolitan Atlanta. Thank you for the opportunity to
testify about the successes and challenges of the William D. Ford
Federal Direct Loan Program. Today I offer my perspectives on the
transition process from the Federal Family Education Loan Program, or
FFEL, and the current strengths and weaknesses of the now single
federal loan program. As a current and former board member and now
incoming chairman of the National Association of Student Financial Aid
Administrators (NASFAA), I want to share some national perspectives as
well.
FFEL Program
As an aid administrator for over 28 years, I have previously been
associated with both private and public non-profit schools that
participated in the FFEL Program. FFEL allowed students and parents the
opportunity of selecting a lender from the private loan market. The
FFEL partners assisted my schools by offering the following to my
students:
Brochures and informational items that included:
Basic explanation and eligibility criteria for student
loans
Descriptions of step-by-step application and repayment
processes
Budget advice and calculators that could be utilized for
proper financial planning
Information regarding rebates and other incentives to
encourage on-time repayment.
Default prevention, counseling, and management tools that
included information on:
How much should be borrowed
How to track and manage loans
How to repay student loans
The consequences of defaulting
Options to prevent student loan default
Consolidation information and when that may or may not be
a good option
Information on the numerous repayment plan options and how
differences in those plans would ultimately affect the total cost of
their loans
Their assistance was extremely valuable to our students and
provided them useful resources that educated students on all aspects of
a loan--from the application process through repayment. Inasmuch as
schools are held responsible for the numbers of students that default
on loans, these vital services complimented institutional efforts to
keep students out of default.
DL Transition
Schools had also previously received information on the current
loan environment from various higher education associations. For
example, on April 30, 2008, the American Association of Community
Colleges wrote to members, ``As a safeguard against any potential
disruption in loan capital due to private lenders no longer providing
loans to your students, you may want to consider gaining initial
approval to participate in the Department of Education's Direct Loan
Program.'' The American Council of Education also expressed to its
members ``there is a need to consider alternative financial options and
whether the Direct Lending Program is a feasible way to navigate these
uncharted waters.'' NASFAA issued similar guidance to schools in 2009,
advising schools to at least make plans to convert into the Direct Loan
Program given the uncertainty surrounding an ECASLA extension.
It was a very difficult and confusing time for schools. Financial
aid administrators sought advice and direction from as many sources as
possible, but we knew it wouldn't be as easy as turning on a light
switch. Once a school decided to transition from FFEL to Direct Loan,
many other decisions and considerations came into play, such as:
What staffing would be needed to implement the transition
in a relatively short amount of time?
What current initiatives would need to be forestalled in
order to make the transition quickly and smoothly?
What capital investments might be needed for training and
system changes?
Do we have the necessary staff to administer a new program
effectively?
What restructuring of staff and organizational
arrangements should take place?
How do we learn and adapt new processes to our computer
systems?
How long would it take for full implementation to occur?
Kennesaw State University Planning
After weighing all of the pros and cons, the current and predicted
future market conditions, and talking to many colleagues across the
country, in the Fall 2009 we at Kennesaw State University began the
planning process of determining whether to move to the Direct Loan
Program.
We developed a timeline to implement this transition, which
included:
Reviewing information available from various groups--
including current DL schools, local schools with the same computer
system as KSU who had previously transitioned to DL, and transitional
plans developed by schools of comparable size as KSU
Selecting a ``Task Force'' of campus individuals from
critical offices to explore the possibility of transitioning:
Budget Office
Bursar's Office
Business Services
Information Technology
The Financial Aid Office
Developing an informational meeting for key individuals to
explain the differences in programs and seeking feedback regarding the
possibility of moving to Direct Loans. These individuals included:
Upper Administrators
Budget and Planning
Office of Financial Planning
Internal Audit
Attending and participating in webinars, workshops, and
conferences from the higher education community and the U.S. Department
of Education
Reconvening the institutional Task Force in early January
2010 for additional education in process changes
Seeking assistance from other schools who had the same
internal computer system to help with:
Transitional information
Manuals
The timeline in making this transition
Talking with IT professionals employed by the school (KSU)
Reviewing steps needed to setup our system
Although an avid supporter of FFEL, when the financial markets
froze in 2008, when many local and area banks discontinued
participation in 2009 and 2010, when remaining private lenders showed
an uncertainty in their longevity of participating in FFEL, the
decision became clear. Ultimately, I determined the Direct Loan Program
was the best option for our students and our institution and advised my
administration on January 28, 2010, that we would be making the move
from FFEL to DL by the following summer. Our first disbursement was
successfully made during the Summer 2010 semester.
What is Best for Students
Kennesaw State University has always framed decisions from the
perspective of what is ``best for students'' first and then what is
``best for KSU.'' We felt Direct Loans to be good for students for the
following reasons:
Funding is obtained directly from the Federal Government,
which were the surest form of undisrupted capital at that time.
Federal Direct Loans are fully integrated into the Federal
student aid delivery process through ED's common origination and
disbursement (COD) system, the same system that delivers Pell Grant
funding.
KSU Transition Process
Although ultimately successful, our transition was not without
bumps and challenges. Challenges included:
Reconfiguring our computer system(s) to accommodate new
processes
Training and retraining of staff
Counselors within the Financial Aid Office
Processing staff within the Financial Aid Office
External staff in KSU
Bursar Office
Business Services
Developing a communication plan to assist students with
new requirements:
New Promissory Note for all previous and future borrowers
New processes and location and revamping of websites,
links, and forms
With the assistance of workshops, colleagues, manuals, and the U.
S. Department of Education, our students did not experience
insurmountable struggles or roadblocks through the transition.
As a board member of NASFAA, I heard from schools on an ongoing
basis who were struggling to make the transition successfully. This was
no easy task for schools to undertake in such a short amount of time
and many schools were shifted from liaison to liaison at the U.S.
Department of Education as ED increased their operational capacity to
help schools transition and implement the program successfully.
However, when it was all said and done, I am proud to say that I am not
aware of any student who was denied access to student loans due to a
school not successfully transitioning into the Direct Loan Program.
Today, schools across the country are successfully operating in the
Direct Loan Program. However, this program is not perfect. I raise the
following issues that I believe require additional, immediate
attention:
Better and more accurate reporting. Quite often the data
is not reported in a timely fashion from multiple servicers to our
national, central database--The National Student Loan Data System
(NSLDS). Delays in reporting data adds to the student confusion and
could have negative ramifications for disbursement of funds. As an
example:
If an institution originates a student loan because a
student indicated s/he would be attending that term and only finds out
several weeks later that the student decided to attend another
institution--the current institution must delay disbursement until the
data is cancelled and resubmitted. This causes great harm to students.
Other private, national student loan and attendance databases are
successful in updating student information within a 24-48 hour
turnaround. Improvements should be made or additional partnership
struck with the private sector to ensure a more timely delivery of
information.
Additional streamlined services: With a single federal
loan program, many of the processes that used to be in place during the
FFEL program could be updated to make the entire student aid process
easier for students. For example, until this last year, the Free
Application for Federal Student Aid (FAFSA) would ask whether students
were interested in taking federal loans. If they indicated yes, the
FAFSA could easily double as a Master Promissory Note or link over to
the federal MPN, which would streamline the entire process. Instead,
and against the advice from NASFAA and other financial aid
administrators, the Department has simply eliminated that question
altogether from the FAFSA. The promise of a single federal loan program
should result in innovative ways to streamline other federal student
aid processes. I think much more can be done on this front.
Additional college access and default prevention materials
and assistance: The legislation that eliminated the FFEL program also
allowed previous FFEL program student loan guarantors to offer college
access and default prevention materials and services to schools and
students. Unfortunately, there has been a bit of a lapse between the
period when FFEL was eliminated and these new programs coming to
fruition. Recently the Department announced it would allow guarantors
to operate under new flexible arrangements to compensate them based on
metrics like keeping students out of default or participating in other
college access initiatives. However, the timeframe to get these
programs up and running has some schools scrambling to fill in the
gaps, all while a sour economy is leading to ever increasing student
loan defaults. Schools and students need these services sooner rather
than later.
Increased standardization of loan servicing: Perhaps one
of the most disconcerting parts of the Direct Loan Program has been the
lack of standardization in loan servicing. Many of the former FFEL
partners went from lending federal student loans to servicing them.
These servicers are awarded student loan accounts based on several
criteria and they are allowed to implement different policies and
practices in the name of competition in hopes of receiving additional
servicing contracts. However, to date no single publication has been
released that easily tells schools and students about the different
practices and policies of these servicers. Under the FFEL program,
lenders and guaranty agencies came together to create a ``Common
Manual'' that clearly outlined lender policies, procedures, and
practices. It is disappointing that a similar effort has not been
spearheaded by the Department, who oversees these contracts.
In some instances, these differences in servicing practices have
resulted in drastic increased expenses for students. For example,
servicers have different practices for capitalizing interest after
periods of deferment or forbearances. Those differences have resulted
in different expenses for students, sometimes resulting in drastically
higher costs. We were recently assured
By the Department of Education that this issue is being
standardized, yet other variances may still exist such as the type of
documentation individual servicers will accept for deferments,
forbearances, or income based repayment. We believe students should
have standardization with a single federal loan program. And where
there are differences between servicers, finding all of these practices
in one location should be a requirement.
With dozens of other servicers scheduled to come online in the
coming months, we as a community are extremely concerned about how
students are to keep up with the various processes and procedures.
Finding Loans In Between Servicers: One of the outcomes of ECASLA
and the switch to 100 percent Direct Lending has been the transition of
loans from FFELP lenders to Direct Loan servicers. Because of multiple
servicers of the Direct Loan Program, students are often uncertain
about where their loans are being serviced. There have been scattered
reports that some loans have gone ``off the grid'' entirely for
multiple weeks, sometimes over a period of time when a borrower was
expecting to make payments. This process must be smoother for students
and they must be informed in an expeditious way the unique phone
numbers and websites where they can obtain assistance. NSLDS is not
updated in real-time, and that time lag can cause angst and possibly
missed payments for students.
I do not see these challenges as insurmountable and I feel
confident that as we partner together we can see positive outcomes for
students.
I once more wish to express my sincere gratitude for the
opportunity to offer you a glimpse into our transition process from
FFEL to Direct Loan and to share some areas that we believe require
some additional improvement. We as aid administrators see ourselves as
partners with you and the Department in ensuring that the nearly $150
billion in federal student aid is delivered efficiently, appropriately,
and successfully to needy students around the country. The financial
aid community is appreciative of you and your willingness to hear of
our needs, struggles, and successes.
______
Chairwoman Foxx. Thank you very much, Mr. Day.
I now recognize Ms. Hoover for 5 minutes.
STATEMENT OF NANCY HOOVER, DIRECTOR OF
FINANCIAL AID, DENISON UNIVERSITY
Ms. Hoover. Chairwoman Foxx, Senior Democratic Member
Hinojosa, and members of the subcommittee. Thank you for the
opportunity to be a witness for this important hearing on
federal student loans.
I am Nancy Hoover, the immediate past chair of the National
Direct Student Loan Coalition, and I am the Financial Aid
Director at Denison University in Granville, Ohio. Denison is a
selective, independent, residential, undergraduate liberal arts
college with an enrollment of about 2,200 students. Denison
University implemented the Direct Loan Program as a year two
school in 1995.
Prior to my becoming the director at Denison in 1994, I had
processed or administered the processing of loans in the FFEL
program at three other private universities.
I speak to you today on behalf of the National Direct
Student Load Coalition, a grass-roots organization comprised of
schools dedicated to the continuous improvement and
strengthening of the Direct Loan Program. Its members are
volunteers who are practicing financial aid professionals. The
coalition would like to extend its thanks and congratulations
to the staff at the Department of Education and especially at
Federal Student Aid for the tremendously successful transition
of all schools into the federal Direct Loan Program. Over the
past several years, the coalition has played a significant role
in the successful transition of schools into the Direct Loan
Program by establishing a mentoring program of financial aid
administrators who were working at direct loan schools.
These financial aid professionals were willing to volunteer
their time and expertise to help other schools making the
transition. The mentors represented schools from every sector,
from different enrollment sizes, and different software
platforms used to process loans. The Coalition Mentoring
Program assisted over a thousand schools at no cost to any of
these schools.
