59

since programs being considered for inclusion in block grants not only are much
larger but also, in some cases are fundamentally different from those programs in-
cluded in the 1981 block grants.

Also, ED’s study of its Chapter 2 block grants noted findings similar to GAO's.
The report noted that while there needs to be increased flexibility for programs, the
history of Chapter 2 indicates that Chapter 2 funds were not spent to initiate edu-
cation reform, as was the intent of the program. For example, ED’s report indicated
that a large percentage of Chapter 2 funds were spent for the purchase of comput-
ers, often with no Telated program objectives established before these purchases
were made.

Based on our review of the Department's recent Chapter 2 study and GAO's re-

ort, we believe that Congress should consider GAO's conclusions and cautions be-
Fore block granting additional Education programs.

SUCCESSES & CHALLENGES IN ED PROGRAM ACCOUNTABILITY

Ensuring accountability for Federal education funds is central to any effort to in-
crease the effectiveness and efficiency of Education Department programs and oper.
ations. Achieving such accountability is dependent first upon the existence of clear
and enforceable program regulations and secondly upon possessing the tools needed
enforce program regulations. We believe the Department and the Congress face
challenges in each of these areas, ;

In redesigning programs, we recommend that Congress include self-enforcing
mechanisms, clear standards and performance measures as discussed above. Cur-
rently, we are often faced with complex statutes requiring complex regulations that
are difficult and resource intensive to enforce and/or narrow technica! specifications
as criteria by which to perform oversight. The result of this is that everyone ends
up dissatisfied - Congress, the Department, students, taxpayers and schools.

example of a clear-cut self enforcing mechanism is the so-called “85-15 Rule”
for proprietary trade schools. This provision was passed by Congress in the 1992
reauthoriztion of the Higher Education Act and it required that such institutions
be able to attract 15 percent of their revenue from non-Title IV Federal student fi-
nancial aid sources. This mechanism uses the market place rather than direct Fed-
eral regulation as a means to ensure to some degree that the training offered is val-
uable and that the price charged Federal taxpayers is reasonable. (The Congress
has postponed the effective date of this provision as part of Appropriation legisla-
tion.

We must also maximize the use and effectiveness of available federal enforcement
resources by Congressional action to grant OIG criminal investigators full law en-
forcement authority and forfeiture authority. Full law enforcement authority will
put our agents on an equal footing with other federal law enforcement officers and,
more importantly, provide a greater measure of safety for them.

Work performed by OIG investigators closely resembles that of other Federal law
enforcement personnel who possess full law enforcement authority. OIG agents are
often in danger. Many of our cases take our agents into the inner cities and high-
crime neighborhoods where they must deal with dangerous situations and individ-
uals with felony convictions. Currently, we must request from the Department of
Justice deputation on an individual case-by-case basis. In instances where approval
has been slow in coming OIG agents have had to locate other willing Federal agents
who have full Jaw enforcement authority, which is wasteful of scarce law-enforce-
ment resources. The lack of full law enforcement authority also delays and im
time-sensitive investigative activity such as the obtaining and serving of search and
seizure warrants and forfeiture instruments.

In addition to maximizing our agents’ effectiveness and productivity, statutory for-
feiture authority would give the OIG access to an additional source of revenue, that
is, an asset forfeiture, to defray certain criminal investigative costs through reim-
bursement. Forfeiture authority which is the authority to seize and dispose of assets
that are the proceeds of certain unlawful activity would allow for OIG agents to
independently prepare cases for asset forfeiture. Currently, OIG has to enlist the
aid of law enforcement agencies that have forfeiture authority. This is not a good
use of other Federal law enforcement resources and can cause delays that liow hid
ing or disposing of assets. OIG needs the authority to share equitably in the pro-
ceeds of the assets seized. Forfeited assets now go into the asset forfeiture funds
of other agencies (e.g., Department of Justice, Treasury, Postal Service), and OIG
cannot share in the cash proceeds of the assets forfeited as a result of its efforts
on educational fraud cases. OIG would like to be placed in at least the same position
as state law enforcement agencies that can, under Federal law, claim and receive
an equitable share of the cash proceeds of forfeited assets to offset the costs of their


25

Mr. Suays. Governor.
Ms. Kunin. Thank you, Mr. Secretary, and thank you, Mr. Chair-

an.

As has been noted, I would like to focus on two areas. One is on
management and the other is on direct Jending.

As has been noted with two Governors at the helm here, we are
very sensitive to the whole question of Federal intrusion into State
and local affairs, since we were at the other side of this table not
very long ago.

In the management area, I would point out there are two major
changes. One is one of attitude, ‘and that is the attitude of truly
operating in the spirit of partnership with State and local officials.

at is how Goals 2000 was developed and passed and that is how
School to Work was implemented, and that is how we are Proceed-
ing. The management side is trying to match that philosophy with
the daily functions of management so that we are more flexible, we
are more sensitive to their needs, and we are working not to im-
pede, but to enhance local schools’ capacity to improve education.

To do that, you also have to pay attention to the specifics of man-
agement, and one of the specifics that we have developed and that.
never existed before is a strategic plan for the U.S. Department of
Education.

This plan is interesting for a number of points. One is that it
connects the strategic plan to the budget so that we are not just
making budget recommendations in the abstract, we are trying to
sift_all of our priorities through this strategic plan, which focuses
on high academic standards as the first goal, postsecondary edu-
cation and lifelong learning, and also School to Work, and the
fourth goal, making the Department a high-performance organiza-
tion. It also has performance measures, so we are putting our own
feet to the fire.

Performance measures are not yet entirely complete, but we are
going to measure ourselves by things that matter, not by simply
counting beans or by simply saying “Have you filled out the form
right?” But by asking, “Are children actually learning more?” This
is a major change in a bureaucracy.

I know it is easy to portray any bureaucracy as a musty old place
that is irresponsive and recalcitrant, and certainly there is a lot of
evidence to back that up, and it is easy to view the Department of
Education as being probably very expert at that kind of bureau-
cratic behavior, but, in fact, in the last 2 years and several months,
we have made a significant effort to turn that around and to revi-
talize our own employees, who are very, I would say, charged up
about this agenda and the Secretary’s leadership and vision for
change.

We have done small things that also have a large impact, like
having a low-hanging Apples Team, which is kind of an amusing,
but quite interesting, and an effective way to change the way of
doing business. So we have three teams of some 20 employees, who
have made suggestions for change within the bureaucracy and have
followed them through to make sure they are implemented.

Everything from how you use the Xerox machine, to travel
vouchers, but the important thing is that employees see results. We
have had major teams looking at personnel procedures, at the


COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
WILLIAM F. CLINGER, JR., Pennsylvania, Chairman

BENJAMIN A. GILMAN, New York CARDISS COLLINS, Mlinois
DAN BURTON, Indiana HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, JR., West Virginia
STEVEN SCHIFF, New Mexico MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
WILLIAM H. ZELIFF, JR New Hampshire JOHN M. SPRATT, JR., South Carolina
JOHN M. McHUGH, New York LOUISE McINTOSH SLAUGHTER, New
STEPHEN HORN, California York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
PETER BLUTE, Massachusetts GARY A. CONDIT, California
THOMAS M. DAVIS, Virginia COLLIN C. PETERSON, Minnesota
DAVID M. MCINTOSH, Indiana KAREN L. THURMAN, Florida
JON D. FOX, Pennsylvania CAROLYN B. MALONEY, New York
RANDY TATE, Washington THOMAS M. BARRETT, Wisconsin
DICK CHRYSLER, Michigan GENE TAYLOR, Mississip
GIL GUTKNECHT, Minnesota BARBARA-ROSE COLLINS, Michigan
MARK E. SOUDER, Indiana ELEANOR HOLMES NORTON, District of
WILLIAM J. MARTINI, New Jersey Columbia
JOE SCARBOROUGH, Florida JAMES P. MORAN, Virginia
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
MICHAEL PATRICK FLANAGAN, Illinois CARRIE P. MEEK, Florida
CHARLES F. BASS, New Hampshire FRANK MASCARA, Pennsylvania
STEVEN C. LATOURETTE, Ohio CHAKA FATTAH, Pennsylvania
MARSHALL “MARK” SANFORD, South

Carolina BERNARD SANDERS, Vermont
ROBERT L. EHRLICH, JR., Maryland (Independent)

JAMES L. CLARKE, Staff Director
KEVIN SABO, General Counsel
Jupimy McCoy, Chief Clerk
BUD MYERS, Minority Staff Director

SUBCOMMITTEE ON HUMAN RESOURCES AND INTERGOVERNMENTAL RELATIONS
CHRISTOPHER SHAYS, Connecticut, Chairman

MARK E. SHOUDER, Indiana EDOLPHUS TOWNS, New York
STEVEN SCHIFF, New Mexico TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland BERNARD SANDERS, Vermont (Ind.)
THOMAS M. DAVIS, Virginia THOMAS M. BARRETT, Wisconsin
DICK CHRYSLER, Michigan GENE GREEN, Texas
WILLIAM J. MARTINI, New Jersey CHAKA FATTAH, Pennsylvania
JOE SCARBOROUGH, Florida HENRY A. WAXMAN, California
MARSHALL “MARK” SANFORD, South

Carolina

EX OFFICIO

WILLIAM F. CLINGER, JR., Pennsylvania. © CARDISS COLLINS, Mlincis
LAWRENCE HALLORAN, Staff Director
CHRISTOPHER ALLRED, Professional Staff Member
ROBERT NEWMAN, Professional Staff Member
‘THOMAS CosTA, Clerk
CHERYL PHELPS, Minority Professional Staff

(my


119

could have your tax return withheld. That is the only type of IRS
involvement right now where they can withhold payments, but
they can’t—they cannot go and impound your car or take a stu-
dent’s property.

Mr. Suays. Is there any last thing you want to say before we ad-
journ this hearing? You have been wonderful to wait for the others,
and we appreciate your testimony.

Mr. HANSEN. I just appreciate your leadership and think you
have a big plate in front of you.

Mr. SHAys. We do have a big plate. That is become very evident.
I thank you for testifying, and we adjourn this hearing.

Thank you.

(Whereupon, at 12:45 p.m., the subcommittee was adjourned.]

e)


68

Ms. Blanchette.

Ms. BLANCHETTE. Thank you. Mr. Chairman and members of the
subcommittee, I’m pleased to be here today to discuss Department
of Education and other Federal education programs.

In recent months much attention has been devoted to making the
Federal Government more efficient. This subcommittee in particu-
lar has been concerned about program duplication, the need for
cost saving measures, and weaknesses in the Federal oversight of
programs. In this regard you asked us to discuss potential opportu-
nities to consolidate education programs, potential cost savings at-
tributable to the Department’s proposal to accelerate direct lend-
ing, and the Department's efforts to improve procedures for approv-
ing, schools for participation in student aid programs.

‘ederal education programs extend well beyond the Department.
According to OMB data, fiscal year 1995 spending on education is
estimated to be about $70 million. The Department has the largest
share, about $33 billion, to administer 244 programs. The remain-
ing funds finance 308 education programs in 30 other Federal
agencies.

We believe the Department should be applauded for its stream-
lining efforts. It has identified 41 of its programs for recision, elimi-
nation, or phaseout. In addition, the Department has proposed an-
other 39 of its programs be consolidated into 12 broader programs.
In addition to the programs recommended by the Department for
consolidation, another 36 programs within the Department, 23 vo-
cational rehabilitation programs, and 13 small specifically targeted
postsecondary programs appear to us to be potential candidates for
consolidation.

We consider the Department’s vocational rehabilitation programs
to be potential candidates because States are already providing
services for a number of these programs. The 13 small, specifically
targeted postsecondary programs appear to have overlapping target
populations or provide similar services.

We also found programs in other Federal agencies that may over-
lap with Department Programs. For example, we have identified 86
federally supported teacher training programs in nine agencies.
About a third were administered out of the Department. We have
also identified 24 programs administered by the Department and
another 19 administered by three other Federal agencies that pro-
vide education or education-related support to the poor and dis-
advantaged.

Now let’s shift gears to direct lending. The Congress established
the Direct Student Loan Program to simplify the problem-laden

ranteed student loan process. Under current legislation direct
lending is to be gradually phased in over 5 years beginning with
the current academic year. However, to achieve additional cost sav-
ings the Department proposed in its 1996 budget request that di-
rect loans constitute 80 percent of student loan volume in the 1996/
97 academic year and 100 percent in the 1997/98 academic year.

The Department maintains the full implementation of direct
lending combined with other previous legislative changes would re-
duce Student Loan Program costs by $12 billion in fiscal years
1995 through 2000. According to the Department, about $4.1 billion
of the $12 billion would result from the full implementation of di-


79

recisions of funds for this program have on the administration’s
education reform agenda?

Ms. VaN Riper. | think that is a Policy decision that will have
to be made in terms of the recisions and their impact and what the
Department can do in terms of dealing with the reduced funding.
I know that a great deal of thought went into that budget formula-
tion.

Goals 2000 is what the Secretary called a responsible block grant
to support the local school districts to achieve reform in their own
way. It helps the States and the districts set up their own high
standards and then design Programs for reaching them. It was a
well designed and well thought out program. I think that what will
happen is, as a result of the recisions there will be cutbacks in
those efforts.

Mr. Towns. Yes.

Let_me move very quickly. What are the likely results—Ms.
Blanchette, I want to address this to you first—what are the likely
results of eliminating a Federal presence in education altogether?
Are we likely to see a greater burden on metropolitan areas in par-
ticular, or would there be additional impacts on disadvantaged chil-

ren?

Ms. BLANCHETTE. Well, this is not—this is not anything that of
course we have done any study of. I can give you a—it would have
to bea hypothetical response because I know of no one that is pro-
posing such a thing.

Currently in terms of elementary and secondary education, the
Federal investment is around 6 percent of the total cost, the rest
being borne by States and local jurisdictions, local school districts.
A good deal of the Federal funds do go to help poor and disadvan-
taged children, and of course to the extent those funds were not
available they would either have to be supported by State and local
efforts or they would, of course, not have the same level of support
they currently have.

Most of the Federal effort in education goes for higher education
and the student financial assistance programs, and over the last 25
or more years billions of dollars have gone to help students achieve
higher education, and I think many of us—probably many of us
here in this room from personal situations could attest to how dev-
astating it would be not to have that money.

Mr. Towns. Let me just say that that has been proposed, what
I asked you. I mean I think it was Secretary Lamar, and I think
Bennett also suggested it, and of course I think that our next wit-
ness also—and not only that, the pattern of what we see around
here, that is next, based on some of the other moves.

But anyway, I don’t want to spend any more time on it. I see the
red light is on. Let me just yield back until the next round.

Mr. Chairman, I yield back.

Mr. Suays. Thank you.

Ms. Van Riper, before I ask my specific questions, in your testi-
mony would you identify what you think is the most outrageous
and most serious challenge facing the Department.

Ms. VAN Riper. I think probably the most serious violation that
we see and abuse that we see in the programs is involved in the
student aid programs, and it involves the failure to make refunds.


15

« Between 1994 and 1998, increasing by 10 percentage points the proportion
of students who meet or exceed proficiency levels in reading and math on such
measures as the National Assessment of Educational Progress.

« By fall 2000, at least 50 percent of high schools and community colleges and
50,000 employers will be participating in comprehensive school-to-work pro-

ms.
wr 'BY 1996, the “one-stop” help line for information on alll Department pro-
grams will be fully operational, providing access in one phone call to the full
range of Department's products and services.

HOW WE ARE RADICALLY TRANSFORMING THIS DEPARTMENT TO SAVE $16 BILLION

To hold ourselves accountable we are using our new strategic plan to radically
transform the way this agency does its business. When I got fashington even
the fans in my office didn't work. But we have begun to turn the Department
around, and we have taken some credible first steps in reinventing the Department.
Iam not wedded to the past and I didn’t come to Washington to save the job of
a bureaucrat. We shouldn't feel compelled to hold on to 1960s thinking, just because
it is the way we have done business, if the programs aren’t working the way the:
should for the children, Here, I want to stress that just 2 cents of every “education
dollar the Department spends goes to administrative costs, and we are working hard
to reduce these costs even further.

We have been aggressive in streamlining our services, reducing regulation, con-
solidating programs, terminating programs and lowering the student loan default
Tate-from 22 percent in 1990 to-15 pereent in 1992, which is saving taxpayers $1
billion a year. In addition, loan collections rose from $1 billion in 1993 to $1.5 billion
in 1994 (Chart 6).

We proposed the elimination of 34 programs in last year’s budget and for 1996
we are ropasing to terminate or phase out funding for 41 programs, saving over
$700 million. All together, we have enacted or proposed legislation or made policy
changes which would save $16.7 billion between fiscal year 1995 and fiscal year
2000:

* We would save $12 billion through student loan reform and direct loans.
* We wou inate 59 education programs and consolidate 27 others for
a savings of $4.6 billion.
« We will save an additional $100 million by reducing our personnel from
5,131 to 4,698 PTE.

A NEW FLEXIBLE REGULATORY PHILOSOPHY

We have also radically changed our approach to regulations. Broad waiver pro
sions, whole-school approaches, fewer regulations, charter schools, and investing
teams of teachers, parents, and school and community leaders to find high-quality
solutions are all elements of our new flexibility.

We now ask some very basic questions when it comes to regulatory practices-
whether to regulate at all, and how best to regulate to give our castomers the maxi,
mum flexibility they need. This really is new thinking. You will see at the end of
this testimony a one Be attachment that spells out the principles of this new flexi-
ble regulatory policy (Chart 7),

In my opinion, the Goals 2000: Educate America Act is a mode] of our new think-
ing. There are no regulations for this new legislation, and the application form is
only four pages long. Equally important, we have not created any new administra-
tive structures to manage Goals 2000.

Goals 2000 is what I like to call a “responsible block grant”-the very type of cre-
ative, flexible legislation that supports local schools districts to achieve reform in
their own way. Goals 2000 helps States and school districts set their own high
standards and design their own programs for reaching them. In the second year of
each grant, 90 percent of all funding flows directly to local school districts. Yet,
Goals 2000 still holds us accountable for results, and we need to be held accountable
if we are spending the taxpayers money. As of today, 44 states are participating in

e program,

In addition, Goals 2000 allows me to give six states the power to waive the statu-
tory and regulatory requirements of the Elementary and ndary Education Act
and the Perkins Vocational Education Act without having to seek my approval. Or-
egon, for example, has already put this “Ed-Flex” plan into place.

‘The School-to-Work Opportunities Act also represents a radical departure from
traditional Federal and State roles, This regulation-free program provides Federal

money over a five-year period to get school-to-work systems up and running
in every State, and then the program sunsets.



74

form Act of 1993 and (2) $1.1 billion generated by recovering reserve funds for guar-
anty agencies participating in FFELE

fou asked us to take a pre iminary look at how realistic the Department's esti-
mate is for accruing a $4.1 billion cost savings from fully implementing FDSLP. We
have not had the opportunity to fully evaluate the estimate; we have some observa-
tions.

Department May Overstate Savings, but Substantial Cost Reduction Potential Exists

The application of credit reform rules may distort cost comparisons between direct
and guaranteed loans in favor of direct lending. Under the Federal Credit Reform
Act of 1990, only subsidy costs 17 are considered in estimating the net federal cost
of making or guaranteeing loans; long-term administrative costs are recognized sep-
arately. According to Department analysts, including the present value of adminis-
trative costs for both guaranteed and direct loans would reduce the $4.1 billion di-
rect loan savings estimate to about $2 billion.

However, the actual savings from fully implementing FDSLP could be consider-
ably more or less than $2 billion. Costs of student loans are highly dependent upon
forecasts for variables that are difficult to accurately predict—such as interest rates,
inflation rates, and student loan default rates. Changes in all or some of these fac-
tors can result in significant variations in cost and savings estimates. For example,
in November 1992 we reported on the effect of interest rate changes on savings that
could result if direct loans replaced guaranteed loans over 5 years.!® We estimated
that an increase of one-half percentage point in Treasury bill interest rates over the
life of the loans (assuming no change in the government’s cost of borrowing) could
increase direct loan savings by $1.6 billion over 5 years. We have not had the oppor-
tunity to update these sensitivity estimates to reflect changes in the programs re-
sulting from the Student Loan Reform Act of 1993; however, Department and Con-
gressional Budget Office analysts believe that their current models remain very sen-
sitive to changes in assumptions such as interest rates.

Finally, FDSLP loans have been made only since July 1994. Therefore, estimatin,
the cost and savings of FDSLP is especially difficult because of the few months o!
experience and because only a small proportion of borrowers have left school and
completed the 6-month grace period before their loan repayments begin. With little
past experience on which to base them, FDSLP cost and savings estimates are nec-
essarily imprecise.

The Department's roposal to fully implement FDSLP is being made without the
benefit of knowing if FDSLP has been operating successfully during its short life.
During FDSLP"s first year (the first loan was made on July 1, 1994), the Depart-
ment appears to be meeting its legislative goal to have direct loans represent 5 per-
cent of student Joan volume. Also, the schools participating during this first year
are very satisfied with the Department's performance in implementing the program
and responding to problems as they surface.

However, in our testimony before the Senate Labor and Human Resources Com-
mittee last week, we reported that as of March 21, 1995, the Department has not
selected enough schools to meet the legislative goal that direct student loans con-
stitute 40 percent of student loan volume in FDSLP’s second year.!9 Part of this
shortfall is due to the withdrawal of schools that the Department originally selected
to participate in the second year. These schools’ stated principal reason for with-
drawing was insufficient resources to implement direct lending. However, our work
suggests that the schools might be more concerned about the uncertainty surround-
ing the future of FDSLP.

e uncertainty about the number of schools planning to participate in FDSLP,
coupled with the unknowns about the cost savings, leaves us uncertain as to the
level of cost savings that the Department attributed to the full implementation of
FDSLP by 1997-98.

ACTIONS TO STRENGTHEN GATEKEEPING

Over the past several years, we have reported—most recently in our High-Risk
Series report on student financial aid—on the costs attributed to high student loan
default rates and abusive practices of some schools, and on the nature of the inad-

+7 Subsidy estimates include, among other things, default costs, special allowances, and inter-
eat subsidies to private lenders as an incentive to participate.

38 Student Loans: Direct Loans Could Save Billions in First 5 Years With Proper Implementa-
tion (GAO/HRD-93-27, Nov. 25, 1992).

W Direct Student Loane: Selected Characteristics of Participating Schools (GAO/T-HEHS-95-
123, Mar. 30, 1995).


32

second round of reinvention with the Vice President, we are asking
some of those questions, but we are looking at the opportunities
with, the question: Will it really create more flexibility and more ac-
cess?

And I think if we can answer that positively, I think some won't,
but just to do it en masse without accountability and that is with
great cuts, as you know, the block grant movement has several
agendas. One is to cut the total amount. One is to create better
flexibility and we are all for the greater flexibility as long as the
resources aren’t substantially reduced for students, and as long as
there is substantial accountability.

Mrs. MorELLA. Thank you.

Mr. SHays. Let me now call on Mr. Green and give him a very
generous 5 minutes.

Mr. GREEN. Thank you, Mr. Chairman. I did request 5 minutes
every time one of the majority spoke, but thank you for the gener-
ous time.

I enjoy the testimony, I guess, because of the background on my
other committee. I know I was there that day when former Sec-
retaries Alexander and Bennett testified and I kept wondering
about during their time as Secretaries, because again I see a great
deal of effort in the last 3 years now on consolidation and coordina-
tion of programs and that is continuing.

And I guess the—I don’t know if you have a chart that shows the
proposed structure if we merged the Department of Labor and Edu-
cation. Do you have that chart with you because I know I have
seen it in my other committee? It is not here.

Ms. Kuni. No, it isn’t.

Mr. GREEN. If we think we don’t like the system now, wait till
‘ou see the problems of a giant department and you create a larger
ureaucracy that has other issues other than education itself to

deal with.

But I guess the issue of coordination versus consolidation, and
we are seeing a lot of coordination now already between the two,
Labor and Ed, and you can make the case where we need more co-
ordination between the Department of Defense and Department of
State or maybe Department of Commerce and Department of State.

Do we really want to abolish and merge all of them into one be-
cause they are not coordinating enough or maybe they have some
similar functions that they do ultimately but to get to that ultimate
function there they have to have diverse places they come from,
like, Education or like Labor or like Department of Human Serv-
ices?

Of course, I have also expressed frustration recently, I guess, be-
cause the children nutrition programs seem to be continuing under
the Department of Agriculture and yet it goes to the—it deals with
education. In fact, it was started as education, so I think there are
lots of areas we can look at transferring and maybe dealing with
instead of just abolishment.

I am glad the Secretary mentioned the Nation At-Risk report be-
cause I was in the legislature right after that report came out and
it galvanized a great many States to respond to the national issue
of education, not just in Texas or not just in South Carolina or not
just in Tennessee with Governor Alexander, because I know early


103

dent in America today owes $18,000 to erase the National Debt.
That is an important issue, and I think that as this committee con-
siders the functions and the role of the Department of Education
they need to keep in mind what the functions are and what the
programs are and not what the sign on the door says.
ank you very much.
[The prepared statement of Mr. Hansen follows:]

PREPARED STATEMENT OF WILLIAM D. HANSEN, FORMER ASSISTANT SECRETARY FOR
MANAGEMENT AND BUDGET, AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF
DUCATION

Mr. Chairman and Members of the Subcommittee:
a for the opportunity to appear before you today ify on the oppor-
tunities for cost savings in the Department of Education. My comments today rehect
my experiences during the Reagan and Bush Administrations as well as my obser-
vations related to the direction that I believe federal education policy should be

eaded.

As the Committee carries out the heavy issues of departmental oversight and
management review, it is important to understand the broader context of the De-
partment’s mission. By first determining a mission, answering questions relating to
cost savings, program consolidation and elimination, administrative actions, internal
management, and control systems may be more appropriately addressed.

‘The development of a coherent federal education policy requires that budget and
program priorities are founded upon a set of principles. During the Bush Admini
tration, Secretary Lamar Alexander identified such principles in the form of a
sion statement for the Department. The statement said that the Department's mis-
sion is, “to ensure equal access to education and to promote education excellence
throughout the Nation.” I believe this mission statement should continue to guide
any federal involvement in education.

i is with this mission statement in mind that I will address several areas rel-
evant to the Department of Education’s programs today:

the Federal Role in Education;

. Proposals to Dismantle the Department of Education;

+ the Funding History of the Department;

* the Size and Scope of the Department; and,

© Cost Saving Opportunities in Fiscal Years 1995 and 1996,

FEDERAL ROLE IN EDUCATION

Mr. Chairman, the federal contribution to education today consists of only five
percent of the total elementary and secondary dollars spent nationwide. It is in the
context of this limited contribution that the appropriate federal role in support of
elementary and secondary education should be established. Five percent of total ele-
mentary and secondary spending nationwide can and should be directed toward en-
suring equal access and promoting educational excellence. Such limited funding can-
not and should not be represented as a substitute for the local resources available
and should not be provided to states in a manner that undermines the proper ad-
ministration of the 95 percent of resources provided at the state and local level.

My experience suggests that true local control of education priorities at the ele-
mentary and secondary level promotes local support for education and parental in-
volvement. Local support will become increasingly important in the coming years.
Parental involvement, in my view, is an absolute necessity if the problems in our
schools are to be addressed. Unfortunately, many of the federal initiatives of the
past several years appear to run contrary to these principles.

Two former Secretaries of Education, Lamar Alexander and William Bennett, re-
cently called for the return of control of education to states, school boards, and par-
ents. In their report entitled, “Local Options,” the Secretaries suggest that literally
dozens of federal programs should vanish and with those resources being available
for federal tax cuts or through an expanded version of the Chapter 2 program to
states and communities to do with as they judge best.

My experience in managing programs and personne] at the Department of Edu-
cation suggests that the benefits derived from dozens of the federal elementary and
secondary programs may be outweighed by the administrative burdens associated
with administering those programs. For example, a 1991 survey of Ohio school dis-
tricts determined that each school district in the state was required to complete 330
reports and forms, of which 157 were submissions to the state, and 173 were feder-


39

Mr. GREEN. I will make my case. You can come on over here.

Mr. SHAYS. I am going to let the gentleman come back and ask
another round of questions.

Mr. ScaRBoroucu. Again, I will wrap this up.

The point of the fact is Ms. Rivlin seems to say in her work, and
Leon Panetta and several others have now been saying, we can
trust the State governments to handle education and other areas
like that, that the Federal Government can step back and let Gov-
ernors and State legislators and communities once again stay a
very active role and the Federal Government should be in retreat
and that is an exact quote from her work.

Would you disagree with Ms. Rivlin on that point?

Mr. RILEY. Well, if you look at what we have done and analyzed
Goals 2000 it would fit exactly with what Ms. Rivlin is talkin,
about, in my judgment. And it does put the onus on the State an
local school folks to decide how to reach their goals.

We don’t control that. We don’t tell them how to do it. To qualify
through Goals 2000 funds, all they have to do is develop their own
standards. What are standards? Standards are a definition of what
an education is. We have always had standards. It might have
come out of a textbook or some teacher’s mind, whatever, but you
have got to have something in terms of what are you teaching, and
so standards then required not by the Federal Government but by
the States and local government to define what a child should
know and be able to do in algebra in the seventh or eighth grade.

And then following that through there is assessment, State as-
sessment to those State standards. So we in the Federal Govern-
ment are supplying resources, the goals which were practically all
agreed to by the Governors. The two goals were added: Parent in-
volvement and teacher development. The goals are broad goals.
That is all they have to do is to be trying to reach these goals in
their own way. And we think that is the perfect model for what the
Federal role ought to be, a very important role in raising standards
for this country and we have got to do that.

Every kid we are talking about, disabled or handicapped, also ex-
cellent students, gifted and talented, advanced placement, raising
all of those standards throughout the country is going to measure
the future of the country. To have the Federal Government back
off of that or not be into that and say, well, that is just a State
problem, it is a national priority but a State responsibility —

Mr. SHays. Mr. Secretary, I have to interrupt.

Mr. Davis, you have not had an opportunity to ask questions yet.
After Mr. Davis I am going to be pretty strict with the 5-minute
rule to see if we can get one more round of questions. Mr. Davis,
you have a little bit more time.

