[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE MISMANAGEMENT OF
THE STUDENT LOAN
REHABILITATION PROCESS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HIGHER EDUCATION
AND WORKFORCE TRAINING
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. House of Representatives
6ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, MARCH 12, 2014
__________
Serial No. 113-50
__________
Printed for the use of the Committee on Education and the Workforce
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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 Robert C. ``Bobby'' Scott,
Joe Wilson, South Carolina Virginia
Virginia Foxx, North Carolina Ruben Hinojosa, Texas
Tom Price, Georgia Carolyn McCarthy, New York
Kenny Marchant, Texas John F. Tierney, Massachusetts
Duncan Hunter, California Rush Holt, New Jersey
David P. Roe, Tennessee Susan A. Davis, California
Glenn Thompson, Pennsylvania Raul M. Grijalva, Arizona
Tim Walberg, Michigan Timothy H. Bishop, New York
Matt Salmon, Arizona David Loebsack, Iowa
Brett Guthrie, Kentucky Joe Courtney, Connecticut
Scott DesJarlais, Tennessee Marcia L. Fudge, Ohio
Todd Rokita, Indiana Jared Polis, Colorado
Larry Bucshon, Indiana Gregorio Kilili Camacho Sablan,
Trey Gowdy, South Carolina Northern Mariana Islands
Lou Barletta, Pennsylvania Frederica S. Wilson, Florida
Joseph J. Heck, Nevada Suzanne Bonamici, Oregon
Susan W. Brooks, Indiana Mark Pocan, Wisconsin
Richard Hudson, North Carolina
Luke Messer, Indiana
Juliane Sullivan, Staff Director
Jody Calemine, Minority Staff Director
SUBCOMMITTEE ON HIGHER EDUCATION AND WORKFORCE TRAINING
VIRGINIA FOXX, North Carolina, Chairwoman
Thomas E. Petri, Wisconsin Ruben Hinojosa, Texas
Howard P. ``Buck'' McKeon, Ranking Minority Member
California John F. Tierney, Massachusetts
Glenn Thompson, Pennsylvania Timothy H. Bishop, New York
Tim Walberg, Michigan Suzanne Bonamici, Oregon
Matt Salmon, Arizona Carolyn McCarthy, New York
Brett Guthrie, Kentucky Rush Holt, New Jersey
Lou Barletta, Pennsylvania Susan A. Davis, California
Joseph J. Heck, Nevada David Loebsack, Iowa
Susan W. Brooks, Indiana Frederica S. Wilson, Florida
Richard Hudson, North Carolina
Luke Messer, Indiana
C O N T E N T S
----------
Page
Hearing held on March 12, 2014................................... 1
Statement of Members:
Foxx, Hon. Virginia, Chairwoman, Subcommittee on Higher
Education and Workforce Training........................... 1
Prepared statement of.................................... 3
Hinojosa, Ranking Minority Member, Subcommittee on Higher
Education and Workforce Training........................... 3
Prepared statement of.................................... 4
Statement of Witnesses:
Emrey-Arras, Melissa, Director, Education, Workforce and
Income Security Issues, Boston, Massachusetts.............. 7
Prepared statement of.................................... 9
Julius, Peg, Executive Director of Enrollment Management,
Kirkwood Community College, Cedar Rapids, Iowa............. 40
Prepared statement of.................................... 42
Runcie, James, Chief Operating Officer, Federal Student Aid,
U.S. Department of Education, Washington, DC............... 33
Prepared statement of.................................... 35
Tighe, Kathleen, Inspector General, U.S. Department of
Education, Washington, D.C................................. 22
Prepared statement of.................................... 24
Additional Submissions:
Ms Julius:
National Direct Student Loan Colition (NDSLC), prepared
statement of........................................... 56
Response to questions submitted for the record........... 81
Chairwoman Foxx: questions submitted for the record to: 77
Miller, Hon. George, senior Democratic member, Committee on
Education and the Workforce: questions submitted for the
record..................................................... 79
EXAMINING THE MISMANAGEMENT OF THE STUDENT
LOAN REHABILITATION PROCESS
----------
Wednesday, March 12, 2014
House of Representatives,
Subcommittee on Higher Education and
Workforce Training,
Committee on Education and the Workforce,
Washington, D.C.
----------
The subcommittee met, pursuant to call, at 2:32 p.m., in
Room 2175, Rayburn House Office Building, Hon. Virginia Foxx
[chairwoman of the subcommittee] presiding.
Present: Representatives Foxx, Petri, Walberg, Hinojosa,
Tierney, Bishop, Bonamici, and Loebsack.
Also present: Representative Kline.
Staff present: Janelle Belland, Coalitions and Member
Services Coordinator; Amy Raaf Jones, Deputy Director of
Education and Human Services Policy; Nancy Locke, Chief Clerk;
Brian Melnyk, Professional Staff Member; Daniel Murner, Press
Assistant; Krisann Pearce, General Counsel; Jenny Prescott,
Legislative Assistant; Mandy Schaumburg, Senior Education
Counsel; Emily Slack, Professional Staff Member; Alex
Sollberger, Communications Director; Alissa Strawcutter, Deputy
Clerk; Tylease Alli, Minority Clerk/Intern and Fellow
Coordinator; Kelly Broughan, Minority Education Policy
Associate; Eamonn Collins, Minority Fellow, Education; Jamie
Fasteau, Minority Director of Education Policy; Rich Williams,
Minority Education Policy Advisor; and Michael Zola, Minority
Deputy Staff Director.
Chairwoman Foxx. A quorum being present, the subcommittee
will come to order.
Good afternoon and welcome. I thank our panel of witnesses
for joining us today to examine the Department of Education's
management of the student loan rehabilitation process. Prior to
2010, the federal government authorized two loan programs
through the Higher Education Act to help students and their
families pay for college. As part of the health care overhaul
in 2010, the Democrat-led Congress eliminated the Federal
Family Education Loan Program, which offered student loans
through private lenders, and shifted to 100 percent direct
lending.
The federal government now originates and oversees every
single federal student loan issued. However, we aren't here
today to debate the merits of private lending or federal
lending. We are here to review whether the department is
equipped to handle the enormous task it has taken on. In
particular, a significant number of borrowers have raised
concerns about the department's inability to manage the
critical loan rehabilitation process. In short, loan
rehabilitation provides borrowers a one-time opportunity to get
out of default. Once a borrower makes nine on-time monthly
payments over a 10-month period, the loan returns to good
standing, the default is removed from the borrower's credit
report, and eligibility for repayment options or additional
financial aid are restored.
Ensuring the rehabilitation process is working in a timely
and effective manner is critical to the well-being of the
nation's borrowers. Defaulting on student loans has serious
consequences for a borrower's credit rating, making it more
difficult to obtain affordable credit, secure a job, or take
out a mortgage. In an effort to understand better the problems
plaguing the direct loan system, the committee began conducting
oversight and soliciting feedback from borrowers. The committee
discovered widespread issues in the department's management of
the loan rehabilitation process, including security breaches,
inaccurate reporting of payment statuses and loan
delinquencies, and delays in accessing the department's default
loan management website.
For example, one borrower claimed to have made the required
amount of on-time payments in an effort to rehabilitate his
loan, but, due to the department's delays, was unable to remove
the black mark of default from his credit report to take
advantage of better repayment options. Another borrower told
the Chronicle of Higher Education she started a second job to
cover the 1,350 monthly payment on her defaulted loan. But once
she finally made her ninth payment in October 2011, she was
informed the department was unable to update her loan status
due to problems with the loan management system.