While some in the industry predicted that 100 percent
transition to direct lending was an impossible task, the
partnership of financial aid administrators and the Department
of Education resulted in a very successful outcome and it built
on the existing collegiality in our profession. To date, I do
not recall there was a single instance in which students did
not receive their Stafford loan funds during and after the
transition.
This transition of all schools to the federal Direct Loan
Program could not have been more successful for students,
schools, and taxpayers. Benefits to the students and families
generate savings that support increases in the maximum Pell
Grant. It simplifies the federal loan application process by
embedding it in the application for federal aid. It assures the
availability of capital for educational loans. It provides
repayment options for borrowers that can prevent defaults.
Accountability to students. Every disbursement record for
student loans is recorded in the federal Common Origination
Disbursement System to ensure accountability for the individual
student's records.
Benefits to school. With all the federal loans and the
grants processed through one system, the Common Origination and
Disbursement System, student aid processing and delivery is now
focused on the student rather than each individual program.
Schools that were already processing federal programs in
the system did not have to buy additional software and hardware
to make the transition. Some of the features of this system are
its loan delivery system so that financial aid staff can have
more time to counsel students and parents. The standard common
format in the system enables quick programming. If Congress
develops new programs, then the software vendors then can do
the program quickly.
The system provides accountability because funding for all
programs is processed through one system, the Department of
Education's Grant Management System. The system now contains
information about the multiple servicers so that schools will
know where their student loans have been assigned.
In closing, the accountability that is inherent in the
Direct Loan Program provides benefits to the taxpayers,
requires reconciliation by the schools of the loan funds to the
penny for each fiscal year, and ensures accountability of
taxpayers' funds. The elimination of subsidies to private
lenders saves taxpayers billions of dollars and helps support
financial aid programs without additional costs.
There are those who continue to argue that the transition
of all schools to federal Direct Loan Program is just another
government controlled program. It should be very clear that the
FFEL program has already federal loan program since its
beginning. The cost of both programs have always been borne by
the taxpayers. Instead of the government paying dollars to
lenders to make the loans, the government is spending some of
these dollars on students to improve the aid programs and
provide them access to college.
Chairwoman Foxx, thank you again for the opportunity to
appear before you and your committee today to provide the
National Direct Student Loan Coalition's perspective on the
successful transition by all schools to direct lending. I will
be happy to respond to any questions you or the members of the
subcommittee might have on.
[The statement of Ms. Hoover follows:]
Prepared Statement of Nancy Hoover, on Behalf of the
National Direct Student Loan Coalition (NDSLC)
Chairwoman Foxx, Senior Democratic Member Hinojosa and Members of
the Subcommittee, thank you for the opportunity to be a witness for
this important hearing on federal student loans.
My name is Nancy Hoover and I am the immediate Past Chair of the
National Direct Student Loan Coalition (NDSLDC). I am the Director of
Financial Aid at Denison University in Granville, Ohio. Denison
University is a selective, independent, residential, undergraduate
liberal arts college with an enrollment of almost 2200 students. Prior
to becoming the Director of Financial Aid at Denison in 1994, I was an
aid administrator at two other nationally known private universities
where I administered the loan processing in the Federal Family
Education Loan Program. Denison University implemented the Federal
Direct Loan Program as a Year Two school in 1995.
I speak to you today on behalf of the National Direct Student Loan
Coalition (NDSLC), a grass roots organization comprised of schools
dedicated to the continuous improvement and strengthening of the Direct
Loan Program. Its members are volunteers who are practicing financial
aid professionals working in participating institutions.
The Coalition would like to extend its thanks and congratulations
to the staff at the Department of Education, and especially at Federal
Student Aid for the tremendously successful transition of all schools
into the Federal Direct Loan Program. The Department's staff was
proactive in ideas for a successful transition and worked tirelessly to
ensure schools could implement the new loan program with minimal
interruption to their financial aid production.
Over the past several years, the National Direct Student Loan
Coalition has played a significant role in the successful transition of
thousands of schools into the Federal Direct Loan Program by
establishing a mentoring program of financial aid administrators who
were working at direct loan schools. These financial aid professionals
were willing to volunteer their time and expertise to help other
schools that were making the transition to Direct Lending. The mentors
represented schools from every sector with different enrollment sizes
and different software platforms used to process loans. The number of
mentors increased as a result of financial aid administrators having a
good transition experience and subsequently volunteering to become
mentors. The Coalition mentoring program assisted over 1,000 schools
and at no cost to any of these schools and it built on existing
collegiality in our profession.
The Coalition also monitored several professional list serves for
any discussions by schools about processing issues that were related to
the transition to Direct Lending. The Coalition partnered with the
staff members in the Office of Federal Student Aid to mentor any school
that needed extra assistance. While some in our industry predicted that
the 100% transition to Direct Lending was an impossible task, the
partnership of financial aid administrators and the Department of
Education resulted in a very successful outcome. To date, I do not
recall that there was a single instance in which students did not
receive their Stafford Loan funds during and after the transition. This
transition of all schools to the Federal Direct Student Loan Program
could not have been more successful for students, schools, or
taxpayers.
Benefits to Students and Families :
Generates savings that support increases in the maximum
Federal Pell Grant
Simplifies the federal loan application process by
imbedding it in the application for federal aid
Assures the availability of capital for educational loans
Provides repayment options for borrowers that can prevent
defaults
Accountability to students:
Eliminates excessive and expensive lender marketing about
``borrower benefits'' that are not included in the promissory note and
thus not guaranteed
Every disbursement record for student loans is recorded in
the federal Common Origination and Disbursement System to ensure
accountability for the individual student's records
Benefits to Schools:
With all federal loans and grants processed through one system, the
Common Origination and Disbursement (COD) system, student aid
processing and delivery is now focused on the student, rather than on
each individual program. Schools that were already processing other
federal grant programs in this system did not have to buy additional
software and hardware to change their loan delivery system from FFEL to
DL.
The Common Origination and Disbursement system streamlines
the loan delivery system so that financial aid staff has more time to
counsel students and parents.
The Direct Loan Program simplifies student loan
administration processes and improves institutional efficiency and
accountability.
Monthly and annual reconciliation processes that require a
school to account for funds to the penny minimize the possibility of
fraud and abuse that became possible in the bank based system.
The standardization of the common record format in the
Common Origination and Disbursement system simplifies and enables quick
programming that is required by software vendors to deliver funds for
new programs that Congress develops.
The Common Origination and Disbursement system provides
accountability because funding for all programs is processed through
one system--the Department of Education's Grant Management System (G5)
The Common Origination and Disbursement system now
contains information about the servicer to which students' loans have
been assigned. This information is crucial now that the loans made by a
school can be assigned to multiple servicers.
In closing, the accountability that is inherent in the Direct Loan
Program provides benefits to the taxpayers:
Required reconciliation by schools of the loan funds to
the penny for each fiscal year ensures accountability of taxpayers'
funds.
The elimination of subsidies to private lenders saves
taxpayers billions of dollars and helps support financial aid programs
without additional costs.
There are those who continue to argue that the transition of all
schools to the Federal Direct Loan Program is just another government
controlled program. It should be very clear that the Federal Family
Education Loan (FFEL) program has always been a federal loan program
since its beginning. The costs of both programs have always been borne
by the taxpayers. Instead of the government paying dollars to lenders
to make the loans, the government is spending some of these dollars on
students to improve the aid programs that provide them access to
college.
To summarize the experiences that I had as a mentor to over 100
schools, I would like to give a quote from a colleague that I
personally mentored when he had to transition to DL in July of 2009
after two lenders called him and told him they would not be able to
process his students' loans for that fall semester. His comments are
similar to hundreds that the Coalition heard as we helped schools make
the transition.
``Things are going well for us and Direct Loans. I had to make some
changes to a FFELP loan the other day and decided I was glad we went
Direct. I am saddened by my years of resistance to DL.''
Chairwoman Foxx, thank you again for the opportunity to appear
before you and your committee today to provide the National Direct
Student Loan Coalition's perspective on the successful transition by
all schools to Direct Lending. I would be happy to respond to any
questions you or the Members of the Subcommittee might have.
______
Chairwoman Foxx. Mr. Bandre, I would like to recognize you
for 5 minutes.
STATEMENT OF MARK A. BANDRE, VICE PRESIDENT FOR ENROLLMENT
MANAGEMENT AND STUDENT AFFAIRS, BAKER UNIVERSITY
Mr. Bandre. Thank you, Madam Foxx, thank you for this
opportunity. It is a real pleasure to be here. I represent
Baker University in Baldwin City, Kansas. Baker has a student
population of 3,700 split between several different multiple
delivery options, which I will explain in a little bit.
Having personally served at five private colleges and
universities since 1989, I particularly value the chance to
share information that has the potential to improve service to
those pursuing higher education. Prior to my appointment at
Baker in June 2010, I served as Director of Financial Aid at
Hendrix College, in Conway, Arkansas, another small liberal
arts college serving 1,400 students. Because I was serving at
Hendrix when the direct loan mandate was signed into law, I am
able to share experiences from both institutions, which I will
do.
First, I would like to talk about the Hendrix experience a
little bit. Hendrix's student loan program had always been
through the FFEL program that Ms. Hoover mentioned; however,
the institution there welcomed the opportunity to add direct
lending as a choice for students. Beginning with the fall 2009
semester and prior to the mandate, Hendrix added direct loans
as an option for all new borrowers. Interestingly, that first
semester only four students chose direct lending out of 200
potential borrowers.
However, working with those students, the financial aid
staff, the business office, and the registrar were able to
learn how the direct lending process works. Hendrix uses
software called PowerFAIDS, which is a product of the College
Board. It was compatible with direct lending but there was a
learning curve at the school for sure learning how to figure
out the functions of direct lending within that software.
In June 2010, when I arrived at Baker, Baker's financial
aid and business office staffs had previously decided to delay
their transition in direct loans until there was clear
direction from Congress. Staff based this decision on
experience with past financial aid, legislative, and regulatory
changes that resulted in them putting forth a great deal of
time and effort only to have the legislative regulatory
decision changed by the time they were actually ready to
implement.
When it became clear the decision would stand, though, on
direct lending, Baker rapidly moved forward, learned the
systems, and with the software in place at Baker, which is
known as CampusVue, they were efficient in enabling the
transition.
One reality faced by all colleges and universities is they
were now extremely reliant on selected companies to provide the
software necessary to process aid and conduct business. Of
course, software providers also need time to implement changes.
And at the time we needed help with direct loan process from
the CampusVue folks, they were busy working on year-round
federal Pell Grant regulations that you may recall came about
at the same time. What wound up happening of course 2 short
years later the year-round Pell Grant Program no longer exists.
The end result though was for much of the 2010 spring and
summer, a great deal of energy went into trying to make both
programs work.
Prior to the direct loan transition, Baker processed over
$15 million annually in FFELP, Stafford, and PLUS loans for
approximately 3,000 borrowers. Converting the Direct Loans for
our traditional program in less than 6 months was an
educational challenge for our new and current students in that
we had to teach them about process in a short amount of time.
We also, as I mentioned, have non-term programs with
multiple class starts, different loan periods and disbursement
dates, numerous schedule changes, and reviewing and making
necessary adjustments by staff in order to accommodate new
promissory, make sure notes compiled, et cetera, again an
educational challenge.
A list of things that Baker did to prepare for direct
lending. Six staff members participated in four Direct Loan
Webinars, three staff members participated in conference calls,
8 hours per week over 11 weeks were spent developing procedural
changes, consumer information. Much time was spent trying to
get the learning curve up so we that would be ready to help
students.
The Department of Education did assign a financial aid
office with a contact person who was to assist Baker with any
process-related questions or concerns. We discovered though
that these people hadn't had as much training as we might have
preferred. We wound up instead of relying on the Department
official, we relied on peers from other colleges that used the
same software to be able to work through the process.
Looking forward, there are several ways the Direct Loan
Program could be improved. For example, borrowers use the
studentloans.gov Web site to complete a promissory note and
complete loan counseling. The Web site in our opinion needs to
be more user friendly and clearly direct borrowers to each
require task. We see too many students who unknowingly complete
either a promissory note or entrance counseling but not both
even though they need both to complete the Stafford loan. The
system needs to require both promissory note and counseling
once the students commences the sequence.