Mr. Davis. I will be very real quick.

I note in Fairfax, which I am familiar with, the 10th largest
school system in the country, I think 1 percent of our operating
money comes from the Federal Government. We do get some man-
dates on the handicapped and the like but it is local effect. We
wish the State would give us more leeway sometimes with the di-
minishing money we are getting from the State as well. This is an
area where the Federal Government is not that heavily involved


64

to be conflicts of interest since the guarantee agencies are responsible for oversight,
of these entities. We estimated that $11 trillion of the loan portfolio was at risk be-
cause of these conflicts. During the phase-in of the Direct Loan Program, the stabil-
ity of these agencies under the FFEL Program will be significantly affected.
__ As the transition to direct lending proceeds, the Department must ensure that the
interests of students and taxpayers under the FFEL Program continue to be pro-
tected. The gradual reduction in their share of the loan market may conceivabl
lessen the incentive for these guaranty agencies to continue to perform their FFEL
Program responsibilities. Thus, the Department may be required to assume more di-
rect responsibility for the administration and oversight of the FFEL Program. For
example, if guaranteed agencies and lenders leave the program precipitously, proper
servicing and record keeping for the loans they have made and guaranteed may be
jeopardized, and student access to FFEL loans may suddenly be severely restricted.
e statute has provided a lender of Last Resort Program to address the potential

problem of student access to loans. Also, the Transitional Guarantee Agency, in St.

aul, Minnesota, was established to act as guarantor of last resort during transition
from the FFEL Program to Direct Loans. The effectiveness of these provisions is yet
to be tested.

With the increasing reliance on the Federal Direct Student Loan Program, the De-
partment must try to minimize the risk of loss to students and taxpayers in the

'FELP Program. Losses to students and taxpayers could occur if a rapid decline in
revenues causes a guaranty agency to fail to properly monitor due diligence of lend-
ers in their collection efforts; if a guaranty agency intentionally or inadvertently
takes steps to misuse or abuse Department assets and reserve funds which the
agency is holding; and/or if a guaranty agency abruptly ceases operation, leaving
lenders of schools without critical sources of loans or servicing. If the Department
is not able to address these problems promptly, losses could result, with potentially
significant liability to the government. This means that the department is held re-
sponsible for maintaining the integrity of the FFEL Program loans and for protect-
ing the Federal interest in the guaranty agency reserve funds and assets, while
keeping guaranty agency operating costs down.
Efforts Being Made to Reduce FFEL Program Losses

The Department of Education faces many challenges in addressing its long-stand-
ing financial management problems, the most important of which is correcting the
numerous data integrity problems. The problems are not ones that lend themselves
to “quick fixes” but rather require comprehensive efforts to correct root causes.

Department officials have expressed their commitment to developing better finan-
cial management information for the FFEL Program and the Federal Direct Student
Loan Program. A number of corrective actions are underway, including the develop-
ment of the National Student Loan Data System (NSLDS) the first national
database of loan-by-loan information. The NSLDS will be an on-line database for
users to obtain loan information to determine student eligibility. The OIG originally
recommended this student loan data system in 1987. This system will help prevent
ineligible loans to previous defaulters or duplicate loans from different fuaranty
agencies or from different direct loan service. When NSLDS is successfully imple-
mented, we believe it will be a significant step toward reducing the number of ineli-
gible loans and reducing defaults. The first phase of the NSLDS went on-line in No-
vember 1994, and the Department is in the process of training staff in its use.

Federal Pell Grant Program

While our overall concerns with the Federal Pell Grant Program were included
in testimony before the Senate Permanent Subcommittee on Investigations in late
1993, we have several additional concerns that have surfaced more recently. In sum-
mary, our earlier testimony explained that the program is basically an honor sys-
tem! It is designed for the Department to rely on the integrity of the participants
to assure that awards are only for eligible students in attendance, Federal funds are
administered properly, required refunds are made, and expenditures are accurately
reported to the Department.

e Pell Grant Financial Management System authorizes and tracks Pell Grants
of over 6.2 billion at approximately 6,700 participating institutions. Since our earlier
testimony, we completed our survey of the Pell Grant system and identified several
areas with potentially serious control weaknesses.

In September 1994, we issued an audit report that addressed the control structure
over the citizen verification process that would prevent ineligible, non-U.S. citizens
from participating in the Pell Grant program. For award year 1992-93, we confirmed
the citizenship status of all Pell Grant recipients that had claimed Us. citizenship
with the Social Security Administration’s (SSA’s) computer database and found over



35

Mr. RILEY. Well, we distribute funds on several ways. The great
portion of these would be on formula grants. The one you were de-
scribing would be competitive grants. A lot of our grants are com-
petitive grants. A lot of those are some of the more narrow pro-

ams that we have. Some of the categorical programs which we

lon’t have nearly enough money to do what you need for the coun-
try and so we do it on competitive grants and in many cases that
works very well. But the safe and Grug-free schools, for example,
isa formula grant. It is not a competitive grant program. So those
would just go down, Mr. Chairman, according to their formula.

Mr. Suays. OK. Thank you. I yield back.

Mr. GREEN. Since you talked about the difference between com-
petitive grants and formula, 1 know within the rescissions there is
also a cut in just basic what we would in the State call minimum
foundation but it is not, it is elementary, secondary, Chapter 1,
Title I funding. There is where 107 million would be cut.

Ms. KuNwN. Yes.

Mr. GREEN. I haven’t heard if that is going to be restored or not
but again that is a formula that if you have that child in L.A. or
New York or Houston or even in a smaller community, that is actu-
ally part of the rescission too, so I am glad you brought out the dif-
ference between the competitive grants and the formula driven.

Mr. RILEY. $105 million in the rescission.

Mr. Suays. I’m sorry. Just to put in it perspective, they are rec-
ommending a cut in the increase out of what amount?

Mr. RILEY. That is cut out of already appropriated funds. That’s
why I say it is kind of hard to realize how those were funds that
were appropriated around $7 billion for the whole program.

Mr. SuHays. So it is $100 million out of the whole, $7 billion?

Mr. RILEY. $105 million.

Mr. SHays. Out of the seven?

Mr. RILey. Out of $7 billion.

Mr. GREEN. I know I thank the chairman for a real relaxing of
the lights.

Finally, before we come back to it, how do the rescissions actu-
ally affect some of the reinventing priorities that you are seeing or
you are trying to do now, the cutting of the 30 percent of programs
and merging some of the programs? Secretary Reich was here last
Friday or Thursday to talk about some of the things they are doing
in the Department of Labor on consolidation.

Mr. RILEY. Well, when you look at what we are trying to do in
terms of termination of I think 15 programs in rescissions that the
President sent over, that is rescission of these current programs,
we recommended to rescind 15 of them and then I think 21 pro-
grams in the 1996 budget. Those are done, as the chairman pointed
out in his question, after real careful, careful analysis as to what
could and couldn’t and what would be best to terminate.

All of that is hard and I don’t have to tell you, Congressman, be-
cause you know, and some of my Democratic friends and Repub-
lican friends give us the devil about trying to terminate programs.
But we have actively tried to do it but do it in the right way, the
way it would be less harmful and, in fact, more beneficial. And so
to come in after we are into that process and then the consolida-
tions primarily dealing with reauthorizations but significant con-


67

dren attending schools in the same district, do not have equal access to facilities
that support education into the 2lst century. And overall, inner city schools and
schools with 50 percent or more mii popvlation are more likely to be without
sufficient technological support or facilities for proj struction.

Clearly, the time has long past for a serious evaluation of the department's budget
and program priorities, and a new understanding of the Federal role in education.
‘The administration's 1996 budget request proposes reform initiatives to improve the
department's operations and simplify its mandates. However, other solutions may
exist and some may merit our attention. .

T am open to discussing alternatives to the President’s streamlini: and
reinvention principles. However, I am troubled by several initiatives, underway
without input from this committee, that seek to eliminate the Federal presence in
education, cut significant and successful education programs for the disadvantaged,
and generally decentralize this national priority.

If cutting the Federal bureaucracy is the primary goal, then the 5,100 employee
Department of Education should not be the target. It is by far the smallest cabinet
agency in staff size, and its budget is in the middle range. If de-emphasizing the
federal role in education is the goal. Then I have questions about accountability and
quality standards that must be resolved.

‘And, if reducing the level of funding for critical education programs for disadvan-
taged children and youth is how we intend to finance a tax break, then we may be
committing ourselves to a future of increased joblessness, lower incomes and de-
creased global competitiveness.

Mr. Chairman, | believe that education improvement and reform are valid and
vital concerns for this Congress. I also believe that the Congress and Federal Gov-
ernment must provide the national leadership for this effort if we are to see positive
results that transcend geographic, economic, and political boundaries.

Just as we needed Public Law 94-142 to establish Federal standards for the edu-
cation of the handicapped, I believe we need a federal presence in education to set
and support achievement standards that are national in scope and of equal benefit
to all students,

Mr. Chairman, I join you in welcoming today’s witnesses; and look forward to a
constructive discussion of our priorities and ideals for a new Department of Edu-
cation.

PREPARED STATEMENT OF HON. CarbIss COLLINS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF ILLINOIS

Mr. Chairman, I commend your leadership in convening this hearing to consider
opportunities for cost savings and improved efficiency at the Department of Edu-
cation. The time has long past for a serious evaluation of the budget and program
priorities of this agency. 1 am pleased to join you and the ranking Minority Member
of the Subcommittee in your examination of these issues.

America’s abil ty to prepare its citizens, especially the children, to meet the chal-
lenges of today’s high-tech, ly competitive global economy is critica] to our eco-
nomic prosperity and our national security. Without question, education is our most
important national priority. For this reason, although reform is critical, we must not
de-emphasize or devolve Federal authority ensuring equal access to education and
promoting educational excellence nationwide.

Reform initiatives underway in the Congress to dismantle or scatter the authority
of the Department of Education are shortsighted and counterproductive. The most
immediate and alarming example is the $1.7 billion in rescissions imposed on the
1995 Department of Education budget; a particularly harsh measure when coupled
with the Republican welfare reform plan.

The first terminates funding for programs like Tech-Prep Education, one of the
most promising methods of linking academic and vocational instruction across sec-
ondary and post-secondary education and facilitating the school-to-work transition.
‘The other imposes mandatory work requirements and cuts off cash welfare benefits
after five years whether or not employment is found. Mr. Chairman, it is short-
sighted and counterproductive to cut back on our investment in education while
seeking to move people off welfare and into jobs.

We can find other solutions. Solutions that do not inflict ater hardship on
those with the least to gain and the most to lose from Federal budget and program
cuts. I hope we can find them here today. If we don’t, 1 suggest we keep looking.

Mr. Towns. And I yield back.
Mr. Says. Thank you.



104

ally required. This study suggested that the federal government was responsible for
55 percent of the paperwork burden while federal funds accounted for only five per-
cent of the resources available to the school district.

taries Alexander and Bennett recommended that the guiding principles for
federal education programs should be choice, deregulation, innovation, accountabil,
ity, and serious assessment. I believe that if the Department of Education adopted
these principles as a standard by which to review existing programs, many of the
programs would be found in need of repeal or substantial revision.

PROPOSALS TO DISMANTLE THE DEPARTMENT OF EDUCATION

The call for change at the Department of Education has also come from Congress
and its leaders. Since last November, the Senate Majority Leader, the Speaker of
the House, and many Committee Chairmen have also called for the abolition or con-
golidation of the Department of Education, It is anticipated that numerous bills will
be introduced shortly to achieve these objectives. Proposals have varied from aboli-
tion to dismantling the agency and transferring or consolidating functions with
other cabinet agencies.

‘A member of this Committee, Mr. Scarborough from Florida, has been leading the
freshman and leadership effort to develop a bill to work toward sending education
back to parents and local officials, At_a recent prese conference to announce the ef
fort to abolish the Department, Mr. Scarborough stated, “Obviously, the future of
our economy and further economic growth depends on (reforming education) . . . if
the federal government would retreat from this area, allow parents, teachers and
students who want to take control of the academic agenda, this country would be

tter off.”

Alternatively, Mr. Gunderson, a senior member of the Economic and Educational
Opportunities Committee, has joined Chairman Goodling in calling for the Edu-
gation and Labor Departments to be merged. Upon announcing the outline of their
bill, Mr. Gunderson stated that, “As America plans for the challenges of the global
economy, and the information and technological revolution that goes along with it,
the federal government clearly will play an important role in education and employ:
ment.”

Such efforts to achieve the appropriate federal role in education should be pur-
sued vigorously by this Commitiee, However, Congress should oppose any effort to
simply change the name on the door at the Department. Transferring functions and
shifting. duplicative, intrusive, and inefficient programs elsewhere, will get us no-
where. Rather, Congress should start with a clean slate and determine what the ap-
propriate federal role should be in education, determine how to best address tar-
geted needs, and develop a delivery mechanism that best serves families and tax-
payers, Reforms such as block grants to states or schools, tax cuts, vouchers or
scholarships to families, and functional swaps between the federal and state govern-
ments would reduce bureaucracy, regulations, and federal control of education.

FUNDING HISTORY OF THE DEPARTMENT OF EDUCATION

The current appropriation for the Department totals nearly $33 billion which
funds more than 240 categorical programs. The Department's first budget year as
a cabinet agency was FY 1980. In 1980, the budget was just over $14 billion, fund-
ing about 150 programs. The Department’s budget has grown over 50 percent in real
dollars since its creation. This expansion of programs has led to obvious duplication
and increased federal intrusion at the state and local levels

Since 1980, more than $350 billion have been appropriated to carry out the De-
artment’s programs. Of course, there has been some good accomplished with these
funds. ions of disadvantaged youth have received Chapter | services, disabled
youngsters have been given opportunities they may not have known thirty years
‘ago, and millions of students have had a postsecondary education made more alford-
able. However, any success could have been achieved whether education programs

were housed at ED, HHS, Labor, or some other federal office. For example, when
P.L. 94-142 was enacted in the early 1970's, it was housed at the old HEW. Clearly,
this special education law has made a positive difference in the lives of millions of
children and in society. Earlier this century, over 90,000 disabled children were in-
stitutionalized. Today, only 6,000 disabled children live in such circumstances. The
bottom line is this, Congress and the American public demanded an appropriate
education for handicapped youngsters and much success has been realized as a re-
sult of this law. I am convinced that these same results would have come to pass
regardless of which cabinet agency this program was administered by. It was the
law and the commitment by families and society that brought about the changes we
have witnessed, not a specific cabinet agency.


45

Mr. RILEY. Well, first of all, the States that would be hurt the
most would be States like Florida where there is large growth. The
fact——

Mr. SCARBOROUGH. I am from Florida.

Mr. RILey, That is the truth.

Mr. SCARBOROUGH. Which programs specifically when you say
large growth States?

Mr. RILEY. Well, of course, it would be those formula programs
like Title I, the Safe and Drug-Free Schools, of course, is an exam-
ple, School-to-Work. The programs like Voc Ed. Those programs—
lots of our programs are formula driven. I mentioned the 7 million
additional students that are coming in over the next 10 years, and
we now have 45, 46 million. I see what you are seeking to do and
it makes good sense to try to get some clear, understandable way
to try to reduce growth and get a control on the growth of govern-
ment.

Tf you do that in education, it really is harmful to those programs
that we are most into, like Pell grants, which are college grants,
as you know, for poor, moderately poor young people to give them
a chance to go to college. You have got to let those programs grow
as the numbers grow and the needs grow, and as kids come
through school; with better education, higher standards, more kids
are going to be going to college. Community colleges, I think, are
going to have a tremendous number of increases. So a straight line
approach like that would be very harmful to what we are trying
to do, which is really get more education, more kids staying in
school longer, doing more, being more involved.

But that doesn’t mean that we can’t deal in cuts. As I say in this
$16.7 billion, some $12 of it is direct lending and the other is close
to a billion a year or a little over a billion a year in terminations
and cuts and whatever. Some money that is not counted is the re-
duction in defaults. That is $1 billion a year that we are saving.
That is eliminating 600 institutions, and you think that is not
hard, I mean every one of them, and it is very, very difficult. But
they under the 1992 higher education reauthorizations, they didn’t
meet the test, and we think by just pushing in those sensical ways,
managing carefully that we can make significant cuts.

Ms. KUNIN. Also, if I might just add, we plan to further reduce
the bureaucracy, and that will create some savings, but we plan to
reduce the number of positions by the year 2000 by 8.4 percent and
de-layer, and have less chains of command within that system.

Mr. SCARBOROUGH. Great.

Coming from a large growth State, if I still advocated that, that
would show a lot of courage on my part.

Mr. RILEY. Really. You can call it courage or something else.

Mr. ScarBoroucu. I do want to thank you all for the work you
have been doing, and I feel that it is our responsibility to push all
agencies in the direction that we are pushing them, and I think
that what you all have done in the past 2 years appears from your
testimony and everything else, appears to be extremely positive,
would encourage that you keep moving in that direction.

Mr. RILEY. Thank you.

Mr. Suays. Thank you. Mr. Davis.


87

These are not—there are no easy answers to these questions. We
are talking about the need for billions of dollars, and I have visited
some of the schools, and I remember specifically a school district—
a school in New Orleans, and I believe it is cited in our report,
where literally there were termites crawling along the windowsills
and the wood, was eaten away, and I also remember looking into
the faces of the students there, and mostly black students, who I
think probably interpreted their environment as a comment on how
society looked upon them and their future, and it was rather dev-
astating and rather depressing. So the situation is bleak.

Money is there. It is not there necessarily in the Federal coffers
or even in State or local governments, but in terms of our economy
and businesses, we as a society, money is available. Somehow we
have got to figure out how to channel it in the right directions, and
it is not an easy—not an easy question.

Mr. Suays. Mr. Souder.

Mr. Souper. Thank you.

There were a number of comments. I apologize, I was over at an
anti-drug hearing and then came over here. That is why I was late.
But there were a number of comments in your testimony about the
block grants and how we would do performance standards, and
there is a reference to a previous report on block grants. Could you
address the question of block granting and what you have seen in
the past as some of the disadvantages and how we would put per-
formance standards in?

Ms. BLANCHETTE. The IG cited our report on lessons learned in
block granting. We issued a report and had testimony recently
where we talked about just that, and we referred to the experience
in the early eighties. In that instance a number of programs were
not block granted, and that was part of the difficulty in having effi-
cient programs, and considerations in block granting are of course
accountability. That is something that audit organizations like IG’s
and the GAO talks about all the time, but it is important because
we want the objectives of Federal funding to be achieved. And if
we simply give money to States and don’t set up an accountability
system there is no guarantee that is going to occur. So one of the
things that we do need is standards and measures that we can look
at and provide accountability, and we referred to GPRA as perhaps
being a means of achieving that,

I can’t think of anything else offhand that would be relevant.

Ms. VAN RIPER. We have done limited work in this area, and we
have reviewed the GAO report on block grants.

One of the other issues that GAO discussed was the question of
capacity, capacity today as opposed to capacity in 1981 when other
programs were block granted, and they pointed out that the pro-
grams of 1981 are not the programs of today, they are very large
now, they are fundamentally different, and we are talking about
major block grants in a large number of areas and in a short time-
frame.

And the other concern was the funding allocation. Funding allo-
cations that were based on prior categorical programs could be in-
equitable because they don’t reflect need, they don’t reflect the abil-
ity to pay, and they don’t reflect variations in the cost of providing
services,


8

to college are getting additional schooling with the help of the Fed-
eral Student Loan.

A couple things I put at your desk, and I would ask you to take
a look at, one is “Preparing Your Child For College,” which is a
parent’s handbook really, and it is a complicated time that we are
in. The other is the “Student Guide,” and if you would glance
through those at your leisure to see the kind of thing we are trying
to do to urge parents and students to make the right kind of deci-
sions for their own benefit.

{Due to high printing costs, the information referred to above can
be found in subcommittee files.]

Mr. RILEY. We also have been charged with the additional re-
sponsibility of helping millions of young people who historically
were kept out of and left out of our educational system. We support
the education of approximately 6 million disadvantaged children, 5
million children with disabilities, we help 3.3 million voc-ed stu-
dents, and support adult literacy efforts that reach some 4 million
Americans.

So let me turn from that to the specifics of managing the Depart-
ment. I want to begin by telling you that I am not ready to pass,
I didn’t come here to save a job of a bureaucrat, that kind of thing,
it wasn’t my reason for coming. I have been working to improve
education for over 25 years as a State representative, State sen-
ator, as Governor and now as Secretary of Education.

I came to Washington, I am sure as many of you, to change the
status quo, to put in place many of the lessons that we have
learned in education that were really brought to this Nation’s at-
tention in 1983, when then Secretary Terre! Bell issued the report,
“A Nation At Risk.”

I submit to you that we have shaken up this Department, put
some solid management programs in place, and we are still not fin-
ished. We have been aggressive in streamlining our services, reduc-
ing regulations, consolidating and terminating programs and lower-
ing the student default rate from a high of some 22 percent down
to 15 percent and still going downward, we hope.

We are certainly working on it very urgently. Saving taxpayers,
I might point out, by this reduction in default rates around $1 bil-
lion a year. In addition, loan collections are up from $1 billion in
1993 to $1.5 billion in 1994.

We proposed the elimination of 34 programs in last year’s budg-
et, we proposed to terminate or phaseout funding for 41 programs,
saving over $700 million, as part of the fiscal year 1996 budget. Al-
together, we have enacted or proposed legislation or made positive
changes which would save $16.7 billion between 1996 and 2000
with the bulk of the savings coming as we expand, hopefully, our
new direct lending program.

We have also applied some basic common sense to the whole
business of regulation, broad waiver provisions, whole school ap-
proaches, fewer regulations, a support of charter schools are all ele-
ments of our new flexibility.

The Goals 2000: Educate America Act, we think, is a model of
our new thinking. It is a whole different way of the Federal Gov-
ernment doing business. There are no regulations. This new piece
of legislation has no regulations.


AGENCY OVERSIGHT: DEPARTMENT OF
EDUCATION

MONDAY, MARCH 13, 1995

House OF REPRESENTATIVES,
SUBCOMMITTEE ON HUMAN RESOURCES AND
INTERGOVERNMENTAL RELATIONS,
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room
2247, Rayburn House Office Building, Hon. Christopher Shays
(chairman of the subcommittee) presiding.

Present: Representatives Shays, Morella, Davis, Scarborough,
and Green.

Staff present: Lawrence Halloran, staff director and counsel;
Christopher Allred and Robert Newman, professional staff mem-
bers; Thomas Costa, clerk; Cheryl Phelps, minority professional
staff; and Elisabeth Campbell, minority staff assistant.

Mr. Suays. I am going to start the hearing.

I am sure Mr. Green will be here shortly.

I want to welcome our Secretary, and our Deputy Secretary. As
former Governors, both of you carry that title with tremendous dis-
tinction because you were very successful and very capable and
brought credit to that office.

I welcome you here today for our hearing. It is an opportunity,
Mr. Secretary, for you to share with us the successes you think
your Department is having, and I think there are a good number.
It is also an opportunity to share with us some of the challenges
you are faced with and to address the issue of consolidation of the
Department. It is an interest that many of us in Congress have, I
think on both sides of the aisle, but particularly on the majority
side.

I am sure that is a topic with which you are very familiar. And
you are also familiar with the question of the mission the Federal
Government has in education. So I welcome you here and if you
don’t mind, we swear in everyone who comes before this committee.
If I could just take care of that business and have you both rise.

(Witnesses sworn.]

Mr. Suays. I also want to say that we are joined by both Mrs.
Morella and Mr. Scarborough. We will be joined by Mr. Green
shortly, so you should not feel unprotected by just having Repub-
licans here.

Mr. Green is here.

qa)


42

Mr. Suays. I am going to be very strict and we are going to use
the 5-minute rule. When the red light goes on, Mr. Secretary, I
may interrupt you or ask you to condense your comments so we can
get you out by 12 o'clock, although this has been a very interesting

earing. Mrs. Morella, I don’t know if you want to use your 5 min-
utes.

Mrs. MorELLA. I probably won’t.

I value your presentation and responses to questions. Let me ask
you about something that has affected my community, the kind of
money that is being spent being drained from special education
programs for lawsuits. For lawsuits, indicating that we are not ac-
tually educating these students with special needs.

Now, part of the IDEA bill, individuals with disabilities is going
to be coming up for reauthorization. In order to address the prob-
lems, I think you have probably heard about them, what would you
do to change it or to alter it or what suggestions would you have?

Mr. RILEY. Well, as you point out, Congresswoman, the IDEA is
up for reauthorization. That will be a very interesting but very im-
portant reauthorization and the chances are that as I understand
the timing now that you are looking at more or less at the fall for
really getting into it and probably it will be next year before it is
completed.

There are a number of suggestions that my staff is working with
staff and the Congress in planning for that reauthorization. One of
the important areas is that of mediation. Of course we are seeing
that in courts all across the country now as a savings in terms
court time and resources. But that will be one mechanism that will
be discussed quite a bit I am sure as to how to work that out so
that we can have a lot quicker and better decisionmaking being fair
to disabled children and to all children. So that is one of the impor-
tant things that is going to take place and also a number, we have
already recommended a number of consolidations in that whole
program really instead of lots of programs having it narrowed down
to just a couple.

Mrs. MorELLa. Will you let my office know what some of the
suggestions are?

Mr. RILEY. Absolutely.

Mrs. MORELLA. Mediation and consolidation you are saying?

Mr. RILey. Absolutely. And we will share with you where we are
at this point in time in that and we have done an awful lot of work
on it all last year and this year.

Mrs. MorELLA. Thank you.

Mr. Suays. Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman.

Mr. Secretary, let me respond, and similar to the questions ear-
lier and I guess to reiterate 94 percent of the funding for public
education is now State or local although in Congressman Davis's
district, it is only 1 percent Federal, and I can relate to the prob-
lems of the State mandates.

When I was elected to Congress in 1992, when I left the legisla-
ture after 20 years, my Lieutenant Governor, he said, I have only
one thing to tell you, don’t send me any more mandates, because
he had been a Governor in position in the State many, many more
years than I have, and I said, that is what my local school board


73

program administrative costs, and the Department could better focus its manage-
ment resources on evalu these programs. For 13 such programs ($1 billion i
fiscal year 1995) that we identified,!2 5 provided assistance for minority and dit
advantaged students, another 6 helped attract students to specific professions, and
2 addressed the quality of postsecondary education.

Consolidation Programs Outside the Department

In reviewing the federal education network, we found programs administered in
other federal agencies that may overlap with Department programs.!3 For our pure
poses, programs overlapped if they (1) served similar functions, such as providi

facher training, or (2) targeted similar populations, such as the economically dis.
advantaged. Mathematics and science education is a noteworthy example of pro-
gram function overlap. Along with the Department of Education’s 6 programs—such
ge Eisenhower Professional’ Development Federal Activities and Minority Science
Improvement—10 other federal agencies administer an additional 37 mathematica
and science education programs,'® Twenty-one of these programs provide intrac.
tional support (such as the National Science Foundation’s Education and Human
Resources program), at least 8 support faculty development, and 2 steer students
into mathematica and science fields, Teacher training provides another example of
programs performing the same function. In previous work, we identified 86 federally
Supported ‘teacher training programs in 9 federal agencies and offices; about one.
third of these were administered outside the Department of Edueation."® Although
the target groups varied widely, the services provided appear similar ir many
teacher training programs. Of the 42 programs for which we received detailed pro-
gram information, 27 funded conferences, 28 funded teacher salaries, 32 funded
travel, 32 funded materials, and 30 funded other services, such as master teacher
selaries or college course tuition.

We also found programs administered outside the Department that targeted
groups served by Department programs, We consider these potential candidates for
fonsolidation. One example is programs that serve the poor and disadvantaged. We
Identified 24 programa administered by the Department—-auch as Star Schonland
Inexpensive Distribution—and another 19 administered by 3 other federal
agencies that also provided education and education related support to the poor and
disadvantaged, The services these programs provided varied: 12 provided direct in-
siructional suppor oF special instructional services; 8 programs almed to encou
poor and disadvantaged students to pursue a particular career; 14 provided social
Service support; and at least 8 programs provided vocational and adult education
services.

DEPARTMENT'S ESTIMATE MAY OVERSTATE ACHIEVABLE COST SAVINGS

In its fiscal yeer 1996 budget request, the Department proposed a number of ini-
tiatives to realize a $12 billion cost savings over fiscal years 1995-2000. One part
of this cost savings, estimated at $4.1 billion, is attributed to the Department's pro-
posal to fully implement direct lending by 1997-98. In effect, the Department is pro-
posing to set aside the 5-year phase-in goal of 60 percent of new loans in favor of
a mandatory 100-percent implementation of FDSLP by 1997-98. Other components
of the Department’ proposed $12 billion cost savings were (1) $6.8 billion in savings
attributed to changes made to both loan programs through the Student Loan Re-

‘Training wna: Major Overhaul Needed to Reduce Costs, Streamline the Bureaucracy and
Improve Results (GAO/T-HEHS.95:53, Jan. 10, 1995).

Department of Education: Opportunities to Realize Savings (GAO/T-HEHS-95-56, Jan. 1
1995). We identified 22 postaccondary programs for potential consolidation in this earlier tea
mony; however, 9 of these are now proposed by the Department for term iesion.

'aTo identify program overlap, we placed each program —both those administered by the De
partment and those administered by other federal agencies—into education function and target
group categories we developed on our review of CFDA‘s function and beneficiary classifica-
tions, description of the program's objectives, and other program information provided by CFDA,
such ’as previously funded projects. We did not include programs that were not in CFDA, such
as national laboratories, military academies, sole source programs, or others identified through
‘other sources for which we had no m data. We also included programs that are currently
on the Department's list for consolidation, termination, or elimination.

14 See appendix 1V for a listing of education program consolidation candidates currently a

istered outside the Department of Education. Brief program descriptions and budget infor-
jon are included,

38 We did not include programs that support school facilities development, research and devel-
opment only, or public education or information.

1@ Multiple Teacher Training Programs: Information on Budgets. Services, and Target Groups
(GAO/HEHS.95-T1F8, Feb. 23, 1998).