With thousands of borrowers stuck in financial limbo,
Senate and House Republicans asked the Government
Accountability Office to conduct a detailed review of the
Department of Education's capacity to move loans through the
rehabilitation process. According to the final report released
today, the GAO found the department lacked appropriate
monitoring over the upgrading of the default management system.
Further, not a single loan rehabilitation was processed from
September 2011 through March 2012, affecting approximately
80,000 borrowers.
Additionally, the report sheds light on weaknesses within
the department that raise questions about the department's
ability to manage the direct loan program itself. When
attempting to upgrade its default loan management system, the
department failed to oversee the system upgrade effectively or
prepare for any associated risk. The department also failed to
monitor complaints from borrowers or ensure resolution of these
issues. And although the department has claimed any issues are
resolved and borrowers are able to rehabilitate their loans, we
will learn today that the resolutions put in place are
workarounds and not permanent solutions.
Policymakers have a serious responsibility to ensure
student loans increase opportunity, not limit future success. I
look forward to continuing our oversight efforts today as we
work to strengthen the federal student loan system and protect
student borrowers.
I now yield to my distinguished colleague, the senior
Democrat member of the Higher Education and Workforce Training
Subcommittee, Mr. Ruben Hinojosa, for his opening remarks.
[The statement of Chairwoman Foxx follows:]
Prior to 2010 the federal government authorized two loan programs
through the Higher Education Act to help students and their families
pay for college. As part of the health care overhaul in 2010, the
Democrat-led Congress eliminated the Federal Family Education Loan
program, which offered student loans through private lenders, and
shifted to 100 percent Direct Lending.
The federal government now originates and oversees every single
federal student loan issued. However we aren't here today to debate the
merits of private lending or federal lending. We're here to review
whether the department is equipped to handle the enormous task it has
taken on. In particular, a significant number of borrowers have raised
concerns about the department's inability to manage the critical loan
rehabilitation process.
In short, loan rehabilitation provides borrowers a one-time
opportunity to get out of default. Once a borrower makes nine on-time
monthly payments over a ten-month period, the loan returns to good
standing, the default is removed from the borrower's credit report, and
eligibility for repayment options or additional financial aid are
restored.
Ensuring the rehabilitation process is working in a timely and
effective manner is critical to the well-being of the nation's
borrowers. Defaulting on student loans has serious consequences for a
borrower's credit rating, making it more difficult to obtain affordable
credit, secure a job, or take out a mortgage. In an effort to better
understand the problems plaguing the Direct Loan system, the committee
began conducting oversight and soliciting feedback from borrowers.
The committee discovered widespread issues in the department's
management of the loan rehabilitation process; including security
breaches, inaccurate reporting of payment statuses and loan
delinquencies, and delays in accessing the department's default loan
management website.
For example, one borrower claimed to have made the required amount
of on-time payments in an effort to rehabilitate his loan, but due to
the department's delays, was unable to remove the black mark of default
from his credit report to take advantage of better repayment options.
Another borrower told the Chronicle of Higher Education she started
a second job to cover the 1,350 monthly payment on her defaulted loan.
But once she finally made her ninth payment in October 2011, she was
informed the department was unable to update her loan status due to
problems with the loan management system.
With thousands of borrowers stuck in financial limbo, Senate and
House Republicans asked the Government Accountability Office to conduct
a detailed review the Education Department's capacity to move loans
through the rehabilitation process.
According to the final report released today, the GAO found the
department lacked appropriate monitoring over the upgrading of the
default management system. Further, not a single loan rehabilitation
was processed from September 2011 through March 2012 - affecting
approximately 80,000 borrowers.
Additionally, the report sheds light on weaknesses within the
department that raise questions about the department's ability to
manage the Direct Loan program itself. When attempting to upgrade its
default loan management system, the department failed to oversee the
system upgrade effectively or prepare for any associated risks.
The department also failed to monitor complaints from borrowers or
ensure resolution of these issues. And although the department has
claimed any issues are resolved and borrowers are able to rehabilitate
their loans, we will learn today that the resolutions put in place are
work-arounds and not permanent solutions.
Policymakers have a serious responsibility to ensure student loans
increase opportunity, not limit future success. I look forward to
continuing our oversight efforts today as we work to strengthen the
federal student loan system and protect student borrowers.
______
Mr. Hinojosa. Thank you, Chairwoman Foxx.
Today's hearing will focus on student loan rehabilitation
and the steps that the U.S. Department of Education has taken
to strengthen that process. I want to thank our distinguished
panel of witnesses for joining us this afternoon to provide
some context for this discussion, and to share their views on
how the federal government can continue to best serve student
borrowers. Let me begin by saying that the U.S. Department of
Education must do all it can to help student borrowers
rehabilitate their student loans and build on the successes of
the direct loan program. These responsibilities include
effective management and oversight of federal student aid
programs.
In my view, the U.S. Department of Education's move to 100
percent direct lending in 2010 continues to provide students
with a streamlined loan origination system, a department with
better oversight against waste, fraud and abuse, and taxpayers
with a better deal.
One of the issues before this committee today concerns the
Department of Education's transition to the Debt Management
System II and the glitches that the Department of Education
encountered with this system through the year 2012. I
understand that between that period of 2012 to 2013 the
Department of Education's inspector general issued a series of
alert memos to the student aid office about the glitches in the
system, and provided recommendations to address the issues.
To my knowledge, the FSA has taken these concerns very
seriously and has corrected these weaknesses, including
manually assisting borrowers in rehabilitating their student
loans and clearing the backlog. By their fiscal year 2013
audit, FSA had resolved most of the areas noted by the I.G.
Furthermore, the GAO report released today makes three
recommendations to ensure that the department is tracking that
rehabilitation of defaulted loans, properly noting risk
associated with contractors, and improving the monitoring of
contractor performance. I encourage the department to heed
these suggestions and make necessary adjustments to improve the
program.
Finally, I want to remind my colleagues on both sides of
the aisle that not so long ago, under the prior administration,
President Bush, this committee investigated and held oversight
hearings that exposed and highlighted rampant conflicts of
interest and unethical practices within the Federal Family
Education Loan--better known as FFEL--program, especially
lenders' use of bribes and kickbacks to curry favors with
colleges. All that happened while I was here on this committee.
As I recall, poor oversight of our federal student aid programs
allowed inappropriate practices to go unchecked at the expense
of student borrowers and their families.
It was disgraceful at that time when the department did
little to nothing to stop student loan companies from offering
university financial aid officers things such as gifts, trips
and more to buy their way onto college campuses and increase
their access to student borrowers. My message to you today is
simple. The Direct Loan Program is here to stay because it is
the best option for student borrowers and their families. We
are not retreating to the Wild Wild West and the days when
monitoring oversight and accountability of our federal student
aid programs were neglected and ignored.
In terms of today's hearing, what is most important, it
seems to me, is that the department has taken significant steps
to fix these problems, and will continue to work effectively,
manage and track the rehabilitation of those defaulted loans
and federal student aid programs. I am looking forward to, and
I am interested in exploring how the loan system can work even
better for borrowers and taxpayers through upcoming contract
negotiations between the department and its servicers and
contractors.
And with that, Madam Chair, I yield back.
[The statement of Mr. Hinojosa follows:]
Thank you, Chairwoman Foxx.