I am happy to report we experienced no disruption in loan
availability to our students either during or after the
transition. The Direct Loan Program is working. However, it is
also correct to report that Baker financial aid staff now spend
more time trying to help students track down, understand the
details of their loans than was previously the case. We are now
doing most of the work that customer service representatives
used to do at the banks and guarantee agencies.
Despite the lack of competition that I feel drives
innovation, we hope the Department of Education continues to
seek ways to improve service to students. I thank you for
holding this hearing and for the opportunity to participate.
[The statement of Mr. Bandre follows:]
Prepared Statement of Mark Bandre, Vice President for
Enrollment Management and Student Affairs, Baker University
Good morning Madam Chair and other distinguished Committee members.
I first want to thank you for the opportunity to present testimony
before this Committee. My name is Mark Bandre and I am Vice President
for Enrollment Management and Student Affairs at Baker University--a
private not-for-profit institution serving 3700 students in Baldwin
City, Kansas. This morning I offer you the perspective of the
transition to Direct Loans from a small institution. I will also
address some areas of concern that remain. Having served at five
private colleges and universities since 1989, I particularly value the
chance to share information that has the potential to improve service
to those pursuing higher education.
Prior to Direct Loan Mandate
Prior to my appointment at Baker University in June 2010, I served
as Director of Financial aid at Hendrix College, another small school
in Conway, Arkansas. Because I was still serving at Hendrix when the
Direct Loan mandate was signed into law, I am able to share experiences
from both institutions.
First, I would like to address my experience at Hendrix. Hendrix's
student loan volume had always been through the Federal Family
Education Loan, or FFEL, program; however the institution welcomed the
opportunity to add the Direct Loan Program as a choice for students.
Beginning with the Fall 2009 semester, and prior to the mandate,
Hendrix added Direct Loans as a student lending option for all new
borrowers. Interestingly, only four students out of over 200 new
borrowers that semester chose Direct Loans. Through working with those
students, the financial aid, business office, and registrar staff at
Hendrix were able to learn how the Direct Loan process worked. The
software used at Hendrix at the time (PowerFAIDS, a product offered by
the College Board) was not particularly compatible with administering
Direct Loans so there were numerous learning curves, even for a small
number of students.
In June 2010, I accepted the position at Baker University. Prior to
my arrival, Baker's financial aid and business offices had agreed to
delay their transition to Direct Loans until there was clear direction
from Congress. Staff based this decision on experience with past
financial aid legislative and regulatory changes that resulted in a
great deal of time and effort in order to comply, only to have the
decision reversed shortly after implementation. When it became clear
the decision would stand, Baker rapidly moved forward and learned the
Direct Loan process in order to ensure timely service to students. The
software in place at Baker, known as CampusVue, was efficient in
enabling the transition.
The Transition and Implementation Process
Although Hendrix and Baker began the Direct Loan transition process
at different times, both schools experienced similar challenges related
to service from the Department of Education and respective software
providers. For example, colleges and universities are extremely reliant
on selected companies to provide the software necessary to process aid
and conduct business. Of course, software providers also need time to
implement changes mandated by legislation or regulation and at the time
we needed help with Direct Loan transitions most software providers
were busily working out how to manage the new year-round Federal Pell
Grant regulations--a provision of the Pell program that, two short
years later, no longer exists. As a result, for much of the 2010 spring
and summer a great deal of energy went into trying to make both
programs work. I would like to share with you more detail on how this
process unfolded at Baker.
Prior to the Direct Loan transition Baker processed over
$15,000,000 annually in FFELP Stafford and PLUS loans for approximately
3,000 students. Converting to Direct Loans for our traditional programs
in less than six months was an educational challenge for our new and
current students in that we had to teach them about the new process in
a short amount of time. On the other hand, our non-term programs have
multiple class starts, different loan periods and disbursement dates,
and numerous schedule changes, all of which led to significant manual
review and necessary adjustments by financial aid staff in order to
accommodate new promissory notes, make sure disbursement dates
complied, etc. Because new student cohorts start each month, and some
students' enrollment periods went past September 30, we were literally
doing twice the work, by processing both a FFEL and a Direct Loan for a
period of time that in the past was covered by just a single FFEL loan.
This effort did require significant investment. From the
administrative side, I'd like to offer the following estimates related
to the Direct Loan transition:
Six staff members participating in four Direct Loan
webinars
Three staff members participating in four conference
Direct Loan set-up calls
Approximately 8 hours per week were spent over 11 weeks
developing procedural changes and consumer information
Getting the office set up with Department's Direct Loan
component of Common Origination and Disbursement or COD process
Developing and distributing student and parent application
process instructions to both new and current students and parents
Updating catalog copy and web sites
One staff member attended a Direct Loan conference in St.
Louis
Two staff members attended state conference for sessions
on Pell and Direct Loan changes
Working with IT on testing our system and the
communication flow with COD
Pending work--re-awarding hundreds of students in the non-
term programs with Direct Loans to complete their academic year
funding.
The Department of Education assigned the financial aid office with
a contact person who was to assist Baker with any process-related
questions or concerns. After working with the contact person through
early phases of the transition, we soon realized it was not feasible to
wait for the contact person to provide answers to our questions.
Instead, Baker contacted its software provider to inquire about schools
that had already completed the testing and transition process.
Thankfully, such a school existed, and their financial aid staff
cooperated with us in order to solve a number of problems. While we
believe the Department had good intentions by assigning a specific
contact person, their availability was limited based on the number of
schools transitioning; there is no doubt that working with colleagues
at other schools is what enabled Baker to complete the transition
successfully.
While I left Hendrix before full implementation to Direct Loans,
former colleagues shared with me that throughout the 2010-2011 academic
year, they encountered numerous problems with software and inability to
get files through to COD. They attribute portions of this to issues on
the PowerFAIDS software end while others stemmed from inability to
obtain helpful answers from their assigned Department contact. It seems
the frustrations centered on problems with accumulating and sending
needed files. In the current 2011-2012 award year, my Hendrix
colleagues believe Department officials are much more knowledgeable
about the process.
Suggested Improvements
Obstacles do remain and there are several ways that the Direct Loan
Program could be improved. For example, borrowers use a Direct Loan web
site, studentloans.gov to complete a promissory note and complete loan
counseling. The web site needs to be more user-friendly and clearly
direct borrowers to each required task. We see too many students who
unknowingly complete either a promissory note or entrance counseling,
but not necessarily both even though both are required before they can
receive a Federal Stafford Loan. The system needs to require both
promissory note and counseling once a student commences the sequence.
I am happy to report we experienced no disruption in loan
availability to our students either during or after the transition. The
Direct Loan Program is working. However, it is also correct to report
that Baker financial aid staff now spends more time trying to help
students track down and understand the details of their loans than was
previously the case. We are now doing most of the work that customer
service representatives used to do at the banks and guaranty agencies.
It is my observation that under the FFEL program, lenders and
guarantors would help borrowers even when the loans had been
transitioned to another lender or servicer. We're finding an increasing
number of borrowers with loans mixed between the two programs coming
back to us to help them track down loan records. It would be helpful if
all servicers were able to provide comprehensive information on a
student's loan so students would not need to call multiple agencies to
try and track down important loan information.
Despite the lack of competition that often drives innovation, we
hope the Department of Education continues to seek out ways to improve
service to students. Thank you for holding this hearing and for the
opportunity to participate.
______
Chairwoman Foxx. Thank you very much, Mr. Bandre.
I would like to now recognize Mr. Petri for 5 minutes to
ask questions.
Mr. Petri. Thank you very much, Madam Chairwoman.
I thank the panel. And Ms. Hoover, I would like to thank
you and your members for donating voluntary time to help other
schools mentoring or advising on your members' experience with
the Direct Loan Program so that they could transition
successfully to it.
I wanted to give Mr. Runcie an opportunity to respond to
some of the comments of the other witnesses, particularly about
enhancing the information and effectiveness of the Department's
Web sites for students and for schools. We are moving into a
new world and government tends to lag on that but I expect you
are hard at work attempting to upgrade that and make that a
more powerful and effective tool.
And secondly, if you could at all comment, you mentioned
that you are coordinating or collaborating to some extent with
the IRS on data. And in other countries that have direct loan
programs, they have gone further. And I know in Australia, I
think New Zealand and Britain, so that students have the option
of having a flexible income contingent repayment through their
IRS system. So it works very effectively. Years ago some of us
worked on that in Congress and we were told by the IRS they had
a mess on their hands at managing the move from sort of paper
and manual processing to a computer IRS. And that is now
largely completed although I am sure there are problems. So
this might be an opportunity to take another look. I know there
are other contingent programs out there, but this would be
pretty seamless once it was set up from the point of view of
the student would avoid default and collection costs and yet
ensure repayment when people were earning money. So there are a
lot of advantages. And if other countries have done it, we have
something we can look at as an experiment.
I wonder if you could comment on any of those points.
Mr. Runcie. In terms of the customer service aspect of our
Web sites, we hire a customer, a chief customer experience
officer, who is really focused on looking at, making sure we
optimize our Web sites so that we provide the optimal service
to students and also to institutions that rely on these Web
sites. I do acknowledge the comments that were made. And some
of those criticisms were very constructive. We will look at
ways to make it easier for folks to navigate through our Web
sites.
We are also looking at consolidating potentially some of
our Web sites. We have a good number of Web sites and the
ability to consolidate those Web sites could be a way that we
would potentially make it easier for students and institutions
to leverage the information we have on those Web sites.
In terms of our work with the IRS, it has been tremendous
in terms of the ability to reduce the time to fill out the
application as well as to eliminate inaccuracies. And that has
improved our improper payment rate. I think it reduced about 40
basis points which equated to about potentially $146 million of
lower improper payments.
In terms of working with the IRS to find additional ways to
leverage that institution and what we do, we are very open to
it. I have not had discussions about that level of engagement.
But again, it sounds like it is a potential way to make it more
efficient and more customer friendly. So we would be open to
looking at that, and thanks for that input.
Mr. Petri. I have another question. We have been working in
this committee and others with the for-profit institutions and
their relationship to the program. One complaint they make is
the amount that students can borrow exceeds commission in many
cases and is an incentive for students to over borrow and buy
cars and things like that. Do you have any idea if that is a
major problem or if there are things that could be done to
tighten up on what the funds can be used so that it is more
closely related to education and kids don't unintentionally dig
themselves too deep a hole?
Mr. Runcie. What we do is we oversee statutory, I mean
there are certain legislative and regulated uses of the funds.
And I think we have a pretty substantial group of folks in our
program compliance area that monitor that aspect of the
funding. But I think some of the things that could potentially
impact that would be more policy related, and we are more
operational and we implement whatever the regulations and
whatever the laws are. So I don't know that we would have an
impact on the uses of those funds.
Chairwoman Foxx. Thank you, Mr. Petri. I thank you, Mr.
Runcie.
I would now like to recognize Ranking Member Mr. Hinojosa,
for 5 minutes.
Mr. Hinojosa. Thank you.
Mr. Runcie, first of all, thank you for being here. And I
would like to thank you and all of the hardworking staff in the
Federal Student Aid Office for your professionalism and your
commitment to ensuring a smooth transition to the Direct Loan
Program so that students can receive the assistance they need
to pursue their educational goals.
My first question to you refers to the testimony. You state
that you are pleased to report that the transition to 100
percent direct lending was a success. Can you tell us how you
have measured success?
Mr. Runcie. I think the ultimate measure of success really
has to do with making sure that all students who are eligible
to receive federal aid through Direct Loan Programs, they were
able to do so. I think some of my colleagues on the panel have
mentioned that no student who was seeking direct loans were not
able to--they were all able to receive those funds. I think
that is the ultimate measure.
I think in terms of working with the institutions, we put
together significant resources, had contracts with vendors, put
up Web sites. We did a lot of things in terms of providing
resources so that the transition could be as seamless as
possible.