82

dressed the control structure over the citizens verification process
that would prevent ineligible non-U.S. citizens from participatin;
in the Pell Grant Program. For award year 1992/93, we confirme
the citizenship status of all Pell grant recipients that had claimed
USS. citizenship with the Social Security Administration’s computer
data base and found over 45,000 were not U.S. citizens.” Forty-five
thousand people in this country who are not U.S. citizens are get-
ting Pell grants. Are they supposed to get Pell grants?

s. VAN RIPER. In most cases they are not supposed to. You
would have to go further and check to see if their citizenship status
is changed, but our audit indicated that they are not supposed to.

Mr. Suays. Let me ask the question this way. Are non-U.S. citi-
zens to get Pell grants?

Ms. VAN RIPER. The regulations specify that you are either a
USS. citizen or a noncitizen in the country for other than a tem-
porary purpose. In some cases you can get a Pell grant if you are
a noncitizen, but you must be an eligible noncitizen.

Mr. Suays. Continuing in your statement, you say, “These ineli-
gible recipients were awarded over $70 million in Pell grants, an-
other $45 million in Stafford loans. Now we recommend that the
Department strengthen its existing citizenship verification proc-
ess.” Tell me specifically what the Department has done.

Mr. McNamara. Mr. Chairman, we recommended that they im-
prove the edits because if you said you were a U.S. citizen, they
didn’t check to see if you weren’t. We went with the Department
up to the Social Security Administration in Baltimore, and they
have assured us that they are going to take action to improve the
edits.

We got the information from Social Security and we sent our
auditors back to Social Security with the departmental officials to
try to facilitate improving their matching and their edits to prevent
this in the future. It is fairly recent, it is happening as we talk,
but they have indicated they are going to take action.

Mr. Suays. Let me just say for the record, this is not an indict-
ment of the present administration, at least not in terms of the re-
port. The report on non-US. citizens receiving Pell grants was for
the year 1991/92. But I’m just trying to make a point to you that
in your testimony the issue you think is the most important you
are not even quantifying. There is no way in hell that I would have
known you think that is the most important issue unless I had
asked the question. In my mind, I wonder why we are not able to
quantify it?

There is no way from your statement that I’m going to really
know much about training cosmetologists, and yet we are spending
nearly three-quarters of a billion dollars on it. The reason it con-
cerns me is that we are cutting, eliminating, or reducing Govern-
ment programs that are in some cases somewhat beneficial but
don’t justify their cost. Yet I’m looking at this and saying wow, and
I have a feeling that there is a lot more here that we need to take
a look at.

I’m going to ask all our Inspectors General in the future to come
before this committee and tell me what they think is our No. 1
problem, No. 2 problem, and No. 3 problem, and then I’m going to


OVERSIGHT HEARING ON THE DEPARTMENT OF
EDUCATION

HEARINGS

BEFORE THE

SUBCOMMITTEE ON HUMAN RESOURCES
AND INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION

MARCH 13, AND APRIL 6, 1995

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

ee

U.S. GOVERNMENT PRINTING OFFICE
23-497 CC WASHINGTON : 1996

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-052631-0

Z


108

Mr. HANSEN. I think the key thing to keep in mind, Mr. Chair-
man, is that in 1980 when the Department was created there were
about——

Mr. Suays. Use the other mike too. Thank you.

Mr. HANSEN. There were 130 programs in the Department of
Education and the budget was $14 billion. Since 1980 the Depart-
ment’s budget has more than doubled. It has gone up over 50 per-
cent even after inflation. The number of programs had been layered
upon one another over the years, and you now have over 240 pro-
grams, and, as the earlier witnesses said, you have an additional

00 programs in other agencies, so you have had this layering ef-
fect over the years with no real effort to stop and step back and
look at what it is the Federal role should be.

At the same time, I mentioned as well that the staffing level at
the Department of Education in 1980 was 7,500 employees. During
the late eighties and early nineties that went down to 4,500.

Mr. Suays. Can I just ask you the significance of that? I mean
that would seem to in the face of criticism that the Department
is getting bigger and bigger.

Mr. HANSEN. Yes. There are two things here. One is, in the early
1980’s Ronald Reagan instructed us to do two things at the time.
One was to privatize the student loan collection activities. We were
able to downsize over 1,000 employees that way. The other was in
the 1981 reconciliation bill, the Chapter 2 block grant bill, that is
today’s Chapter 2 block grant, collapsed 42 categorical programs
into that one block grant, and there were over 300 employees that
were able to be offered early outs or had to be let go as a result
of that program consolidation.

I did make the point that I was a little frustrated in the Depart-
ment’s budget this year where they do have an increase of $13 mil-
lion in their salaries and expense budget. They have 440 people ex-
pected to take the early buy-out that has been offered, which is
about 8 percent of their overall employment, so you would think
that they would have a 5 to 8 percent reduction in their salaries
and expense budget. They don’t, they have an increase.

Mr. SHays. When you have buy-outs usually it is more expensive
the first year, isn’t it?

Mr. HANSEN. It is, yes, and——

Mr. SuHays. That is probably part of the reason.

Mr. HANSEN. But also the fact that they are asking to consolidate
or eliminate 68 other categorical programs.

As I just mentioned, back in 1981 that was one of the biggest
cost-saving and downsizing activities that could be accommodated.
Today’s Chapter 2 program has six people handling that Block
Grant Program.

Mr. SHAYs. How many years ago were you in the Department?

Mr. HANSEN. I was there off and on between 1981 and 1992.

Mr. SHays. You must have been a kid in that——

Mr. HANSEN. I was, still am.

Mr. SHays. It’s kind of scary, isn’t it?

Mr. HANSEN. It is.

Mr. SHays. One of the values of your testimony today is to help
us decide how to allocate our scarce resources, and they are truly
scarce.




109

One of the things that we will pass judgment on, that will also
be handled by another subcommittee, is the issue of consolidation.
My sense is that the majority party and the leadership will want
consolidation like the Gunderson Proposal, which would combine
the Departments of Education and Labor. I might point out, the
GAO combines Ed and Labor in their work. If you were going to
combine Education with another Department, would you do that,
or would you just divide it in little pieces and give some to Agri-
culture and some to Defense and some to others?

Mr. HanseN. I think that there are two primary ways you could
go after it. I mentioned while you were out that I don’t support just.
changing the name on the door. There are some people that men-
tioned creating an education foundation or some other entity. I
think that would be a mistake. If you keep all of the programs, all
of the funds, all of the overlap and duplication intact, you are not
changing or addressing the problems.

The Gunderson and Goodling proposal to consolidate the two de-
partments, is probably valid in some degree, but I think there is
one issue that I would be concerned about, and that is, there is
some strong involvement of labor unions in both agencies, and I
think if you combine the two of them there it might be prone for
a little more control of organizations instead of the taxpayers and
of consumers.

Mr. Snays. Interesting.

Mr. HANSEN. Also the fact that with all of the talk about employ-
ment and work force preparation and even at the K-12 level which
some of the talk currently is centered around, I think we get away
from academic preparation, and I think that in the work I’m doing
at the State with Governor Allen on his State Commission in Vir-
ginia and others, you need to make sure that kids are academically
prepared for life, for the work force, and that we don’t focus every-
thing on work force and training preparation but that education be
academic preparation.

Mr. SuHays. Your concern would be, it would be too focused on—
potentially could be too focused on employment?

Mr. HANSEN. That is my concern, and if that be taken care of I
wouldn’t——

Mr. SHays. Now what would be wrong with that?

Mr. HANSEN. Just as I said, I think the focus needs to be on the
basic skills, on the academic skills, on the core requirements.

Mr. Suays. Being a better citizen——

Mr. HANSEN. And learning the basic skills, and that is poten-
tially, if it went to Labor, that could be enveloped into all worker
training.

Mr. SHays. So what would you do?

Mr. Hansen. I think that most of the programs came from HHS
and the old HEW, and there are probably two reasons why I think
that fit might make a little more sense. One is, you already have,
if you looked at the GAO chart, more education programs and more
money are already housed under HHS. You also have the Head
Start Program, you have the children, youth, and families activi-
ties, and at the higher education level you also have the college/
medical school type programs where you already have some


30

like to respond to why all of a sudden, and, second, how you made
the decision.

Mr. RILEY. It is not sudden with us. Last year, we recommended
termination of 34 programs. Two hundred forty is way too many
and we are trying to hone that down. This year, as I indicated, 41
programs are to be terminated. A number of others would be ended
through consolidation. Really 68 programs in all would be ended if
you count termination and consolidation. And that—we recognize
that and we came here and the whole theme of any new thing that
we have put out there has been things like Goals 2000, which is
not a whole lot of programs and school-to-work, which is not a
whole lot of programs, not these categorical programs. They serve
worthwhile purposes and so forth and we think that consolidation
and termination of programs is called for and we are continuing
with that process.

Now, what then do we plan to—how do we make that decision?
In some cases, the function has been performed, you know. They
were small categorical programs to start interest in things that
have been completed. Others, the States, local folks can do it bet-
ter. Others it makes more sense to consolidate them into a larger
block of programs. So those are generally kind of how we look at
them. And we think that should be a continuing effort and it has
been an effort ever since we have been here.

Mrs, MorELLA. It must have been hard to decide because as I
look at the various programs that are going to be terminated or
suggested termination in 1996, those terminated by rescission in
1995 we just kind of hope that the concept of it will be carried
through within the Department of Education or through the local-
ity. In other words, ensuring it is there but I think it also has to
do with what is happening now and everybody is sort of tightening
and all of a sudden HUD can find ways of consolidating, the De-
partment of Education can find ways of consolidating. Maybe that
is a positive thing.

Mr. RILEY. We hope so, and we think it is consistent with the
very kind of inquiries that take place now. Of course, as these pro-
grams come up for reauthorization, it really gives you a chance to
go into them carefully in that regard. The main consolidations that
we are requesting for this year would be in areas where we have
the authorizations. In IDEA and vocational education, for example,
there are significant consolidations.

Mrs. MoRELLA. Do you have, Mr. Secretary, a special assistant
for gender equity in the Department of Education? Maybe those of
us who work in that——

Ms. KuNIN. Yes, we have a position that was created for gender
equity and we are just about to finalize that. It looks like at this
point we will have someone from within the Department, but there
will be a position focused on gender equity issues.

Mrs. MorELLA. Do you have any concept of the timeframe on
that one?

Ms. KuNIN. It should be shortly, yes, which is not very accurate
in the Federal Government I realize, but I think within the next
several weeks.

Mrs. MorELLA. Within the next several weeks.


89

describe will be addressed? Because if you eliminate some of the
duplication, I know you have Pell grants now under the Depart-
ment of Labor, you have Pell grants in education, and if the plan
moves forward, as is being described, will this sort of solve some
of these problems that we are talking about, or will it further exac-
erbate them?

Ms. VAN Riper. I think the plan for consolidation is going to
solve some of the problems, but it won’t solve all of the problems.
It solves some of the problems within the Department in terms of
duplication and fragmentation of delivery of education services, but
it doesn’t address the issue of cross-departmental or cross-agency
duplication and fragmentation, and that is an additional effort that
has to be made.

Mr. Towns, We talked about the gatekeeper. What would be the
role of this gatekeeper? Let me tell you why I ask this question.
Because I envision a gatekeeper as being someone that would look
at where the jobs are, where we are going, and then at the same
time trying to make certain that people are trained for those jobs.
I can’t get excited about the cosmetologists because you can look
at my head and see I don’t need one. I mean I can’t get excited
about that. But I don’t want you to think I’m against them in any
way. {Laughter.]

But on a serious note, when you look at something that, you
know, there is no market for jobs, why would you continue to train?
It seems to me that this person would say all right, now let’s look
in terms of what will happen 5, 7, 9 years from now.

So we need to begin to get people to go into this area to put them
in terms of this particular track, this area, and as a result there
will be jobs available and they will be able to be gainfully employed
rather than to get these dismal kinds of statistics that are coming
back. The gatekeeper, is that a concept—what are we talking
about? Let me ask it that way.

Ms. VAN RIPER. We don’t disagree with your statement that the
job market ought to have something to do with the money we
spend in training. In the same way that we have talked about the
cosmetology industry, I guess we can ask the question, why do we
want to train truck drivers through correspondence when most
unions train their own truck drivers? Why do we want to train
bricklayers and card dealers? There is any number of vocational
areas that need to be reviewed.

The gatekeeping process is also designed, though, to keep or to
review institutions trying to come into the programs and get an as-
sessment of their administrative and financial capability to handle
the programs and deliver the services, and that has to be a respon-
sibility of the State licensing agencies and the accrediting agencies
and then responsibilities at the Federal level through the eligibility
and certification process, and it requires the responsibility and
the—and the actions of all three of those entities.

Mr. Towns. Thank you very much.

Let me just sort of keep moving. I want to make certain that I
find some positives here to keep from getting depressed.

You know, GAO, the definition of what constitutes a program
may give us a distorted, an inflated sense of the problem. Is GAO
really counting programs or just identifying funding streams? How


84

ing and accreditation. Under the amendments, the accrediting as-
sociations were given the authority to set standards in the area of
retention and placement and student achievement.

We have done some preliminary work in terms of assessing five
accrediting agencies and what they have done in those areas, and
what we have found is that there hasn’t been a great deal of
progress in terms of setting those standards primarily because the
accrediting agencies feel that that is a Federal role and not an ac-
crediting agency role. We have one notable success with one accred-
iting agency that has set some standards in terms of retention and
placement and actually verifies the data that the schools report.

Ms. BLANCHETTE. Several years ago GAO identified a list of
areas throughout the Federal Government that we call our high
risk list, and these were areas where we recognized that the Fed-
eral Government was in jeopardy of losing large sums of money
through fraud, waste, abuse, inefficiencies, and so forth. The Stu-
dent Financial Aid Program was one of those areas.

As we have discussed here and numerous other times, there are
a number of problems with the current Student Financial Loan
Program—high loan default rates, inaccurate data, and a number
of other things.

Gatekeeping has also been mentioned this morning, does relate
perhaps to the high default rates. If schools are allowed in the pro-
gram that do not provide an adequate education that do not—in
some instances students don’t attend the schools at all—they are
certainly going to be reluctant to repay the loans even if they have
the capability of repaying them, and quite often if they have not
been trained properly, they don’t have that capability.

So gatekeeping is very important from our perspective in terms
of the whole student financial aid being a high-risk area.

As I said earlier in my oral statement, we applaud the Depart-
ment’s efforts and the legislative mandates that exist currently. We
cannot go a step further and say whether or not they will be totally
effective because it is just too soon, but the review entities that
have been established and the fact that the Department can now
force accrediting agencies to consider certain criteria in approving
schools that are important to the Department, such as looking at
the default rates, student loan default rates, and looking at the job
placement rates, we think they are very important and things that
can be valuable in the future.

Mr. SCARBOROUGH. I see my time is up. I look forward to asking
questions the next round.

Thank you.

Mr. Suays. Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman. I have a statement I
would like to ask permission to place in the record.

Mr. SHays. It will be inserted in the record, and may I also use
this as an opportunity. I would ask unanimous consent that the
record remain open for 3 days to permit Members to submit their
statements.

Without objection, so ordered.

Mr. Green.

(The prepared statement of Hon. Gene Green follows:]


12

TURNING THE CORNER: POSITIVE NEW TRENDS.

As the Committee reviews our efforts, I want to place what we do in a larger con-
text by telling you that it is my strong belief that American education is starting
to turn the corner.

Just over a decade ago, Dr. Terrel Bell, then the U.S. Secretary of Education, re-
leased “A Nation At Risk,” the report which sounded the alarm that American edu-
cation was sliding toward mediocrity. Today, we are starting to see the positive re-
sults for our efforts since then to improve egucation,

Student performance in science and math is on the rise (Charts 2 and 3) and we
have made up much of the ground we lost in the 1970s and 1980s. The number of
high school students taking the core academic courses has tripled since 1983, and
is still rising (Chart 4). Many more students, particularly minority students, are
participating in the advanced placement process (Chart 8),

The drop out rate has declined in the last decade, and young people are getting
the message that graduating from high school is only the stepping stone for more
learning. There is a new seriousness and appreciation for the value of education.
As a result, community colleges are filling up as never before. And our great institu-
tions of higher learning continue to produce world class graduates.

I will be the first person to tell you that we still have many problems. Overall
achievement is still too low; violence remains a destructive force in some of our
schools; the gap in the performance of poor children is still too large; and too many
college freshmen are in remedial classes.

I am also greatly concerned about the growing trend from state to state to de-
emphasize the jewel of our Nation’s education system-our wonderful system of high-
er education. But overall, we are turning the corner and moving in the right direc-
tion, The Ameriean people are increasingly determined that our children get a first.
class education. They want results.

‘This is why I am a strong supporter of applying ample doses of American ingenu-
ity and creativity to our educational system. We need to encourage ideas such as
charter schools and public school choice; be flexible and recognize that students
learn in so many different ways; and carefully think through how: we use time in
the school day.

WHY WE NEED TO THINK LONG-TERM

Above all, we need to avoid the trap that has so often befallen American edu-
cation, the inability to maintain a sustained drive for excellence. Too often we get
distracted by the fad of the moment or change direction in mid-stream, even as the
American people become more and more convinced that improving education has to
be seen as a national priority.

In 1995 the link between education and our Nation’s future economic competitive-
ness is absolutely clear. Between 1992 and the year 2000, for example, 89 percent
of the jobs being created will require some postsecondary training.

This may explain why 50 percent of all 16-to-24-year-olds who lack a high school
diploma are now unemployed and over 80 percent of prison inmates were high
school dropouts. If we want to reduce dependency, we have to invest in education,
and we need to think long-term.

We aren’t going to save money in the long run if we start cutting back on edu-
cation at the Federal level, and at the State evel as well. If schools start producing
more dropouts, all we are going to do is to produce more people who go on welfare
or go down the road to crime and violence.

CROWDED CLASSROOMS: 7 MILLION ADDITIONAL CHILDREN

I want to point out to the Committee that the so-called “baby boom echo” is now
beginning to hit our Nation’s classrooms in full force. In the next ten years, over
7 million additional children are going to get up in the morning to go to school. Let
me cite some projections that should capture your attention regarding enrollments
in elementary and secondary education.

Connecticut will see a 10 percent increase in the number of young people going
to school, Maryland will see a 24 percent increase, and Virginia and New Jersey
are both projected to have 20 percent increases in school enrollments. California can

cla 80 pereent increase at the K-12 level while ‘Texas and Florida are projected
to have 17 percent increases.

Here, I want to dig a little deeper and tell you that much of this increase will
take place in our Nation’s high schools. California, for example, will have a 44 per-
cent jump in the number of high school students it’ will educate.


54

The 1992 HEA amendments also call for establishment of State
postsecondary review entities, or SPRE’s, in each State to provide
additional assurance regarding the suitability of schools participat-
ing in the SFA programs. It is our understanding, however, that
funding for these entities is now in question because of recision
proposals. We believe that elimination of SPRE funding will fur-
ther weaken the gatekeeping process.

A further program operations challenge facing Education con-
cerns the financial condition of the Federal Family Education Loan
Program and potential program losses. In audits we issued in 1993
and 1994, we could not express an opinion concerning the financial
condition of this major program due to the unavailability of reliable
data. Further, we are concerned over potential losses in the pro-
gram due to guaranty agency conflicts of interest and the weak-
ened condition of some guaranty agencies resulting from the in-
crease in direct lending. The Department has a number of correc-
tive actions under way to address these issues.

The Department also faces major challenges in the Pell Grant
Program. In 1993, we testified that Pell is basically an honor sys-
tem in which Ed must rely on the integrity of program participants
to ensure that the Federal interest is protected. Since 1993, we
have identified additional Pell problems including weaknesses in
the citizens verification process with potential fosses exceeding
$100 million per year and annual discrepancies in institutional ex-
penditure reports totaling over $356 million. We have an additional
concern about the use of Pell funds for English as a second lan-

guage.

The Department has made much progress in improving account-
ability in the programs. There are remaining issues. The Depart-
ment’s success in improving its monitoring of schools lenders, guar-
anty agencies, and other SFA program participants is critical to the
integrity of the programs.

Mr. Chairman, many of the changes being undertaken by the
Education Department will over time help to address the problems
that I have outlined today, but they are not quick fixes. Unless we
are all willing to stay the course to see that corrective efforts are
completed we will not see resolution of current problems. Rather,
they will continue in their present form or in a new redesigned
form that will still victimize the individuals that we are supposed
to help and cost more of the dollars, the trust, and the confidence
of the public.

Thank you.

{The prepared statement of Ms. Van Riper follows:]

PREPARED STATEMENT OF DIANNE VAN RiPER, ASSISTANT INSPECTOR GENERAL FOR
INVESTIGATION SERVICES, U.S. DEPARTMENT OF EDUCATION

Mr. Chairman and Members of the Subcommittee:

I appreciate the opportunity to appear before you today to discuss the mission of
and challenges facing the Department of Education. I am encouraged by the active
role being taken by this subcommittee in overseeing the Department's activities. I

lieve that the challenges facing all of us in providing quality education for Ameri-
ca’s citizens in an effective and efficient manner can be met only with the full, active
and cooperative participation of all concerned parties.

In this period of streamlining and reducing the size of government, we continue
to recognize our responsibility to assist Congress and the Department in assuring
the accountability for billions of Federal education dollars. The views I will offer



96

urban districts and their ability to have a local tax base, and I
think there is some Federal role.

What we are going to need to do is, what kind of guidelines
should we have in block grants to assure that there is at least
minimal opportunity for everybody coming into the system without
a lot of rhetoric with it, without a lot of inflated goals, and that
you can get all kinds of things, but everybody does deserve a
chance, and there is a Federal role, and that is how we first got
into the education business, because some districts simply didnt
have the assets, and I’m not willing to throw everything out, I
think there is some acknowledgment on our side too of some of
those kinds of roles.

I yield back.

Mr. Suays. I thank the gentleman.

I'm just going to conclude with the questions, and then we need
to get to Mr. Hansen.

I think in fairness to you, Ms. Van Riper, I asked what you
thought was the most serious problem facing the Department, and
my staff pointed out that I didn’t ask in terms of what. The point
was, I didn’t define my question well enough. You made a good
stab at saying what you think is the most serious problem and
talked about failure to pay refunds. I think, Mr. McNamara, you
were trying to help me qualify the question. Could you just make
your point again about my question? Do you remember what the
issue was? I just want to make sure that I'm a better listener here.
What was the point you were trying to make?

Mr. McNamara. Thank you, Mr. Chairman.

I think we misunderstood the question, having just responded to
the question about the cosmetology industry. I was thinking that
matter was not what you were asking and it was something not
covered under reauthorization.

Mr. SuHays. OK. Let me just ask you this then. I want to make
sure I have a better sense of the problem without dwelling on it
too much because I want to ask Ms. Blanchette a question or two.

What I'm hearing you say to me is that when students leave, for
whatever reason, there are institutions'that just keep the money.
Now are you saying that is the biggest cost financially to the De-
partment, or is it that we simply have no sense yet of what its im-
pact is and we really should focus more of our time and attention
on it? I want to make sure that I’m hearing you correctly.

Ms. VAN RIPER. It is a combination. I think that, first, we can’t
or haven’t been able to get a fix on what it is costing us, but I was
answering also in the context of what it costs to the various parties
involved. We know that it leads to higher defaults, we know
that—_

Mr. SHays. And the logic of that is that if someone left the pro-
gram they'd think, “The hell I’m going to pay.”

Ms. VAN Riper. Exactly. Most students who withdraw assume
that their refunds are gone, to be made to the bank and they are
going to be held liable for a lesser amount of their loans, and when
they go back and find out they are being billed for the full amount
they get discouraged or they get irritated and they don’t pay any
of it.


15

equacies in the Department's gatckeeping practices.20 For example, we reported that
federal financial aid was provided to students attending schools that were not cur-
rently approved to participate in FFELP and other federal student. aid programs,
In response to these kinds of problems, the Higher Education Amendments of 1992
made a number of changes to strengthen controls over schools. Some of the provi-
sions, especially those establishing federally funded state postsecondary review enti-
ties (SPRE) and more stringent responsibilities for organizations ‘that accredit
schools, are controversial because they may greatly expand the federal role.
Department Initiatives

The Department has been criticized for conducting program reviews that, were
limited in scope and performed by poorly skilled staff, The Department has under-
taken several initiatives aimed at improving these conditions. First, the Department
has established two types of program reviews—a standard survey review and a con-
centrated team review. Schools are selected for standard reviews on the basis of cer-
tain “red-flag” conditions, such as (1) having students who receive multiple Pell
grant awards during the same payment period or (2) having their number of loans
Increase significantly during a 12-month period. If a survey review discloses signifi-
cant systemic violations, a concentrated team review may follow. Concentrated re-
views focus on specific problem areas and should be completed within 30 days.
Under the previous system, program reviews were undifferentiated by type, much
broader in scope and coverage, and could take 2 years to complete. Also, the Depart-
ment now provides a 23-week training program for new reviewers and refresher
training for existing personnel.

The Higher Education Amendments of 1992

Provisions of the 1992 amendments provided the framework for strengthening the
Departments gatekeeping responsibilities. The amendments included a program in-
fegrity provision that (1) requires provisional certification of schools, (2) establishes
SI 8, and (3) modifies requirements for accrediting organizations:

© Provisional certification: The 1992 amendments empower the Department
to provisionally certify postsecondary schools to participate in federal student
aid programs. Provisional certification limits the time—usually 2 years—a new
program entrant can participate until it demonstrates administrative and finan-
cial responsibility. Provisional certification should permit stricter oversight of
schools’ activities {prior to granting final program participation approval and
allow early identification of those with particularly weak management struc-

ures.

* State Postsecondary Review Entities: The 1992 amendments also estab-
lished federally funded SPREs. The Department determines the eligibility of
schools that want to participate in federal student aid programs. It conducts an
initial review of the school and determines if the school meets the statutory cri-
teria and whether a more comprehensive review by a SPRE is needed. Poten-
tially, SPREs are valuable tools for helping to approve new applicants and for
reviewing participating schools. However, funding for SPREs may be termi-
nated, in part to achieve budget reductions. During fiscal year 1995 their fund-
ing ($20 million) is subject to proposed rescission.

© Accrediting organizations: Accrediting organizations typically review and
approve schools for their educational quality—instructor qualifications, mate-
rials and equipment, curriculum, and student achievement. The law requires
that accreditation occur before the Department certifies schools for participation
in federal student aid programs. The 1992 amendments strengthened the De-
partment’s influence over school accreditation. Now accrediting organizations, in
conducting their reviews, must include among their approval criteria several
Department-established priorities, such as minimizing loan defaults, lowering
student dropout rates, and increasing placement rates for students ‘who com-
plete their courses.

The legislative and administrative revisions made to the gatekeeping process
should, if properly implemented, help address the risks in federal student loan pro-
grams. However, because these improvements were recently implemented, it is too
soon for us to determine their effect.

CONCLUSIONS,

‘The Congress is grappling with a large budget deficit and examining the federal
government's role in providing services. "Today the federal government invests more
than $70 billion in education support. The Department of Education has been

2 High-Risk Series: Student Financial Aid (GAO/HR-95-10, Feb. 1995).


36

solidations, I mean elimination of dozens and dozens of programs.
Then to come in and cut programs out from under you that have
already—fands have already been appropriated when you are real-
ly pushing to try to cut back in the right way, it is kind of wrong
way to do it and it kind of takes some of the momentum out of your
effort to try to seriously cut and we are seriously cutting and
changing.

And that is the kind of relationship we would like to have with
this committee and others to really look at that and, I mean, talk
about suggestions of what to cut, what to consolidate and to get off
of the discussion, which we think is counterproductive in the long
run to talk about making massive shifts of departments when real-
ly if you are going to reduce you got to cut. And just sticking you
over in Labor or sticking you all around in HHS and Justice and
Labor or wherever, that was that chart you were talking about,
when you take the functions we perform and scatter it over to
Labor and all around, then you are looking at the schools out there;
instead of dealing with one unit, they are dealing with dozens just
for our functions.

Ms. KunIN. If I may just add a note, Mr. Chairman, and Con-
gressman Green, you know when it was asked what proportion of
Title I was cut, that seems relatively small, but Safe and Drug-
Free Schools is totally eliminated and when you ask what we are
trying to do, as we go around the schools and talk about improving
academics, the first question we get asked is: “How can you help
us make our schools safe?” Without the capacity to provide any
kind of assistance in this, I think not only would the safety in and
of itself be incapacitated, but the whole school reform effort would
be slowed down I am sure you sense from your contacts with your
own constituents that those two march in tandem: School improve-
ment and school safety. Whiie the Federal Government can’t do it
all, and shouldn’t do it all, the Safe and Drug-Free Schools pro-
gram is an important form of assistance.

Mr. Suays. Thank you. Mr. Scarborough. Thank you for your pa-
tience.

Mr. ScaRBoroucu. Do I have a generous 20, 25, 30 minutes?

Mr. SHAYS. We will be generous.

Mr. ScaRBoroucu. OK.

Mr. GREEN. We could give you more time if you wanted to sit on
this side.

Mr. SCARBOROUGH. Well, if I did it in my district, I would have
been sitting on that side for 2 years.

I would like to thank both of you not only for coming and testify-
ing today before the committee but also thank you for being part
of the new wave that is sweeping Washington whether you are a
Democrat or a Republican or an Independent, since we have a Rep-
resentative from Vermont. It certainly is a positive move in the
right direction.

I do want to ask you, though, because if you look at—if you look
at hard numbers, there is some justification in consolidating agen-
cies and possibly doing away with the Department of Education. I
would just like to hear how you would respond to some things peo-
ple have been talking about lately.


48

Mr. RILEY. No question about that. And there was a GAO report
that showed what some $105 billion or real big numbers, and it is
enormous, New York had a study recently, their cost of getting
their infrastructure back in place would just be enormous.

Mr. Davis. You can block grant in jails, but you can’t use it for
education facilities. I guess that is it.