Today's hearing will focus on student loan rehabilitation and the
steps that the U.S. department of Education has taken to strengthen
that process.
I want to thank our distinguished panel of witnesses for joining us
this morning to provide some context for this discussion and to share
their views on how the federal government can continue to best serve
student borrowers.
Let me begin by saying that the U.S. Department of Education must
do all that it can to help student borrowers rehabilitate their student
loans and build on the successes of the Direct Loan Program. These
responsibilities include effective management and oversight of federal
student aid programs.
In my view, the U.S. Department of Education's move to 100% direct
lending in 2010 continues to provide students with a streamlined loan
origination system, the Department with better oversight against waste,
fraud and abuse, and taxpayers with a better deal.
One of the issues before this committee today concerns the
Department of Education's transition to the Debt Management Collection
System 2 and the glitches that the department of Education encountered
with this system through 2012.
I understand that between 2012 and 2013, the Department of
Education's Inspector General (IG) issued a series of alert memos to
the Federal Student Aid Office (FSA) about the glitches in the system
and provided recommendations to address the issues.
To my knowledge, the FSA has taken these concerns seriously and has
corrected these weaknesses, including manually assisting borrowers in
rehabilitating their student loans and clearing the backlog. By their
FY 2013 audit, FSA had resolved most of the areas noted by the IG.
Furthermore, the GAO report released today makes three
recommendations to ensure that the department is tracking the
rehabilitation of defaulted loans, properly noting risk associated with
contractors, and improving the monitoring of contractor performance. I
encourage the department to heed these suggestions and make the
necessary adjustments to improve the program.
Finally, I want to remind my colleagues that not so long ago, under
the Prior administration-- President Bush, this Committee investigated
and held oversight hearings that exposed and highlighted rampant
conflicts of interest and unethical practices within the Federal Family
Education Loan (FFEL) program --especially lenders' use of bribes and
kickbacks to curry favor with colleges.
As I recall, poor oversight of our federal student aid programs
allowed inappropriate practices to go unchecked at the expense of
student borrowers and their families.
It was disgraceful at that time--when the department did little to
nothing to stop student loan companies from offering university
financial aid officers gifts, trips, and more to ``buy'' their way onto
college campuses and increase their access to student borrowers.
My message to you today is simple: the Direct loan program is here
to stay because it is the best option for student borrowers. We are not
retreating to the Wild Wild West and the days when monitoring,
oversight and accountability of our federal student Aid programs were
neglected and ignored.
In terms of today's hearing, what is most important to me is that
the department has taken significant steps to fix these problems and
will continue to work to effectively manage and track the
rehabilitation of defaulted loans and federal student aid programs.
Looking forward, I am interested in exploring how the loan system
can work even better for borrowers and taxpayers through upcoming
contract negotiations between the Department and its servicers and
contractors.
With that, I yield back.
______
Chairwoman Foxx. Thank you, Mr. Hinojosa.
Pursuant to committee rule 7(c), all subcommittee members
will be permitted to submit written statements to be included
in the permanent hearing record. And 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. Ms. Melissa Emrey-Arras serves as the director of
education, workforce and income security issues, at the U.S.
Government Accountability Office. The Honorable Kathleen Tighe
serves as the inspector general of the U.S. Department of
Education. Mr. James Runcie serves as chief operating officer
of federal student aid at the U.S. Department of Education.
I now recognize Mr. Loebsack to introduce our final
witness.
Mr. Loebsack. Thank you Chairwoman Foxx. I am pleased to
introduce Peg Julius today, financial aid director at Kirkwood
Community College. Kirkwood's main campus is located just
outside my district in Cedar Rapids, although I did have
Kirkwood in Cedar Rapids for 6 years prior to the last
redistricting. But there is also a campus in Iowa City for
Kirkwood Community College. You can correct me, Peg, but I
think that the college enrolls around 16,000 or 17,000 students
now. Is that correct, somewhere in that neighborhood?
Ms. Julius. I have got 23,000.
Mr. Loebsack. All right, I apologize. I have already
offended one of our witnesses.
[Laughter.]
I should have known that. My staff person over here,
Bonnie, is saying, ``I told you so.'' But it serves a lot of
the counties in my district, as well. Peg is also a member of
the executive council of the National Direct Student Loan
Coalition. I have worked with her on college affordability
issues since I have been in Congress the last eight years but,
of course, I have known Peg for much longer than that. And I
know that she is an expert in her field and, beyond that, she
is my constituent to boot. So I look forward to her testimony.
I look forward to all the testimony today, and I thank the
chairwoman and I yield back. Thank you.
Chairwoman Foxx. Thank you, Mr. Loebsack.
Before I recognize you to provide your testimony, let me
briefly explain our lighting system. You will have five minutes
to present your testimony. When you begin, the light in front
of you will turn green. When one minute is left, the light will
turn yellow. When your time is expired, the light will turn
red. At that point, I ask that you wrap up your remarks as best
as you are able. After you have testified, members will each
have five minutes to ask question of the panel.
I now recognize Ms. Melissa Emrey-Arras for five minutes.
STATEMENT OF MS. MELISSA EMREY-ARRAS, DIRECTOR, EDUCATION,
WORKFORCE AND INCOME SECURITY ISSUES, U.S. GOVERNMENT
ACCOUNTABILITY OFFICE, BOSTON, MASSACHUSETTS
Ms. Emrey-Arras. Chairwoman Foxx, Ranking Member Hinojosa,
and members of the subcommittee, I am pleased to be here to
discuss our work examining the Department of Education's
efforts to rehabilitate defaulted federal student loans. As of
September 2013, about 94 billion, over 11 percent of federal
student loans in repayment, were in default.
Loan rehabilitation allows borrowers who make nine on-time
payments in 10 months to have the default removed from their
credit report. Education contracts with collection agencies to
assist borrowers with this process.
Education recently upgraded its defaulted loan information
system because the old system had become costly to maintain and
had many manual workarounds. My remarks will address two areas
from our report, which is being released today. One, how the
upgrade of Education's defaulted loan information system
affected loan rehabilitation, and two, how Education oversees
its collection agencies in implementing loan rehabilitation.
Our review found that Education was unable to provide most
borrowers who completed loan rehabilitation with timely
benefits for more than a year following the upgrade.
We found the delays largely due to gaps in Education's
oversight of its system contractor. For example, despite known
risks such as concerns about the contractor's unreliable
performance on previous system development efforts, Education
did not have plans for monitoring the upgrade. We also found
the department's testing of the new system was insufficient to
detect problems associated with loan rehabilitation. For
example, the system did not recognize when borrowers had made
nine on-time payments in 10 months because it was only tested
for seven months.
As Education worked to correct problems with the system, it
took some steps to hold the contractor accountable. Education
also established procedures to help eligible borrowers by
removing defaults from their credit reports. However, borrowers
had to request the help, and Education estimated helping less
than 10 percent of the estimated 80,000 borrowers who were
affected when the system was shut down. Education officials
have reported that they are still using workarounds to run the
system, and a substantial amount of development work will need
to be completed under a new contract that was recently awarded.
The system challenges the new contractor will be expected
to resolve provide a compelling case for Education to
strengthen its oversight. To address this issue, we recommended
that Education take steps to ensure necessary oversight for the
new system contract. We also found that Education lacks data
and related performance measures to inform its management and
oversight of loan rehabilitation.