Clearly when you look at the scope of trying to make sure
that 5 to 6000 schools are all DL ready and all of these
schools have different levels of capability, different systems,
it is not a trivial exercise. But I think given the
circumstances, the ability to migrate all of those schools
over, and I also want to recognize the fact that other
organizations and Ms. Hoover also got into the discussion about
how they were able to work with schools as well, but I think
the totality of that effort and the collaborative effort that
we went through delivered all of the schools over to the DL
program that wanted to provide those funds and those loans to
students.
Mr. Hinojosa. Mr. Runcie, we have heard the testimony that
the Department and its transition partners provided valuable
technical assistance and guidance to facilitate a successful
move. Can you describe the steps the Department has taken to
assist the schools?
Mr. Runcie. To assist the schools? Well, initially as I
said, we put a number of resources in place, including a point
of contact for all schools, and the point of contact typically
was the point of contact for the Pell program, and we leveraged
the system that was used for Pell so that it was a bit easier
for schools to migrate since most schools that used the Pell
had some expertise related to that. Of course the addition of
leveraging or using the promissory note, that added some
complications but at least we had a base to work from.
In addition to that, we had Web sites, we had training
conferences throughout the year. We had the big FSA conference
that roughly 2000 institutions and 6000 participants from
financial aid community attended. And there we had discussions
as well as training on the transition.
We also had vendors that were on standby so that we could
provide on-site support as well as folks at FSA that were
willing to provide on site support. We also have remote
support. So we had a large basket of assets and resources that
were there for schools and we were pretty proactive in terms of
trying to make sure that people were trying to realize that we
had resources available to them.
Mr. Hinojosa. The number that attended are amazing. They
are high. It looks like you are going to have a lot of success.
Can you tell us the steps that the Department has or is taking
to ensure that the security of its loan systems and can you
also tell us the steps that the Department has or is taking to
aid those student borrowers against default?
Mr. Runcie. In terms of the security, our systems are all--
they go through vigorous technology review. That is required
for all federal systems, so we comply with those standards. And
our partners and their systems that we leverage, they have to
be FISMA compliant. So we have to meet that standard. We also
have quite a few security, technology security officers. We
also have Privacy Act folks that are associated with the
security process.
So I think we can always sort of the augment the system.
This year, for instance, we are adding two-factor
authentication which is now the need for a token. So in
addition to passwords and identification, you need a token. So
it is another level of security that we are providing both
internally and rolling out to the schools.
In terms of default prevention, we are leveraging the
servicers we have contracts with for private sector servicers
for the Direct Loan Program. A part of how they are allocated
and how they compete relates to how well they handle defaults.
So there is a customer satisfaction component and there is a
default prevention component so they look at the default rate.
So the way they run their business models I am sure you know
would necessitate that they provide as many resources around
preventing defaults as possible because ultimately it is going
to impact their revenue and profitability.
Mr. Hinojosa. Thank you. My time has expired. But I
appreciate that you answered all of my questions.
Chairwoman Foxx. Thank you both.
I would now like to recognize Mrs. Biggert from Illinois
for 5 minutes.
Mrs. Biggert. Thank you, Madam Chairman, and thank you all
for being here.
My first question would be for Mr. Runcie. In your
testimony you talk about the Secretary inviting the FFEL
program guarantee agencies to submit proposals for voluntary
flexible agreements. Could you talk a little bit about that and
I know that you say here that it has the existing authority to
leverage private sector best practices to improve efficiencies
in customer service in the administration of the title IV
programs while reducing the cost to American taxpayers? I know
they are not doing it for free but I am wondering how it works
and how it lowers costs.
Mr. Runcie. Thank you. The voluntary flexible agreement,
and they were used before, not as extensively as we are looking
to use them now, but one of the requirements for a voluntary
flexible agreement is that it would be that it at least cost
neutral. So the idea of cost neutrality means that there would
be additional cost to taxpayers.
We are looking at that structure because given that there
is no more new origination, we wanted to recognize and
acknowledge the level of expertise and service that these
guarantee agencies have. They have a fair bit of expertise in
default prevention, debt management, financial literacy and
outreach, and they have the infrastructure that spreads across
the country. So we wanted to look at ways to leverage that
expertise and collaborate with them in the vehicle that we have
is the voluntary flexible agreement.
Some of the outcomes that we are looking to achieve is we
are looking to have a level of performance-based metrics if we
could. We are looking to potentially eliminate perceived
conflicts of interest between default prevention and the
collections piece because conceptually they may be at odds in
terms of how folks might be incentivised.
We are looking at risk management. We want to make sure
that their systems have the level of security in terms of PII
that systems that are contracted with the federal government
have because these are agreements with the guarantee agencies
not contracts so potentially there could be a different level
of security.
Mrs. Biggert. I am glad you are looking at financial
literacy. I know Mr. Hinojosa and I have looked for a long time
on the issue of financial literacy. What does cost neutral
mean.
Mr. Runcie. Sort of hypothetically, if we were to spend a
billion dollars over 10 years in terms of payments and fees to
the guarantee agencies, if we change the way they provide
services and they change their business models, we would pay no
more than that billion dollars that we would have paid
otherwise, and so it is cost neutral in terms of not costing us
any more money outlays to those guarantee agencies.
Mrs. Biggert. In other words, this is an ongoing programs
so there is moneys that has available for that?
Mr. Runcie. I am sorry?
Mrs. Biggert. I said it is an ongoing money program so
there is already money that has already been allocated?
Mr. Runcie. Yes. Because even though the FFEL origination
has stopped there is still a portfolio of 450, it is well in
excess of $400 billion that is still out there that needs to be
monitored and there is a wind-down process. So these guarantee
agencies would be around for X-amount of years anyway in terms
of managing the existing portfolio.
Mrs. Biggert. Mr. Day, you talked about some delays in
information reporting that has caused some confusion to
students about where to pay or when to pay their loans. And you
talk about other private national student loan and attendance
databases that are successful in updating student information
within a 24--48-hour turnaround. What specific improvements
would you recommend to help the Direct Loan Program achieve a
similar data processing capacity?
Mr. Day. Thank you very much. What is happening, and this
may get a little bit technical so bear with me just a moment.
We have a system that originates student loans from our campus
up through what is called Common Origination Disbursements,
COD. They communicate with the national database, which is
NSLDS, where all of the student loans reside.
Quite often what we are finding is that students may indeed
say they are coming to my school but in essence will go to
another. I will have to cancel it on my side and then report it
to COD, and they have to report it to NSLDS. It is not done in
a very timely fashion. What happens is we may have students
that come to my school that I may have to pro-rate their
eligibility. What we are finding is some of the other
situations that we have such as the national clearinghouse
where we report attendance records are unable to do those
things in a timely fashion. So with all of that automation, I
would hope this would improve.
Chairwoman Foxx. I would now like to recognize Mr. Bishop
from New York.
Mr. Bishop. Thank you very much, Madam Chair, and thank you
to our panel for your testimony.
I have to say I found your testimony quite gratifying for
those of us who worked hard to see to it that we would make the
transition, that we would make the public policy decision to
move to 100 percent direct lending. Your testimony taken in the
aggregate validates the wisdom of that decision. Because what
you have all said in one form or another is that not a single
student was disrupted, that their access to student financial
aid programs remained unencumbered and not disrupted.
And I hope you would all agree that when we evaluate
financial aid programs, and there are several different vantage
points that we can use to evaluate them, that the extent to
which students are serviced and not inconvenienced has to be
far and away the most important measure. Do you all agree with
that?
So by that measure, is it fair for me to conclude that you
would all agree that this transition has been a success?
[Witnesses answer in the affirmative.]
Mr. Bishop. Thank you.
Let me go to a couple of things.
Mr. Day and Mr. Bandre, you both spoke about some issues
having to do with computer platforms and processing and so on.
Would you both agree that those issues that you raise--and I
don't mean to minimize them--they both fall into the heading of
growing pains; is that fair to say?
Mr. Bandre. I think it is fair to say. In the Department's
defense, they didn't get a whole lot of lead-in time either. So
I mentioned that the assigned representative we had at the
Department wasn't always able to answer our questions so we
relied on peers instead.
It is fair to say that person, whoever he or she was,
didn't have enough time to really get trained. So I agree.
Mr. Bishop. Mr. Day?
Mr. Day. Yes, sir. I agree with that as well. The systems
we had are quite often canned systems. We had them configured
one way and they had to be reconfigured another. That was an
internal issue that we had to face in our State. In Georgia,
for example, most of our public schools have the same system so
we sought assistance from them.
Mr. Bishop. Thank you very much for that.
You are all much younger than me, but I was a financial aid
director in the first year of the basic educational opportunity
grant program, and we had our share of growing pains. But I
think we would all agree that a financial aid program that
didn't have the Pell Grant would be one that would be
significantly deficient in terms of our ability to help
students. So we worked through them, and I am confident that
the current generation of enrollment management professionals
will work through them.
Ms. Hoover, one of the things that we heard as we were
debating this issue is we heard some Armageddon-ish type of
projections of the staffing burden that would be imposed on
enrollment service offices, specifically financial aid offices,
and the extent to which colleges and universities would have to
materially staff up in order to accommodate this transition.
In your experience with the schools that you work with, or
Mr. Day, in your experience--you are now the President of
NASFA, is that right? Incoming. Have any of those projections
come true? Have there been massive increases in enrollment
services staff so as to accommodate this transition?
Ms. Hoover. I have not heard of any increased staff issues.
And as I indicated, our coalition worked with over a thousand
schools. My loan processor, who is now my associate director, I
want to make sure if he is watching, that he knows he has been
promoted, helped. And he and I personally mentored over a
hundred schools. We never heard that issue that they had to
increase staff. In fact, it became so streamlined that in times
they were able to have this current staff do other
responsibilities and actually gain some staff time in essence.
But I have not heard that. But again, that is the experience
from a thousand schools.
Mr. Bishop. Okay, thank you. Mr. Day?
Ms. Dixon. From a personal perspective, we did increase
staff. We did not increase staff for reasons that we later
found were necessary. The processing end that we thought would
indeed be there was much more streamlined than we had
anticipated. However, I will say this, we have now had to
remove some of those staff from the loan processing and move
them over into the area of default managers, for example. We
did take on that responsibility because we feel it necessary
that the FFELP lenders had done previously.
Mr. Bishop. Thank you al very much. My time is about to
expire. I want to thank you, Mr. Runcie, for presiding over the
Department's efforts to make this transition as seamless as it
obviously was. Thank you all very much for your testimony.
Chairwoman Foxx. I would now like to recognize Dr. Roe from
Tennessee.
Dr. Roe. Thank you all for being here today. It has been a
great panel.
Before I came to Congress, I served as a foundation board
president where I went to college at Austin Peay, and one of
our things was to raise money for students, and it is the
greatest investment that I ever made in my life was my college
education. No doubt about it. I went out to dinner last night,
it was more than a quarter of college when I went. It was $65 a
quarter to go to college. Unbelievable. That shows how ancient
I am.
But it is becoming, as Mr. Hinojosa and Mrs. Biggert have
pointed out, much more difficult for young people to afford to
go to college now. It is just astronomical. And I hear stories
all the time. And one of the things I am concerned about is the
financial literacy part is making sure students understand if I
graduate from college and get a $35,000 or $40,000 a year job,
if I can find that job, I can't pay off a $200,000 loan. I had
a parent that came to me the other day. It was a young doctor
who had a 200 and something thousand dollar loan that he had to
start paying back while he was a resident, and it took up
almost a third of his liveable income.
So we are creating problems in this country.
And I guess the question I have is how much can a student
borrow through this program? Mr. Runcie, I guess you are the
person I should ask that to.
Mr. Runcie. The Pell Grant is $5,500, and there is a limit
in terms of subsidized piece and unsubsidized loans. It could
be a substantial amount.
Mr. Roe. How much is that? If a student comes into college,
Denison or Baker University, how much could I go on the--could
I borrow? And I want to make sure because, as an 18- or 19- or
20-year old, tomorrow is a long time. It is hard to--I have to
pay this money back. I know how much trouble I have gone
through to raise money for scholarships that you don't have to
pay back; these loans have to be paid back. So how much can you
go into debt for through this program.