Mr. RILEY. Well, Connie Lee is a program that we are looking at
and we talked about, and as we are developing the information I
am sure we will share that with you as well as the other. That is
an approach that perhaps the Federal Government could be in-
volved in, and that is to help with the borrowing process, and the
idea of funding at the Federal level that is debated back and forth.
No question about the tremendous need, but it is a real growth
area.

Mr. Davis. Thank you both for coming today. I appreciate and
look forward to working with you.

Mr. SHays. Mr. Secretary, we are going to let you go in just a
few minutes. I just will point out that I asked about the depart-
ment’s 2 percent administration cost. Evidently one of your people
told my staff that your budget is, $33 billion, and your staff and
equipment costs are $521 million. The math comes out to 1.6 per-
cent. Is that pretty close to what your understanding is?

Mr. RILEY. I am sure those numbers are basically accurate. Of
course you realize a lot of our funds, like Pell grants and so forth,
are pass-through funds, but as far as our Department is concerned,
I think we handle more money, we think in a very responsible way
per employee, I think, than perhaps any other department in the
Federal Government.

Mr. Says. Well, on that note I will just say you have good staff
working for you. Thank you very much for your time here. We ap-
preciate your testimony. Thank you.

Mr. RILEY. Thank you.

Ms. Kunin. Thank you very much.

Mr. SHays. This hearing is adjourned.

{Whereupon, at 12 p.m., the subcommittee was adjourned.]


117

Mr. HANSEN. I don’t think the evaluations would be conclusive
on that, but frankly most of those programs were categorical grant,
discretionary grant programs that would usually go to fund institu-
tions or other organizations, and the good thing about the Chapter
2 program is, that money goes directly to school districts to help
purchase computers, do whatever the school district determines
their need is at the local level, so just by construction is a much
better delivery mechanism of funds.

Mr. SouDER. May I ask one more question Mr. Chairman?

Mr. Suays. Sure.

Mr. SoupER. I have a concern that—around the mission state-
ment, of whether or not we have a Department of Education, we
are likely to have an office of education, or consolidate education
in Labor, and the problem with these kinds of mission statements,
even as you have stated in your testimony, to ensure equal access
to education, promote education excellence, that is pretty much of
a blank check. How would you more precisely define the Federal,
State, local, and give some guidance?

Mr. HANSEN, I think that the Federal role really needs to be fo-
cused on areas of national need if there is going to be a Federal
role. Programs such as the student aid programs, there have been
some Governors who have talked about block granting even the
student aid programs. I think that type of program, it would be a
difficult program to operate, because students go to schools in dif-
ferent States, it is more of a national type program than it is a
State-by-State program.

Other areas of national concern I mentioned earlier the special
education area. I think that is the type of area where, in terms of
talking about access, that issue has been answered, but in terms
of talking about excellence that that should be the next issue on
the plate for authorizers to consider. There are a number of pro-

‘ams though that don’t address either of those issues, and I think
if you at least use that as a preliminary benchmark of the need for
the Department’s programs, I think it would be a good starting
place.

Mr. SoupeR. In the principle that kind of what happened in New
Jersey, the local school boards or local schools kind of fell apart,
the State ste) ped in. Do you ever feel there is a Federal role, like
in Chicago, if the city doesn’t do it and then the State for some rea-
son, it is there is not that there is a Federal emergency role, if cer-
tain kids simply are not getting an opportunity, or how would you
address that question?

Mr. HANSEN. I think it is dangerous for the Federal Government
to have that type of a role. I think that the pressure needs to be
put upon by parents at the local level. As a parent of six kids and
a former PTA official in my local town and serving on the Gov-
ernor’s State Champion Schools Commission, I would much rather
try to take care of issues at the school level, at the school district
level, or at the State level, than I would at the Federal level. Once
you create something or start to have that type of a precedence set
at the Federal level, it is very dangerous. ‘And who is going to start
determining the standards of what a school failure is or what aca-
demic failure would be and what a bankrupt school system might
look like?


od

cation is the existence of performance standards for departmental
programs. While Education is working toward implementing such
standards in some areas, many programs are without such stand-
ards by which their success can be determined. This situation will
become more critical if regulations are relaxed and there is no
means of evaluating program activities.

For several years we have noted serious problems with education
program operations related to deficient or nonexistent systems for

nancial management. Education is currently working to put in
place a modern core financial system to improve service delivery
and provide more timely and complete information needed to en-
sure improved financial management and evaluation. While we are
encouraged by the current progress in this area, the job is not fin-
ished.

Like the areas of program design and program operations, suc-
cesses and challenges exist related to achieving accountability. In
redesigning programs we believe that Congress must include clear
standards and performance outcomes to ensure that only those en-
tities that achieve stated objectives can participate in education
programs. Our experience suggests that the lack of such clear
standards have allowed low quality programs to continue receiving
Federal financial support.

As is the case with education programs generally, there are
many successes and challenges relate to the design, operation,
and accountability of the Department’s student aid programs. One
of the most significant program design issues relates to the useful-
ness of vocational training funded under education student aid pro-
grams.

In reviews conducted in 1987 and 1993, we noted that under
these programs individuals were being trained with a heavy invest-
ment of Federal funds for nonexistent jobs. Our 1993 report point-
ed out that student aid programs are structured to make funds
available to students without regard to labor market needs or to
the performance records of schools. This problem continues.

Currently our greatest area of interest related to the design of
education programs is the new Direct Loan Program. Our view is
that the Department's design and implementation efforts have pro-

‘essed well so far. However, system problems have been identified

luring startup which need to be corrected to ensure effective con-
trol over the program as it expands from 5 to 40 percent of total
loan volume in the second year of operation.

We would note several opportunities for increased efficiency and
cost savings related to SFA program operations. Notable amon;
these concerns is what is termed the gatekeeping process by whic
the suitability of schools seeking to participate in the SFA pro-
grams is determined.

The Higher Education Amendments of 1992 put in place many
new controls designed to ensure that only quality institutions were
admitted to SFA program participation, and the Department has
worked diligently to implement these new provisions. A weakness
continues, however, regarding new performance standard require-
ments that are to be administered by accrediting agencies respon-
sible for ensuring the quality of programs or schoo is seeking SFA
program participation.


OVERSIGHT HEARING ON THE DEPARTMENT
OF EDUCATION

THURSDAY, APRIL 6, 1995

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON HUMAN RESOURCES AND
INTERGOVERNMENTAL RELATIONS,
CoMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
Washington, DC.

The subcommittee met, pursuant to notice, at 10:08 a.m., in room
2247, Rayburn House Office Building, Hon. Christopher Shays
(chairman of the subcommittee) presiding.

Present: Representatives Shays, Souder, Morella, Scarborough,
Towns, and Green.

Staff present: Lawrence J. Halloran, staff director and counsel;
Christopher Allred, Kate Hickey, and Robert Newman, professional
staff members; Thomas M. Costa, clerk; Cheryl Phelps, minority
professional staff, and Liz Campbell, minority staff assistant.

Mr. Suays. We are going to start this hearing and out of respect
for the minority we will not say anything controversial until they
get here.

I welcome the witnesses to this oversight hearing. Today’s over-
sight hearing will discuss opportunities for cost savings in the De-
partment oF Education. I believe significant savings can be
achieved through a consolidation or elimination of duplicative pro-
grams. The Department seems to agree. At our March 13 hearin,

ecretary Riley indicated that the Department's $30.4 billion fiscal
year 1996 budget request called for termination or consolidation of
68 of 240 programs for an estimated savings of $800 million.

In today’s hearing experts from both the public and private sec-
tors will testify: The Department of Ed’s Office of Inspector Gen-
eral, the General Accounting Office, and a former Department of
Education Assistant Secretary for Management and Budget. We
look forward to their views and recommendations on how addi-
tional cost reductions can be achieved.

From a broader perspective, increased efficiency and program
consolidation may not be enough. The accumulation of education
and training programs is wasting sacred resources and is obscuring
the fundamental Federal mission in education. That mission lies in
the development of a literate, technically competent citizenry capa-
ble of performing productively in the global workplace.

In recent hearings before this subcommittee Education Secretary
Riley and Labor Secretary Reich both testified that education is the
most important factor in determining future earning capacity. That
testimony leads me to the conclusion that the national interest in

(49)


78

as a social studies teacher. So I understand that Douglas scholar-
ship participants must find a job in the field of teaching. Otherwise
they have to pay back the scholarship money. Are you familiar
with that?

Ms. VAN RIPER. Yes.

Mrs. MORELLA. Kind of an interesting sort of touch to it.

I think I should probably yield back and wait for the second
round. Thank you, Mr. Chairman.

I thought the GAO report was excellent, to sort of pick up on the
gatekeeping and some of those other areas.

Ms. BLANCHETTE. Thank you.

Mr. SHays. We are going to do it in small segments and come
back for additional questions.

Mr. Towns.

Mr. Towns. Thank you very much, Mr. Chairman.

Let me thank all three of you for your comments and testimony.

You mentioned—I think it was Ms. Van Riper—that vocational
programs—you mentioned the training program, some of the train-
ing programs, that people are being trained for jobs that don’t real-
ly exist. Was that you who made the comment?

Ms. VAN RIPER. That is correct.

Mr. Towns. Has the Department acted on your recommendations
at all?

Mr. McNamara. To date we don’t have any real significant
progress made. This would require legislative changes.

I would note that the one area that does address this is the cur-
rent move toward skill grants that would be coordinated with the
Department of Labor. That is new, and it is on ongoing. Other than
that, no, no significant action to address these.

Mr. Towns. Last month the Secretary of Education shared with
this committee his strategy in terms of his plans, and of course he
talked about his priority areas and all of that. What is your opinion
on the Department’s strategy, Ms. Van Riper?

Ms. VAN RIPER. The Department’s strategic plan covers four
main areas. One is to help the States and the communities enable
all of its students to reach challenging academic standards; the sec-
ond is to create a comprehensive school-to-work opportunity in each
State, the third is to ensure access to high quality postsecondary
education and lifelong learning; and the fourth is to turn the De-
partment into a high performance organization.

I think that Goals 2000, Educate America Act, as well as other
changes that have been made in legislation and some of the activi-
ties and the efforts that have been made in the Department go a
long way in correcting past problems in our programs. It goes a
long way in terms of the coordination between the Federal and the
State and the local education entities.

ain, as I stated previously, I think that much work needs to
be done. But for the first time what I see is unified and focused
effort to address problems and address what it is we want the De-
partment to be doing in the area of education.

Mr. Towns. Fine. I think when we look at Goals 2000, which is
the linchpin, of course, in terms of this whole process that the De-
partment is putting forth, what impact would the proposed


88

Ms. BLANCHETTE. And if I may add, I did think of one other
thing. In block granting, consideration has to be given to how serv-
ices are delivered at the local level, and in the most successful in-
stances in the early eighties it was situations where the local juris-
dictions has experience operating the programs, not just being con-
duits of money, and that is a very important criteria for success.

Mr. SoupeER. I personally am very conservative and believe that
the Constitution explicitly gives the power of education back at the
local levels. The types of studies you have here are a devastating
analysis of when you go through program by program by Program
saying they don’t have enough data here, they don’t quite know
what they are doing here, they have 18 million things overlapping
between multiple different agencies there.

It seems to me that while—that there is a certain amount of
sense in block granting, eliminating a lot of the overlapping agen-
cies, the Federal bureaucracies out here, and focusing. And I real-
ize you two at IG and GAO may not be the people to ask this, but
our role at the Federal Government ought to be to have inspectors
and auditors that, as we put the money to the State level, we set
some standards of performance and then we audit. If we are going
to raise the taxes and transfer it to States, we need to know what
they are doing and that they are reaching minimum goals, that our
focus ought to be to look at those minimum goals and have people
then double checking that, not micromanaging a local school board.

Part of the reason we are seeing referendums defeated at the
local level, Goals 2000 may not have specific things, but there is
a feeling that it was laid on top of the local school boards, laid on
top of those parents, they feel no investment in their local schools,
think the Federal Government is going to bail them out, who is
broke, and all of a sudden you have a really devastating anti-edu-
cation reaction at the local level.

In fact, you have been reported here that 50 percent of the edu-
cation programs currently aren’t in the Department of Education.
Is that correct?

Ms. BLANCHETTE. In terms of numbers, Ill have to refer back to
my statement.

Mr. SoupER. That makes it a lot easier to eliminate the Depart-
ment if half the education functions aren’t there.

Ms. BLANCHETTE. Most of the money—more money is spent by
the Department of Education than by any other Federal agency,
but in terms——

Mr. SoupER. Does that count the Pell grants though, which real-
ly are a transfer—cash transfer?

Ms. BLANCHETTE. That is in terms of the actual funding for edu-
cation programs, yes, which would include funding for Pell grants.

In terms of the number of programs, there are more programs
outside of the Department, 308 versus 244—308 programs outside
of the Department and 244 within the Department.

Mr. SouDER. OK. I will have some more questions.

Mr. Suays. Mr. Towns.

Mr. Towns, Thank you very much, Mr. Chairman.

I’m trying to keep from getting depressed, so let me try to go in
a different direction. Maybe you can help me a little bit. In the con-
solidation plan, do you think that a lot of the problems that you


43

told me as State senator, and he said, that is true, and they are
in session as we speak probably mandating on local school districts
although we have passed the unfunded mandates at least in the

‘ouse.

Let me go back to Nation At-Risk because that was the biggest
issue I think in the early to mid-1980’s in legislatures, because I
had served during the 1970’s and we had continued to just provide
additional funding for education, but what happened in the State
of Texas in 1984 because of the Nation At-Risk, it was released and
I know it galvanized opinion all over the country. And, again, that
wasn’t a State initiative originally. We had been under court order
like I think we had on funding our schools for many years, al-
though as I sit here today we finally have a constitutionally per-
missive funding system in the State of Texas the first time in 24
years.

But the Nation At-Risk was released in States all over the coun-
try in responding to a national crisis on education. That crisis just
didn’t develop because of Nation At-Risk. It was identified by a na-
tional—by the Department of Education. And the States responded
because again the 94 percent on the average of funding and re-
sponse for funding will Be State and local money.

And I know, and you just touched on it a Tittle built on Goals
2000, the actual end result I believe of what the original Nation At-
Risk 10 years later we actually did, the States because of the pri-
mary responsibility responded to it but Goals 2000, President Bush
many times tried to pass to respond to a national issue of edu-
cation.

And you mentioned today and I don’t know if you picked up but
Goals 2000 as it is now in the law will not have any mandates or
any regulations going back to the States.

r. RILEY. That’s right.

Mr. GREEN. So I go back to my Lieutenant Governor, we are
going to send you some money for you to do these better things
with education trying to respond to quality, respond to the violence
in schools, and we are not telling you how to do it. We are just say-
ing, here is what you get and you develop the programs.

ir. RILEY. That’s exactly right. All we are saying is that you
have to have your own State and local improvement process. And
then these funds go to that. They do it. It is their way. Now they
have to have that. That’s why I called it a responsible block grant
because you have got the goals, you know, that really emanated out
of the Governors and then you have got Federal funds, national
purpose. Raising the standards for children all over America but
ou have then what’s the State have to do. They have their own
identification of what those standards are that they are going for.
And then they develop their State planning and then the local
school districts develop their plan to reach the goals. We do not
have anything to do with that, and people have said, you know,
that it is pro-OBE which is kind of a curriculum and without say-
ing whether OBE is good, bad, or indifferent in a particular area.
‘e have nothing to do with that and if a local school district
wants the goal and the State and local working together naturally
whatever their process is is fine. And under the law that’s just the
way it is. And, as you know, there is a provision in there that says


113

them away. They are still going to happen, they are still going to
e there.

And in fact, as I mentioned earlier, I don’t know if you were here
in the room, but in the Direct Loan Program next year 1,400
schools have signed up for the Direct Loan Program. Right now in
the Guaranteed Program if you have over 25 percent default rate
at your school you get kicked out of the program. If you had that
rate for 3 years, you can’t make student loans any more until you
get your act together.

In the Direct Loan Program there is no integrity mechanism,
there is no default calculation in the Direct Loan Program, and it
is no surprise that half of the 1,400 schools that want to participate
in direct lending next year are proprietary schools. And I’m not
here to bash proprietary schools, but I think it is interesting to
note of the mass exodus of those schools going over there because
they won’t have to be accountable for their default rate, and that
is something that Bart Gordon and the Democrats that are on Con-
gressman Goodling’s bipartisan bill, H.R. 530, to cap this program,
that they have done, is to bring reasonableness and to make sure
that you can calculate defaults in the Direct Loan Program. That
is one issue that I think this committee should be very concerned
about, is the oversight of how the Department spends its moneys
on direct lending but also how it handles the gatekeeping functions
of allowing schools into the program.

Mr. Towns. Let me talk about another area. We talked about pa-
perwork in terms of the principles, in terms of the amount of pa-
perwork they have to get involved in. You know, if we would spend
the money out front and computerize and do the kinds of things
that need to be done, then we would be able to cut down on a lot
of the paperwork, but I think that what we do sometimes is get
sort of reluctant to spend, and as a result we end up paying a lot
more because we are trying to cut. So I think at some point we
have to make some tough decisions and all cannot be to just cut,
because I think that sometimes in order to bring about efficiency
you have to spend. Do you share those views?

Mr. HANSEN. I do in terms of whenever you have a new system
to get up and running you have got to invest money in resources
if you are going to change a delivery mechanism to make that hap-

e

pen.

I do think though that at the Department of Education, for ex-
ample, in their elementary and secondary programs a lot of these
programs are duplicative and each have their own separate funding
streams. It would be easier and save money for local officials that
actually have to handle these “programs if there was more of a
block grant approach and take the Federal strings off and the Fed-
eral paperwork requirements off and trust the States and the local
schools to do the right thing with those moneys, giving them a
laundry list of what they can do. They can spend it on education
infrastructure, on buildings, they can spend it on drug-free schools,
they can spend it on goals, but if—that is one reason I like the
block grant approach, that you are able to get the paperwork out
of the way, you are able to get the Federal prescriptions out of the
way. If a local school in one certain area has a problem with dete-
riorating buildings, another one has a drug problem, another one


CONTENTS

Page
Hearing held on:
March 13, 1995 1
‘April 6, 1995 49
Statement of:
Hansen, William D., former Assistant Secretary for Management and
Budget, and Chief Financial Officer, U.S. Department of Education ... 98
Riley, Richard W., Secretary, U.S. Department of Education; Madeleine
Kunin, Deputy Secretary, U.S. Department of Education; and Donald
R. Wurtz, Chief Financial Officer, U.S. Department of Education ... 6
Van Riper, Dianne, Assistant. Inspector General for Investigation Serv-
ices, Department of Education, accompanied by Steven McNa-
mara, Assistant Inspector General for Audit; and Cornelia Blanchette,
Associate Director, Education and Employment Issues, U.S. General
Accounting Office 52
Letters, statements, etc., y:
Blanchette, Cornelia, Associate Director, Education and Employment Is-
sues, U.S. General Accounting Office, prepared statement or. . 10
Collins, Hon. Cardiss, a Representative in Congress From the
Illinois, prepared statement of .. 67
Green, Hon. Gene, 8 Representative in Congress from the
prepared statement o} 3, 85
Hansen, William D., Former Assistant Secretary for Management ‘and
Budget, and Chief Financial Officer, U.S. Department of Education,
prepared statement of .. 103
Kunin, Madeleine, Deputy Secret 'S. Department of Education, dear
colleague letter from Tho etri 26
Morella, Hon. Constance A., a Representative in Congress from the State
of Maryland, ee jared statement of 4
Riley, Richard tary, U.S. Department of Educatior
Higher Education Act of 1965 46
Prepared statement of .. ll
Shays, ion. Christopher, a Representative in Congress from the State
Connecticut, Prepared statement of 2, 50
Towns, Hon. Edolphus, a Representative in Congress From the State
of New York, prepared statement of ... 66
Van Riper, Dianne, Assistant Inspector General for Investigation Serv.
ices, U.S. Department of Education, prepared statement of 54

ay


106

the way for 600 new bureaucrats to join the federal workforce. Rather than support
market driven solutions that focus on customer service, direct lending would wipe
out tailored state and competing private-sector organizations that focus on serving
the customer, in favor of a Washington monolith.

Of particular concern to this Subcommittee should be the fact that the 1993 Stu-
dent Loan Reform Act created an unprecedented $2.5 billion administrative entitle-
ment fund for the implementation of the direct loan program. Unlike nearly all
other goverament administrative funds, those associated with ED’s direct govern-
ment loan program are not subject to annual appropriations and review. Chairman
of the Economic and Educational Opportunities Committee, Bill Goodling has intro-
duced a bill (H.R. 530) to cap the direct loan program which would also improve
congressional oversight of the billions of dollars that the Department will spend to
administer direct loans. This bill has received strong bipartisan support as it will
also improve the integrity of the direct loan program.

OPPORTUNITIES FOR COST SAVINGS IN FY 1995 & FY 1996

Since the establishment of the Department of Education under President Carter,
Presidents of both political parties have submitted budget requests to zero-fund doz-
ens of education programs because they have largely or completely achieved their
original intended purpose, were duplicative of other programs, or could be supported
by other funding sources. For example, in President, Bush’s final budget, he called
for the elimination of 39 education programs that fell into the categories just men-
tioned. President Clinton, both in his budget submission last year and as part of
the National Performance Review recommended that 34 programs be eliminated—
almost identical to a list that President Bush developed: Last year, Congress did
eliminate 12 of these programs. As a starting point for finding savings in the FY
1995 and FY 1996 budgets, Congress should first look to the remaining proj
in these previously submitted recommendations and to President Clinton's latest
budget proposal which calls for 15 program terminations in FY 1995 (savings $122.7
million), 21 program terminations in FY 1996 (savings $504.1 million), five program
Phase-outs (savings $120.9 million), and 27 program consolidations (added cost $46
million).

The current FY95 rescissions debate has provided additional ideas and rec-
ommendations for cost savings immediately. The process for FY96 cost savings will
be key as the authorizing committee considers major program overhauls and block
grants and as the appropriations and budget committees consider opportunities to
reduce the massive budget deficit.

The Subcommittee should also give serious analysis to the Department's Salaries
and Expenses Accounts, A primary question the Department should be asked to ad-
dress is why are they asking for a $ 13 million increase in their S&E account when
over 440 employees have opted for the retirement buy-out (8% of total personnel).
With the resulting smaller FTE covered by the S&E account (the hundreds of new
staff hired this year to manage the direct loan program are paid out of a separate
direct loan S&E account) and the anticipated savings of downsizing the Department
because of the President's call to terminate or consolidate 68 programs, it would be
expected that the Department would be proposing a substantial reduction in their
S&E account. Other areas within these accounts that should be reduced are the two
dozen federal advisory panels. Similarly, on another administrative account, as [
referenced earlier, Chairman Goodling’s bill to cap the direct loan program at year
two school participants calls for a $5 ion reduction in the FY 1995 budget au-
thority for the direct loan program administration account (a reduction from $345
to $295 million and additional reductions in future years). It should be noted that
the direct loan administrative account falls under the mandatory account and the
other administrative accounts fall under the discretionary account.

As the Subcommittee reviews areas for cost savings it is important that the cur-
rent budget environment is taken into consideration. The perpetuation of the deficit
and our growing national debt is anti-family, anti-child, and anti-education. Every
American child in school today already owes $18,000 as his or her share of the na-
tional debt. Senator Tom Harkin said recently that, “It’s time we pass on to our kids
more opportunity, not more debt.” I agree with that statement.

How that opportunity is afforded to children and families will be central to your
deliberations about the federal role in education and the future of the Department
of Education. For those activities not turned over to the states, communities, and
families, they should be re-designed to ensure excellence, choice, accountability,
flexibility, eficiency, and a reliance upon private market driven solutions. This Sub-
committee and this Congress have a unique opportunity to improve the quality of



66

8 for Title IV liabilities from school owners or other appropriate persons as a con-
dition for participating in Title IV programs. Both the House and Senate reauthor-
ization bills contained such a provision. However, the Conference Committee amend-
ed the provision to effectively nullify this authority. Section 498(eX4) of the new law
bars the Secretary from imposing personal liability unless the school meets all four
of the following conditions: it has been subject to limitation, suspension, or termi-
nation action within the last 5 years; it has had recent audit findings that required
it to make substantial repayment; it is not financially responsible; and it is not cur-
rent in submission of required audit reports. It is extremely unlikely that a school
would meet all of these conditions, since, long before doing so, it would certainly
have been closed and gone into bankruptcy, and its owners taken off with the
money.

‘We are aware of nothing presently in the direct lending system that will address
the problem of unpaid loan refunds at the institutional level. However, we have
been and will be working with the Department to develop methods to identify
schools that may not be paying required direct loan refunds.

CONCLUSION

Mr. Chairman, we have attempted today to outline what we view as the major
successes and remaining challenges facing the Education Department as Education
attempts to reduce cost and increase program efficiency and effectiveness. The De-
partment has accomplished much in this regard particularly in the areas of strategic
lanning program coordination, financial systems redesign and implementation of
direct lending. Much work remains, however. Financial systems are costly and time
consuming to implements. am fragmentation still exists and legislative
changes are needed to correct inefficiencies of duplication. Direct lending has begun
well, but the real stress testing of management controls is far from complete. Efforts
are underway to increase accountability through establishment of performance
standards and measures, but questions exist regarding the effects that deregulation
and inadequate enforcement authorities will have on such efforts.

Over the last year, we have concluded many audits and investigations involving
Education programs—in the areas of Student Financial Aid, elementary and second-
ary education, vocational education, and the College Facilities Loan Program—
which have highlighted the vulnerability of these programs to waste and abuse and
to embezzlement andor theft of program funds by high-level employees or officials
of State education agencies, grantee or recipient institutions and Student Aid pro-
gram participants. Many of the changes being undertaken by the Department will,
over time, help to address these problems, but there are no quick fixes. Unless we
are all willing to stay the course to see that corrective efforts are completed, we will
not see the resolution of current problems. Rather, they will continue in their
present form or in a new, redesigned form that will still victimize the individuals
we're supposed to help and cost more of the dollars, trust, and confidence of the pub-
ic.

Mr. Suays. I thank you for your statement.

We have been joined by our ranking member, Ed Towns. Before
we call on you, Ms. Blanchette, I welcome the gentleman to make
a statement if he would like to. .

Mr. Towns. Thank you very much, Mr. Chairman. .

Let me apologize for being late. I would like to ask unanimous
consent to include my statement in the record. .

Mr. SHAys. I thank the gentleman. I would ask unanimous con-
sent that the written statement of any witness and any Member be
included in the record, and, without objection, so ordered.

[The prepared statements of Hon. Edolphus Towns and Hon.
Cardiss Collins follow:]

PREPARED STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF New YORK

Chairman Shays, thank you for providing this committee the occasion to consider
opportunities for cost savings and improved efficiency at the Department of Edu-
cation.

T am especially appreciative of this hearing in light of a GAO report released on
Tuesday that finds, among other things, that many of America’s children, even chil-



52

sistant Inspector General for Investigation Services in the Depart-
ment of Education, Dianne Van Riper.

Let me say also for the record since I’m asking for unanimous
consent, I will wait until the minority member is here, but it is my
expectation that there won’t be a problem with your statements
being fully put into the record, so you are free to summarize and
highlight the points that you want to make. I would also say to you
that my general attitude is that we are all Americans. We are try-
ing to have a better government, and we all are working on the
same side. I understand that as the Inspector General and GAO,
you have your independence as we have our independence, but we
are all on the same ship and we want to head in the same direc-
tion, so I welcome your testimony.

STATEMENT OF DIANNE VAN RIPER, ASSISTANT INSPECTOR
GENERAL FOR INVESTIGATION SERVICES, U.S. DEPART-
MENT OF EDUCATION, ACCOMPANIED BY STEVEN McNA-
MARA, ASSISTANT INSPECTOR GENERAL FOR AUDIT; AND
CORNELIA BLANCHETTE, ASSOCIATE DIRECTOR, EDU-
CATION AND EMPLOYMENT ISSUES, U.S. GENERAL AC-
COUNTING OFFICE

Ms. VAN RIPER. Mr. Chairman and members of the subcommit-
tee, I appreciate the opportunity to appear before you today to dis-
cuss the mission of and the challenges facing the Department of
Education.

You have asked that my testimony today focus on the Depart-
ment’s successes, remaining challenges, and ongoing efforts to im-
prove efficiency and accountability in departmental programs. I can
best respond to this request by offering our views of these topics
in three areas—program design, operation, and accountability and
then deal separately with these areas as they apply to the Depart-
ment’s student aid programs.

Before proceeding, I should note our belief that while the Depart-
ment has achieved much recent success in improving the areas of
program design, operation, and accountability, much work lies
ahead to solve identified problems and achieve operating efficiency
and this work cannot be completed quickly.

Much attention is being paid today to achieving cost savings and
reinvention through such means as program elimination or consoli-
dation, block grants, deregulation, or even consolidation of Federal
departments. The challenges facing the Department that I will dis-
cussed today, however, must be addressed regardless of what other
restructuring or reinvention actions are taken.

In recent years the Department has made progress in meeting
significant program design challenges related to program duplica-
tion and fragmentation and in developing and instituting program
performance standards for major ed programs. The passage of the
Goals 2000, Educate America Act, and the Improving erica’s
School Act, along with increased departmental efforts to coordinate
services with other Federal departments help to address the dupli-
cation, but more is needed.

The Department’s 1996 budget request seeks to continue im-
provement by recommending the elimination or consolidation of 68
programs. Central to improving program efficiency and in edu-


101

employees to handle the Direct Loan Program. So I think that
there was actually reinvention going on in the 1980’s and early
nineties when the number of programs doubled and the number of
staff was cut by 50 percent as opposed to the growth that is going
on today.

I would like to also point out that what you see at the Depart-
ment with these additional programs has been more and more con-
cern about overregulation, about Federal solutions, and intrusion.
I think that the new task force that Congressman Klug from Wis-
consin is chairing on privatization has hit on some very key issues
about the role of the Federal Government and whether more pro-
grams could be privatized, and his testimony the other day was a
very powerful signal that indeed even the Student Loan Pro;
should be more privatized instead of taken over by the Federal
Government.