Education does not have data to assess the number or extent
of borrower delays or the extent to which borrowers who
rehabilitate their loans stay out of default. To address these
data issues, we recommended that Education develop an approach
for tracking loan rehabilitation performance.
Our work also identified weaknesses in Education's
oversight of its collection agencies. Although Education's
monitoring procedures required quarterly reviews of collection
agency phone calls with borrowers, we found that Education did
not consistently complete these reviews. The call review
reports we examined also documented a range of errors,
including collection agencies providing borrowers with
misleading information. For example, in one case a collection
agency incorrectly told borrowers that a debit card was
required to rehabilitate a loan.
While Education provides feedback on the results of its
call reviews to each collection agency, it does not assure that
collection agencies actually take corrective actions. To
address these issues, we recommended that Education improve its
call review process. In conclusion, our findings highlight
serious weaknesses in Education's management of the loan
rehabilitation process. While Education has agreed with our
recommendations and taken steps in response, it will be
important to track how Education builds upon these actions to
ensure it is providing appropriate oversight.
Thank you. This concludes my statement.
[The statement of Ms. Emrey-Arras follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairwoman Foxx. Thank you very much.
I now recognize the Honorable Kathleen Tighe for five
minutes.
STATEMENT OF HON. KATHLEEN TIGHE, INSPECTOR GENERAL, U.S.
DEPARTMENT OF EDUCATION, WASHINGTON, D.C.
Ms. Tighe. Thank you very much. As members of this
subcommittee know, the federal student assistance programs have
long been a major focus of our audit and investigative work.
Because of its significant student loan portfolio, FSA is, in
fact, one of the largest financial institutions in the country.
And, as such, effective oversight and monitoring of its
programs and operations are critical. As I will discuss today,
the Office of Inspector General has identified significant
issues with FSA's debt management collection system.
When loans being serviced by FSA's loan servicers reach 360
days of nonpayment, they are transferred to FSA's debt
management collection system, at which time FSA notifies the
borrower that the loan is in default and asks the borrower to
make repayment arrangements. If there is no response from the
borrower, or if the borrower refuses to pay, FSA then assigns
the loan to a collection agency. Since 2003, FSA has contracted
with ACS Education Solutions to manage its debt management
system. ACS was later purchased by Xerox, and in 2010 that
company agreed to update the system.
The updated system is known as the Debt Management
Collection System II. That system went live in October 2011. In
2012, we notified FSA that we had identified more than 190,000
defaulted loans in certain categories totaling more than $1.1
billion that could not be transferred from the FSA loan
servicers to DMCS II. As a result, FSA was unable to undertake
collection activities and eligible borrowers were unable to
take steps to remove their loans from default status through
loan rehabilitation. We also identified problems with
transferring loans back from DMCS II to the FSA loan servicers.
We made a number of recommendations to FSA to address the
issues with DMCS II. FSA stated it was committed to resolving
the problems, but has yet to provide us with an acceptable
corrective action plan to address our recommendation on how it
will ensure that it has a fully operational debt management
system. The inability of DMCS II to process certain types of
transactions and other system problems contributed to a
material weakness in internal control over financial reporting
in the fiscal year 2012 FSA financial statement audit. As
reported in the fiscal year 2013 FSA financial statement audit,
a full year after we had first identified problems with DMCS
II, issues still remained with the transfer of some defaulted
loans in the system, as well as other issues.
Although the issue was designated now as a significant
deficiency rather than a material weakness, the financial
statement audit noted that as of September 30, 2013, although
some functionality had been restored, 1.1 billion of defaulted
loans still had not been transferred to DMCS II. In addition,
action on four of the five recommendations made in the previous
year's report were still in process and not yet completed. The
problems with DMCS II, however, went beyond accounting for
defaulted loans. In May 2013, we reported that DMCS II could
not provide the information necessary for FSA to calculate
actual commissions and bonuses for private collection agencies.
As a result, in fiscal year 2012, FSA paid 448 million in
commissions and 8.3 million in bonuses to private collection
agencies based on estimates. My office is very concerned with
the problems posed by DMCS II and FSA's inadequate oversight in
monitoring of this system. As a result, we initiated additional
work involving DMCS II and planned to take a broader look at
FSA's oversight management and monitoring of its data systems
overall. We also highlighted the problems with DMCS II in our
most recent management challenges report and added a new
management challenge related to the department's IT system,
development and implementation. We will continue to closely
monitor FSA's action to improve DMCS II.
This concludes my statement. I am happy to answer any
questions.
[The statement of Ms. Tighe follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairwoman Foxx. Thank you both very much. You come in
under time.
Mr. Runcie, you have a challenge. I now recognize you for
five minutes.
[Laughter.]
STATEMENT OF MR. JAMES RUNCIE, CHIEF OPERATING OFFICER, FEDERAL
STUDENT AID, U.S. DEPARTMENT OF EDUCATION, WASHINGTON, D.C.
Mr. Runcie. Well, thank you, Chairman Kline, Chairwoman
Foxx, Ranking Member Hinojosa, and members of the subcommittee
for inviting me to testify today. My name is James Runcie, and
I am the chief operating officer of the Department of
Education's Federal Student Aid office. Our organization is
responsible for administering the federal student aid programs
that annually enable millions of students to pursue higher
education.
While managing defaulted loans is a significant, important
part of our work at FSA, it is only one part of a successful
public-private partnership encompassing over 1,300 government
employees and more than 10,000 employees of private
contractors. Together, we administer the federal student aid
programs. We do this by, among other things, processing more
than 20 million financial aid applications each year,
dispersing $138 billion in grants and loans, providing
management and oversight of a loan portfolio of more than 1
trillion--representing 40 million borrowers--and collecting on
defaulted student loans, the topic of this hearing.
We have worked closely with the GAO and the department's
I.G. over the last several years. We appreciate their insights
and concur with the three recommendations presented by GAO in
its most recent report. We acknowledge that there were major
challenges, and I hold myself accountable for these issues.
Today, the major challenges presented by the new DMCS system
have been addressed. Collections on defaulted loans are at
record levels, and have grown from $3.4 billion in 2011 to $8.5
billion in 2013.
However, to provide a broader context for this hearing, I
would like to review with the committee how we got to where we
are today. Since 1994, there have been two primary federal
student loan programs, the FFEL program and the Direct Loan
Program. In 2007, the DL Program's share of the annual 64
billion in federal student loan disbursements was approximately
20 percent. Around that time, the decline in the financial
markets began to directly affect student lending by severely
restricting the availability of private capital. Many schools
began moving from the FFEL to the DL program. As the number of
schools moving to the DL program increased, we took steps to
insure FSA had sufficient capacity.
Beginning in 2008, we increased our loan origination
capacity to ensure that it could handle the projected volumes.
We also augmented our servicing capacity with the awarding of
loan servicing contracts to four private sector companies. In
addition, we began the process of upgrading an antiquated 30-
year-old default management system called DMCS. In 2010, we
successfully implemented the transition to full, direct
lending. And last year, FSA disbursed approximately $100
billion in direct loans to over 10 million students and parent
borrowers. This is an increase of almost 700 percent in just
five years.
In order to successfully manage this exponential growth, we
successfully upgraded legacy systems and processes and
developed many new ones. Some examples include the
implementation of the TIVAS not-for-profit servicers, IRS
automated data retrieval, and new total and permanent
disability system. We successfully oversee dozens of major
systems and process tens of millions of transactions,
leveraging our employees and numerous private contractors.