Mr. Bandre. The answer to your question results in a fairly
complicated answer. I hate to say it depends, but it does, on
the students choices. Does the student stop at a bachelor's
degree? And if so, the second question is, does that student
have parents that are of good credit and willing to assist? If
a student borrows the basic amount each year, they can borrow
$3,500 as a freshman, $4,200 as a sophomore and then $5,500
each their junior senior year. That is pretty common. There are
a lot of students out there who borrow those, so $21,000 is one
way to answer your question.
Let's say, though, that that student's parents don't have
good credit and they are denied credit for a parent loan that
Mr. Runcie mentioned, that adds to it. So there are other
variables that impact each individual choice. And you mentioned
your doctoral student, certainly those who pursue graduate
degrees of some sort add to their total.
Mr. Roe. How many students--what percent of students are on
the FFEL program and the Direct Student Loan Program when this
transitioned, before 2008 and before we could see it happening;
how many chose one, and why did they chose one versus the
other? Just out of curiosity. I don't know.
Mr. Day. Primarily that was because of the way the school
was configured. Most of the FFEL lenders--is the choice of the
schools to decide to stay with the FFEL lenders with a private
market. You had a choice; you could choose to be DL or are
FFEL, but most of the schools that were FFEL just basically
felt that the service they were receiving was better on that
side then going the DL route.
Mr. Roe. So it was just a choice that the university made?
Mr. Day. That is right.
Mr. Roe. What interest rates are the students charged? On
the direct program, what interest rate are they charged on
their loans?
Mr. Runcie. 6.8.
Mr. Roe. 6.8? Whew. It couldn't be a little lower? Because
interest rates now are at historic lows.
Mr. Runcie. Yes, that it is a statutory rate.
Mr. Roe. Did we do that? If we did do that, we need to look
at that again.
And I guess the last thing, again, through financial
literacy, I want to be really sure that we are doing that.
And congratulations, Mr. Runcie, on making this transition.
I know you have worked a lot of long hours, and thank you for
doing that.
Students really don't care where the money comes from; they
just want the money to go to school. I know I would. I could
care less where I get the money. But I would like to be able to
pay it back, and it seems like 6.8 percent is a pretty steep
interest rate. I think that is something we could look at.
Mr. Runcie. Yeah, there are--we have income-based
repayment, and we need to sort of get that message out. There
are public service loan forgiveness programs. There are certain
options that can be leveraged, but I think you are right in
terms of the financial literacy piece, making sure people
understand that it is an investment, and there needs it be a
return component that is commiserate with the investment that
they are making. So we have a lot of efforts around that in
terms of making sure people understand at the point of decision
what their needs might be.
Mr. Roe. I yield back.
One last thing, Mr. Day, I don't wish you any bad ill, but
I hope East Tennessee State beats Kennesaw State.
Mr. Hinojosa. Would the gentleman yield for 30 seconds?
Mr. Roe. Yes, I will.
Mr. Hinojosa. I like that last question that you asked on
the 6.8 percent being pretty steep, but we need to remember
that before this, 10 percent interest rate and 12 percent
interest rate was common in some of the bank loans and some of
the Sallie Mae loans. So this looks pretty attractive to most
parents, like myself, that have two girls going to college.
Mr. Roe. I yield back.
Chairwoman Foxx. I want to recognize Mr. Andrews for 5
minutes.
Mr. Andrews. Thank you, Madam Chairwoman.
I thank the panel.
I would say to my friend from Tennessee that I would
support a bill that says the interest rate on direct loans
should be calculated as follows: Take the cost of the
government acquiring the money, add to that the cost of
administering the program, both on campus and the Department of
Education, put in reserve for loan default, and make the
interest rate that, which is what we proposed in 1991, as
setting a rate that would be considerably lower than 6.8
percent. If he would be happy to cosponsor that, I would
welcome his help. I would yield to him.
Okay. Let me ask the panelists some questions. My
understanding is that the consensus on the panel from Mr.
Bandre, Ms. Hoover, and Mr. Day is that no student went without
a loan during this transition period because of the transition;
is that correct? And although there were bumps in the road
that--in the case of Mr. Bandre and Mr. Day, that are actually
running programs on campus.
Ms. Hoover, are you as well?
Ms. Hoover. I am a Direct Loan school, yes.
Mr. Andrews. So, all three of you, there have been bumps in
the road, but the program is working pretty well on your
campuses.
And the third thing that I heard is that I heard some very
constructive suggestions that I am sure Mr. Runcie and his
colleagues will take any account. I think a quicker turn around
time is essential. I think that students need the money to do a
lot of things at the beginning of the semester, and waiting is
a problem. I think that certainly the Web site problems that
the chairwoman pointed out need to be addressed at the
Department.
I think there are a number of other things, but would
anybody, particularly the three campus witnesses, would anybody
here characterize the Direct Loan Program as a disaster?
No.
Would anybody characterize it as a very flawed law?
No, I wouldn't either.
Would anybody here support the repeal of the Direct Loan
Program, any of the three campus-based witnesses?
No, okay.
I think we have reached a point of consensus here that is
commendable. I think the program absolutely could use
improvement.
And Mr. Runcie, again, I would hope that you would take to
heart the very constructive suggestions you have heard from the
campus-based witnesses here today to try to see what we can do
about it.
Mr. Runcie, the final thing I would ask you, and I will ask
it for the record--I have written to the Secretary, and you
have been kind enough to respond. I have some concerns about
the consolidation loans, the statutory authority and the
consolidation loans that I have some concern has been exceeded
by some loans that had been originated. I am going to send you
some follow-up questions on the record for that.
I will just close by saying this, that the source of the
question about the program being a disaster was a Wall Street
Journal editorial that claims the program should be done away
with. And the source of the very flawed law comment was the
chairwoman, who, in January of this year, called the program a
very flawed law. I think she has made some very constructive
suggestions about how it could be improved, and I would work
with her.
But I would disagree; I would join you in asserting the
fact that the program is not very flawed and should not be
repealed.
I yield back.
Chairwoman Foxx. Thank you very much, Mr. Andrews.
Mr. Andrews has raised the issue of a follow up from us to
members of the panel for additional questions that may not get
asked during this hearing. And so we will be, all of us have
that opportunity. And I think you could probably expect that
from various members of the committee.
I would now like to recognize Mr. Thompson from
Pennsylvania for 5 minutes.
Mr. Thompson. I thank the chairwoman. Thanks to the panel
for your service to education and your expertise.
With the direct lending bill, you know, it is seems to me
that when it comes to access of loans, that I assume our
somewhat status quo, it sounds like consensus is that young
folks pursuing education have access the loans. I would argue
that they had access to loans before, so I want to dig a little
deeper than just that one metric.
I happen to think this is a flawed bill, based on three
premises. At a time when our economy is struggling with the
weight of the cost of government, it grew government. It cost
private sector jobs. Those two are not compatible.
And frankly, I think it failed to address a primary issue
that my good friend, the physician from Tennessee, raised and
adequately, I believe, but I want to explore that more with my
questions in terms of financial literacy.
Mr Runcie, thanks for your leadership with the role you
stepped into. In your testimony, you talked about increasing
staff to provide the oversight and compliance. How many staff
do we have now in terms of with this direct lending; what has
been the growth in terms of number of positions to administer?
Mr. Runcie. Yeah, we have--our staff's mid 1,200s right
now. And we have increased from a little over a 1,000 over a 2-
year period.
Having said that, the numbers are still lower than what
they have been at points historically, but I think more
importantly, in terms of the DL program, a lot of that is
outsourced. So 84 percent of our budget goes to private
contractors. And so, in addition to the folks that we use for
DL, there's another 9,000 contractor folks that we use to
operate. And a portion of that, a significant portion, relates
to the servicing level.
So the ratio is about 1 to 7, 1 to 8, our employee base to
the contractor, so I think that has probably expanded maybe
more so than our own internal hiring.
In addition, the contracts that we put in place with the
servicers, they require for all those jobs to be domestic. And
so there were a number of jobs that were overseas that came
back into the U.S. because of the way the contracts were
structured.
Mr. Thompson. Do you have--is there--I am not sure you
should know this, but do we know how many private sector jobs
were actually were eliminated as a result of this direct
lending program over the past--course of the past year where we
have increased the government ones?
Mr. Runcie. I don't know. I really sort of was speaking how
we have grown some of the numbers. But in terms of the
elimination, I don't have that information.
What I can say is that we are also standing up not-for-
profit servicers, and those servicers were servicing FFEL loans
before. We are now moving them over to service Direct Loans, so
I would imagine that that would have a positive impact in terms
of the job counts.
Mr. Thompson. You had, also in your testimony, talked
about--let me find it here in my notes, basically equip with
the best tools and resources, so I want to move into the
financial literacy part of my question. Last week I had a visit
to a large university. I am blessed with a number of
universities I have, one that was direct lending, and many
small ones have had to make that transition. This one has been
a direct lending university for some time. And when I raised
the question of financial literacy, there was like there is no
direction to--there is no importance, it doesn't seem, that
comes from this direct lending program to address that.
Students there are graduating with an average debt of 31--
over $31,000. I think the national average, from what I
understand, is slightly less than that. And to me, that is what
we should have been focusing on when we looked at this bill.
And it doesn't seem like we have done that.
Some of my colleagues have raised other issues about just
financial literacy and making good decisions. You are accruing
long-term debt when you are investing, and do we--how have we
done with financial literacy in terms of how much can we
borrowed? Is it a good return on investment? Right down to the
kids are going to school for this first year, and there is an
attrition rate, but when they drop out of school after a year,
they drop out with these loans and, frankly, grants they have
to pay back; all have to do with what I call financial
literacy. And I managed to run out of my time. So if you can
provide that, any thoughts on that in terms of response to that
in writing, that would be fine.
Mr. Runcie. Absolutely, absolutely. Thank you, Congressman.
Chairwoman Foxx. Thank you.
I now recognize Ms. Davis from California.
Mrs. Davis. Thank you, Madam Chair.
And thank you to all of you for being here. One of the
areas that I wanted to focus on for a minute are the default
rates. And it is my understanding that I think, despite the
fact that people felt that they would go up, in fact, the
default rates are going down; at least that is my
understanding.
Is that correct, in your view, Mr. Runcie?
Mr. Runcie. Well, the default rates, the overall default
rates have risen. And they have risen--there are a number of
factors that are associated with the rise. A lot of it has to
do with the economy. It has to do with graduation rates, job
placement. And that was the--I think folks had expected that
there would be some rise, given the current the given economy.
In terms of the increase, maybe it was potentially lower
than expected. So it may be that that is a part of the
discussion. But you know, the efforts that we have around
dealing with those cohort default rates relate a little bit to
some of the servicing that we talked about before. We have
servicers that have performance-based contracts, so they are
incentivized to do whatever they can in terms of financial
literacy and default prevention to lower those rates.
Mrs. Davis. Okay. I guess perhaps it is compared to what?
Because at least what I understood was that they had gone down
compared to what the FFEL rates had been, but like you say,
perhaps there are some other situations going on.
Mr. Runcie. Absolutely. No, if you look at the overall FFEL
rate default rate versus Direct Loan default rate, the Direct
Loan default rate is lower across all school types and all
categories. So the Direct Loan--and I don't know sort of
underlying reason for that, but I will say as a matter of fact
that the DL rates, default rates have been lower.
Mrs. Davis. I have seen numbers of 9.5 percent under FFEL
and 5.6 percent under DL.
Mr. Runcie. Yes, I think--yes, if that is what you are
speaking to in terms of DL rates being lower. Yes, that is
right.
Mrs. Davis. Great. Thank you.
Mr. Day, you had mentioned that some of your employers
actually had gone over to become default managers so they were
able to assist students. I wondered specifically what you found
was the most helpful to students. We have talked a little bit
here about the interest rates being even lower. And again, this
is--we know they were quite a bit higher, and there have been
proposals in the past to make them even lower than they are
today. Is there--do you have any information that would
suggest, had they been lower, that there are fewer students
that were perhaps defaulting? What has really been the
experience of your default managers as relates to students?
Because I think what we are looking for here is, how does this
benefit our students? Does it make it easier for them to access
it? Do they have as much information as they need to really act
responsibly, which is what we hope that they can do?