When Mr. Souder talked earlier about the amount of funds spent
at the Department of Education, it is a real problem, and I’m
frankly somewhat concerned about the Department’s budget sub-
mission this year. They have asked for an increase in their spend-
ing for their overall Department of Education administrative ac-
count, for the number of employees they have on board. While they
also supposedly have 450 employees, 8 percent of their agency tak-
ing the early buy-out retirement. It would seem to me they should
be asking for a 5 to 10 percent decrease in their S&E funding.

Also, as Mr. Shays and some of the witnesses have indicated, the
Department has talked about consolidating or block granting or
eliminating 68 programs. If that was done, the Department could
be downsized and the number of employees could be consolidated
dramatically. Again, as I indicated, back in 1981 when the Chapter
2 block grant was created with 42 categorical programs being con-
solidated, the Department was able to downsize to the tune of
about 250 employees by that one feat alone. So that is significant,
and it is not accounted for in the Department's budget submission.

I think when we are looking at other opportunities for cost sav-
ings we have to look at the way in which the Guaranteed Student
Loan Program and the other programs are administered. The Stu-
dent Loan Program is a bigs program. The $6 or $7 billion that are
spent each year actually leverage about $25 billion of loan aid
available across the country. The current private-public partner-
ship program, the Guaranteed Program, has made loans to over 75
million Americans over the last 20 years and has lent out over
$180 billion during that time. There is a proven industry, a proven
track record of getting the money to the students and collecting it
in this program.

There have been Problems in the program. Some of those prob-
lems were brought about by the industry itself, some were brought
about by congressional failure to oversee the problems coming, and
other problems were on the Department of Education’s doorstep
both today and in prior years. There is plenty of blame to go
around, but the fact is, there is a strong infrastructure there, and
it is becoming a more and more efficient infrastructure.

And I wish Congresswoman Morella were still here. She referred
to the poll of the 100 schools that are in direct. lending and how
satisfied they are with it. The fact is, the Department oft Education


26

whole grants process, and Don Wurtz has played a great role in
that we have reduced the time for our grantees, gotten rid of re-
dundant procedures, and, of course, implemented regulatory
changes.

I would say the administration overall sees the Department of
Education as being in the lead in how we are changing, how we
regulate, and when or whether to regulate. So we are making
progress.

fe are not all there yet, as the Secretary indicated, but I would
urge you to take a close look at us. We are not the caricature of
a musty old bureaucracy that one would assume we are. We have
changed, and we are going to continue to change.

In the area of direct lending, I would ask you also to take a very
close look at this program and to listen to your own constituents,
who have had some experience with this program. It is quite re-
markable. Even we are pleasantly surprised because we have never
had this kind of consumer response to a new Federal program, and
it is entirely counter-intuitive in the sense that the Federal Gov-
ernment can reorganize something and make it work better and
cost less. One of the enthusiastic quotes we got from the President
of Southwest Texas State University, Jerome Supple, is typical. He
says, “It is rare that the Federal Government creates a program
that both saves money and improves service to its constituents,”
and direct lending is such a program.

What is interesting is that direct lending isn’t what it seems. At
first, it is cast as a private sector program being taken over by the
Federal Government. That is not so. It is a totally subsidized pri-
vate program that is now more competitive under direct lending,
and saves tremendous amounts of money.

One of your colleagues, Tom Petri, wrote a very interesting “Dear
Colleague” letter just last week which is entitled, “Cut Corporate
Welfare,” and it really is under the old FFEL program, a highly
subsidized, no risk program for the investors for the banks and the
guarantee agencies, at great cost to the taxpayer. He approaches
this as a fiscal conservative.

[The information referred to follows:}

Cut Corporate WELFARE

Dear Colleague,

Those of us who call ourselves fiscal conservatives won't have one shred of credi-
bility as budget cutters if we are unwilling to Fe after corporate welfare with the
same zeal we apply to other types of waste. And in this kind of effort, liberals
should be willing to join us. Please consider the following case carefully.

Suppose you were a banker and you were able to make loans that:

+ were fully guaranteed by the federal government (c. as safe as t-bills);

* paid you interest directly from the federal government for a period of years
at 2.5% more than the interest on t-bills;

‘© were fully as liquid as t-bills (or even more so) because you could sell them
at any time at face value or even a slight premium in a large secondary market
with plenty of eager buyers;

* required no credit-worthiness analysis up front; and ;

* required no collection effort for a period of years (you do nothing but sit
back and collect your interest), after which you could still sell them or start col-
lecting on them and receiving an extra .6% interest?

Wouldn't that be a great deal? Wouldn’t you fight like Hell to keep it? You bet.
And the deal exists—it’s the guaranteed student loan program. But it’s a lousy deal
for the taxpayers. They'd be much better off selling t-bills themselves to finance the
loans (rather than renting banks’ capital at 2.5% more than the t-bill rate) and then


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105

Notwithstanding the expenditure of these monies, public confidence in America’s
education system appears to be close to an all time low. Parents and the public gen-
erally question whether the federal mandates in prosrams in the education area are
producing the results they desire for their children, Given that the concept of an
aggressive, expansive federal leadership role has been tested over the past decade,
I believe it is time to give state and local administrators, and even more importantly
families, the leadership opportunity.

We as taxpayers, and the Members of this Subcommittee, should ask tough ques-
tions regarding each of the federal education programs. Are students performing as
well today as their parents did? Are we rewarding dependency and mediocrity? How
can we reward quality and excellence? How can parents be given more control and
responsibility over local education? Is the public getting its money’s worth? I believe
that many of the current programs fail to positively address the standards ref
in these questions.

‘As I suggested earlier, the Congress should consider starting over with a clean
slate in determining which programs and necessary appropriations will be required
to accomplish the Department’s mission. Congressman Bill Goodling, Chairman of
the Economic and Educational Opportunities mmittee, said recently that he hopes
that the “term ‘reauthorization’ be stricken from the dictionary . . . We shouldn't
assume programs are going to continue year after year, but intensively examine
them to make sure they are still needed and achieving their purpose. Similarly, I
would suggest adding sunsets to some programs, laws and regulations.” I whole-
heartedly endorse Chairman Goodling’s suggestions.

In my view, there haa been next to little accountability for results for the taxpayer
in return for their $350 billion investment in the Department of Education duri
the last 15 years. Evidence suggests that local governmental control and responsibil-
ity is undermined by federal requirements, and paperwork preoccupies state and
local education authorities. A much simpler delivery system to states and local agen-
cies could be implemented without federal dictates and with continued receipt of
federal funds simply contingent on the recipient showing evidence that learning is
improving.

SIZE AND SCOPE OF THE DEPARTMENT

Between 1981 and 1992, there were numerous legislative and administrative ini-
tiatives to help mold the mission of this new cabinet agency. In the early 1980's a
major consolidation of 42 elementary and secondary programs took place which re-
sulted in the creation of the Chapter 2 Block Grant. During that same time period,
the student loan collection activities were privatized. Although not termed
“reinventing government” the Department was downsized from 7,500 employees, in
1980 to an average of about 4,500 employees during the late 80's and varly 90's.
At the same time, the number of programs authorized and funded by Congress grew
from 132 to 240. Clearly, more was done with less.

We are now told the Department of Education is once again reinventing itself.
Given the high-level of parental and general frustration with education quality, it
is appropriate for this Subcommittee to provide the Department with a clear indica-
tion of the direction this reinvention should take. Congress should examine several
areas of recent activities at the Department of Education and set clear priorities for
the Department. The fact that the Department already has over 5,100 employees
and plans to hire 600 employees to manage the direct student loan program is cause
for concern about the Department's mission in a time of government-wide streamlin-
ing and privatization. The direction that Congress provides for the Department's

rograms and budget should play a key role as the Department reinvents itself.
gress should examine the following areas in setting priorities for the Depart-
ment:

First, the Department has taken on a high handed regulatory effort with States,
school districts, and college campuses that should be reined in. One of the best ways
that Congress can curtail the Department's zeal to overregulate is by abolishing or
amending burdensome programs and using its oversight authority as a means for
Providing ‘a proper check and balance.

Second, the Congress, in particular the authorizing committees, should deauthor-
ize all unfunded programs. This initiative would also assist on the deregulation
front and prevent unnecessary budget battles.

Lastly, the Congress should cap or phase-out the Direct Student Loan Program.
This new program runs directly counter to the principles outlined in the National
Performance Review. Instead of streamlining the federal bureaucracy, direct lending
would grow the Department of Education as President Clinton has exempted the
Department from his Executive Order on downsizing government which has paved



34

measure has $1.7 billion that has already been appropriated for
education. And you mentioned a couple of the programs that are
involved. One is the safe school—safe and drug-free school, the
DARE program, and a number of other things, and really it is a
very active Program that we think is a real mistake to eliminate.

Mr. GREEN. Mr. Secretary, let me ask you now, here we are in
March and that is forward funding and if we rescind that money
for this current year some of our local districts have already ex-
pended that with the anticipation of receiving it in June or July?

Mr. RILEY. They probably would not have already expended it
but they are in the business of contracting with teachers now and
making arrangements for next fall so they are planning on it, if
you see what I mean. It has already been appropriated and it is
there. It is appropriated funds, and really it puts us at a little bit
of a disadvantage in education because it is kind of a temptation
to reach into those funds. It is the nature of education, is the rea-
son they are out there, but we really feel that it would be very sig-
nificantly felt in the local schools, especially something like Goals
2000, for example. As I indicated, 90 percent of those funds go
right straight down to the school district and that is a significant
cut in the rescission.

Mr. Davis. Would the gentleman yield for a second? I appreciate
this line of questioning because most of us haven’t seen the total
rescission.

Mr. SHAYS. We will allow the gentleman to have some more time.

Mr. Davis. My understanding was that the DARE money was re-
stored. It was not restored?

Ms. Kunin. No.

Mr. GREEN. And just reclaiming, let me ask and I will give you
back time.

Mr. Davis. I am just asking.

Mr. GREEN. I have the same frustration you do. I hear there has
been a cut like the 482 million. I hear rumors it is going to be re-
stored but until we actually see it Wednesday or late tomorrow
night, we won’t know for sure.

ir. DAVIS. That is why I appreciate the questioning. In terms of
forward funding, they have gone back and taken a lot at items that
haven’t been expended and this explains why.

Mr. RILEY. I do not know but I certainly hope it has been. I know
a lot of those things are in discussion now and it should be. Look-
ing at all these programs is fine but it is a right hard lick on edu-
cation to take back funds that have already been appropriated in
that fashion.

Mr. Suays. I wonder if the gentleman would yield as well? You
still have time.

Mr. GREEN. I yield.

Mr. SHays. With forward funding before October 1 people,
schools, and nonprofit organizations can request funding for this
year. However, you have not yet selected those who will get the

ants. My understanding of what the Appropriations Committee
Fas done in most cases is to not provide new funds but instead
maintain the level you are at this year. So if the rescissions go
through, you would not award as many grants, or you would an-
nounce grants, but you wouldn’t award the money.


115

Mr. HANSEN. I was talking about special education integration,
and I know there are still problems in that area too, but I think
we have come 90 yards down the field and we still need to push
it over the end zone line, but I would agree with you.

Mr. Towns. Right, I understand that, and that is what I’m talk-
ing about. We still have some problems in those areas. In fact, both
integration—but anyway, I think Secretary Riley shared with this
committee his education strategic plan, and he talked about prior-
ity areas and all of that. Are you familiar with that, his plan?

Mr. HANSEN. I have heard his testimony and read his testimony,
but I have not read the plan.

Mr. Towns. OK. Let me ask you this based on that. What are
you views on the Department’s strategy, based on your reading of
the plan and comments that you have heard?

Mr. HANSEN. In terms of their overall budget policies and what
the Secretary has said in his numerous testimonies on the Hill, I
still think that the budget at the Department, the way they are
trying to deliver the product, is pretty much business as usual of
what the programs have been doing for the last 25 or 30 years and
they are still addressing quantity and not quality.
fet ir. Towns. So it does not address the problems you have identi-

ned!

Mr. HANSEN. In my mind, they do not.

Mr. Towns. OK. Thank you very much, Mr. Hansen.

Mr. Chairman, I yield back.

Mr. Suays. Thank you.

Mr. Souder.

Mr, SouDER. Thank you.

I had _a couple of different lines of questioning, one on the direct
loans. Secretary Riley and Assistant Secretary McEwen testified
that they had sound up-to-date management practices in the Direct
Loan Program, yet I understood you to say that they had been re-
quested to make a report to Congress a year ago and that we don’t
have that. Could you explain that, how they can be confident that
they have sound management practices and yet we don’t have a re-
port yet?

Mr. HANSEN. That is a good question, and that is—actually there
is one bigger issue that I think this committee should be very con-
cerned about as well, and that is the assistant secretary for the fi-
nancial aid programs and the deputy assistant secretary, Leo
Kornfeld, who manages these programs, were basically divorced
last fall. That is about the best way to put it. The functions within
the Office of Student Financial Assistance, you now have the as-
sistant secretary for all these postsecondary education programs,
David Longenecker, managing the Pell Grant Programs, the cam-
pus-based programs, the gatekeeping functions, and the policy
functions, and you now have Leo Kornfeld who has had his office
ripped out of the postsecondary office as we have known it for 20
years, and he is now a special advisor to the Secretary handling
direct loans, guaranteed loans, and the debt collection activities.

Five years ago there was a massive study undertaken by some
of the Big Six accounting firms by OMB and GAO that said that
the gatekeeping functions, the campus-based, the Pell, and Guar-
anteed Programs need to be as tightly integrated and woven from


58

ment programs. Further, while the Department is making strides to improve the
current monitoring process, effective monitoring is an issue that remains of concern.

Program Evaluation

We conducted 8 performance audit of the Department’s Planning and Evaluation
Service (PES) to identify where improvements could be made. PES evaluations are
used both externally (Congress, OMB, educators, and others) and internally (senior

rogram officials) to make decisions concerning program direction and outcomes. We
found PES to be a highly successful and respected office by external customers and
other Federal evaluators.

Our report included 21 recommendations for improvement. Generally, our rec-
ommendations were focused in the areas of report utilization, timeliness, and dis-
semination. We recommended that program officials be identified as a primary audi-
ence for evaluation reports and that these reports be used for program improve-
ment. In addition, we recommended that ED pilot a new contract administration

rocess using teams to more effectively manage evaluation procurement. We be-
lieved that this would enhance communication and coordination. These teams would
cross organizational lines and would include contract specialists, PES evaluators,
program officials, and others. In addition, we recommended development of a system
that accumulates data on timeliness and utilization, and requires the reporting of
this information to senior management and program officials. We also recommended
the development of a dissemination process that focused on innovative and state of
the art technology, which would improve report dissemination and hence its effec-
tiveness to the customer. We are committed to working with PES to implement
these improvements.

Data Systems for Financial Management

For several years our work has identified what we believed were serious problems
with program operations related to deficient or nonexistent data systems for finan-
cial management, monitoring and policy analyses within ED. Among these problems
were deficiencies in the Department's financial management system that prevented
ED from balancing its books or generating meaningful financial reports. (We also
identified delays in implementation of the National Student Loan Data System,
which I will discuss when I deal with the Student Aid programs.)

Recently, the Department has made significant progress, but much remains to be
done to fully address earlier systems weaknesses and creation of the Direct Loan

am has meant additional demands for financial management and information

systems. (I will also discuss these later when I discuss the Student Aid programs.)

In terms of an overall system, the Department is working to put in place a mod-
ern core financial system which will replace the current Grants and Contracts Man-
agement System, the Primary Accounting System, the Payment. Management Sys-
tem, and the Central Registry System as well as add new capabilities. This system
is designed to improve service delivery, provide more timely and complete informa-
tion to respond to managers, and increase accountability through improved financial
management and evaluation. This system should be able to produce audit able fi-
nancial statements. .

‘The project is scheduled to begin implementing Phase I in October 1995, and is
expected to be fully functional by December 1997.

addition, the Department is continuing to perform reviews for several of its

larger financial systems to identify and document existing controls and to imple-
ment new controls designed to prevent errors in the future. .

We will continue to assess the Department’s progress in improving its financial
management systems.

Block Grants

We understand that Congress is considering block grant options. While we have
not performed any audits to consider whether block grants would be an effective ve-
hicle for Federal education programs, we recently reviewed the 1995 GAO report en-
titled “Block Grants: Characteristics, Experience, and Lessons Learned,” and the
1994 Department report on the Chapter 2 block grant entitled, “How Chapter 2 Op-
erates at the Federal, State, and Local Levels.” Based on our review of the two re-
ports, we believe that as Congress considers the block grant concept for other pro-
grams it should carefully consider GAO's conclusions and cautions.

GAO concluded that there were three lessons that could be drawn from the 1981
experience with block nts: (1) there is clearly @ need for accountability for results
and GPRA may provide such a framework; (2) lunding allocations based on distribu-
tions under prior categorical programs may be inequitable because they do not re
flect need, al lity to pay, and variations in the cost of providing services; and (3)
states handled the 1981 transitions, but today’s challenges are likely to be greater



112

volved in trying to make a difference, and that is basically where
I would like to be thought of and remembered as.

You mentioned the fact that the $600 million now is available to
serve the 100 schools. You know, I sort of feel that sometimes we
have to spend money to be able to put ourselves in a position to
be able to save money. So would this be a situation where maybe
we are spending money to be able to put ourselves in a position to
save money later?

Mr. HANSEN. I think, in fairness to the Department, there are
startup costs that they needed in terms of getting software devel-
oped and other activities that are associated that would be one
time startup expenses, but it should be noted that in their budget
for the next couple of years with direct lending they would require
$550 million for the upcoming fiscal year, up to $1 billion by the
end of the century each year to administratively handle this pro-
gram. I think that the cost savings that they have talked about in
their budget are illusory.

Rudy Penner, the former Director of the Congressional Budget
Office, testified last week before a Senate education subcommittee
that the Direct Loan Program in his estimation would probably ac-
tually cost more money in the long run and not save the money
that the administration is claiming it would.

One thing the administration does not talk about is, if the Fed-
eral Government is on the hook for all this loan money, just figure
the next 5 years, if tomorrow you flipped a switch and had them
take over 100 percent direct lending, there would be over $150 bil-
lion of loans made over the next 5 years. That money is not coming
out of the private sector, that money is coming, financed, by the
US. ‘Treasury, and it will add to the National Debt, and what Rudy
Penner, the former CBO Director, said last week is, that additional
$150 billion of debt will put additional pressure on interest rates
to finance the $1 trillion interest on the 4 trillion debt. If you had
jest one basis point interest rate per year increase in the interest
tate to cover—to pay for the whole National Debt, his point was
that this program would cost billions of dollars to the Nation as a
whole and to the Government in terms of how much it has to fi-
nance the overall debt.

But all of those issues are off budget. The administration only is
looking at things in the credit reform environment, and even that
environment needs to be changed, as GAO said, to where we are
now comparing apples to oranges, with the direct loan account, and
even more costs are off budget. All of the costs associated with di-
rect lending beyond year five are not accounted for. All of the costs
with the Guaranteed Program are all accounted for in that 5-year
budget window, so you don’t get a true mix, and that is what the
GAO just testified to, that there is a $2 billion discrepancy because
things aren’t scored equitably.

It is also important to note that the Department of Education,
in their budget savings estimates, are assuming there’s going to be
no defaults. The President has said you will have 25 years to pay
off your student loans, after 25 years whatever balance you owe is
forgiven. I don’t think that is, No. 1, a very good policy, but it is
also, No. 2, a budgetary gimmick to do away with billions of dollars
of defaults that accrue every year. Defaults are basically defining


76

proactive in identifying ways to streamline through program consolidation or elimi-
nation. However, it appears that there may be farther opportunities to streamline
beyond what the Department has proposed by consolidating or eliminating some of
the programs that serve the same copulation or that provide the same services.

However, additional factors need to be considered. For example, because the host
of uncoordinated overlapping federal programs has resulted in a patchwork service
delivery system, how to achieve coordinated delivery of services at the local level
needs to be considered.

In the area of the direct lending program, much is still uncertain. The Clinton
administration has proposed a major adjustment to the program, moving it from
limited voluntary participation to full mandatory participation by 1997-98. While

the cost savings cited in the Department’s budget proposal reflects an understate-
ment of the administrative costs associated with direct lending, expediting FDSLP
could still save $2 billion over the next 5 years. However, this kind of savings esti-
mate is inherently sensitive to future macroeconomic conditions, such as interest
rates and inflation levels, which precludes a precise measure of the actual budget
implications.

ir. Chairman, this concludes my testimony. I will be happy to answer any ques-
tions that you or members of the Subcommittee may have.

Mr. Suays. Thank you for your testimony, and we will begin with
Mrs. Morella.

Mrs. MorELLA. Thank you.

I thank you both for your testimony, lengthy in terms of what
we have before us and very succinct in presentation and shows a
lot of areas where we can do follow-through after oversight.

I was interested in the testimony by the Inspector General about
financial aid and vocational training and a statement you made. I
don’t know what page it was on. You said that we are training for
nonexistent jobs. I just wondered if you might follow through with
explaining how you determine that, what it is about, and of course
we can figure out what we can do about it.

Ms. VAN RIPER. My associate, Steven McNamara, is here too to
answer questions. Steve is the Assistant Inspector General for
Audit, and it is actually his area that conducted the audit in that
area. He can give you some information.

Mrs. MoreLLa. Excellent.

Mr. McNamara, thank you.

Mr. McNamara. We did a review of the cosmetology industry,
and in doing that we gathered information nationally from the Bu-
reau of Labor Statistics and also from five States. We visited em-

loyment commissions, the cosmetology commissions, we visited

five cosmetology schools in each of the five States that we looked
at.

What we concluded was that student aid did not take into consid-
eration whether there was a job available for the person when they
came out of the training, and it didn’t take into consideration how
well the school did in preparing them for an eventual job. In look-
ing at the statistics, we found that we were training far more peo-
ple in this particular industry than there were going to be jobs
available according to Bureau of Labor Statistics and other sources.

For example, in one State—I believe it was Louisiana—we were
training something like 2,400 cosmetologists a year when the fore-
casts for jobs available from Bureau of Labor Statistics was 400.

As a result of training people for nonexistent jobs and in some
cases in providing training that doesn’t equip them to get a job,
what we found is that people tend to default more and they don’t
pay taxes. In fact, in looking at the statistics in this particular case


28

loans are, will be able to pay promptly, and won’t have to go
through this labyrinth. Very often, loans are bought and sold and
ou can’t even keep track, and you may have a whole portfolio of
loans. So simplicity will help, and also greater choices in repay-
ment will help.

We are very sensitive, as you are, to the Congress’ and the Presi-
dent’s desire to find sources of savings to reduce the size of the
Federal Government. We totally concur with that, and Direct Lend-
ing, once analyzed on its merits, is a very clear route to help get
us to that place. So I appreciate this opportunity to go into a little
more detail, and we will be happy to answer any questions you
may have as we proceed.

ank you.

Mr. Snays. Thank you very much.

Just a real quick question and answer. Is the Deputy Secretary
in the Department of Education similar to other departments, fo-
cused, more on administration? Is that the way you have it orga-
nized?

Mr. RILEY. That is the way we have organized it in the Edu-
cation, and, of course, the Deputy here, so much of our work is in-
volved out into the States and the local school districts. In order
to be effective, it is very important for us to be out and have a lot
of those meetings and contacts, and, of course, the Deputy being a
former Governor also, it is just like having two Secretaries out
making those meetings, and so forth, so it works very well for that,
too.

Mr. SHays. When we had Secretary Reich here, he had a number
of different charts. Whether he would agree with me or not, those
charts built a strong case for thinking in combined terms of Labor,
employment issues and education issues. Chart after chart seemed
to document that.

One of the charts he had was a chart that you have given us.
This chart gives us the average annual earnings by level of edu-
cation from a professional at $74,000, to someone who has not fin-
ished high school at $12,800. I was thinking that the average per-
son will have five to eight different professions in the course of
their lifetime. I was thinking it is amazing, but it is only a statis-
tic, not a reality.

Then I thought about one of my brothers, who has had five pro-
fessions. I have another brother who has had six separate profes-
sions. So it gets down to this issue, why doesn’t it make sense like
Mr. Gunderson’s proposal, to combine the Department of Education
and the Department of Labor together?

They seem to be focused on the same things.

Mr. RILEY. Well, you know, you can certainly see that some of
the involvement in Labor and Education is related very clearly. As
you know, in School to Work Opportunities Act, we really handle
that jointly with Labor, and, frankly, that works very well. And
then by the same token, Early Childhood Education, all of those
preschool programs we are connected with HHS and work closely
with them,

The idea of moving Education, which is a small tightly focused,
tightly run organization, into the large office of Labor, which has
very important functions certainly to deal with all the issues in and


94

Let me follow up on what I said a while ago about the inequities
exist, and my colleague from New York talked about the inequities
even within the school districts often times, and that was the origi-
nal intent in 1965 of the Title I or Chapter 1 funding. The Elemen-
tary and Secondary Education Act was to try to take a school dis-
trict the size of Houston that is, you know, the largest in the State
of Texas, and you may have inequities within the istrict, you may
have one high school that is well funded, parent involvement, a lot
of private donations, and then you have another school that—in
fact, I attended one in 1965, the first time we received audiovisual
projectors and things like overhead projectors. We didn’t have
those, even though they were in other schools. It was to make up
for some of those inequities, and that inequity is still there in 1995
as much as it was in 1965, although now we have recognized that
we have some—we have some hardware, because I can go into my
Title I or Chapter 1 schools, and we have computers and in most
of the places they can plug them into the wall, the 30 that they
have in our elementary schools.

But there are cases where, either because of professional develop-
ment as the report showed or facilities, that they can’t utilize. As
much as we want to maybe provide a tax credit for poor people to
buy a laptop, they may not be able to plug it in.

ut that inequity is still there, and sometimes within the school
districts, and that is what that Federal funding is supposed to do,
that 98 percent of $33 billion, and it is providing that because,
again, I go to my schools at least every week, and all my schools
in my district are Title I schools or Chapter 1 schools; at least the
elementaries are.

Thank you, Mr. Chairman.

Mr. Suays. I thank the gentleman.

Mr. Souder, you have the floor, sir.

Mr. SoupeER. A couple of questions here. One, I wanted to make
a brief comment, and I assume you have some of the data in here
too, that the 2 percent, if that is indeed the figure, is around $660
million. Much of the $33 billion existed prior to the Department of
Education student loans, things like that. It doesn’t mean that
there wasn’t bureaucracy before to administer student loans and
that type of thing. But that is really what we are targeting. There
is always going to be some level of bureaucracy to handle student
loans, some level, but there is a lot of additional money that has
come in as we have proliferated the programs, and the bulk of the
$33 billion goes most likely to very few programs.

The second point: I had a question on the direct student loans
versus the other. You seemed to suggest, and it wasn’t very clear
to me, but you seemed to suggest that the Direct Student Loan
Program may be more sensitive to interest rates and fluctuations
and that was why you were having trouble estimating. Is that be-
cause the Federal Government wouldn’t have a mixed portfolio? In
other words, private lenders would have a mixed portfolio of loans?
Or is it not more sensitive?

Ms. BLANCHETTE. Well, our point is that any estimate in this na-
ture is going to be sensitive to various fluctuations, interest rating
being one. Our primary—I don’t know if I want to say primary


9

The application form is only 4 pages long. We have had 45 States
apply, and all the territories and several others will be coming in
very soon. Goals 2000 is what I refer to as a responsible block
prant, free of regulation, and in its second year, which has alread:

een appropriated since we are forward funded, 90 percent of all
funding flows directly to the local school district.

I know Congressman Green is very much into that on the edu-
cation committee. Yet we are still held accountable in that whole
series of measures, and I think it is so important that you are ac-
countable when you are spending the taxpayers’ money. A total re-
Jaxation of all accountability, I think, is a problem in many ways,
and I think the taxpayers also would be concerned about that. It
gets to be a constitutional problem also if you have a total divorce
of any accountability in terms of taxing on one level and services
on another.

We have minimal regulations with a $7 billion Title I program.
No regulations for Goals 2000 or School to Work initiative, none in
those two programs.

I intend to use the broad waiver authority the Congress granted
me last year, and we have also gone a step further and we are now
conducting a Department-wide review of all of our regulations to
sort out which ones are needed and which ones we can do without.

I point out our approach to regulations, and I am glad the Con-
gress is tuned into that just as we are. Our approach to regulations
is to develop principles for regulating. First of all, to look in all sit-
uations at the question of whether to regulate at all, then you have
to go through those broad principles of determining that. Then you
go through the question of how to regulate, and if you have noticed
the first principle—when it is essential to promote quality and
equality of opportunity in education.

In other words, for us to make the decision on a regulation, you
go through that, and then we are going to go through all of our cur-
rent regulations and put them to this same test. It is a very inter-
esting look inwardly at yourself in terms of the Department. We
are always seeking new ways to become more efficient.

Our current ceiling of about 5,100 FTEs, 5,100 is significantly
less than the 7,700 FTEs when we were part of Department of
HEW. In other words, since we have been out on our own, able to
hone in and make a more lean, a more focused Department, we
have reduced the personnel some 2,000 people and have a lot more
programs and a lot more activity to do.

Here, I want to make a point that just 2 cents of every education
dollar we spend goes to administrative costs. That is why I am
skeptical about suggestions being made to make this Department
an office once again, as it was in HEW, part of a very big bureau-
cratic organization. I don’t see that.

Probably the most important thing we have done is to provide
the Department with some stable leadership. During a 12-year pe-
riod, and I think that is really important in education, during a 12-
year period, there were 11 different appointees holding the impor-
tant job of managing the student financial aid effort. It is awfully
hard to get progress made when you have people coming in and out
all the time.


77

we found that in 1 year for the cosmetology industry about 40-plus
ercent of the people who had been through this training had de-
Faulted on their loans,

So we concluded that unless we can restructure the Title IV de-
livery of funds to consider job market opportunities, which is cur-
rently the case in the Perkins Voc-Ed Act, and unless we can intro-
duce performance measures to assure that quality training is pro-
vided, both the taxpayers and the students lose.

Mrs. MoreELLa. I would think that would be the case, and you
used cosmetology as your example. Did you look at more than one
area? I mean are there schools where people are getting loans to
learn how to do license plates beyond what we do in prisons?