Having said that, FSA's transition to a new DMCS system faced
difficulties, particularly during its initial months of
operations.
Our management team immediately took steps to assess the
problem and to restore key functions. Our efforts prioritized
restoring borrower services, such as loan rehabilitation and
refund processing, and minimizing disruptions to the collection
activities. As a result of these efforts, the system is working
today and we are processing a greater number of rehabilitations
than any time in our history. We have also instituted
regulatory, contractual, and process improvements since 2012
that make loan rehabilitation easier for borrowers.
The new debt management system has replaced a system that
was 30 years old, technologically and functionally limited, and
subject to a number of security issues and audit findings. The
new system was designed to be more secure, more robust, and
less costly. We also levied appropriate and necessary sanctions
against a contractor for poor performance. These actions
included the issuance of a cure notice and the imposition of
significant financial penalties. Late last year, we moved into
the final phase of ending our relationship with the original
contractor and awarded a new contract for DMCS.
The new system's loan rehabilitation functions were
restored in April of 2012, and the backlog of borrowers whose
loan rehabilitation was delayed was resolved by January 2013.
Over 525,000 borrowers have rehabilitated defaulted loans, with
a value of more than $9 billion since functionality was
restored. As a result of these efforts, we are processing
record numbers of collections in all categories. Defaulted
borrowers have better service and more options than at any time
in the history of our programs. We have learned from the system
transition, and are incorporating lessons into the management
improvements across the organization.
I want to thank the committee for providing me the
opportunity to discuss this very important issue, and look
forward to answering any questions that you may have this
afternoon.
[The statement of Mr. Runcie follows:]
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Chairwoman Foxx. Thank you, Mr. Runcie.
I now recognize Ms. Peg Julius for five minutes.
STATEMENT OF MS. PEG JULIUS, EXECUTIVE DIRECTOR OF ENROLLMENT
MANAGEMENT, KIRKWOOD COMMUNITY COLLEGE, CEDAR RAPIDS, IOWA
Ms. Julius. Chairwoman Foxx and members of the
subcommittee, thank you for the opportunity to speak to you
today. My name is Peg Julius and I am a member of the executive
council of the National Direct Student Loan Coalition, and
executive director of enrollment management and financial aid
at Kirkwood Community College in Cedar Rapids, Iowa.
We are a 2-year public institution, enrolling approximately
23,000 students annually. Fifty-one percent of them receive
student financial aid, and 34 percent receive Pell grants.
Kirkwood joined the direct lending program in the second year,
1995. I believed strongly then, and I continue to believe now,
that direct lending is the best student loan option for our
students. It is understandable for students and their families,
it is simple, and it works. When borrower benefits were being
used to entice schools away from direct lending in the late
1990s, my administration moved out of direct lending and back
to the Federal Family Educational Loan Program.
After 3 years of participation in FFEL and many concerns
about the level of service that was provided to our student
borrowers, the opportunity presented itself for us to move back
to direct lending and my staff and I happily made that change.
The direct loan program continues to be the best student loan
option. The switch to 100 percent direct lending in 2010 was an
enormous undertaking by the Department of Education. As with
any change of this magnitude, fine tuning continues to happen.
The coalition believes that servicing of loans could be
improved with the following changes.
Borrowers need a single point of contact for all their loan
repayment activities. The new option for students to choose
their servicer during consolidation provides opportunities for
abuse and fraud in the industry, and should be eliminated.
Service levels, loan terms and borrower benefits must be equal
and uniform. Performance measures should be relevant and
uniformly applied to all servicers. We encourage the department
to take advantage of the opportunity by the renewal of
servicing and collection contracts to move that system to the
best practices of the industry as a whole.
The department has worked hard and accomplished much,
correcting the issues with private collection agencies and the
loan rehabilitation process. Despite the simplicity of the
direct loan program, there are still challenges for students
making repayments. And when students don't pay their loans, the
resulting default is concerning both for them and for the
taxpayers of this nation. We suggest that all correspondence
from servicers use the identification of the Federal Direct
Stafford Loan Program as the primary identifier. Students need
to understand that this is a federal loan provided by Congress,
and not a loan from a servicer.
We believe that these changes will make the current model
for direct lending and servicing even better than it is today.
We are encouraged by improvements made in the consolidation
process for students on studentloans.gov. Real-time information
about all the loans that a student has and an easy process for
pulling IRS information for income-based repayment options will
no doubt reduce defaults. Yet still, students find themselves
with defaulted loans for a variety of reasons. The need for the
rehabilitation of these loans is not uncommon.
While the process is not quick, it is also not daunting.
Most can navigate the process on their own. When students ask
for our help, it is a fairly easy handoff from the repayment
counseling that we provide to the processes required by the
department to put the loan in a rehabilitated status. There
were serious reporting problems for rehabilitated loans when
the change in debt collection servicing occurred. The systems
are operating properly now, and those problems have been
resolved.
I want to thank you, Madam Chairman, for the opportunity to
speak with you today. I am honored to give you some perspective
on this very important issue from the student borrower and
school viewpoint. And I am happy to answer any questions.
[The statement of Ms. Julius follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairwoman Foxx. Thank you very much.
I am now going to recognize members for questions, and I
would like to recognize the chairman of the committee,
Congressman Kline.
Mr. Kline. Thank you, Madam Chair. Thank the witnesses for
being here. A question I just want to get really clear for the
record here. Ms. Emrey-Arras, you touched on it in your
testimony, but I want to get from you and Inspector General
Tighe a straight yes or no answer here. I will start with you--
we always start with the GAO. And thank you for your work, by
the way. I know that this committee and others, we just lay a
lot of work on the GAO, and we appreciate the high quality of
the work.
So can you say, with certainty, that the department's
default management system is fully functioning without any
workarounds, and that all loan rehabilitations are now being
properly processed within the appropriate time frames?
Ms. Emrey-Arras. No. Education continues to rely on system
workarounds. In addition, Education has put together a long
list of functional deficiencies with the system that will need
to be addressed by the new contractor. And, in addition,
Education lacks data to know for sure that there are no longer
delays in the process.
Mr. Kline. Thank you.
Inspector General Tighe, same question?
Ms. Tighe. No.
Mr. Kline. Exactly. Okay, thank you for that. And now again
to the Inspector General. I have a nifty package put together
here for us. I have got a couple of these alert memoranda dated
May 8 and May 15 from your office to FSA. And in these, you
point out significant oversight lapses by the department, which
you have touched on. In both instances, the department's
response indicated they agreed with your concerns and listed
action items they would undertake to address the concerns in
your memoranda. In your follow up, has the department
demonstrated it has met the stated corrective actions?
Ms. Tighe. Thank you. Regarding the alert memo on DMCS II,
we had a number of recommendations. The department has
submitted a corrective action plan on all but one, but has not
completed action. On the most significant recommendation we
made, which is the recommendation that basically they need to
do a plan to demonstrate that they have a fully functional debt
management collection system, we do not have a corrective
action plan on that yet.
Mr. Kline. So, work to be done.
Ms. Tighe. Work yet to be done, yes.
Mr. Kline. Well, again, I want to thank you for your work,
for your testimony. And that is what we are getting at here. We
understand that there are people of good will here trying to
get things done. But the point of the matter is, the fact of
the matter is, we still got big problems. And so I appreciate
all of you being here today and your testimony.