Mr. Day. Let me answer it this way, I think the more you
can offer the students as far as assistance in literature or
assistance in Web sites or in training initiatives or any form
or fashion whatsoever to assist them in staying out of a
default situation, whether it be literature that you offer them
up front, Web sites or whatever the case may be, is vitally
important. I have not been able to research your particular
question to know exactly how to answer it. However, I will say
that I do appreciate every effort that can be made to assist
the students; it must be the students first.
Mrs. Davis. Yes.
And I don't know, Ms. Hoover, do you have some thoughts as
well, perhaps giving Mr. Runcie a little more ammunition here
in terms of, what is it that really would make a difference for
them so that they don't default?
Ms. Hoover. Thank you for the opportunity to answer.
As indicated, Denison has been a Direct Loan Program since
1995. And when I came to Denison, I noticed the default rate
was somewhat higher, and it has been substantially lower since
we were in the Direct Loan Program.
Now I am fortunate that I am at a small school, but we are
a very expensive school. And I took a personal passion in
believing that if these students are paying this price for my
education, they need to come out of here with some absolutely
incredible information.
So we actually print a personal portfolio for every senior
of every loan they borrow. And we have personal interviews with
them. We go through and show them every repayment option, what
they would have. And we explain to them, if you earn this and
so, this is what you have to earn for your indebtedness.
And I am extremely happy to say that my default rate has
been either 1 or less than 1 percent for the last 4 years. And
I believe it just comes from taking the materials the
Department has and just working internally. Again, I am a small
school, but I take it passionately, and I believe that it is
important, because when they pay what they pay for my school,
that is just part of the return for the investment.
Mrs. Davis. Thank you very much.
Mr. Hinojosa. Could you yield me 30 seconds?
Chairwoman Foxx. The gentlewoman's time is up.
I would now like to recognize the chairman of the
committee, Mr. Kline.
Mr. Kline. Thank you, Madam Chairwoman.
I thank the panel for your testimony and for answering the
questions. I understand that the gist of your testimony for
everyone is that the transition has gone relatively smoothly,
that the students' loans are being provided and serviced, and
for that, I am very glad.
We still have a difference of opinion on this panel and
elsewhere as to whether or not the law was a good law, whether
it is flawed or not flawed. My friend and colleague, Mr. Roe
from Tennessee, was talking about the loan rate, and as
everybody at the table knows and we up here know, 6.8 percent,
the federal government is borrowing at something less than 1
percent and loaning at 6.8 percent, you create a pretty good
slush fund for the government, over $60 billion when we passed
it. And immediately, of course, $10 billion of that was taken
to pay for the health care law, Obamacare. So it is a slush
fund. I think it was a mistake to do it. Having said that, I am
glad to see that the transition seems to be going pretty well.
However, Mr. Runcie, we have heard some problems regarding
the security of borrowers' private information. This has been
touched a little bit on. You said there are a good number of
Web sites and so on. But last week, the Direct Loan Web site
crashed, as I understand it, according to my note here, and
personal financial information was revealed to other borrowers.
And there have been some complaints that Social Security
numbers have been divulged in the address line to official
correspondence due to an error with the initial booking and
disbursement of student loans. Can you take a minute or two
here and talk about what the Department is doing to address
those concerns?
Mr. Runcie. Yes, yes, you know, last week or the week
before, we had an issue; we have, obviously, very large-scale
systems. And we were in the process of doing a transition of
11.5 million borrowers. During that transition, we experienced
what I would call sub-par response times. So, as a part of that
process, there was a configuration change to improve the
performance time. So, because of that configuration change,
there was a 6- to 7-minute span where users who logged on saw
account information of others that had logged on but not their
own.
So the site did not crash; we took the site down for those
security reasons. Within 48 hours, the site was back up. We
immediately notified all the impacted--potentially impacted
users and offered credit monitoring. And so we responded as
quickly as we could.
Mr. Kline. You mentioned--I am getting my numbers confused
here, you said something about 11 million, 11.5 million; how
many students were impacted?
Mr. Runcie. Oh, yeah, that was the pool--the impact of
students potentially was as much as 5,000.
Mr. Kline. Go ahead, I am sorry.
Mr. Runcie. And we immediately notified folks. I think the
first day or two, we received 25 responses from the 5,000 that
we contacted. But having said that, we still sent mailings out
to everyone to make sure that they understood that credit
monitoring was available. We corrected problem. The system is
back up. That has been addressed.
But in terms of the overall security architecture, that is
something that, you know, we are very concerned about. We
invest meaningful sums of money. But when we have this scale of
system, when we are doing transitions, sometimes glitches
occur, and we look to respond and try to fix those and
remediate those as quickly as we can.
Mr. Kline. Do you have any idea what that goodly sum of
money might be?
Mr. Runcie. I am sorry?
Mr. Kline. You said you are spending a goodly sum of money
in this effort. Are we--billion----
Mr. Runcie. I am sorry?
Mr. Kline. How much?
Mr. Runcie. Well, it is embedded in some of our
contractors, because our contractors also provide a level of
security. We have security initiatives that range, you know,
sort of $2.5 million up to $10 million, if you sort of took out
some of that money. But it probably pales in comparison to
maybe what is offered by other private sector institutions. But
we have a limited budget, but I think we are pretty efficient
in terms of how we use those dollars.
Mr. Kline. Okay, as long as we are protecting those
students.
Madam Chair, I yield back. Thank you.
Chairwoman Foxx. Thank you, Mr. Chairman.
I would now like to recognize Mr. Altmire from
Pennsylvania.
Mr. Altmire. Thank you, Madam Chair.
Mr. Runcie, as you well know, the Department's OIG recently
identified an increasing number of cases involving large,
loosely affiliated groups of individuals who conspired to
defraud Title IV programs through distance education program.
Mr. Miller and Mr. Hinojosa then urged Secretary Duncan to take
swift action to address this fraud, and many members of this
committee were pleased to see the Department issue a ``dear
colleague'' letter last week urging colleges, universities to
take immediate steps to detect and prevent fraud. I was hoping
that you could, for the record, inform the committee of the
specific steps FSA is taking or plans to take to detect and
defeat fraud, waste, and abuse in the Title IV programs.
Mr. Runcie. Yeah, that is right. Thank you. We took it very
seriously. We have been cooperating with the OIG to work with
them on this distance fraud issue.
There are a number of recommendations that were made, none
of them surprising, a lot of those that we had considered, and
we are in the process of trying to figure out which ones we can
actually address.
But immediately we sent out the ``Dear Colleague'' letter
to promote awareness and to identify some of the issues around
distance fraud. Our conference, which is coming up in another
month or so, will have 6,000 financial aid professionals and
represent about 2,000 schools.
We are going to have training sessions and incorporate that
as a part of the financial aid conference. So we feel that we
could provide the institutions with the tools to combat that
through the training process.
In addition, we have established an intra-department task
force to address all the recommendations and also come up with
new suggestions in terms of how we can address this issue. We
are looking at technical, technology. We are looking at systems
and other processes that we could use potentially to address
this issue. In addition, we are going to look at the regulatory
and legislative process to see if that is something that can
help address the situation.
Mr. Hinojosa. Congressman Altmire, could you yield any 30
seconds?
Mr. Altmire. Certainly.
Mr. Hinojosa. I want to say that I am one of the cosigners
of this letter that expressed our concerns of waste and fraud,
dated September 28th. And one of the big concerns I had was the
example that was given to us when OIG found that gangs of
criminals were completing the paperwork and enrolling straw
students in online programs and then logging into the classes
online for the first 30 days in order to obtain the balance of
the Title IV funds not used for institutional charges. And
there is no doubt in my mind that this is something that shows
that our side of the aisle is very concerned about this
taxpayer money and that it not be wasted by examples as I just
gave you.
With that, I yield back.
Mr. Kline. Would the gentleman yield?
I thank the gentleman.
As I understand it, the reporting of this fraud came from
the schools; is that correct?
Mr. Runcie. That is correct.
Mr. Kline. Thank you, I yield back.
Mr. Altmire. Thank you.
Mr. Runcie, also, while the federal government is exempt
from the Fair Debt Collection Practices Act, private collection
agencies are not. And with 23 private collection agencies,
there is a lot of potential for abuse for defaulted borrowers.
For example, one PSA could receive a letter from the borrower
asking them to stop contacting them, but nothing stops the
Department from then assigning the borrower to a new private
collection agency, and then the borrower would have to exert
their rights a second time. And just on this issue, I was
wondering what is the Department doing to monitor and prevent
abusive practices by the private collection agencies?
Mr. Runcie. Well, we have an oversight group that deals
with that. And that is their role. I mean, they follow sort of
the regulations, and that has just been brought to my
attention. I will make sure that when I go back, we will see if
there is an issue around that. But I don't have an answer for
you at this time.
Mr. Altmire. Thank you. And lastly, just a statement for
you to consider, Mr. Runcie, as my time expires, this committee
previously, in a previous Congress, made sure that veterans
under veterans disability determinations did not have to
reapply if they are determined by the VA to be 100 percent
disabled for the purpose of waiving student loan obligation;
they didn't have to go through that process again for the
Department medical review. There is a similar situation which
has not been corrected with the Social Security disability and
the ability of 100 percent disabled folks to have their loans
waived. Is that something the Department has reviewed?
Mr. Runcie. Oh, yes, absolutely. We are looking at
streamlining the process and making it consistent so people
don't have to go through multiple applications and multiple
processes to get that determination.
So we are looking to address that shortly.
Mr. Altmire. Thank you.
Chairwoman Foxx. Thank you, Mr. Altmire.
I would now like to recognize Mr. Bucshon for 5 minutes.
Mr. Bucshon. Thank you, Madam Chairwoman.
I want to focus a little bit on default rates. I am
interested in that, because I have--my wife and I had a
tremendous amount of student loans, and we paid them all back,
so we weren't one of the people who defaulted.
I am interested in the data that is being used to say that
one program is better than the other. And I was a health care
provider, a surgeon, before, and I know every patient is
different. And in that respect, every university is different,
based on the size of the university, the scope, the location.
And I would argue that discussing overall default rates is
something that is not that helpful to me, honestly, without
getting down into the weeds, and in that vein, although the low
default rate at Denison is very commendable in the Direct Loan
Program, your university is completely different than Indiana
University. You are in a unique situation.
I would be more interested, honestly, in the data that is
to come in the future years, because the data that I am going
to be interested in is what is going to happen at schools that
have the FFEL students, specifically within their university,
and then what the default rates were and what they will be in
the future. Are we--I guess, Mr. Runcie, are we going to have
the ability to track individual universities and give more
specific in-the-weeds type data? Because I think it is a
confounding thing to quote from one university and then compare
their results with the Direct Loan Program to another
university that had both or one more than the other and say
that one program is better than the other.
Mr. Runcie. Yeah, no, I agree. I mean, they are all very
different, the characteristics and composition of the student
population, core structure; everything is different, so you are
absolutely right. The large numbers mask the individual
identities and characteristics of the institutions. So the
ability to dig into the details, you know, we have a pretty
substantial database that has a lot of information. So I think
there is a possibility that we can look at that data and
provide more actionable information in terms of making
decisions about default rates and making comparisons. But what
we have are those aggregate numbers. We also have them by
school types. So we do break it down a little bit but not to
the point where I think you can look at one school and
potentially have a control group and make a good comparison.
Mr. Bucshon. I just wanted to point out that I consider
that comparing apples to oranges. And to make an argument based
on one school type that a program, whatever that is--and I am
not arguing that the Direct Loan Program or the other are
better than the other. The fact of the matter is we don't know,
because it may take us years or maybe decades to know what the
difference will be between what we are doing now and what we
have been doing in the past. Would you agree with that?
Mr. Runcie. Well, I mean, the data we have, it is sort of
statistical information. What we can look at, though, is we can
look at, you know, FFEL for public 4-year, and we can look at
DL for public 4-year. And the statisticians might tell you that
any number above 100 or some number would be statistically
meaningful. So from a statistical standpoint, I think there is
a body of information that says that you could compare the two,
and there is some meaningful difference, but again, that is not
comparing individual schools and students before and after,
which is what I think is----
Mr. Bucshon. Another confounding factor, of course, would
be graduation rates at different institutions. As everyone
knows, students who don't graduate have a much higher incidence
of default. I know universities like Ms. Hoover's are excellent
in that area.