Mr. McNamara. Yes, ma’am, I believe we thought we could have
picked just about any other training industry, such as truck driving
or any other. We have done many, many audits and investigations
of vocational education schools and have found many instances
where students didn’t receive a good education, where they were
due refunds, where their money wasn’t refunded, and schools were
closed.

We made a lot of suggestions in HEA reauthorization to try to
close a lot of these loopholes, and a lot of good work has been done.
but, as Ms. Blanchette said, the regulations are very recent and
they have yet to take hold.

s. Van Riper has a lot of experience in investigations of many
large proprietary schools as well.

Ms. VAN RIPER. In giving you an example of an investigation
that we conducted in the Midwest, it involved a cosmetology school.
The completion rate for students who enrolled and received Title
IV funds at that school was approximately 12 percent. Of those in-
dividuals who completed, only a very small portion went on to take
the State board license and exam, and the successful completion
rate on the State board exam was 11 percent of the total financial
aid recipients who attended that school in a 5-year period.

We costed that information out for trial purposes and found that.
if we took the total amount of financial aid that went into the insti-
tution for a 5-year period and divided it by the number of success-
ful licensed recipients, it cost the Federal taxpayers $500,000 per
jicense.

Mrs. MoRELLA. Incredible.

I remember a couple of years ago when we were looking into the
default rate in proprietary schools and the fact that some of them
were soliciting people on the phone—come and take our course, and
you can get financial aid. 1 thought we did try in the regulations
to close some of those loopholes, and obviously there are some other
areas where we need to tighten up in terms of coordinating with
the Bureau of Labor Statistics, the job market. I would think get-
ting employers involved in some way would be very helpful too in
terms of the loans.

Finally, if 1 might, Mr. Chairman, during the consideration of the
Higher Education reauthorization I made a change in the Douglas
Scholarship Pri 1m which was for future teachers to require
counselors to advise scholarship recipients about the outlook on
jobs, and this was in response to a constituent who accepted the

ouglas scholarship and after 4 years in college couldn’t find a job


83

ask them to quantify them. If they can’t quantify them, I’m going
to ask them why they can’t.

I have gone over my time, and I will call on Mr. Scarborough.

Mr. ScaRBoROUGH. Thank you, Mr. Chairman.

Mr, SHAys. I’m sorry, if you don’t mind—Mr. Green, I welcome
you. If you just walked in, I would be happy to call on——

Mr. Green, If you would call on Mr. Scarborough.

Mr. SHays. OK, Mr. Scarborough, and then we will come to you.
Thank you.

Mr. ScaRBoroucH, Thank you, Mr. Chairman. I certainly appre-
ciate your holding this important hearing and also asking ques-
tions that need to be asked.

I share with you the shock and outrage that we are spending al-
most three-quarters of a billion dollars on cosmetology in this coun-
try and I still can’t get a good haircut. [Laughter]

‘But that being said, I think the chairman’s pointed questions do
serve a very valid purpose because any time you try to hold huge
bureaucracies like the Department of Education under scrutiny you
hear a chorus of attacks from those who want to protect the large
bureaucracy like this saying you can’t cut program X or program
Y or program Z, don’t you love children, don’t you love higher edu-
cation, don’t you love all things that are right and just? Then as
long as we are staying in generalities and just saying education is
good, then we are not going to be able to move forward in the direc-
tion we need to be able to move forward and hold these institutions
accountable.

One such example of what I’m talking about has to do with the
Student Loan Program. I think everybody in here would agree that
the Student Loan Program has some very good points to it, but at
the same time it hasn’t been held up to the type scrutiny that it
needs to be held up to, and you mentioned about problems with
gatekeeping, and I would like to ask each of you to expand on that,
where we need to go in the future to make sure that schools that
fail to meet Federal requirements to participate in the student aid
program don’t continue to receive these loans, and how can we
identify the schools that are bad risks?

Mr. McNamara. Mr. Scarborough, in considering the chairman’s
previous statement of the very important areas, obviously you don’t
want to train people for jobs that don’t exist. The next thing you
don’t want to do is let schools into your program that don’t provide
quality training. That makes gatekeeping very important.

There’s a number of changes in reauthorization that are meant
to improve gatekeeping. There is one important one that I think
you might be interested in that is not there. It was called the 85-
15 rule. What this rule was intended to do was to let the market-
place dictate as a very good economic performance indicator wheth-
er schools should be in the program. Very simply put, they had to
make 15 percent of their revenue from nongovernment types of
sources. This would indicate that they really are a school and not
simply a student aid mill that is pulling people in and then not giv-
ing them any training. That would be one example. That, I think,
went through committee and didn’t make it through conference.

_ Ms. VAN RIPER. Another area of gatekeeping that is a problem
is a little further down than that, and that is in the area of licens-


5

As the Chairwoman of the Subcommittee on Technology under the House Science
Committee, and as a former teacher, I am interested in the use of technology to ex-
cite young minds. Since I have been in Congress, 1 have supported an effort to
launch a satellite dedicated to education. A satellite-based infrastructure dedicated
to education would connect classrooms across the country and bring equity to our
education system.

T look forward, to discussing with Secretary Riley DOE’s goals and objectives re-
garding technology in the classroom and plans for the Direct Student Loan Program
as we pursue the role of the DOE in the future of our nation’s educational system.

Mr. Suays. Mr. Scarborough.

Mr. ScaRBoROUGH. Thank you, Mr. Chairman.

We are honored to have you here this morning, Mr. Secretary.
I have two children myself, a 7-year old and a 4-year old, and my
7-year old is in public school. I am not concerned yet about college,
I am concerned about getting them out of first grade.

Because I have two children, obviously, this issue takes on criti-
cal importance for me. As I go around the district, and as I have
been going around the district for the past year or so, I have heard
a lot of people concerned about the Department of Education and
what its mission should be on the Federal level.

Many of my constituents and others around the country have
pointed to the fact that since the agency was formed in 1979, test
scores haven’t shot up, we still have problems with dropout rates
and violence in schools, and to many Americans on all sides of the
political spectrum, they are beginning to question what exactly the
Department of Education’s mission should be in Washington. These
questions have been very pointed, as I am sure you are aware of,
and they have come from all sides of the political spectrum.

We have had former Secretaries Bennett and Alexander, OMB
Director Alice Rivlin, Leon Panetta, Majority Leader Dole, George
Shultz, many Governors and, of course, parents across the country
believing that a lot of the tax revenue and authority should return
to the States. So what I am interested in hearing today, is what
mission you feel the Federal Government has, and what functions
can we trust back with parents and teachers and communities on
the State and local level. I think we are fortunate to have former
Governors here who understand the federalism questions involved
in education.

And so if you could address, first of all, whether you think it is
a desired goal to return education back to the communities, and
then second, whether you think it is feasible. I look forward to your
testimony.

Mr. SHays. Mr. Davis.

Mr. Davis. Thank you. I will be very brief.

I just want to note that as the former head of the government
in Fairfax County which funded the School Fair, that we are seeing
more and more students entering our school system there as the
second phase of baby-boomers start to come into the public school
system. And we are having tremendous expansion problems out in
my district in tying to get enough school classrooms ready for the
rising number of students.

In the 1970's, in the same suburbs, as they were growing, that
these suburbs were growing, student population continued to de-
cline, but you know how that is reversing itself, it is putting a tre-


111

Mr. Suays. So it is a success from the standpoint of the partici-
pating institutions that were able to deal directly with the stu-

ents.

Mr. HANSEN. And the funding stream that has gone directly to
students. People cannot take that away from the Department, from
the Direct Lending Program.

Mr. Suays. This was a program promoted originally by the Bush
administration. Didn’t they promote it?

Mr. HANSEN. No. The Bush administration fought the program
very diligently, and in fact the President at that time threatened
to veto the Higher Education Reauthorization Act in 1992 because
a pilot program for direct lending was included.

Mr. SHays. My recollection was that the idea originated in a Re-
publican administration. Was it promoted by the Reagan adminis-
tration at first?

Mr. HANSEN. No. There have been ideas kicking around about
different elements to it. There are—and I hope the authorization
committee maybe in 1997 looks at a hybrid of taking the best ele-
ments of all these different ideas that are out there about how
money should get into schools’ and students’ hands and how it
should be collected.

And as I also indicated earlier, the private sector has had its
problems over the years. The Congress was hands off for years, as
was the Department of Education. Not just this administration but
previous administrations probably didn’t do as good a job as they
could have. So there is plenty of blame to go around, but there is
also, I think, plenty of good alternatives to look at in the future on
how best to create the best delivery mechanism and the best collec-
tion mechanism for—this is a multibillion-dollar—there are $80 bil-
lion of outstanding loans out there, this is not a small program,
and over 20 million students are in repayment.

Mr. Suays. Eight billion in the new direct loan?

Mr. HANSEN. Eighty billion total.

Mr. SuHays. Total, OK.

Mr. HANSEN. What has been made over the last 20 years. There
were almost $200 billion in loans made over the last 20 years.
About $80 billion of those are still in repayment, and, again, the
Department this year in direct lending made about $1 billion of di-
rect loans, and that is what they are claiming success on.

Mr. Suays. Thank you.

Mr. Towns.

Mr. Towns. Thank you very much, Mr. Chairman.

Mr. Hansen, let me thank you again for coming to testify, and
of course I remember you, I remember your great work years ago
in the Department, during the, as you indicated, the Ted Weiss
days, and let me sort of ask you these questions, and I feel that
I need to sort of say this so you can help me through this process,
and I’m really just sort of seeking information to see in terms of
what role we might be able to play as some of these proposals con-
tinue to unfold.

I don’t consider myself a conservative, I don’t consider myself a
moderate, I don’t consider myself a liberal, I don’t consider myself
any of those titles, I consider myself a practical political person in-


BL

Mr. SHays. Why not?

Ms. VAN RIPER. Because there is no way at this point to tell what
the magnitude of the problem is except to say that it is com-
mon——

Mr. SHays. Think about this for a second. Are yu telling me
that you think that this is the most serious problem?

Ms. VAN RIPER. Yes.

Mr. SHays. And you have just given me, in my judgment, a very

eneral statement. Now I’m going to illustrate the type of specific
information I’m interested in. In a statement from your office on
March 12 regarding the training of cosmetologists, the Inspector
General’s Office said in 1990, over 96,000 individuals nationwide
became newly licensed cosmetologists. That begs the questions,
how much did it cost to train these individuals, and what are their
job prospects? And then the report goes on, “We estimate that over
$725 million in Title IV funds were expended to produce the 96,000
licensed cosmetologists in 1990.”

It just boggles my mind that we are spending nearly three-quar-
ters of a billion dollars on cosmetology. Then it goes on, “Consider-
ing all funded sources, we believe taxpayers and students may be
spending over $1 billion annually for cosmetology training. Job
prospects for the 96,000 cosmetologists training each year are dis-
mal. The current supply of cosmetologists already far exceeds the
demand.”

Has that problem been taken care of?

Mr. McNamara. No, sir. Mr. Chairman, I think we probably mis-
interpreted the point of your question having just spoken to the re-
port that you mentioned.

Mr. SuHays. Right.

Mr. McNamara. I think what we interpreted your last question
to be, was, is there one abusive issue that the current reauthoriza-
tion hasn’t fixed, or one thing yu can put your finger on; we re-
sponded, refunds. I think clearly you are right. If you think of it
from the very big picture, we are spending millions to train people
in occupations that might not——

Mr. SHAys. This is going to be a lesson for both of us, and it is
not meant to be unfriendly, it is just meant to make us both more
effective.

This subcommittee is constantly told of inefficiencies. I just make
the assumption that all government is inefficient. I have come to
that assumption. So now I have to get to another level. And the
other level is, well, what are we going to do it about it?

I'm just telling you, that this report caught my attention. In your
testimony, how would I have known about it? This is a serious
problem. This is almost $1 billion of absurdity.

But let me give you another example of how my mind is working.
In another part of your testimony you are giving me, I think, very
specific type of comments. I’m on page 22 of your statement, on the
Federal Pell Grant Program. It says, “The Pell grant financial man-
agement system authorizes and tracks Pell grants of over $6.2 bil-
lion at approximately 6,700 participating institutions. Since our
earlier testimony, we completed our survey of the Pell grant system
and identified several areas with potential serious control weak-
nesses. In September 1994, we issued an audit report that ad-


107

education as it reviews the Department as a whole and every individual categorical
program within the Department.
. Chairman, thank you for the opportunity to appear before the Subcommittee.
} will be happy to respond to any questions you or Subcommittee Members may
ave,

Mr. Towns. Thank you very much.

Let me just sort of caucus here with the members. We have, I
think, 6 minutes left on the vote. I think we need to recess and go
vote.

Mr. GREEN. I don’t know when our chairman is going to be back
because I know he went to vote and was trying to get back before
so we wouldn't take the time of the folks who are here. I will be
glad to stay. If I have to go vote I can run over in 5 minutes. I

ave to leave though and go, and I would like to at least ask some
questions.

Mr. Towns. Then why don’t I just leave you to recess.

Mr. GREEN. And we will hold it. Thank you.

Mr. Hansen, I appreciate your being here because since I'm on
the other committee and served 20 years in the legislature and the
last 7 in the State Senate on the education committee, knowing
what little bit of money we received from the Federal Government
and now last year going through the reauthorization of elementary
and secondary, frankly, I agree with Chairman Goodling that “re-
authorization” is a Washington title. I would rather see a sunset
measure on every Federal agency and every Federal program.

Of course I would also probably be there defending the Elemen-
tary and Secondary Education Act under a sunset because the
work and the study that you quote from 1991 in Ohio particularly,
I heard the same thing from my superintendents in Texas, but we
tried to change that. ‘And I think except for some policy decisions
that were made by the committee and the conference committee on
what we had to do or what politically they wanted to do, whether
it was prohibit schools, they all had to have a gun policy. Well,
again, I don’t think that was the best coming from Washington, be-
cause I know all my school districts have a gun policy.

But I think the frustration from the eighties and the 1991 study
was built into the ESCA reauthorization last year and, again, the
combination. You heard the testimony. The Department of Ag has
a lot of programs on education, and hopefully this committee will
do some of that and combine those programs not just in the De-
partment of Education but within other Federal agencies so we can
say who is the boss, and if the program is broken let’s go to that
one person and say OK, what's wrong with it, and we can fix it,
because that is the frustration at any level of government as well
as the Federal Government.

With that, I’m going to recess the committee until we can get the
chairman back, the real chairman.

[Recess.]

Mr. Suays. We will reconvene this hearing.

Mr. Hansen, you basically have concluded your statement. Is
that correct?

Mr. HANSEN. Yes.

Mr. Says. I would love it if, for my benefit, you would just sum-
marize your key points in a minute or so.


92

Ms. BLANCHETTE. Well, that’s a broad mandate and a broad
question.

We Scarporoucu. I could make it more specific if you would
Ke.

Ms. BLANCHETTE. It would help.
bin” ScaRBoroucH. Of course I would have to lead you a little

it.

But if we are spending $33 billion a year on a Federal education
bureaucracy that was established in 1980 to improve the quality
and usefulness of education and yet we have seen since 1980 test
scores go down, violence in schools go up, dropout rates go BR:
would you characterize that as the Department of Education fulfill-
ing its mission on a Federal level? Is that more specific?

Ms. BLANCHETTE. It is more specific, but I’m afraid it’s a trick
question. As we said earlier, most spending on the local level is
from local sources or State sources, not Federal sources, so I don’t
know that you can attribute failures to the lack of the Federal ef-
fort. At the same time, as we have been talking this morning, there
are a number of problems in the Federal implementation of edu-
cation programs.

Mr. ScARBOROUGH. Could I ask the other two of you to respond?

Mr. McNamara. Mr. Scarborough, I think the point about the
spending should be that the bulk of the spending is in the form of
elementary and secondary formula Grants, large grants to the
States, and in postsecondary it would be for guaranteed loans or

ell grants.

I have heard—I think the Secretary testified that about 2 per-
cent of our budget is actually for people that work at the Depart-
ment; the rest is going out to one of the 240 programs on the one
side or student aid on the other.

In terms of services, the services to the students are being ren-
dered ultimately by the schools that they are attending if they are
going to higher education, and the largest part of the money fund-
ing flementary and secondary comes from local, not the Federal
level.

Mr. SCARBOROUGH. Would you like to respond, or did they do a
good job for you?

Ms. VAN Riper. They did.

Mr. Scarsoroucu. OK. Fantastic.

What it sounds like you all are saying is, we are raising $33 bil-
lion in education revenue from local communities comes up to
Washington, and, let’s face it, that’s $33 billion on education reve-
nue that is coming to Washington before it gets sent back out to
the States. And it appears that you all are saying well, it is only
a small percentage of the money that is spent on the focal leve
and if there are problems the problems may come from the Tocai
level, and I think that you said that the Department of Education
only spends a little bit of money up in Washington. But I haven't
seen any reference to a report I saw in a newspaper about a month
ago that I think vividly illustrates a lot of Reople’s concerns with
the Federal education Yureaucracy beyond the cosmetology exam-
ple, and that is, this next year the Federal Department of Edu-
cation is going to slash $100 million in upkeep of local schools in-
frastructure.


60

assistance with asset forfeiture cases. These cases are resource intensive and re-
quire highly trained staff; they ire extraordinary expenditures, such as for title
searches and asset locating data bases. Not only does asset forfeiture remove the
financial incentive from financial crime, but it potentially provides an additional
source of funds for our resource-intensive financial fraud cases.

STUDENT FINANCIAL AID ISSUES

Mr. Chairman, I have discussed so far issues which apply to ED programs and
operations generally. The challenges | have identified need to be considered for the
redesign and operation of existing ED programs as well as in formulation of any
future program or activity.

Because the Student Financial Aid (SFA) programs constitute such a large portion
of ED operations and funding, and because of our significant work in this vulnerable
area, I would like to focus now on what we view fa the key opportunities for improv-
ing the Gesign, operation and accountability of the Student Ald programs.

e Student Financial Assistance programs, authorized under Title IV of the
Higher Education Act of 1965, as amended, are designed to provide access to post-
secondary education and training to financially needy students through Federal as-
sistance. This assistance is in the form of Federally guaranteed loans, grants and
work study programs, These programs, however, have been those most vulnerable
to fraud, waste and abuse. Beginning in 1993, the Department was presented a new
challenge which was to design and implement a new Federal Direct Student Loan
program.

e significant problem the department has experienced in the administration of
the SFA Programs can be attributed, in part, to the complexity and design of the
programs and the multitude of entities the Department has had to rely on to assist
it in administering the programs. These include approximately 8,000 postsecondary
institutions, 80 accrediting agencies, numerous state licensing boards, 40 guaranty
agencies, 7,000 private lenders, many private contractors, various secondary mar-
kets, and numerous third-party services.

Although we have reported on deficiencies in the administration of, and abuses
by participants in SFA programs since 1980, these programs continue ‘ss the num-
ber one high-risk area for the Department. Discussed below are the issues that we
consider most vital to the efficient and effective use of the SFA funds. As with is-
sues discussed previously, the following concerns are presented as they related to
program design, program operations and program accountability.

SUCCESSES & CHALLENGES IN SFA PROGRAM DESIGN

Usefulness of Vocational Training

As currently designed, the system of Title IV funding for vocational training af-
fords little assurance that the training provided to students is helping them obtain
gainful employment. Reports issued in 1987 and in 1993 noted that individuals were

ing trained, with a heavy investment of Federal funding, for nonexistent jobs. Our
1993 report pointed out that student aid programs are structured to make funds
available to students without regard to labor market needs or to the performance
records of schools. We believe that the statutory purpose of preparing students for

‘inful employment in a recognized occupation could be better accomplished and
limited Federal vocational training finds more effectively utilized with a revision of
the current funding system.

Under the current method of funding vocational training, a participating school
can enroll as many students as possible and disburse as much student financial aid
funding as is available. Because there are no performance standards for student
achievement, there is little incentive for a school to be overly concerned about how
many of its students graduate and find jobs. School recruiters can promise glamor-
ous, high-paying careers to prospective students, but graduates often receive much
less than was promised.

Many students enroll in vocational training programs, incur significant debts, and
then are unable to find work because they have been trained in fields where jobs
are unavailable. These students often feel victimized and default on their student
loans. They are ineligible for additional aid by virtue of their defaults and are there-
by hindered in their pursuit of other education and career options. Students and
taxpayers lose under this system. Our 1993 report pointed out that it is time for
funding approaches that would maximize the return on the SFA funds invested and
provide incentives for schools to do better. It is not unreasonable to expect an ade-
quate return on the billions of dollars in SFA funds invested in vocational training.

Specifically, our 1993 report recommended that labor market needs and the per-
formance of schools in graduating and placing their students be considered in SFA



56

Performance Standards and Measures

A second program design challenge facing the Department relates to the need for
program performance standards and measures. To ensure that money spent on Fed-
eral education programs brings about desired changes, it is critical to clearly stale
the outcomes expected. Thus, the establishment of program performance standards
should be the cornerstone of an effective program oversight system. Until recently,
few Programs in the Department had requirements for performance standards in
statute.

In August 1993, Congress enacted the GPRA which requires Federal agencies to
develop outcome measures for all Federal programs. Strategic plans for program ac-
tivities are required by fiscal year 1997 and beginning with fiscal year 1999, per-
formance planning for the overall budget is required.

Further, recently enacted legislation for some Departmental programs provides a
framework for standards and measures. For example, the enactment of the Goals
2000: Educate America Act marked the beginning of a new approach toward school
reform. Goals 2000 provides a framework for meeting the Nationa] Education Goals
and asks states and communities to reform their education systems through the de-
velopment and implementation of comprehensive improvement plans Sased on
standards and high expectations for all students. In addition, the L also requires
the Department's grantees to develop standards and program assessments. While
states and communities will have maximum flexibility to develop standards, they
will also be held accountable to meet their stated standards.

For instance, schools participating in the $7 billion Title I program (formerly
Chapter 1) will be required to demonstrate, based on the State assessment and
other measures adequate yearly progress toward attaining the high State perform-
ance standards. Schools failing to make adequate progress will be identified for im-
provement and receive technical assistance. If, after two years in school improve-
ment, the schools still fail to make adequate progress, the Local Education Agency
(LEA) must, in most instances, take corrective actions, such as instituting alter-
Rative, governance arrangements or authorizing student transfers to other schools.
The LEA, however, could take such actions anytime after schools are identified for
improvement.

1994, during the deliberation of the IASA, we provided our assessment on the
feasibility of providing incentives in the Title 1 program that would help motivate
LEAs to find ways to improve the academic success of educationally deprived stu-
dents. We concluded that Congress needed to establish performance based tech-
niques in statute to reward LEAs and schools that succeeded in accomplishing their
goals under the Title 1 program. A similar idea was included in the Department's
proposal for IASA and eventually was included in the legislation.

e Department recently issued its strategic plan which contains performance in-
dicators ‘or its four priority areas. The prionties include: 1) helping students reach
challenging academic standards; 2) school to work; 3) postsecondary education and
lifelong learning; and 4) transforming the Department into a high performance orga-
nization. The Department is also developing program performance measures for its
largest programs consistent with the programmatic priorities in strategic plan.

The Department is progressing in & positive direction towards implementing per-
formance based measures. However, this is an extremely large undertaking and will
not be completed overnight. Further, we are concerned that deregulation initiatives
that could affect record keeping requirements are being considered by the Depart-
ment and Congress that may have detrimental effects on the ability of the Depart-
ment to measure programs efficiently and effectively. Without adequate record keep-
ing requirements, we are concerned that the necessary data to make performance
assessments may not be available. Further, without minimum requirements to col-
lect performance data, it is questionable whether data that might be collected by
program recipients (e.g., State and local education agencies, etc.) would be consist-
ent or useful.

Performance standards and measures are critical to determining and assuring the
success of Department programs. This is an important initiative and we will con-
tinue to work with the Department to assist in this process.

More Equitable Funding

Improving the manner in which ED programs are funded remains a challenge.
Many of the Department’s largest grant programs are funded based on formulas
that use numbers of students multiplied by an adjusted per pupil expenditure fig-
ure. The “numbers of students” part of the formula is often developed through some
form of child count. The expenditure part of the formula is based on cost informa-
tion and attendance data kept by State and local educational agencies, Over the


18

280

8

Mean Score

240

220

L L

200 Lt L
1982 1986 1990 + 1992
Year

(Source: NAEP 1992 Trends in Academic Progress}
NCES



at

(B) have (A) filed an application with the Pell Grant processor for such
institution for such enrollment period, and (B) received from the financial
aid administrator of the institution a preliminary determination of the stu-
dent’s eligibility or ineligibility for grant under such subpart 1.

(2) In order to be eligible to receive any loan under section 428A for any pe-
riod of enrollment, a student shall—

(A) have received a determination of need for a loan under section
428(a2XB) of this title;

(B) if determined to have need for a loan under section 428, have applied
for such a loan; and

(C) has applied for a loan under section 428H, if such student is eligible

to apply for such a loan.
(3) A student who—

{A) is carrying at least one-half the normal full-time work load for the
course of study that the student is pursuing, as determined by an eligible
institution, and

(B) is enrolled in a course of study necessary for enrollment in a program
leading to a degree or certificate,

shall be, notwithstanding paragraph (1) of subsection (a), eligible to apply for loans
under part B or D of this title. The eligibility described in this paragraph shall be
restricted to one 12-month period.

(4) A student who—

(A) is carrying at least one-half the normal full-time work load for the
course of study the student is pursuing, as determined by the institution,
ani

(B) is enrolled or accepted for enrollment in a program at an eligible in-
stitution necessary for a professional credential or certification from a State
that is required for employment as a teacher in an elementary or secondary
school in that State,

shall be, notwithstanding paragraph (1) of subsection (a), eligible to apply for loans
under part B, D, or E or Avork-seudy assistance under part C of this tithe

Mr. Davis. It looks like a great need across this country over the
next few years to build more schools and expand existing schools,
I am talking about the physical structure. It is not just our district.
You have come out with the numbers in terms of this second wave
of baby boomers, the echo I think you called it of the baby boomers,
as they have their children later and they now come into the public
school system,

Any Federal strategies for helping localities on that? A number
of the localities are really strapped in terms of their bonding capac-
ity and what they can do at the local level to finance that, and
sometimes with infrastructure we can do better in terms of what
you can do.

Mr. GREEN. Mr. Chairman, if the gentleman would yield, typi-
cally on the Federal level we don’t & for infrastructure, but we
have $100 million. It was authorized last year, but that was even
from the administration, it was part of the rescission suggestion,
well, the current administration, I think. A part of the President’s
rescission package included rescinding the authority for the $100
million for structure.

Mr. RILEY. It is 35 now.

Mr. Davis. $100 million, we could do $100 million a year——

Mr. GREEN. $100 million a year, we could do it in the State and
it would be just a burp instead of an echo.

Mr. Davis. It wouldn’t even have to be direct dollars. I don’t
know if there are other innovative ideas in terms of—there are tax
free bonds, but that seems to be, as I look at school districts across
our State, one of the great concerns in meeting the need is the cost
of the infrastructure.


51

Mrs. MorELLA. Thank you. Thank you, Mr. Chairman. I appre-
ciate also your holding the hearing to examine ways that we can
cut spending at the Department of Education. I think these hear-
ings of oversight and then looking closely at what we can do to con-
solidate and have high efficiency are very, very valuable.

When Secreta iley testified before this subcommittee last
month, he talked about consolidating programs. It is my under-
standing that many of the programs that were under the Depart-
ment of Ed target, the same population and provide the same serv-
ices. The Inspector General points out that there are 19 programs
at the Department of Ed that address early childhood education.
Three other Federal agencies oversee 22 programs that also ad-
dress early childhood education. The General Accounting Office has
identified 86 teacher training programs at nine separate Federal
agencies, and clearly the consolidation of overlapping programs is
appropriate as we strive to make government more efficient and
cost effective.

There has been a great deal of skepticism about the new Direct
Student Loan Program which was started last year. Education
Daily went to the source and surveyed the 104 schools currently
participating in the program. They found that, “the vast majority
of schools in the direct lending program rate it exceptional, and
would recommend it to other schools.”

Financial aid officers reported that under the Direct Student
Loan Programs students receive their loans faster, which stream-
lines the administrative work. Students report that. they. under-
stand the DSL Program more easily than the Family Education
Loan Program. The Department of Ed hopes that the DSL program
will replace the FEL program by 1998, and it has been estimated
that the DSL will generate $4.3 billion in savings over the next 5
years. I would be interested in your comments on that.

Not all students want to pursue a higher education, and I’m con-
cerned that students who want to get a job after high school are
not prepared for the dramatic changes in the marketplace. If we
are to be competitive and productive we must train and educate
workers to most employers’ needs, and as we face the challenges
of rapidly changing technologies the role of the Federal Govern-
ment in education and employment will be important. One rec-
ommendation that you know full well by Congressman Steve Gun-
derson is to merge the Department of Education and the Depart-
ment of Labor, and I look forward to exploring this issue with the
expert witnesses who are here today, Mr. Chairman, and I appre-
ciate their willingness to share their expertise on streamlining the
many worthwhile programs within the Department of Education.

I thank you.

Mr. Suays. I thank the gentlewoman, and if at this time we
could do what we do with every witness, and that is to swear them
in. My understanding is, Ms. Blanchette, you have some others
who have accompanied you and I would ask them to stand at the
same time so we wouldn’t have to swear in twice. Would you raise
your right hands, please.

[Witnesses sworn.]

Mr. Suays. For the record, the witnesses all have answered in
the affirmative. I would invite our first witness to testify, the As-


80

Mr. SHays. Can you make reference to your testimony, your con-
cern with that specific area right now?

Ms. VAN RIPER. Page 24.

Mr. SHays. Tell me what you think is the most serious. I want
something specific, I want something tangible, not that there are
inefficiencies. I want some specific statement or data that gives you
the feeling this is the biggest concern. While you are thinking
about that, I welcome Mr. Souder and Mr. Scarborough, who are
distinguished members of this subcommittee. We will be calling on
them for questions in a second but note for the record that they are

ere.