And with that, Madam Chair, I will yield back.
Chairwoman Foxx. My goodness, this chairman is setting a
great example also.
Mr. Bishop, I now recognize you for five minutes.
Mr. Bishop. Thank you very much, Madam Chair. And thank you
very much for holding this hearing. This is a very important
area, and I thank you for shedding light on it. And thank you
to the panel.
My first question is, it is my belief that this is a
systems problem correction as opposed to there being something
inherent in direct lending that contributed to this problem. Is
it exclusively a systems problem?
Ms. Tighe. Based on our work, it is a systems problem.
Mr. Bishop. Okay. Mr. Runcie, you would concur with that?
Mr. Runcie. Yes, this is a systems issue that we have taken
great effort to address. And we believe we have addressed it.
But it is not a direct lending policy issue.
Mr. Bishop. Chairman Kline just asked if there were
problems that remain. Ms. Emrey-Arras, you said yes. Ms. Tighe,
you said yes. Mr. Runcie, you said in your testimony that,
quote--``functionality has been restored,'' close quote. And I
know that is a different matter than whether problems remain.
Can you tell us how your department is addressing the problems
that continue to exist, that have been highlighted by the
Inspector General and by GAO?
Mr. Runcie. Yes. First of all, the rehab issue. We put a
fix in April of 2012. And then we cleaned out the backlog by
the end of the year. So that issue is addressed. And so on a
go-forward basis, you know, that functionality has been
restored. In terms of the issue about workarounds, they're
supporting processes--we have always had supporting processes.
In the old system we had many workarounds, or supporting
processes, to address issues that couldn't be handled directly
by the system.
We have less workarounds now than we did before we had the
system. In our definition of a supporting process, a workaround
that works is one that addresses the issue on a timely basis.
So therefore, our workarounds are not creating any backlogs. So
if there is a workaround process, there are no backlogs, so the
borrower is not experiencing a detrimental situation.
So this issue of fully-functioning or functioning system I
think it can also be evidenced by the fact that we have
increased the amount of collections, rehabs and collections in
total, to a level of almost $9 billion since we put in that
functionality. So from an operational definition of success, we
would point to that as empirical evidence.
Mr. Bishop. Okay. Let me ask this question, and I would ask
this of the GAO and the Inspector General. Are you confident
that the department has put in place the appropriate remedial
action and the appropriate oversight steps to see to it that if
Madam Chair were to bring us all back together 6 months from
now or 9 months from now we would be viewing a different
landscape than we are viewing right now?
Ms. Tighe. From us, I am not confident. We actually have
ongoing work right now on DMCS II. One of those is to
basically, you know, look over FSA's shoulder and look at what
they have set as functional and not functional. That work is
still ongoing and will not be out for a little while, but we
are checking on their claims of functionality. We also had
started a job that we put aside because there was a big protest
related to the follow on contract that is at issue here, that
we would have looked at FSA's plans to sort of deal with all
these issues. We haven't yet decided what to do with that job.
Mr. Bishop. So your monitoring is ongoing.
How about the GAO?
Ms. Emrey-Arras. We are also monitoring. While Education
has agreed with our recommendations, we need to monitor them to
see that those steps that they have promised are taken and that
they fulfill the requirements of the recommendations.
Mr. Bishop. Okay. Thank you all very much.
Chairwoman Foxx. Thank you very much, Mr. Bishop.
Mr. Walberg, you are recognized for five minutes.
Mr. Walberg. Thank you, and thanks to the panel for being
here.
Ms. Emrey-Arras, let me ask you first if you could, in more
detail, describe the department's lack of oversight in its
system--over its system contractor? And more specifically, what
did you find when you looked through the department's contract
files?
Ms. Emrey-Arras. Thank you for that important question. We
found that Education did not create a monitoring plan for the
upgrade prior to the beginning of the work on the system, and
only became involved after the contractor began missing
deadlines, and created a monitoring plan about a year after
everything got going.
Mr. Walberg. Is that normal for--
Ms. Emrey-Arras. That should not be normal. Actually, the
department has guidance for contracting, and it recommends that
people look to what risks are involved. And if a contractor has
past performance problems, there should be more monitoring in
place to mitigate those risks. And this contractor had those
past performance problems, and oversight was not put in place
up front when it needed to be to appropriately monitor the
contractor.
In terms of looking at the files, we did not find that
monitoring documentation that the department requires of its
employees in terms of status reports, other documents to show
that they were really monitoring the contractor.
Mr. Walberg. Interesting. Seems common sense was missing
there, to a point. But who am I to know about that?
Ms. Tighe, in your opinion, should the issues highlighted
in your May 2013 alert memorandum have been spotted by the
department if they had proper oversight and monitoring
practices in place?
Ms. Tighe. Yes, I do believe those issues should have been
spotted. I think the principal problem, other than the
underlying problem regarding the loans that would not transfer
that we observed, was the failure to do proper testing of the
system before it went live. That is a problem we recognize was
also a problem recognized by the financial statement auditor in
2013. That is, the fact that they only tested certain functions
and didn't test all the way through the process of a loan and
through rehabilitation, I think, created problems. I think if
those things had been done we wouldn't have the problems we
have today.
Mr. Walberg. How much of your office's time has been spent
in dealing with this issue of this contract?
Ms. Tighe. Well, we have had two alert memos and we have
ongoing work. We have spent just under a million dollars on
staff time, on travel, and on related overhead for this work.
Mr. Walberg. Well, that is certainly part of your
responsibility. But if it doesn't have to be done. Are there
any other audits that have been delayed because of this work?
Ms. Tighe. Well, we prioritize our work according to the
issues that we think are important. And this, when it burbled
up, clearly became a top issue for us. So we did put some
things aside and decided to give priority to this.
Mr. Walberg. Okay.
Mr. Runcie, contracting for services, as you would readily
admit, is an important obligation, especially when it obligates
millions of dollars of taxpayers' funds. Why did the department
award a contract for these important services to an entity that
had demonstrated failures of its own in the past?
Mr. Runcie. Okay. Well, we did not award a contract. There
was an existing contract that we modified. So we did not award
a contract, so there wasn't a process. We ended up awarding a
contract this past year. So it was considered almost more of an
upgrade.
Mr. Walberg. But the contract was continued. It wasn't, as
you say, the word wasn't ``awarded.''
Mr. Runcie. There was an existing contract that was
modified to provide for an upgrade of the system that was
already there.
Mr. Walberg. With known problems from the contractor.
Mr. Runcie. Well--
Mr. Walberg. Was it modification meant to take of those
known problems and to address those?
Mr. Runcie. Well, the issue about its past performance had
to do with systems integration work, not with the debt
management collection system. There was some systems
integration work involving four disparate systems that was a
part of a contract, or an obligation. And that is what was not
addressed. The actual operations and maintenance in delivery
cycles around DMCS was not the issue that resulted in the past
performance.
Mr. Walberg. As I understand it, 80,000 borrowers were
impacted by this failure. Could you quantify what that means to
each of those individuals, and even to the economy?
Mr. Runcie. The 80,000 borrowers that were not able to get
loan rehab, by definition they were rehabilitated. But the
clearing of their credit and the eligibility for Title IV funds
was not an automatic process. The borrower relief process that
was--
Mr. Walberg. What does that mean?
Mr. Runcie. It means that we put in place a borrower relief
process. So they would contact us and we would contact the
credit agencies to clear their credit, or if they needed a
letter or any clearance for Title IV eligibility, we would
provide that. And we provided that to about 8,000 people who
called us.