But, for example, University of Illinois, where I went, I
know the graduation rate of all starting freshman, at least in
1980, was about 65 percent of the students. So whether they
went on to other universities or didn't finish their education
is very important.
So the point I just wanted to bring up with this is there
are many, many confounding factors, and I really believe that
it would be helpful to Congress going forward to assess these
type programs, to not discuss just apples and oranges, but give
us data that is in the weeds. Otherwise, you really can't make
a fair comparison. So with--I yield back. Thank you.
Chairwoman Foxx. Thank you, Dr. Bucshon.
It is, again, helpful to have different members of the
committee bring up their different perspectives. It is very
useful.
Mr. Tierney, you are recognized for 5 minutes.
Mr. Tierney. Thank you.
And thank all the witnesses. You have added some good
perspective and information to us today.
One thing I am hearing is the program is working well. And
one thing that I know is we saved over $60 billion by taking
away guarantees in subsidies to private lenders who had then
relatively high interest rates. As Mr. Hinojosa pointed out,
some of the interest rates were up as high as 12 percent.
Mr. Bucshon. Would the gentleman yield?
Mr. Tierney. Who is asking?
Mr. Bucshon. Bucshon. Did we save the $60 billion and use
that is as deficit reduction, or did we spend it elsewhere?
Mr. Tierney. It is wonderful you ask. It is a good segue.
We took $10 billion of that, and we paid it down on the debt.
With the balance of it, we were able to increase the Pell
Grants, which had fallen from about three quarters of the cost
of a public higher education down to a third. So we were able
to raise the Pell Grant amounts on that, which helped not only
more students get that but higher up on the income scale to
some lower middle-class families.
We were able to cut interest rates on the subsidized loans
significantly, in half in some instances. And I have heard some
talk about interest rates here being an issue on that. So the
resistance we got at that time was tremendous. It is nice to
hear two of my colleagues over here complain about the interest
rate now, because we would certainly like to work to get that
down.
We put some money, invested some money into community
colleges, so that they were able to further do their work,
improve their facilities, and help people to get trained for
jobs on that.
And we had the income-based repayment system, which we were
able to do out of that and which I think is probably one of the
most under-heralded positive factors that have come out of it.
And Mr. Runcie, tell us just what the income-based
repayment system is, because I think a lot of families don't
know it, and they should.
Mr. Runcie. Thank you, Congressman.
Yes, that is something we have talked about as a way to
manage the debt and also decrease the default rates. There is a
universe of people that could use that, and of that universe,
we don't think the take-up rates are what they could
potentially could be. So as those take-up rates go up
substantially, we would see a positive impact on the default
rate, because it is just another tool that allows students and
borrowers to be able to manage their debt based upon what their
income levels are.
In addition to that, there is a public service loan
forgiveness program, which is another tool I think we have to
get the word out, because that is something that, again, is
another way to manage debt and also to make sure that there is
some return on your investment and you don't fall into default
and delinquency. Those are two things that we know we have to
make sure that we market, publicize, get the word out, and put
it up on our Web sites.
Mr. Tierney. And campuses as well have a role in that. I am
sure our three other witnesses acknowledge that the campuses
have a role in making sure students are aware of that.
Let me speak briefly to the interest rate situation, Mr.
Kline made a mention that we are getting our money at 1 percent
and then turning around and getting 6.8 percent from students.
The fact of the matter is I think we get it at about 2.5
percent for a 10-year loan, if I am not mistaken. Would that be
fair to say, Mr. Runcie? Somewhere in that ballpark?
Mr. Runcie. Yes, in that ball park.
Mr. Tierney. The difference in that cost of managing the
loan.
Mr. Runcie. Yes, the cost of managing the loan would be in
that difference.
Mr. Tierney. And if there are any balances, that would go
back to issuing further loans or more loans?
Mr. Runcie. Yes.
Mr. Tierney. So Mr. Andrews had a suggestion that we
calculate the interest rate on some of the cost of the money,
plus the cost of administering it, plus a little bit for
reserve, and then establishing that rate. Do you find that
objectionable?
Mr. Runcie. It is not objectionable to me. I know that
others make that decision.
Mr. Tierney. I can tell you who it has been objectionable
to, and there is a whole host of people over to my left over
here. We have had that fight going on and on. But I was very
happy to here Mr. Kline raise it as an issue and Dr. Roe,
because hopefully now we can work with them to try and lower
that interest rate even further on students. It does make a
difference.
I think we have covered all the ground. I don't want to get
into an area of raising the same issues over again. But I have
an unrelated thing, so we can sort of get off of that and take
you off the hot seat.
I have had graduates come in and tell me about their
private loans, which are substantial and the interest rates are
significantly high. They find it a burden, and they have
trouble consolidating those loans. And they feel if they did
consolidate those loans at a lower interest rate, they would
not only be able to carry out their lives better on that, but
they would have more money to spend, which would help the
economy on that. It is difficult for the Department to do
anything about that; it is private loans on that. But I was
wondering if our other three witnesses had any thoughts. You
must see some of your students come back with those issues, and
if you had any thoughts on how we might provide some assistance
to that cohort.
Ms. Hoover.
Ms. Hoover. Thank you, Mr. Tierney.
One of the things that helped my students is when the
ECASLA was passed and the extra 2,000 unsubsidized loan for all
undergraduate students, I have seen a substantial decrease in
my private loan volume. Also, the fact that the parents now
have the ability to get a deferment for parent loan
substantially also reduced my private loans.
And I was very grateful to you and to Members of Congress
for those benefits that have helped my students.
If we could do something like that, I think that would help
reduce the private loans further, if we could increase.
I know there are other viewpoints that don't want to
increase the loan indebted--loan amounts for students--again, I
am coming from a private school perspective, high costs, and I
understand we all have different perspectives, but for my
students and my parents, that was very helpful, thank you.
Mr. Tierney. Thank you, I yield back.
Chairwoman Foxx. Thank you very much.
Mr. Platts is recognized for 5 minutes.
Mr. Platts. Thank you, Madam Chair. First, I want to thank
you for hosting this hearing, very important topic and for all
our witnesses. I don't want to be repetitive, apologize for
coming in late from another commitment, but I do want to
express my support and the importance of ensuring the long-term
strength of this program.
I paid off my last student loans from undergrad and law
school as a Member of Congress and understand the very
important resource that we provide.
I have always looked at our nation as being the land of
opportunity. And one of the keys to being the land of
opportunity is access to a great education, whether that be K
to 12 or higher education. And to me, that is what this loan
program is about, is allowing every student out there to have
that opportunity to advance themselves through higher
education.
I am one who did support the transfer to the direct program
here on committee, and when it was voted, individually, I did
not support its inclusion in the health care reconciliation
language.
I think it is a way of ensuring that the assistance is
available, but ensuring that any, if we want to say, profit or
excess funds that are generated by it are put back into
investing in the students, which I think is what we are doing
now, rather than into private hands to go elsewhere, that if
there are excess funds, that they are reinvested.
So the suggestion that we try to tighten up the program and
what the interest rate is paid I think is a wise one and an
important one to make sure we are given the best value for what
is being charged.
And I do think it is also important to recognize that the
interest rates, my wife and I, ours ranged from 7 to 9 percent
when we were repaying our loans. We want to drive that rate
down as much as possible but also recognize that without that
program, these individuals would not get loans because they are
young citizens without a credit history, a track record. And
the private sector would not lend in this way without a
government role and, in this case now, a direct role. So it is
critical for us to be involved and make sure this program is
successful in the long term.
And to each of you, your testimonies I think add a great
knowledge base to each of us committee members as we seek to do
just that, ensure its long-term success and solvency while we
are making sure we give the students the best opportunity
possible. So I certainly look forward to working with my
colleagues on both side of the aisle to take your knowledge as
we go forward and, maybe specifically on the interest issue,
try to get an even better opportunity out there for students.
With that, Madam Chair, I yield back.
Chairwoman Foxx. Thank you, Mr. Platts.
I yield myself now 5 minutes. You may not know of my
background, but I was the director of a Upward Bound Special
Services Program for several years at Appalachian State
University. But it has been a while since I have work in the
student financial aid area, but I do know a little bit about
that area.
I also worked my way through college. I spent 7 years
getting my undergraduate degree and didn't borrow a dime of
money. I spent 8 years working on my doctorate, working full
time. So I have a background in this area and some experiences.
I would like to say, one quick question, ask one quick
question to Mr. Runcie. It seems to me that with the income-
based interest rates and public service loan forgiveness, there
is very little reason for anyone to ever default on these
loans. Would you agree would that?
Mr. Runcie. I don't know all the factors involved, but I
think that those are two mitigating factors.
Chairwoman Foxx. Thank you very much.
There is also--I have some interest in the fact that we
hear these horror stories of people borrowing $80,000 a year. I
mean, I have talked to students who have told me that, and yet
you have a limit on the amount that people can borrow, so I
find it kind of interesting that we can hear these stories that
people have borrowed so much money when I know, again from my
own experiences and others, that it isn't necessary to do that.
I would like to ask you a really important question, Mr.
Runcie. We know that the president's budget proposal included a
loan conversion plan and possibly some other changes in the
loan programs that would dramatically increase the amount of
direct loans on the federal government's books. And we have
heard today--there is a report in the Wall Street Journal--that
the president is about to announce a major change in the
program that we have not yet acted on in the Congress. And I am
wondering if the Department is moving forward with this
proposal through executive fiat, and then, if this is the case,
what specific authority does the Department have for this
administrative action that we read in the press is about to be
announced?
Mr. Runcie. I can't answer that question. I mean, I think
that question is more sort of OGC, and it is about what our
legislative authorities are and what the regulatory framework
is. And I can't--but what I will say is that whatever we are
told to do in terms of implementation and execution, we will
make sure that we optimize and we do what is in the best
interest of students and borrowers.
Chairwoman Foxx. Let me switch gears just a minute and ask
a different kind of question. As you know, because of the new
gainful employment regulation, some institutions of higher
education are being judged on whether their graduates are
paying down the principal on their loans. What steps is the
Department taking to ensure that its servicers work to keep
student loan borrowers in actual repayment and not simply be
directed to deferment or forbearance?
Mr. Runcie. I believe the structure of the contracts of the
servicers speak to that. I think that there is incentive to
keep them in repayment; they get paid depending on the status
of the loans. So there are some statuses that result in less
payment. I think it is geared toward keeping them in repayment.
So the servicers are provided servicing for RDL loans. Their
contracts are structured in such a way that I think they are
incentivized to keep folks in repayment.
Chairwoman Foxx. Thank you.
I would like to ask a question of Mr. Day and Mr. Bandre.
You both talked about how institutions are spending a lot of
time providing services to students and borrowers that used to
be done by lenders and guarantee agencies. Have there been
implications to these changes?
Mr. Day, you talked a little bit about needing to do
counseling and financial planning management. Would you talk a
little bit more about that in terms of the services that you
are having to provide?
Mr. Day. Yes. The financial aid office has to provide
services in a wide variety of activities, particularly in
assisting students with all type things. Not having the
assistance from the FFEL lenders that previously provided
default management, for example, work the loans, if you will,
to try to keep kids out of default. We have felt the need. I am
not familiar that much with the default management on the DL
side at this time because we are so relatively new in the
system. But I felt the need to go ahead and implement a process
and put it in place, just to ensure that our students are
educated on the process. So I felt that need. I applaud that
need. I think our staff has done an exceptional job with that.
Mr. Bandre. Yes, ma'am, the biggest thing that we have
found in that area, as Mr. Day alluded, is ability for our
staff to learn things that the banks and guarantee agencies
provided. And I will cite one example from my experience in
Arkansas, since default prevention has been a key topic amongst
your colleagues. The Student Loan Guarantee Foundation of
Arkansas with Hugh Hendrix College has and does work quite
closely, had a default prevention measure that they informed
the school when the student was in danger of going into long-
term default or short-term default. They would send a list of
students. The colleagues there and I worked together to write a
letter, which they sent us a copy of the letter when it was a
student at risk. We forwarded that right on to the student. So
it was a way for the guarantee foundation and the college to
work together to help students out of default.