Ms. VAN RIPER. The failure to make refunds affects all of the
Title IV programs, but it particularly impacts on students who bor-
row funds through the loan programs. The schools are required
under current regulation to refund that portion of the tuition back
to lenders in the area, when the students have received guaranteed
student loans, for that portion of the division that has been un-
earned because a student has withdrawn during the refund period.
We have had many, many cases where schools have failed to make
those refunds back to the lenders for students who have withdrawn
during the refund period.

Mr. SHays. That is a general statement. Give me some specific
data to back that up.

Ms. VAN RIPER. It is the most common finding in program re-
views and in audits of postsecondary institutions.

Mr. Suays. I’m just trying to have a sense of how I wade through
what, to me, were very important statements from both of you. To
say there are inefficiencies has already been accepted, so it goes in
one ear and out the other. I want you to give me a number. Give
me a sense of proportions here and then show it to me in your
statement. If you think this is the most serious challenge, I would
like to see how you portray that in your statement?

Ms. VAN RIPER. bn page 24, I indicated here that it is, again,
the most common finding, although we are not able to accurately
quantify the magnitude of the problem because of the way that pro-
gram reviews and audits are conducted, they do it on a sample

asis, but we do know that it is the most frequently cited finding
in institutional reviews.

Mr. SHays. I’m a Member of Congress listening to a report from
the Inspector General. I have asked you what you think is the most
serious problem. Tell me in your statement how I would learn that
that is the most serious problem? Give me a specific sentence, or
statements, that would alert me to that fact.

Ms. VAN Riper. I think it is a statement that says first of all that
students——

Mr. SHAys. What line are you on?

Ms. VAN RIPER. I’m on the fifth line.

Mr. Suays. Of page 24?

Ms. VAN Riper. Yes, that the students are being victimized by
the schools’ failure to make them, and when the defaults result as
a matter of course after that, that the taxpayer is victimized as
well,

We did not quantify in the statement the magnitude of the prob-
em.


13

In Maryland and Virginia, high school enrollments will rise 35 percent. Florida
will see a 36 percent increase. New Jersey will be up 28 percent. Connecticut projec-
tions are at 21 percent and Texas can expect a 25 percent increase.

That’s a lot of teenagers. The vast majority of our young people are growing in
a responsible way, but crime experts are already sounding the alarm that the sheer
numbers of young people will lead to rising homicides and other youth violence. I
get worried when Tece a headline that reads, “Teen Bloodbath Looms.” If we have
any sense at all, we need to give all of these young people the hope of a good, first-
class education based on high academic standards.

The surest way I know to create an an; 16-year-old illiterate dropout is to give
that young person a watered down curricalum from first grade on which tells him
in no uncertain terms: young student, you aren’t good enough to learn anything
hard, so why even try.

We are going to have our hands full as a Natio
these young people can do college work and get high-skilled jobs; second, in keeping
them out of trouble, away from guns and drugs; third, making sure we help middle-
and lower-income families finance their children’s college education or some other
form of postsecondary education.

I believe the American people have a clear view of the future-that the reduction
of the deficit and investing in education are two of the most important and essential
ways we can secure this Nation’s future economic prosperity.

first in raising standards 80

EDUCATION AS A NATIONAL PRIORITY

If you look at our nation’s history-going all the way back to Morrill Act in 1862
during the middle of the Civil War-the American people have always turned to the
Federal government for support in education during times of great economic transi-
tion-just like the one we are going through now-or times of national emergency
when our national security was at risk.

In 1917, during the middle of World War I, the Congress passed the Smith/
Hughes Act to advance vocational education as the. United States fully entered the
industrial era.

When millions of GIs came back from World War IT, we sent 2.2 million of them
to college on the GI Bill and started to expand the American middle class. Between
1948 and 1973, for example, one fifth of our Nation’s growth in GNP was directly
related to access to higher levels of education.

When the Russians woke us up by flying Sputnik over our heads late at night-
a few of you may remember that experience-Congress passed the 1958 National De-
fense Education Act, which sent millions of Americans to college and educated a
generation of scientists who helped us to win the Cold War.

In the 1960s, this country faced up to its civil rights obligations and started help-
ing disadvantaged and poor Americans to learn their way out of poverty. Congress
passed the Elementary and Secondary Education Act in 1965, the Higher Education
Act in the same year, and created Pell Grants in 1972. What was the result?

Well, one result was that the achievement gap between blacks and whites, as
measured by reading and math scores, began to shrink through the mid-1980s, and
the high school graduation rate for African Americans doubled over the past 20
years.

The Federal government provided the means to give millions of Americans a first
opportunity to go to college. Between 1964 and 1993, college enrollment nearly tri-
pled, from 5 million to 14 million, and the number of bachelor’s degrees awarded
to black and Hispanic students rose by more than 50 percent.

Today, the Department of Education provides 75 percent of all postsecondary stu-
dent aid, continuing a national commitment dating back to the 1944 GI Bill. Here’s
another way to think about it-in the last 20 years, 40 million Americans have used
a Federal student loan to finance their postsecondary education. That’s a lot of peo-

ple.

I want to suggest to the Committee that the American middle class is what it is
today, in large part, because the American ‘people have made access to a higher edu-
cation a national priority. Approximately million students are currently going to
college or getting some other form of postsecondary education with our help.

e Department of Education also makes. a strong effort to help parents prepare
their children for college. We publish a “Preparing Your Child for College” resource
book and every year we publish a very popular guide to Student Financial Aid.

The Department translates the American commitment to access, equity and excel-
lence in other ways as well. In a given year this Department will:
Help approximately 6 million disadvantaged children reach high standards.



55

today are based on our years of effort in fulfilling our statutory mandate to provide
independent and objective recommendations to the Department and the Congress
concerning prevention and detection of fraud, waste and abuse in and improving the
economy, efficiency and effectiveness of ED programs and operations.

airman, you have asked that my testimony today focus on the Depart-
ment’s successes, remaining challenges and on-going efforts to improve efficiency
and accountability in Departmental programs. I can best respond to this request by
offering our views of these topics in three areas; program design, program operation,
and program accountability. 1 will first discuss these three areas as they apply gen-
erally across all ED programs. I will then deal separately with these areas as they
apply to the Department’s student aid programs which, as you realize, constitute
a major portion of ED’s activity and which have been a primary focus of our audit
and investigative work for several years.

SUCCESSES & CHALLENGES IN DESIGN OF ED PROGRAMS

Since early 1998, we have reported on and testified regarding the issue of pro-
am design and have identified program fragmentation and duplication and the
fack of program performance standards as concerns, We have also identified the
need for more equitable funding formulas for some major ED programs. While much
progress has been made in certain areas, challenges stil] remain in others.
Program Fragmentation | Duplication

Fragmentation in the way ED’s programs were created and administered has been
a hindrance in carrying out its mission and working toward attaining the National
Education Goals, As new initiatives have arisen, new programs have been created
or amendments added to existing programs. Programs targeting similar initiatives
have sometimes been administered by different principal offices in the Department,
creating overlap and coordination problems.

For instance, there has been a need for an overall strategy to coordinate the fund-
ing for provision of technical assistance, information dissemination, and related
services of the Department. Our 1991 report on this issue pointed out that a lack
of coordination in the creation of program-specific legislation authorizing the cre-
ation of clearinghouses and technical assistance centers contributed to the existence
of services that may have been duplicative or unnecessary. The recently enacted Im-
proving America’s Schools Act (ABA) requires the consolidation of technical assist-
ance into 15 comprehensive centers that will provide technical assistance for ele-
mentary and secondary programs administered by the Department. These cross-cut-
ting centers should enhance collaborative efforts among programs to ensure cus-
tomers’ requests are responded to in an effective and ellicient manner so that the
service is no longer fragmented or duplicated.

In a recent review, we reported that there were many programs at the Depart-
ment that address early childhood education with little or no collaboration. We
found that there were at least 19 different programs at the Department that ad-
dress early childhood education. In addition, we estimated that three other Federal
agencies operated another 22 programs dealing with this area. We suggested that
the Secretary develop a national policy to focus all resources toward the most effec-
tive early childhood strategy.

In the past year, several pieces of education legislation were enacted that should
help to assure better coordination. Goals 2000: Educate America Act (Goals 2000)
and IASA strengthened the requirements for collaboration among programs admin-
istered by the Department. These requirements extend beyond programs adminis-
tered by the Department to include programs administered by other Federal, state,
and local agencies. For example, Title 1 legislation under IASA requires activities
that will increase coordination between the loca) educational agency and the Head
Start agency, and if feasible, other early childhood development programs.

Also, the Department's efforts to increase coordination within programs and with
other agencies has increased significantly. The Department created eross-program
fours within Education, as well as other Federal agencies, to foster coordination.

xamples include coordination between the Department of Health and Human Serv-
ices ond ED on Head Start, and the Department of Labor and ED on School-to-

fork.

In previous budget submissions, the Department recommended that certain pro-
grams be eliminated or combined. However, the majority of these programs were
Continued pending resolution of the FY 95 recessions. As a result, ED continues to
administer approximately 240 separate programs. In its FY 1996 budget request,
the Department has proposed eliminating or consolidating 68 programs totaling
about $756 million. We believe this proposal, if enacted, will be a frst and major
step toward correcting program duplication/fragmentation in ED.



Zz

We consider this a very informal session, though it is on the
record, and you are under oath. We just find this a very inform-
ative way for us to begin our work for the next 2 years.

At this time, I ask unanimous consent that all statements can be
condensed, and the full statements be included in the record by
those who are testifying. I am also going to ask unanimous consent
that Members be permitted to insert opening statements for the
record. And ask for unanimous consent to leave the record open for
3 days to allow Members who aren’t here to submit statements for
the record.

And I call on Mr. Green who is representing the ranking member
and ask if he has any words he would like to say.

(The prepared statement of Hon. Christopher Shays follows:]

PREPARED STATEMENT OF HON. CHRISTOPHER SHAYS, A REPRESENTATIVE IN.
ConaRrEss FROM THE STATE OF CONNECTICUT

We welcome our witness today, Richard W. Riley, the Secretary of Education, who
will help us begin our oversight process on this department, We start by asking him
to describe the department’s mission, its strategy for the future, and its problems
and opportunities.

As in all our oversight hearings, we will raise basic questions about the depart-
ment and its programs and policies. What is its current mission? Is the mission
being fulfilled? Is the current mission still appropriate in 1995? If the department.
and its programs did not already exist, should the federal government now go into
that activity? These questions must be asked about every policy and program.

The question of the department’s core mission is particularly timely. There are
Proposals from two former Secretaries of Education to abolish the department.

‘here are other proposals calling for the consolidation of DoEd with the Department
of Labor, and perhaps other related agencies, into a single department. From an
intergovernmental perspective, the states and localities have primary responsibility
for education. The federal role must be very carefully considered.

We look forward to hearing the Secretary's plans for streamlining the department,
reducing costs and improving efficiency. We will pay special attention to initiatives
to consolidate, coordinate and eliminate the many redundant government programs
in education and training.

There are 163 federally funded programs, 61 of which are in DoEd, providing em-
ployment training assistance being adninisvered by 15 government agencies, accord-
ing to the General Accounting Office (GAO). These programs reach the same clients,
share the same goals, and offer similar services. Yet, each program and agency has
a separate staff to manage and oversee clearly duplicative programs.

The FY96 budget request for DoEd is $30.4 billion, down $1.4 billion or 4.4%,
from the revised FY95 level of $31.8 billion. The FY96 request for discretionary
budget authority, however, is $24.0 billion, an increase of $878 million or 3.8%, from.
the revised FY3t amount of $23.2 billion. DoEd’s employment level request is for
5,060 FTE’s, a decrease of 71 FTE's. In pursuing our oversight duties, we must look
for administrative savings, waste, fraud and abuse in the department's budget.

Witnesses before future oversight hearings on DoEd will include: the GAO; DoEd’s
Office of Inspector General; Congressional Budget Office; and others from the public
and private sectors familiar with Dod and its programs.

Secretary Riley's testimony will assist this subcommittee greatly as we fulfill our
oversight and reform responsibilities and we very much appreciate his presence here
today.

Mr. GREEN. Just briefly, Mr. Chairman. . .

I want to thank the Secretary and Secretary Kunin for being
here. It seems appropriate I serve also on what is now Economic
and Educational Opportunities Committee, and last year, I served
on the Education and Labor Committee and worked with the Sec-
retary and the Department on the reauthorization of ESEA and
came to know Secretary Riley and the staff, and worked well with
them on a number of issues, Goals 2000, School to Work, and I am



72

tify schools that were receiving federal funds for students who either never attended
the schools or attended but never applied for aid.

These Batekeeping problems have been costly. Some students have been reluctant
or unable to repay their loans because they were pressured, by the lure of plentiful
financial aid, to enroll in proprietary schools,6 some of which provided a poor-quality
education and a bleak employment outlook. These students failed to get value for
their money. Some schools, particularly proprietary schools, have been driven by a
strong profit motive, with little concern for student needs—such as completing their
education or obtaining employment—or for the frequency with which students de-
fault on their loans.

Other Federal Education-Related Programs

The federal government provides a range of support for education well beyond
programs funded through the Department of Bdueation, According to Office of Man-
agement and Budget data, fiscal year 1995 spending on education is estimated to
be about $70 billion.” The Department of Education has the largest allotment—
about $33 billion, or a little less than half—to administer 244 programs.® The re-
maining funds finance 308 education-related programs being administered by 30
other federal departments and independent agencies (sce fig. 102°

Figure 1: Federal Agency Spending on Education Programs, Fiscal Year 1995

‘Agency Percent ‘Amount
Department of Veterans Affairs 18 13 Billion
Department of Defense 45 32 Billion
Other Federal Agencies 5.0 3.5 Billion
Nationel Science Foundation 34 24 Billion
Department of Agriculture 1.983 Billion
Department of Health and Human Services .. 12.7124 Billion
Department of LadOF 0.0 7.9 5.5 Billion
Department of Education 478 334 Billion

Although the Department of Education administers the greatest number of edu-
cation programs, other federal agencies also manage numerous education-related
programs: the Department of Health and Human Services oversees at least 129 pro-
games the Nationa] Endowment for the Arts and the Humanities is responsible for

7; and the Department of Agriculture manages approximately 26. In fact, some of
the largest and most significant federal education related programs—excluding re-
search and development programs—operate outside the Department of Education.

IDENTIFYING POTENTIAL EDUCATION PROGRAM CONSOLIDATION OPPORTUNITIES

Besides the program consolidation proposed by the Department, we identified two
additional streamlining opportunities—vocational rehabilitation and small, specifi-
cally targeted postsecondary programs. We consider the Departments vocational
rehabilitation programs to be potential candidates because states are already direct
service providers for a number of these programs. For example, in fiscal year 1995,
states are managing 16 ($1 billion) of the 23 ($2.4 billion) vocational rehabilitation
programs under formula and project grants. For six of the remaining seven pro-
grams, the Department provides project demonstration funds to other entities to
Brovide, for example, independent living services or to train deaf-blind interpreters.

In the case of small, specifically targeted postsecondary programs, such as Aid for
Institutional Development and Faculty Development Fellowships, we consider them
potential candidates because they appear to have overlapping target populations or
Provide similar services, These small programs are costly to implement and oversee,
End evaluating their effectiveness is difficult."" Program consolidation could reduce

Proprietary schools are for-profit trade and technical schools.

2The total excludes military service academies and some programs smaller than $1 million.

®See appendix II for a listing of federal education spending by agency.
While many of these programe have broad education missions, such as supporting research
and development in a particular field or offering public information or technical assistance, oth-
ers provide direct support to education, such as curriculum development or faculty training.

20See appendix Tf for a Heting of these programs, along with funding information and pro-
gram goals.

41. Qur previous work on multiple employment training programs pointed out that extensive
overlap among programs raises questions about the efficiency of having individual administra-
tive structures for each program. Eliminating separate ataffs to administer, monitor, and evalu-
ate programs at the state and local levels could also save resources. See Multiple Employment



27

contracting for loan servicing with the current private servicers on a competitive bid
basis. And guess what? That's what direct lending is. It’s still a public/private part-
nership, but the one useful function the private sector performs—loan servicing—
is priced in a market process rather than a political negotiation over interest rate
premiums.

Think about it another way: what useful function are the banka providing? The;
don't assess risk. They take no risk. We can get cheaper capital. And we wouldn'
even need their servicing if we collected these loans as income taxes through the

Make no mistake—guaranteed student loans contain an enormous bank subsidy.
‘That's one of their four main sources of waste (the others are default costs, adminis-
trative complexity, and mistargetted subsidies for students). If we don’t get rid of
this corporate. welfare, we'll have to cut more somewhere else.

The choice is clear—are pou for the banks or for the taxpayers? True fiscal con-
servatives should have no doubt about whose side to take,

Sincerely,
” Tuomas E. Perri, M.C.

Ms. Kunin, If one simply looks at this program as a fiscal con-
servative, one would be fairly shocked at the existing FFEL pro-
gram and very pleased with Direct Lending, because we have put
competition into the program. The servicer now has to compete for
the business, and we are very pleased that it is working exceed-

ingly well.

e program also provides a great service to the students. As the
Secretary indicated, this program works. There are no delays, there
is more accountability. As you can see from this chart, there is sim-
plicity. There are direct lines of authority and accountability which
never existed before.

The first report which we saw, the Secretary and I, when we ar-
rived the day that President Clinton was inaugurated, was a GAO
report of high risk areas. The bottom line in that red-covered re-
port was that, in fact, this program is not manageable under the
present structure, that we Oud not even with the best of inten-
tions and investments make it work, because there is no account-
ability, no incentives to reduce defaults, no incentives to provide ac-
curate information.

Here you have the school, the student goes to the school and gets
the loan, and it is electronically conveyed by the Department of
Education to the Treasury. The savings come from two sources.
One, the Federal money can get capital more easily; and two, all
those middlemen are eliminated. Those two facts in and of them-
selves cause tremendous savings. I would argue, even if there was
debate over the savings, the fact that it is better service is also
equally significant.

‘here have been questions raised, “All right, you were able to get
the money out to the first 104 schools, but can you collect it?” The
fact of the matter is the same people will be collecting it as are col-
lecting it under the existing FFEL program.

We are contracting with the most expert people in the business,
so as far as the mechanics of it, there is no difference. There are
some advantages. One is students have an option of paying back
according to the income they earn. The likelihood of defaults really
decreases, so we anticipate fewer defaults in Direct Lending than
in FFEL, because there are more options for repayment available
to students.

There is another reason we believe collections will be improved,
and that is simply the simplicity. Students will know where their


70

from its cost comparison, expediting direct lending could still save
money.

Mr. Chairman, this concludes my testimony. I will be happy to
answer any questions.

(The prepared statement of Ms. Blanchette follows:]

PREPARED STATEMENT OF CORNELIA BLANCHETTE, ASSOCIATE DIRECTOR, EDUCATION
AND EMPLOYMENT Issues, U.S, GENERAL ACCOUNTING OFFICE

Mr. Chairman and Members of the Subcommittee:

‘We are pleased to be here today to present information on U.S. Department of
Education and other federally supported education programs. In recent months,
much attention has been given to streamlining government. This Subcommittee, in
particular, has been concerned with eliminating program duplication and improvii
management weaknesses in the federal oversight of education programs. Because ol
your concerns, you asked us to discuss (1) potential opportunities to consolidate
overlapping education programs; (2) potential cost savings attributed to the Depart-
ment’s proposal to accelerate and fally implement the direct student loan program;
and (3)'the Department's efforts to strensthen ils “gatekeeping”? over schools par-
ticipating in federal student financial aid programs.

In developing this information, we analyzed education program data from the
Catalog of Federal Domestic Assistance (CFDA), past GAO reports, and information
provided by the Department. With respect to direct lending and gatekeeping, our
comments stem from our initial reaction to the Department's proposal and recent
modifications to its gatekeeping efforts.

In summary, the Department of Education’s budget, in fiscal year 1995, accounts
for about $33 billion of the estimated $70 billion in federal education assistance. The
Department administers 244 education programs, and 30 other federal agencies ad-
minister another 308. The Department has already proposed several programs as
candidates for consolidation or elimination. In addition, another 36 programs total-
ing about $3.4 billion within the Department appear to us to be potential candidates
for consolidation. Some portion of an additional 151 programs administered by both
the Department and other federal agencies may also present an opportunity to
streamline federal education spending. However, while the work we present today
constitutes a necessary first step, additional factors need to be considered in deter-
mining how to achieve maximum efficiency from consolidation.

Concerning the Department's pralected ‘$12 billion cost savings, the Department's
budget proposal may overstate the cost savings associated with fully implementing
direct lending under credit reform rules, but substantial savings could still accrue.
Analyses made under the Federal Credit Reform Act of 1990 (P.L. 101-508)—which
was used in the Department's cost estimates—require the exclusion of long-term ad-
ministrative costs. If these costs were taken into account, the Department's esti-
mated savings would be leas.3

To deal with numerous problems in its oversight of federal student aid programs,
the Department has recently taken several steps to improve its gatekeeping abili-
ties, But it is too early to tell whether they will be effective in weeding out schools
that, for example, are likely to carry unacceptably high default rates.

BACKGROUND

The Department of Education is charged with managing the federal investment
in education and leading the long-term effort to improve education. Established in
1980, the Department’s stated purpose is to ensure access to education and to pro-
mote improvements in the quality and usefulness of education. Many recent con-
gressional hearings have highlighted the need to improve the federal government's

role in education.

1 Under the direct atudent loan program, the federal government provides loan capital directly
to schools through Treasury borrowing, oo

2“Gatekeeping” generally refers to the Department's procedures for determining which schools
can participate—and whether they should continue participating—in federal etudent aid pro-

ms.
e SUnder credit reform rules, the budgetary cost of loans ig the net present value of coats in-
curred over the life of the loans, excluding diecretionary administrative costs, which continue
to be treated on a cash basis. A’ guaranteed loan’s cost iscounted value of all interest
subsidy and default costs, while a direct loan’s cost is the initial outlay less the discounted
stream of expected payments, including the borrowers’ principal and interest payments.



63

to assess the effectiveness of schools’ job training programs because they do not view
their role as government regulators.

‘The Higher Education Amendments of 1992 also provided for new State Post-
secondary Review Entities, In addition to being responsible for monitoring post-
secondary schools in their States, these entities would also be responsible for estab-
lishing evcepteble measures for student achievement for schools operating in their
State, The Department was in the process of working with these entities to establish
their standards, However, because of possible budgel reductions, the future of these
review entities is in question. We believe that the efficiency and ellectiveness of the
SEA programe requires some sort of StatefPederel collaboration in the Teview of
schools.

Tt should be noted here that, because the Department was selective in choosing
schoole for initial Federal Direct Student Loan Program participation, these
Gatekeeping weaknesses might not surface in that program until two or more years
out when the remaining scheols enter direct lending.

Current Financial Condition of the FFEL Program

On June 30, 1994, the OIG and the General Accounting Office (GAO) issued a
joint audit report on ‘the Federal Family Education Loan Program’s fiscal year 1993
financial statements. In that report we indizated that, “Due to the limited amount
of time between fiscal years 1993 and 1992 audits and the severity of the long
standing financial management problems, many of the financial management prob-
Jems identified during the prior year’s audit still exist.”

The audit report issued to Congress and the Secretary of Education contained the
following conclusions:

« We could not express an opinion on three of the four financial statements
because reliable student loan data was not available to reasonably estimate the
program’s liabilities for loan guarantees and other related line items.

« We were able to express an opinion on the statement of cash flows. This
opinion indicated that the department accounted for and fairly reported actual
sources and uses of cash. However, due to internal contro] weaknesses we could
not determine if the Department received or disbursed proper amounts to lend-
ers and guaranty agencies.

« In our opinion, the Department’s internal controls were not properly de-
signed and implemented to effectively safeguard assets and assure that there
were no material misstatements in the Principal Statements. Specifically, we
found that the Department had material weaknesses in internal controls over:
1) estimating costs to be incurred on outstanding guaranteed loans, 2) assuring
that billing reports from guaranty agencies and lenders were accurate and re-
ported all default collections and origination fees owed to the Department, and

3) reparing accurate financial statements.

The & is conducting an audit of the FFELP Program’s fiscal year 1994 financial
statements. In unaudited statements received by OIG, the Department has reported
liabilities for loan Buarantees at September 30, 1994 of $15.2 billion. This amount
is the Department’s estimate of the net present value of cash flows that are likely
to be paid on approximately $77 billion in loan guarantees the Department reports
as outstanding at September 30, 1994. Additionally, the Department reports that
$8.3 billion of its liabilities will require future finding from Congress. As previously
stated, these balances are unaudited and based on data that we found to be unreli-
able in prior audits. Previous problems with the lack of reliable data to estimate
the ams’ liabilities for loan guarantees still persist given the past restrictions
on the Department with regard to the guarantee agencies who provided that data.

FFEL Program Losses and Potential Liability to the Government

The Department has indicated that since the inception of the Title IV programs
in 1965, that it has paid $57 billion in FFEL Program defaults, additional interest
and special allowance. These payments include $4.7 billion for 1993. The Depart
ment estimated future liabilities at present value on this portfolio of $13.6 billion
on loans outstanding as of September 30, 1993. As just discussed, we were unable
to determine the reasonableness of this estimate because of unreliable data.

We believe that what happens in the future relative to guaranty agencies will af-
fect potential liabilities because guaranty agencies have had a significant role in the
administration and oversight of the FFEL Programs. This role has included guaran-
teeing student loans, paying claims and collecting on defaulted loans, as well as
monitoring and enforcing school and lender compliance with program requirements.
These activities impact losses and potential liabilities of the PEL programs, In ad-
dition, some guaranty agencies have developed financial and/or contractual affili-
ations with lenders, secondary markets and servicing agent, arrangements we view


20

Chart 4.—Percent of High School Graduates Taking the Number of Courses Recommended for All Students
by A Nation at Risk, by Race/Ethnicity: 1982 and 1992*

Race/Ethnicity Percent 1982 Percent 1992
B a7
15 49
10 44
6 36
a 51

“Atthough A Nation at Risk one hai a unit of scence in its is analysis be-
cause vette eats puting m capa nent Cases HE Ms ndeson ht menue woud cote the Change ae
demic course taking since

Note: Courses include 4 units in English, 3 units in social studies, 3 units in science, and 3 vnits in math, where 2 unt represents.»
yearlong cour

Source. US. Deatmet ot fdueatin, Nationa Cater fr Efteaton Stata, High Sco Transat Study, 1987 and 1990 AEP High
Schoo! Transcript Studies, National Educstion Longitudinal Study Transcripts, 1992.



37

You talked about not wanting to get into an organizational chart
debate and also talked about how bigger was not better, nec-
essarily. But let me ask you, since 1979 if you just want to look
at hard numbers on test scores, drop out rates, violence in schools,
haven’t those figures shown that education has been in decline
since 1979 since we moved away from a consolidation with HEW
and set up an Education Department on its own?

Mr. RILEY. Well, let me ask you to take a look at a couple of your
charts here, science proficiency, mean NAEP scores, and mathe-
matics proficiency. I don’t know where they are in your line up.

Mr. SHays. You have numbers on them. Is it in the new book?
It is in the testimony.

Mr. RILEY. Charts two and three.

Mr. Suays. Excuse me just a moment.

Mr. RiLEy. Anyhow, the important thing is—and let’s look at
that. That’s a very legitimate inquiry.

Mr. SHays. Which chart are we looking at first?

Mr. RiLEy. Two and three, I believe. Science.

Anyhow, the point being that the Nation really got its attention
on science and math and some of that coming out of going to the
moon and all of the other emphasis on science and math and dur-
ing the eighties, that has really shown an increase and, frankly,
the seventies, Congressman, were very bleak and everything in the
seventies, any education numbers you looked at in the seventies
were basically down.

And really in the eighties people were beginning to get tuned in.
I know I was in South Carolina as Governor during that period and
Florida was getting involved in it, but during that period attention
was being iven to it and then when “A Nation At Risk” came out
that really kind of galvanized this interest. We were in the middle
of an education reform measure in my State. The Education Im-
provement Act, and it was very comprehensive, involving business,
involving people all across the State and everybody ended up being
very supportive of it and we were really trying to change and im-
prove the State.

About the time that we were getting heavily into that, “A Nation
At Risk” came out and I am telling you having the national atten-
tion, national attention almost like it was patriotic to be for im-
proving education and for children to work harder and parents to
get involved in the schools and so forth, and it just lifted our whole
attention factor in my State significantly. We could have ham-
mered it and hammered it from the State and local level right on
but when it became a national factor and the Nation was tuning
in on it, it is amazing what a difference it made.

Mr. ScaRBorouGH. And——

Mr. RILEY. During the seventies, as these would point out, math
and science increased around a grade level in test proficiency.

Mr. SCARBOROUGH. Well, so in math and science increased. What
about other areas? Reading aptitude, writing, and again going to
the drop out rates, can you tell me have the drop out rates, ow
that has been going? ‘And violence in schools?

Mr. Ritey. Well, I think one of the important things of course
is—the tremendous gap between African Americans who had not
had ample opportunity in years past, unfortunately, and white stu-


57

ears, our audit work evidenced over counts of students and improper expenditure
res,
fe recently focused on this issue again in our September 1994 report entitled,
'D Can Allocate Special Education Funds More Equitably.” This report pointed out
that currently, ED bases its allocation of Special Education funds on the count of
students receiving Special Education in each state. There are a number of indica-
tions that this count is unreliable. We concluded that a more appropriate allocation
base would be total population age 3 through 21, weighted by poverty measures,
which correlate with special education needs. The use of such objective data to dis-
tribute funds would provide each state an equitable share of the Special Education
funds and eliminate any incentive for states to manipulate the count or to retain
students in the program longer than necessary.
We are continuing to work with the Department where these issues arise.

SUCCESSES & CHALLENGES IN ED PROGRAM OPERATIONS

Over a period of several years, our office has reported on a number of areas in
which the Department's program operations could be improved, including the areas
of customer focus, program monitoring, ‘and core financial systems. Progress has
been made in each of these areas, but they remain a concern.