Mr. Walberg. I see my time has expired, Madam Chair.
Chairwoman Foxx. Thank you, Mr. Walberg.
Ms. Bonamici, you are recognized for five minutes.
Ms. Bonamici. Thank you very much, Madam Chairwoman. Thank
you for holding this hearing, which provides an opportunity for
us to highlight the important work that is being done to make
sure that Americans who have defaulted on their student loans
aren't victimized and are given a reasonable chance to return
to good standing. And I appreciate the work that has been done
so far. It looks like there is still some work to do.
I wanted to make sure, Ms. Honorable Tighe, you set out the
procedure here: 360 days of nonpayment, and then it goes to the
FSA debt management. And then if there is no response, or a
refusal to pay, then it goes to a collection agency. Is that
all correct?
Ms. Tighe. Yes, that is correct.
Ms. Bonamici. And can I ask you, Ms. Tighe or Mr. Runcie,
how is the collection agency chosen? How do you decide which
collection agencies to use?
Ms. Tighe. I would defer to Mr. Runcie.
Ms. Bonamici. Mr. Runcie, how do you make that
determination?
Mr. Runcie. There is an allocation process, I believe,
based on performance. I don't have the details on that, but
that is what I believe.
Ms. Bonamici. And do you look at their record of whether
they have been sued under the Fair Debt Collection Practices
Act, for example?
Mr. Runcie. Yes. As a part of the oversight process, we
review them for compliance under the terms of the contract, any
other issues that might impact their ability to collect on
behalf of the Department of Education.
Ms. Bonamici. So Ms. Emrey-Arras, you said in your report
that there was an effort to assist borrowers. You said that
there were procedures in November 2011 to assist eligible
borrowers by removing defaults from the credit reports or
reinstating their eligibility. However, borrowers had to
contact the department or their collection agency to receive
the assistance. So then it said that less than 10 percent were
actually affected. So can you talk about whether there was
follow up? You or Mr. Runcie or Ms. Tighe, was there follow up
with these borrowers to make sure that they got the assistance
they needed to reinstate their eligibility?
Mr. Runcie. All of the backlog was cleared. So the
remaining--you know, if you subtracted the 8,000 from the
82,000--say, 72,000 were cleared out of backlog. So if they
were eligible for being rehabilitated and getting their credit
cleared, or the default cleared, entitled for eligibility, they
would have received that by now.
Ms. Bonamici. Okay. So there has been, you know, plenty
written about the practices of certain debt collection
agencies. Mr. Runcie, does your organization comply with the
Fair Debt Collection Practices Act?
Mr. Runcie. I assume so. I mean, all of our debt collectors
have to comply with the Fair Debt Collection Act or they would
not be--you know, that would be violation, I assume, of their
contract terms.
Ms. Bonamici. So since there has been the direct loan
program, has there been an increase or decrease in borrowers'
complaints?
Mr. Runcie. Based upon one metric, there was, at the time
that we put the system in, complaints jumped from .07 to .08 of
a percent. And subsequently, it has gone down to a lower level
than it was prior to the actual installation of the system.
Ms. Bonamici. So now it is a lower level?
Mr. Runcie. It is a lower number.
Ms. Bonamici. And what does the FSA do to help borrowers
avoid going to a collection agent, being referred a collection
agency? Are there efforts to encourage them to negotiate early
on? Are there steps taken to warn them that if you do not
handle this or make arrangements it will go to a collection
agency?
Mr. Runcie. Yes. Yes, there are a number of financial
literacy activities and tools. There is also entrance and exit
counseling, some in-school counseling. We also have contractual
terms that motivate, you know, the servicers to provide a level
of education and process that would help defer or avoid, you
know, students going into default. In addition, when the loans
are turned over to us there is a sort of a 60-day period where
we will reach out before we actually even send it out to the
collection agency.
So, you know, we can always do more, and we are constantly
putting more in the way of financial literacy and outreach out
there. But we do have a pretty rigorous approach to trying to
help students avoid default.
Ms. Bonamici. And you also talked about the regulatory
change to help define what a reasonable and affordable payment
is. And it is my understanding that becomes effective in July.
Is that correct?
Mr. Runcie. Yes, of previous year. So it allows default. It
makes it easier for defaulted borrowers to rehabilitate their
loans. Because their payments, the nine payments that they
would make over a 10-month process, is now based upon a
percentage of their income. So there is a higher likelihood
that they can pay those amounts, rehabilitate their loan, get
title IV eligibility, and get the default off of their credit.
So before, there was some judgment and there was some
negotiation.
But you know, after that point we were able to put that in
place. And so you will also notice that after that became the
standard, there was an increase in the amount of rehab. So it
is actually, it is working.
Ms. Bonamici. Terrific. Thank you. My time has expired.
I yield back. Thank you, Madam Chairwoman.
Chairwoman Foxx. Thank you, Ms. Bonamici.
Mr. Tierney, you are recognized for five minutes.
Mr. Tierney. Thank you very much.
Mr. Runcie, I note that in Ms. Tighe's report she indicates
that there is a continuing problem of the non-report from the
private contracting agencies, non-reporting on verbal
complaints. Where does that stand now?
Mr. Runcie. That has been addressed. I mean, there was--you
know, the PCAs thought that if they handled the verbal
complaint, if they handled the verbal complaint over the
phone--someone had an issue and they handled it--they felt that
they didn't have to report that. We have provided much clearer
guidance in terms of what must be reported, and we have noticed
that we are getting notifications, and logging, you know,
verbal complaints. So that has been addressed.
Mr. Tierney. Well I tell you, it bothers me that it took a
report to get it addressed. I mean, that is a large part--you
know, we have got great protections in this bill to go after
and chase people who are in default, many of them facing
circumstances that just the vicissitudes of the life put them
in there. And we are beating them up. We garnish their wages,
we take their tax funds, we go after Social Security benefits.
Pretty onerous stuff.
And then for us to have to have a report to find out that
these private contracting agencies aren't even reporting verbal
complaints doesn't seem justified to me. And I hope that you
are doing a better job of oversight, and not waiting for some
report to come down the pike. Because I tell you, you know, I
am gonna ask you whether or not you think that some of these
collection agencies are just being unfairly difficult on people
that are trying to get back from default or avoid default on
that, and whether or not they are just being too onerous in the
way they do it. What is your thought on that?
Mr. Runcie. Well, what we are looking at right now is, it
was something that was noted in the report, the level
monitoring of the PCAs. So we have increased the level of
monitoring. Before, we were monitoring--we are supposed to
monitor, you know, once a quarter. And based upon some of the
workloads and some of the issues and resource contentions, we
weren't consistent in doing that. We have now increased to four
times a quarter, where we would listen in on calls and we would
provide a higher level of oversight to make sure that borrowers
aren't being harmed.
Mr. Tierney. Understand, I hear horror stories--you know,
my constituents calling me--that would stand your hair on end
about the way they are being treated by folks like that who end
up putting them in a worse situation than they would otherwise
be if somebody gave them the right attention and helped them
out from the very beginning. We just can't have that on that
basis. I will tell you what. I want your opinion of the
Educational Credit Management Corporation and the way they go
after people who may have had a health issue, or a loss of job
and a health issue, trying to seek bankruptcy through the one
small window that allows for any bankruptcy filing at all.