I know Mr. Runcie and his colleagues are working on ways
for that to happen. But as Mr. Day alluded, I don't know how
those will take place, not having been in the Direct Loan
Program all that terribly long.
I also just wonder, going back to default rates, what is
going to happen when our graduates--because our freshmen now
are the first group truly having Direct Loans, it is going to
be a while before we know, as Mr. Bucshon alluded, how long it
will take for those to truly hit the books.
Chairwoman Foxx. Thank you very much.
I would like to, again, thank our distinguished panel of
witnesses for taking the time to testify before the
subcommittee today. And I thank all of the members of the
subcommittee who were here.
Mr. Hinojosa, do you have any closing remarks?
Mr. Hinojosa. Thank you.
Yes, I do. In closing, I want to share with you that, from
2007, 2008, 2009, and 2010, I served as the chair on the
Subcommittee on Higher Education, and I had many college
presidents from throughout the country, West Coast and East
Cost, and chancellors of college systems come to visit in me my
office and share with me their concerns about affordable and
accessibility of higher education because of the rising costs
of higher ed.
And I am glad to say that much of what was discussed on
both sides of the aisle here have been solutions to increase
the numbers of students who are now able to afford it. I saw a
study done by the Pew Hispanic Center, a study that they did
for 2009 to 2010--I am sorry, 2009 and to the next year 2010,
and their results indicated that they found an increase of 24
percent of Hispanics being able to access higher education,
which is extremely important to us, because it is a group, a
population, that is growing so very fast in the United States.
So I am pleased that in the materials they gave us, we have
this chart that talked a lot about the comparison of all types
of student loans together, and then they break them out, one
being the federal Direct Student Loan Program versus the
Federal Family Education Loan Program. And without a doubt,
from 2006 through 2010, the default rates for the blue on this
thing is the family--Federal Family Education Loan Program,
that is the highest, at 9.5 percent. You compare that with the
Direct Loan the same year of 2010--I am sorry, 2009, and you
see 5.6 percent. So I think we are dining the right things. We
are on the right road to address what the chancellor said,
accessibility and affordability.
So, thank you, Madam Chair, for having this hearing.
And I thank all of you for joining us today.
And I commend the Department of Education for their
leadership in making a seamless and successful nationwide
transition to the Direct Student Loan Program. This program
clearly expands what I said, accessibility and affordability in
higher ed, for millions of students throughout the country. As
we strive to achieve President Obama's pledge to lead the world
in proportion of college graduates by the year 2020, we must
ensure that eligible students have access to the Direct Loan
Program.
And with that, I yield back.
Chairwoman Foxx. Thank you, Mr. Hinojosa.
Again, I would like to thank the members of the panel for
being here today.
I will say that I am a big proponent of access to higher
education, and my own experience, again, tells me that we have
tremendous access to higher education in this country. Never
before have we had as much as we have today. There is no excuse
for anyone who wants to get a degree past high school not to
get one. It is available out there, in community colleges and
distance learning and on campus programs and small campuses and
large campuses. It is everywhere. There is no lack of choice in
this country.
At the same time, there are many questions being raised
about whether or not people need to be getting higher education
in order to be able to get a job. Skills are really what
students need, not just degrees, but they need skills in order
to get degrees. And I have great concern over the number of
people who are going to school and taking on huge loans because
they lack financial literacy.
And I will always be concerned about our government taking
on a function that the private sector has always been able to
do and do well. I think the federal government should be very
limited in its work. I think the Founders were right when they
delineated the responsibilities of the federal government. So I
believe that we should draw back on what we do instead of
expand what we do in the federal government.
However, I commend the Department of Education for what it
has done.
I commend all of you for the work do you and for your
commitment to individual students. Again, having been close to
your work when I was in university and college work, I
understand what you do, and I understand the importance to
those individuals.
And I think, as Dr. Bucshon brought out earlier, we need to
look at this from many different perspectives in terms of the
data that we collect. And I know, again, from having been a
college president and having students come in and talk to me
about how their lives have been changed by being in a college
or university, that we do make huge differences in the lives of
people. I want to thank you for what you do.
And I want to pledge to you that our committee looks for
ways that the federal government can provide the most effective
and the most efficient services to our students. So thank you
very much for being here with us today.
And the meeting is adjourned.
[Additional submission of Mrs. Foxx follows:]
------
[Questions submitted for the record and their responses
follow:]
U.S. Congress,
Washington, DC, November 10, 2011.
Mr. James Runcie, Chief Operating Officer,
Office of Federal Student Aid, U.S. Department of Education, 830 1st
Street NE, Washington, DC 20202.
Dear Mr. Runcie: Thank you for testifying at the Subcommittee on
Higher Education and Workforce Training hearing entitled, ``Government-
Run Student Loans: Ensuring the Direct Loan Program is Accountable to
Students and Taxpayers,'' on October 25, 2011. I appreciate your
participation.
Congressional oversight is critical to ensuring taxpayer dollars
are being spent appropriately. To that end, committee members request
your response to the enclosed questions. Please provide written
responses no later than December 1, 2011 for inclusion in the official
hearing record. Responses should be sent to Amy Jones or Mandy
Schaumburg of the committee staff who may be contacted at (202) 225-
6558. After receiving your responses, committee members will review the
answers and pose any additional questions they may have.
Thank you again for your contribution to the work of the committee.
Sincerely,
Virginia Foxx, Chairwoman,
Subcommittee on Higher Education and Workforce Training.
chairwoman virginia foxx (r-nc)
1. The FSA strategic plan states that you are in the process of
establishing a position of Chief Customer Experience Officer (CCEO) to
be the ``internal champion'' of customers at FSA. At what level are you
establishing the CCEO? Will they have staff? How will the CCEO have a
different role than the FSA Ombudsman?
2. I have heard from institutions of higher education that they
have a much higher default rate on their put loans than on their non-
put loans. Have you analyzed the data to determine whether the default
rate on put loans is higher than on regular loans? How have you
analyzed that data? What notice has been distributed to students to
inform them that their loans have been sold to the Department of
Education?
3. Has the Department taken any proactive steps to warn college
students about the interest rate increase that will be happening next
year as a way to better prepare these students and, hopefully, prevent
over-borrowing? What else is the Department doing to help prevent over-
borrowing?
4. I understand that FSA has recently shut down the ability of
lenders and servicers to view the loans of any borrower, except those
that they service, on the National Student Loan Data System (NSLDS).
This is preventing lenders from helping married borrowers that apply
for income-based repayment (IBR) unless both borrowers use that lender
or servicer. Why is the Department preventing a lender or servicer
(including its own direct loan servicers) from helping borrowers and
implementing the Department's own regulations?
5. We heard during the hearing that the quality of the Department's
customer service has slowly been deteriorating. Since that time, we
have also received a number of complaints that the website and customer
service line has been experiencing severe disruptions making it
impossible for borrowers to view their payment information. How are you
ensuring that borrowers are receiving the same level of customer
service touted by many in the FFEL program? Did the Department develop
a comprehensive plan to ensure high levels of customer service are
maintained? If so, can you give us some details on that plan and how it
was implemented?
6. What type of outreach does the Department undertake to inform
students about their obligations of repaying their loans, particularly
during the post-graduation grace period when borrowers often need to be
reminded that they are about to enter into repayment?
7. Can you describe how the Department funds all the functions
(originations, servicing, collections, personnel costs, other
contracts, or administrative expenses) of the Direct Loan Program?
Please detail from what accounts (student aid administration
appropriation, mandatory servicing account, off-budget financing
account, etc) each of these items is funded.
8. What types of regular interaction does the Department have with
the four main servicers? How do you oversee the current servicing
contracts and how is FSA planning to oversee compliance with the
addition of new nonprofit servicer contracts? Furthermore, how do you
ensure that the products coming out of each servicer are consistent?
Could you articulate which products are consistent across all servicers
and what products are different?
9. Now that the Department of Education is one of the largest banks
in the country, what is your office doing to combat any fraud and abuse
that may occur within the federal student aid programs?
10. Earlier this year, the Department launched its Voluntary
Flexible Agreement initiative, which you have stated is a way to
preserve the services provided by the nation's guaranty agencies. Under
the initiative, guaranty agencies are encouraged to propose new and
innovative means of providing services to schools and students. Yet the
Department has signaled that guaranty agencies will not be able to
provide services to Direct Loan borrowers. At a time when defaults are
on the rise, why would the Department prohibit guaranty agencies from
providing cost effective supplementary services to Direct Loan
borrowers?
11. Under the Voluntary Flexible Agreement initiative announced by
the Department in May, guaranty agencies have been informed that they
need to give up their efforts to help already defaulted borrowers in
order to be able to help borrowers who are struggling to meet their
obligations. Is this true?
12. The Higher Education Opportunity Act established a new set of
requirements for how institutions of higher education must interact
with student loan lenders. It appears that at least one aspect of these
changes has resulted in an unintended consequence with negative impacts
on students and families. There are a number of entities, including
those state-chartered non-profit agencies, which provided advisory
services to students and families on campus. Even though the HEOA
specifically allowed advisory services to continue, a majority of
campuses will not allow lenders on their campuses out of fear for being
criticized or penalized by the Department. Can you confirm that the
HEOA does permit institutions of higher education to allow entities,
such as the state-chartered, non-profit lenders, on campus for the
limited purpose of providing advisory services to students and
families?
representative robert andrews (d-nj)
1. Describe: How the Department (and the Department's
subcontractor) independently and empirically verify (i.e., other than a
verbal or written statement made by prospective Direct Consolidation
Loan applicant) that the prospective Direct Consolidation Loan
applicant that intends to pay off a FFELP Consolidation Loan qualifies
for such Direct Consolidation Loan pursuant to the Act.
2. Describe: The additional costs to the Federal government,
including loan forgiveness costs and foregone interest, resulting from
illegally made Direct Consolidation Loans paying off FFELP
Consolidation Loans.
3. In a letter to Congressman Andrews on September 19th, James
Runcie, COO of the Department Education wrote that the Direct Loan
Program does not have to verify whether or not a borrow who already has
a consolidation loan qualifies for a Direct Loan consolidation by
meeting on the three criteria in the law. Is the DOE mean then it does
not have to enforce the law and ignore the specific conditions Congress
put into the law regarding whether or not a borrower qualifies for a
certain loan?
______
U.S. Congress,
Washington, DC, November 10, 2011.
Ms. Nancy Hoover, Director of Financial Aid,
Denison University, 100 President's Drive, Granville, Ohio 42023.
Dear Ms. Hoover: Thank you for testifying at the Subcommittee on
Higher Education and Workforce Training hearing entitled, ``Government-
Run Student Loans: Ensuring the Direct Loan Program is Accountable to
Students and Taxpayers,'' on October 25, 2011. I appreciate your
participation.
Congressional oversight is critical to ensuring taxpayer dollars
are being spent appropriately. To that end, committee members request
your response to the enclosed questions. Please provide written
responses no later than December 1, 2011 for inclusion in the official
hearing record. Responses should be sent to Amy Jones or Mandy
Schaumburg of the committee staff who may be contacted at (202) 225-
6558. After receiving your responses, committee members will review the
answers and pose any additional questions they may have.
Thank you again for your contribution to the work of the committee.
Sincerely,
Virginia Foxx, Chairwoman,
Subcommittee on Higher Education and Workforce Training.
representative dave loebsack (d-ia)
1. I know that ending FFELP freed up $68 billion in funding for
college affordability and deficit reduction. Partly due to the
transition to direct lending, the Pell Grant Program has been expanded
significantly in recent years, increasing the maximum award to $5,550
from $4,050 and increasing the number of Pell grant recipients from 5.2
million to 9.4 million in the last 5 years. Nationally, two thirds of
students at 2-year colleges and one third of students at 4-year
colleges receive Pell grants. Especially in the current economic
downturn, grant aid is essential for making college affordable for many
students.
Could you tell me a little bit about the need for federal financial
aid, especially Pell grants, and how the transition to direct lending
has benefitted low-income students at yours and other colleges that are
members of the National Direct Student Loan Coalition?
______
[Whereupon, at 11:56 a.m., the subcommittee was adjourned.]