And the reports of the courts having to tell this agency
that they are just being abusive and that they are stepping
outside the bounds. What are you doing about that?
Mr. Runcie. Well, we use them for--I think that had to do
with the guarantee agency side of their business and not the
direct loan side of the business. Because our litigation goes
through the Department of Justice, so that wouldn't have been
an issue that we would have oversight on.
Mr. Tierney. So you don't deal with that at all?
Mr. Runcie. Not those issues related to the guarantee
agency.
Mr. Tierney. All right. Because that should be troubling
for all of us on that basis. What is your thought about, you
know, letting some people have relief of these enormous loans,
and they have had a problem for one reason or another with the
system or with the PCAs overstepping their bounds or whatever?
What can we do for those folks to get them back on track that
doesn't leave them in the situation being 55 years old, having
98,000 worth of debt, and never be able to get out of this
thing?
Mr. Runcie. Yes. I mean, I think there are some things that
have been done in terms of, you know, income-driven repayment,
you know. And then, you know, they have certain entitlements.
But, I mean, I think some of those things are less operational
and may be more policy. But there certainly are, you know,
borrowers who have, you know, issues making the payments.
Mr. Tierney. Ms. Tighe, do you have any ideas of how you
might help the department, you know, monitor this thing in a
better way that gives people a fairer disposition of their
situations?
Ms. Tighe. The alert report you noted dealing with verbal
complaints that we brought forward is actually done while we
were out doing--we noticed that problem when we were out doing
field work for an audit we have ongoing right now on borrower
complaints against PCAs. So we should have a report out on
that. I don't know the timetable, but perhaps sometime over the
summer.
Mr. Tierney. Well, that will be helpful and I appreciate
that. Thank you.
I will yield back.
Chairwoman Foxx. Thank you, Mr. Tierney.
I now recognize myself for five minutes. I wait until the
end because I have to be here. Other folks can leave if they
need to. I wanted to ask Ms. Emrey-Arras a question. You talked
about--and I read your report really, very carefully--you
talked about the need--and Ms. Tighe, you may want to respond
to this also, of how the department sets up its data collection
process. The inadequacy of the setting up the data collection
process to begin with. And I know people have said over the
years that things are close enough for government work.
But is there any way that the department can be alerted in
advance of how to do the appropriate--set up the appropriate
evaluation to begin with? We know that is the real key to
getting the kind of information that you need. And we are
dealing with people who aren't necessarily experts in this
area. So does GAO have a mechanism for helping the department
set these programs up in advance so that we are not
retrospectively asking why aren't we collecting this
information?
Ms. Emrey-Arras. That is a good question. The department
actually has good guidance to help people identify when there
may be risks involved and when more oversight is needed. So
Education's own guidance suggests certain factors that would
necessitate more attention being paid. Those include if a
contractor has an unreliable performance history, if there are
multiple subcontractors involved, and the degree to which the
project is interrelated with other contracts or projects.
So I think looking at that departmental directive can help
Education staff realize when a contract may be more risky, and
be more attuned to putting monitoring steps in place early on.
Chairwoman Foxx. All right. And follow up just a little bit
about that. Without putting words in Mr. Runcie's mouth, there
was something said earlier about the fact that the department
didn't award more contracts to the contractor that was not
doing its work properly. But they did benefit by being allowed
to stay on, as I recall from reading the report. So they did
get a benefit by being allowed to do the additional work. Is
that correct?
Ms. Emrey-Arras. That is correct. Although the contract
modification was technically no cost, there was also an
arrangement made where the system contractor was guaranteed $5
million in non-defaulted loans to service.
Chairwoman Foxx. Thank you.
Ms. Tighe, would you like to respond to those questions?
Ms. Tighe. Well, I would agree with everything GAO said.
And note that, you know, we have had concerns. Rather than sort
of hit these contracts and these systems in onesies and
twosies, you know, we really need to step back and look at
where FSA is in terms of looking at these whole processes.
Which is why we put these two jobs on our audit plan for this
year. It is, let's look at, overall, at how their IT systems
develop. DMCS II doesn't seem like a good example of how a
system should be developed.
And I think that to the extent, as an example of how other
systems may be handled now or in the future, it would be nice
to come up with recommendations to FSA on how to do that
better. Similar on its contracting processes, we have certainly
gone in over the years and looked at onesies and twosies on
contracts. We really want to look at the process more from a
wider standpoint and make recommendations for improvement.
Chairwoman Foxx. Thank you.
Mr. Runcie, I appreciate the statements of commitment that
you have made about wanting to do this work right and to make
sure that the taxpayer is getting its appropriate payback on
what is done in the department. And I appreciated also very
much Mr. Bishop's comments. Can you tell us when there will be
a plan that would be able to be evaluated to correct the
problems that have been talked about here today?
Mr. Runcie. Yes. Well, we submitted a plan recently, and my
understanding it is under review by the inspector general, the
most recent plan. And I think, you know, that review might be
tied to the other audit that is going on. But that
notwithstanding, you know, we have put a plan in place that has
resulted, I think, in some of the performance that we have
talked about in terms of debt collections and clearing the
rehab.
In addition, we have taken to heart what the I.G. and the
GAO has said about making sure that we have a level of
oversight on contracts going forward. So the new debt
management collection system that we awarded does have
independent verification, a validation vendor that is going to
checkpoint all the milestones and go through the process to
make sure that there is a level of quality assurance that is
going on as the project is being developed. In addition to
that, we are running it through our life cycle management
methodology, which is a very rigorous process where we have
risk logs and we track and we have remediation.
And so we have incorporated some of the lessons that we
have learned as well as the guidance from the I.G. and GAO to
make sure that as we move forward we can mitigate the risk and
perform at the highest level possible.
Chairwoman Foxx. Thank you very much. Okay.
Well, I want, on behalf of all of the members of the
subcommittee, to thank our witnesses for being here today. I
think we have had a good hearing. Again, when Mr. Bishop left,
he thanked me again for having the hearing. And I believe you
all have helped us understand these issues a little bit better.
I particularly appreciate, again, the report from the GAO. I
appreciate what the I.G. is doing. Mr. Runcie, I appreciate
your commitment to making things better here in terms of the
service that we give to the students.
I also am very grateful for the comments that Mr. Hinojosa
made in his opening remarks that he pointed out that we have a
need for oversight. And we agree with him on our side of the
aisle that we need this oversight no matter which
administration is in place. It is our job as members of
Congress to see that hardworking taxpayer money is being spent
appropriately, and that the people that we are servicing
through the Department of Education are treated appropriately.
I believe that this program is going to stay in place. And
my major concern is that we not mistreat any students in any
way or any people who are former students who had loans who
want to get them rehabilitated. Our responsibility is just to
make sure that they are treated appropriately.
Unfortunately, when you do this in the government there
aren't usually very many incentives for getting the job done
right and getting it done in a timely fashion. I wish we had a
better way to do that than we have now.
But I will accept your commitment, Mr. Runcie, that the
department wants to do these things right and will set in place
a plan to make sure that everyone who is affected, has been
affected, and will be affected in the future, will be treated
appropriately.
There being no further business, the subcommittee stands
adjourned. And thank you, again.
[Additional Submissions by Julius follow:]
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[Questions submitted for the record and their responses
follow:]
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[Mr. Runcie response to questions submitted follows:]
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[Whereupon, at 3:38 p.m., the subcommittee was adjourned.]