Customer Focus

In early 1993, we noted that in order to accomplish its mission, the Department
would need a clear understanding of the identity of its customer, which we saw as
the student.

The Department's Strategic Plan has since clearly stated that ED views learners
of all ages as its most important customer. This acknowledgment can help the De-
partment focus on how it can best deal with the many participants in its programs
with the primary goal of serving the learner as the basis for program activities
However, we believe that identifying learners as the most important customer
be meaningful only if it is effectively translated into the day-to-day decisions of De-
partment managers as they go about their business. We also believe that Depart-
ment managers’ decisions must reflect critical responsibilities to the taxpayer.

In December 1994, the Department issued guidance to all offices designed to as-
sist in making customer service an integral part of the Department. During 1995,
all offices are to identify core processes and the customer served by those processes,
and to begin improvement of those core processes,

Program Monitoring

One key element of effective program operation is effective program monitoring.
We reported in 1992 that little had been done to monitor formula and discretionary
grants to ensure that recipients were complying with grant terms and conditions,
properly accounting for the billions of dollars of financial assistance, and focusing
on performance of programs against planned objectives. We also noted that the De-
partment lacked a strategy and standards for monitoring and that data retrieval
and documentation efforts were not adequate.

For the past several years, we have assisted the Department on two teams that
were established to improve monitoring—the Performance Management Reinvention
Team (PMRT) and the Achieving Reform by Monitoring Team (ARM). Our objective
is to assist the Department up-front, as we have with other ED improvement teams,
by providing our advice as the new monitoring processes are considered and eventu-
al ly implemented.

me of the PMRT’s objectives was to develop strategies for monitoring and per-
formance measurement. As a result of the PMRT’s efforts, the Department issued
a discretionary grant monitoring directive in 1994 that established standards and
gave guidance to principal offices in the Department for preparing monitoring plans
and reports. However, the Department has yet to issue similar guidance for mon-
itoring formula grants.

‘The ARM team is identifying strategies and developing a monitoring system that
could result in needed reforms. In addition, integrated review teams are being pi-
loted that include team members from various program offices in the Department.
The main purposes of these reviews are to strengthen collaboration, across programs
and to help rease the burden on State and local entities that traditionally are
visited by different ED monitoring staff at different times throughout the year, A
more integrated pproach should result in less federal intrusion, while improving
the efficiency and effectiveness of monitoring visits and resulting reports.

While integrated reviews are currently being piloted in the elementary and sec-
ondary education programs, this concept has not been implemented for all Depart-



23

CHART 7.—ED’S PRINCIPLES FOR REGULATING

The Department of Education will regulate only when it improves the quality and
ality of services to its customers—learners of all ages. ED will regulate only
when absolutely necessary, and then in the most flexible, most equitable, and least
burdensome way possible.
‘Whether to regulate:
When essential to promote quality and equality of opportunity in education.
1 » When a demonstrated problem exists and cannot be resolved without regu-
lation.
« When entities or situations to be regulated are so diverse that a uniform
approach does more harm than .
© When necessary to provide legally binding interpretation to resolve ambigu-
ity.
How to regulate:
* Regulate no more than necessary.
* Minimize burden and promote multiple approaches to meeting statutory re-
quirements.
Encourage federally-funded activities to be integrated with state and local
reform activities.
Ensure that benefits justify costs of regulation.
+ Establish performance objectives rather than specify compliance behavior.
. Encourage flexibility so institutional forces and incentives achieve desired
results,


90

have you defined these terms? Because I think that we might be
getting a little confused here.

Ms. BLANCHETTE. Well, we are trying real hard to identify pro-

ams, but it is not a science, it is indeed an art. We have now

n involved in looking at multiple programs in a number of are-
nas. Last week my fellow associate director, Clarence Crawford,
testified on employment training programs. We have mentioned
this morning multiple teacher preparation programs, teacher train-
ing programs. We are now doing work looking at multiple use pro-
grams. In all instances it is very difficult.

Basically what we have is information either from something
such as at the catalogue of domestic assistance programs, or we
have some printed or automated information about programs in
terms of their target populations, their objectives, their authoriza-
tions, funding, and so forth, and from that we try to identify what
we would consider programs, not funding streams, not activities,
programs,

As I said, it is not a science. Even working among ourselves and
discussing among our evaluation teams in a given instance whether
something is a program, you might have a disagreement. The one
thing that all of our work shows is that there are hundreds of re-
lated, quote, programs in various aspects of Federal operations. In
the case of the Department of Education perhaps there is some-
thing less than 244, but it is a large number, and we may not be
exact, and if you looked at the same things we looked at you might
come up with a different number, but the number is large, and
even with employment, the 163 employment training programs
that we now often refer to, we are willing to grant that there is
argument that maybe there is a different number, but there are a
whole lot of them, and the issue is the same.

Mr. Towns. Thank you. All right.

Let me just add very quickly —

Mr. Suays. Go ahead.

Mr. Towns. Thank you very much, Mr. Chairman.

Moving to another area that is becoming more and more of a
feeling among of Members of Congress, I’m getting a sense that:
Push it back to the State, push it back to the States, and I must
admit that I have some problems with that concept when I know
for a fact that in the same district in many areas that schools are
treated differently. So I sort of see that the Federal Government.
has a role and a responsibility in all of this. So could I get your
comment on that. Maybe if I’m wrong I'd like to know. Just say
that I’m wrong, because I’m looking for help.

Ms. BLANCHETTE. Well, you referred to different schools being
treated differently, and I guess there you are talking about finance
and equity, and you are right. Even within States, Sifferent school
districts have different amounts of funding, and certainly across
States, and that is not the desirable situation. The desire, I believe,
from a Federal standpoint, or from a national well-being stand-
point, is that every child has equal opportunity and so forth.

I don’t—I can’t really answer your question. I can agree with you
in terms of your assessment of the situation. I don’t know the an-
swer however, whether there is something the Federal Government
can do that States can’t. I don’t know.


44

there can be no mandates and the national standards which there
have been a lot of discussion about were a process developed for
them really to be a help to the States if they wanted to use them.

These are world class standards, they are high standards, and
the State can say we don’t want to touch those. We don’t want any-
thing to do with standards that were developed through this con-
sensus process—these national standards. And so that’s perfectly
all right. That is up to them. They set their own standards and
hope the State will set higher challenging standards.

Mr. GREEN. Let me also compare Goals 2000 with the Title I for
the last reauthorization. Because we removed a great many of the
requirements under Title I and if you can just briefly talk about
that, that you actually push that money down for the classroom
into the district instead of saying, well, in Washington this is how
we know you need to do it.

Mr. RiLey. Absolutely. In the reauthorization and again that
could take a lengthy answer but we have Title I. That whole pro-
gram is built into the standards process. In other words, if you
qualify and are involved in the Goals 2000 process, that pretty well
covers your Title I.

It used to be a separate substandard. It used to be a watered
down standard, a watered down curriculum, watered down testing
for disadvantaged kids. There was a terrible disadvantage to them
and they now have the same high standards. All kids do. And Title
I now is loaded with waiver flexibility.

I should mention Ed Flex, which I don’t think we mentioned.
That came out of that process. Six States will handle their own
waivers. In other words, all of the waiver process in Title I and
other programs is under Ed Flex, a pilot program. If it works well,
we would like to see it expanded maybe to all States at some point
in time, but six States will now have it. Oregon has already been
approved to be one of the Ed Flex States. Oregon will have their
own waivers and that is a radical change.

Mr. GREEN. Thank you, Mr. Secretary.

Mr. SHays. Mr. Scarborough.

Mr. ScarBoroucu. Thank you, Mr. Chairman.

I want to focus briefly on the deficit. You had talked about it be-
fore in your opening remarks, about how important it was that we
address the deficit. And obviously you don’t believe that consolida-
tion or elimination of the Department of Education would have a
positive effect on the deficit.

Let me ask you this: You talked about $16.7 billion in cuts
through the year 2000 that the Department was undertaking. But
yet I noticed in your budget actually over the next year two spend-
ing increases. Is there any way at all that we could hold the line
on spending and spend the same next year as we are spending this
year in Teal dollars and I am not talking about the increase. I am
just talking draw a straight line across considering that we do have
a deficit that is causin; eat concerns and if you do not believe
we can—if you do not. Believe we can do that, if you can tell me
briefly what areas would be hurt the most by just freezing spend-
ing?


85

PREPARED STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN CONGRESS.
FROM THE STATE OF TEXAS

Thank you, Mr. Chairman. As we begin the process of consolidation of Depart-
ment of Education programs, we must consider the effects on education for dis-
advantaged students and on the increased financial burden that students will have
to face if they want to go to college. Cutting funding will most significantly affect
those who can now barely afford to attend college. And if we believe, as I believe
we do, that education is the key to upward mobility, then we must find ways to pre-
vent or limit the damage to less affluent students. .

T would like to explore these issues as well as the Department's direct student
loan program. Thus far, the reviews are good: students and administrators are both
pleased with the speed and ease with which they are receiving their loans. Of
course, the key is to get the money back when the time comes. Nevertheless, the
Administration’s program seems to be off to a good start. I would also like to explore
this subject with the panel. Thank you, Mr. Chairman.

Mr. GREEN. Mr. Chairman, I have a question I want to ask, but
let me preface it first with not only serving in Congress but serving
in a legislature and the Guaranteed Student Loan Program, and it
is almost like we are—it is a Catch-22.

The Guaranteed Student Loan Program is something that all of
us support, and yet when it was created we let literally free enter-
prise take its course and, you know, entrepreneurship. We had
truck driving schools and everything else out there that actually—
I have students who are now getting their tax refund taken from
them because they signed up fr a course 10 years ago, and that
course was abolished, that school disappeared. on them, and yet
that student is still on the hook for that.

So in response to it the Federal Government and State govern-
ments came back in and said OK, we are going to require, as you
said, placement, we are going to require student achievement and
things like that, so we created more bureaucracy to have account-
ability, which is another great word we want to use, and we still
haven’t gone as far as we would like.

But then_I think as my colleague, Mr. Scarborough, said, you
know, the Student Loan Program, a lot of us support it and want
to continue to support it, but we also recognize that we can’t con-
tinue both with the defaults that we have, and I know we have
tried, and whether it be—and I say the truck driving schools; I can
take you to some community colleges that have some of the most
atrocious repayment records that we have, and these are public—
you know, community colleges.

So we always have to continue to do better, but I also know that
as soon as we do more accountability we will have some of those
schools contact us and say we are trying to train workers and stu-
dents and yet we have these—all this paperwork that we are hav-
ing to keep up with. Well, the reason it is there is that we have
been burned by, again, people who took advantage of the flexibility
that was given 10 years ago that we are still having to pay for it,
and it is frustrating not only as a legislator in Texas but now as
a Member of Congress to see how we can do it, and we have to
keep going as much as we can.

I serve on the—now it is called the Economic and Educational
Opportunities Committee, and so I’m glad you are here because we
also have experience on the other committee, and there are some
good things that the Department of Education has been doing, and

have watched them and tried to participate as much as I can over


62

committed to making necessary improvements, including correcting issues addressed
in the audit report.

Increased Student Aid Borrowing

I would also like to bring to your attention the changes made in the Higher Edu-
cation Amendments of 1992 and in the Student Loan Reform Act of 1993 that have
made more Federal aid available to postsecondary education borrowers. Early re-
turns indicate that, nationally, students borrowed $7.8 billion from last October
through March of 1994, a 44 percent increase in loan volume over the same period.
last year. The effect of more available Federal money may be tuition increases.
‘That, in turn, would cause more borrowing on the part of students and parents,
With the increase in loan availability and increased educational costs, the new loan
programe particularly the PLUS and the unsubsidized loan programs—appear, at
least in the short term, to make college more affordable. However, repayment of
these loans may cripple borrowers for years to come. And, as we have seen in the
FFEL Program, the borrowers ability to repay their loans has serious, long-term ef-
fects on program integrity.

Funding for English as a Second Language

In August 1994, we issued our report that asked the question, “Why Use Pell
Grants Hor Instruction In English As A Second Language? Faxpayers Pay More and
Students Get Less.” Our review determined that the Department provides Federal
funds for instruction in English as a Second Language (ESL) to adults under the
Pell Grant program and various Adult Education programs.

When Pell Grants are used for ESL the education is provided by proprietary insti-
tutions that charge between $4.77 and $10.00 per hour of instruction, and provide
between 240 and 600 hours of instruction. ESE instruction funded by Adult Edu-
cation programs are sypieally provided for by local educational agencies and non-
profit organizations. The costs per hour of ESL instruction in those programs are
significantly lower and the hours of instruction significantly higher.

in addition, to lower costa and more instructional hours, Adult Education pro-
grams expect students to achieve higher levels of English proficiency and have high-
er standards for instructor qualifications. We recommended the Department ask
Congress to eliminate ESL instruction courses from eligibility under the Pell Grant
program, and if needed, request additional funding under the Adult Education pro-
grams.

SUCCESSES & CHALLENGES IN SFA PROGRAM OPERATIONS

Gatekeeping

‘The suitability of approximately 8,000 public, private, and for-profit institutions
participating or seeking to participate in the SFA programs, including Direct Loan
program, is determined by the State licensure, accreditation, eligibility, and certifi-
cation procedures commonly referred to as the “Gatekeeping” process. As we have
reported and testified to on many previous occasions, this Gatekeeping process has
proven insufficient in keeping weak and unscrupulous schools out of the SFA pro-
grams, While the Department has made significant strides to improve the process,
all corrective actions have not been consistently implemented. In 1992 the Congress
enacted many provisions aimed at correcting Gatekecping deficiencies and, although
the Department has worked diligently to publish fina) regulations in 1994, many of
these improvements are yet untested.

The Higher Education Amendments of 1992 require that in order for an accredit-
ing agency to be recognized by the Secretary of Education as a reliable authority
as to the quality of education, the agency must develop measures for student
achievement including, as appropriate, student course completion, State licensing
examination pass rates, and job placement rates.

‘We recently visited five accrediting agencies that accredit institutions providing
vocational education training programs to assess their progress in developing per-
formance measures for student achievement. These agencies were selected for re-
view because vocational training programs they accredit are, by statute, eligible for
student aid for the purpose of providing students the skills necessary to obtain gain-
ful employment.

Overall, our reviews concluded that the accrediting agencies have made little
progress in developing and implementing performance based systems Focusing on
student achievement as a measure to assess the quality of education provide by
schools they accredit. While there were some reasons for the slow progress, includ-
ing that the regulations were not published in final until 1994, the most compelling
barrier was that the accrediting agencies were reluctant to use performance data


86

the last 2 years. That doesn’t mean we need to say well, we're
home free.

I think the Secretary, in his suggestion on the combining of the

programs that our chairman has talked about, we can do that, and
we can do even more things, and I think the Goals 2000 is the best
example of a program that is in response to a report that was a
Federal program 10 years ago or 12 years ago, but it took Congress
up until 1993 to respond to “A Nation At Risk” that was issued in
the carly eighties.
_. The States responded more quickly, and yet because of, whether
it be partisan politics, President Bush tried and it didn’t work, so
now under President Clinton we pass something and even it is
under attack even though there is not one regulation that I know
of that is part of the Goals 2000 that has come from Washington
to our local States. But, again, when you only provide 6 percent of
the money you can’t expect to say a lot about what is going on in
our local communities because most of the funding for education
comes from local and State levels.

Let me talk about school facilities and a recent released GAO re-
port entitled “School Facilities: America’s Schools Were Not De-
signed Or Equipped For The 20th Century” and found that schools
in inner cities and schools with 50 percent or more minority popu-
lation were more likely to have unsatisfactory environmental condi-
tions such as lighting, physical security, and less likely to have
technology elements.

Last year during the Elementary and Secondary Education Reau-
thorization Act on a small level we put in authorization for, I be-
lieve, $100 million for facilities; $100 million wouldn’t help that
much even in the State of Texas, much less New York or an urban
State, and under our recision, both the Democrat and Republican
recision plans, we took that away.

So in light of that GAO report and knowing that we are not
going to be that involved even on a small amount on facilities,
what can we do except say OK, local governments and even State
governments oftentimes don’t get involved in facilities construc-
tion? What can we do? because it is a national problem and not just
a State and local, because it affects not only Houston, TX, but New
York and California and other places in response to that.

Mr. Chairman, my question and comments took my whole
minute.

Mr. SHays. We are going to give you a special dispensation be-
cause you serve on that committee.

Mr. GREEN. OK, and again I'll be around, I guess, for the next
round of questioning.

Mr. SHAYS. Would you all like to respond?

Ms, BLANCHETTE. Wells in addition to the report you mentioned
the condition of school facilities. We just issued a report a couple
of days ago commenting on technology in our schools, and the situ-
ation there is as bleak as——

Mr. GREEN. And the article in yesterday's Washington Times, I
believe, said the same thing about we have computers in our rooms
but the wiring in these schools isn’t set up to handle the load.

Ms. BLANCHETTE. Right, and the computers aren’t linked, so you
can’t take advantage of the information superhighway.


31

Ms. KUNIN. We will be glad to notify you of that. We have been
working on it and we are paying close attention to those kinds of
issues.

Mrs. Morea. Thank you.

Just one final question. I notice that since you both have been
Governors, that the Governors I read at some point have rec-
ommended a block grant for education. I don’t know whether you
want to comment on that. I brought the little clipping along. It
says all—this is basically higher education. All Federal higher edu-
cation rograms including the Pell grants and the student loans
would be folded into State block grants under a proposal that is
being floated.

Now, they comment also that time is of the essence, so it might
not materialize at this point but it is a concept that I think may
come up again if it isn’t—if nothing happens now. Would you like
to comment on that?

Mr. RILEY. Well, you know, you can look at block grants in every
area and we think it is worthy to examine all alternatives, but if
you block programs of this kind, say in higher education, I think
you do have the concern that States are now having very pressing
needs themselves and you have to look at the short-term crisis
needs that they have, welfare reform, other things that would not
be looking maybe at the long run, that we would be looking at long-
term improvement. And we think that those programs are in place,
and again we have the relationship with 8,000 institutions of high-
er education and we think it would not be a wise area to block and
send back to the States. States are having money troubles, too, and
they need and would like funds.

The portability issue is also an issue. There is so much move-
ment from State to State and college to college.

Mrs. MORELLA. Would that also mean that 20 percent of that if
it became a block grant could be used in another way? You know,
as we look at some of the block grants, there is that opportunity
for the latitude for 20 percent to be used in something else that is
connected but not specifically. I was just wondering if——

Mr. RILEY. You know, you can shape those things any way you
want to shape them. The fact is that the Pell grant system and the
student aid system work very well. And in this country, the way
things move around and the way it is handled in terms of higher
education, we think it would be a mistake to shift that down in
that fashion.

ain, you can put it at 20 percent or 10 percent or 50. You can
configure those things any way you want to do it. Why do that?
What purpose does it serve? Higher education costs are a very criti-
cal matter for this country. And I think it is a national priority.
You have to look at the national interest. And the national interest
I think is served better by having programs handled as they are
handled now as all 8,000 institutions are used to them being han-
dled. You shift those down to the States and you will get some
things that would not fit with the national priority. And it would
be less functional, in my judgment.

Madeleine, you want to respond?

Ms. KuNwN. I think if it is done, it has to be done with great care
and maybe a little more specificity. As we are going through the


7

First of all, American education, I submit to you, is not as bad
as some critics think it is, and, in fact, some very good things are
happening. And in your familiarity with the public schools, I am
sure you see some good things happening everywhere, all around
the country, not near as much as perhaps we would want to hap-
pen, but good things are happening.

We are really starting, I think, to turn the corner. We are begin-
ning to > get good, positive results from our efforts to raise academic
standards, putting the country’s attention on the high academic
standards, hard work, discipline and learning—making excellence,
as the Blue Ribbon Schools would portray, the watchword really of
American education as opposed to mediocrity.

Student performance in science and math is on the rise. The
number of high school students taking core academic subjects has
tripled since 1983. That is a very important indicator of moving
things in the right direction, we think, taking difficult subjects.

We still have a lot of problems, but overall, we think that we are
moving in the right direction, and that we are in this Nation turn-
ing the corner, which has been very difficult.

econd, over 7 million additional children are going to get up in
the morning to go to school within the next 10 years, many of them
will be teenagers. The Congressman from Fairfax County is cer-
tainly a good example of that and you are already familiar with it,
but this growth factor is out there, 7 million more children than
we have in the system now over the next 10 years. We are truly
going to have our hands full preparing these young people to do
college-level work, to learn new skills that they are going to need
to handle jobs of the future, to keep them out of harm’s way, to
avoid the dangers of guns, drugs, violence and helping them and
their parents to finance their postsecondary education.

The third point, improving education is the most effective way I
know to reduce the deficit and reduce this Nation’s social costs. All
of us are concerned about the deficit, and we need to be concerned
about it, but we know that about 44 percent of all of the people on
welfare are high school dropouts, 82 percent of all the people in
this Nation’s prisons are also high school dropouts.

If we want to keep people from being on welfare and being in
prison and going down a road to violence and frustration, I think
in this day and time, one of the big answers to those social prob-
lems has to be investing in education that works.

Fourth, the Federal Government has a long and established
track record of providing access to higher education going all the
way back to the 1948 GI bill. This has been a national priority for
almost 50 years.

The Department of Education now provides 75 percent of all stu-
dent aid. In the last 20 years, 40 million Americans have used the
Federal Student Loan to finance their postsecondary education. I
am sure that many of you went to college or law school with a stu-
dent loan.

I know I got the GI bill when I came out of the Navy and that
enabled me to go to law school. I think that is very common
throughout this country, people who took advantage of those pro-
grams. Approximately, 7 million students who are currently going


46

Mr. Davis. I had a question on the Pell grants and the Stafford
loans. A report from the Office of Inspector General, the Pell grant
recipients who claimed U.S, citizenship for award year 1992-1993,
over 45,000 of those recipients were not U.S. citizens. That ac-
counts for over $70 million in Pell grants, $45 million in Stafford
loans. Any thoughts on that? Are we tightening up on that?

Ms. KUNIN. We are going to continue to crack down on that, and
make every effort to make sure that anyone who receives a Pell
grant is qualified to receive it. I don’t have any earthshaking news
in that regard, but those figures are disturbing, and we are con-
cerned, and one thing we are doing is matching with INS records
for Pell grants, so that we can filter those out.

Mr. Davis. I just have one other question.

Mr. Ritey. Congressman, why don’t we give you some informa-
tion later on that. This computer match is taking place, and as we
get information, we will certainly share it with you.

[The information referred to follows:]

HIGHER EDUCATION ACT OF 1965

SEC. 484. STUDENT ELIGIBILITY.

(a) IN GENERAL.—In order to receive any grant, loan, or work assistance under
this title, a student must—

(1) be enrolled or accepted for enrollment in a degree, certificate, or other pro-

am (including a program of study abroad approved for credit by the eligible
institution at which such student is enrolled) leading to a recognized edu-
cational credential at an institution of higher education that is an eligible insti-
tution in accordance with the provisions of section 487, except as provided in
subsections (bX3) and (bX4), and not be enrolled in an elementary or secondary
school;

(2) if the student is presently enrolled at an institution, be maintaining satis-
factory progress in the course of study the student is pursuing in accordance
with the provisions of subsection (c);

(3) not owe a refund on grants previously received at any institution under
this title, or be in default on any loan from a student loan fund at any institu-
tion provided for in part E, or a loan made, insured, or guaranteed by the Sec-
retary under this title for attendance at any institution;

(4) file with the institution of higher education which the student intends to
attend, or is attending (or in the case of a loan or loan guarantee with the lend-
er), a document, which need not be notarized, but which shall include—

(A) a statement of educational purpose stating that the money attrib-
utable to such grant, loan, or loan guarantee will be used solely for ex-
penses related to attendance or continued attendance at such institution;
an

(B) such student’s social security number, except that the provisions of
this subparagraph shall not apply to a student from the Republic of the
Marshal Islands, the Federated States of Micronesia, or the Republic of

alau;

(5) be a citizen or national of the United States, a permanent resident of the
United States, able to provide evidence from the Immigration and Naturaliza-
tion Service that he or she is in the United States for other than a temporary
purpose with the intention of becoming a citizen or permanent resident, or a

rmanent resident of the Trust Territory of the Pacific Islands, Guam, or the

lorthern Mariana Islands.

(b) ELIGIBILITY FOR STUDENT LOANS.—{1) In order to be eligible to receive
any loan under this title (other than a loan under section 428B or 428C) for any
period of enrollment, a student who is not a fraduate or Professional student (as

lefined in regulations of the Secretary), and who is enrolled in a program at an in-
stitution which has a participation agreement with the Secretary to make awards
under subpart 1 of part A of this title, shall—

(AXi) have received a determination of eligibility or ineligibility for a Pell
Grant under such subpart 1 for such period of enrollment; and (ii) if deter-
mined to be eligible, have filed an application for a Pell Grant for such en-
rollment period: or


6

mendous strain. I have three children in the public school system
and am very happy with the system out there.

I saw you on C-SPAN a couple years ago when you were going
through Bailey’s Elementary School, which is about three blocks
from my house. I was tremendously impressed. You were with an-
other Cabinet Secretary who I wasn’t as impressed with in terms
of the comments made, but you looked to be a man of goodwill, not
just on the party line but talking to the kids, asking them ques-
tions, trying to understand the very, very multi-ethnic population
in that school, the successful programs with the county and trying
to meet challenges that are presented in that area.

We have some tough issues ahead for us in the country. I think
it behooves us all to put aside the party lines and try to work to-
gether and try to address what the real needs are and how we can
best together address them.

I am not worried about what departments are going to be elimi-
nated and how we can use the resources that are available and
work together to accomplish the goals. I have read your testimony
and am particularly interested in the long-term approach you are
taking to prepare our students over the long term to compete in a
world economy.

While, in fact, at the primary levels of education we are gettin,
beat out, on higher education still we are doing very well, I thin!
in a worldwide economy, but at the primary level we seem to be
losing some ground. You have some good ideas, and I look forward
to hearing from you today.

Mr. SHays. Mr. Secretary, it is a real privilege to have you and
the Deputy Secretary here. I want to say that unlike some hear-
ings, we want you to feel that you can give your statement in its
entirety, or however you would like. This is your opportunity. We
have a number of Members, but we will get you out of here by 12
as we promised.

STATEMENT OF RICHARD W. RILEY, SECRETARY, U.S. DEPART-
MENT OF EDUCATION; MADELEINE KUNIN, DEPUTY SEC-
RETARY, U.S. DEPARTMENT OF EDUCATION; AND DONALD R.
WURTZ, CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF
EDUCATION

Mr. RILEY. Thank you, Mr. Chairman, and members of the com-
mittee.

It is really a pleasure for me to be here and discuss the role of
the Department of Education in improving American education.
And I have submitted my statement for the record, and I will have
a brief statement here summarizing some of our major themes.

Former Governor Madeleine Kunin is the Deputy Secretary of
Education, former Governor of Vermont, and is here, and has taken
strong leadership in several key areas. One is the Department's
new strategic plan, which certainly touches on matters that you are
interested in, and also the direct lending initiative, and we will
both certainly be happy to respond to questions at the conclusion.

I want to begin by Rghtighting several themes that can put our
discussion in a broader context’ as we discuss the management and
the direction of the Department.


40

when you start talking about Federal involvement the way it is in
many other areas.

I am going to ask you a few questions. I am going to start with
goin along with some questions that the chairman asked and Mr.

carborough asked in terms of Labor and Department of Education
whether it is a consolidation.

I think there needs to be perhaps not a consolidation but there
needs to be great coordination, because much of what you are doing
may point to the same things that get people educated so they can
join the ranks of the employed whether they exit the secondary
school level, graduate level, community college or whatever. How
much coordination is going on right now?

Mr. RiLey. Well, I would agree with you that there should al-
ways be more. We are working very hard to have strong coordina-
tion with Labor on those areas where we overlap and have a ver:
clear connection. I mean a kid comes out of school and goes to worl
and obviously there is a linkage there and a very good one and an
important one and we think that we are doing that. Congressman,
in a very good way.

I know Bob Reich, and he and I worked very closely. Our staffs
work together and those programs also are handled in a joint way.
Students are in high school and then they are also out in the job
at the same time as you well know in the way school-to-work oper-
ates, very similar to Tech Prep but much more outside the school
than Tech Prep would generally offer. So we think we are doing a
good job with that.

We are working with HHS, of course, on Head Start and those
things with preschool. And I would say very quickly, though, that
we can always do more and we will certainly try to do that and we
will work with you.

Any suggestions or anything that anyone would have about bet-
ter ways to do that? I know you came up in local government and
are familiar with the ground rule on how that operates in a grow-
ing area, but what we would like to see, really, is a joint effort to
develop these kind of relationships with other agencies and if we
are looking for cutting a certain amount of money, you know, to
really hunt for ways to do that. And I really cannot see two things.
I don’t see how merging us with Labor or disintegrating Education
and moving all around in 8 or 10 different places is going to be
anything but harmful in a general way to American school chil-

ren.

Mr. Davis. Do you think we would be better off saying here is
the amount of money we need to try to look at it and come up with
some suggestions to look at it?

Mr. RILEY. I think to sit down together and try to work out ways
to cut certainly is a much, much sounder way from a public policy
standpoint of finding a reduction of cost.

Mr. Davis. I have got a question for Governor Kunin and since
you brought up Tom Petri’s cut corporate welfare letter. We have
all got a copy of it.

‘Also, on January 30 the Post ran an editorial that Congress
could, in fact, cut the present AID program essentially and leave
higher education all the worse for the wear. It went on to say, for
loan programs that were serious, money can be saved. To cover stu-


19

Mathematics Proficiency-Mean NAEP Soores|
Nation - by Age

320

300 fp

280

Mean Score
8

240

220

200 LLL L L 4
1982 1986 1990 . 1992
Year

(Source: NAEP 1992 Trends in Academic Progress}
NCES

CHART 3



14

¢ Assist States and communities in educating approximately 5 million chil-
dren with disabilities.
© Train over 1 million teachers.
* Support the development of vocational skills and the transition from school
to work for about 3.3 million students:
Help 4 million adults to become literate and upgrade their skills.
We also provide easy-to-understand information that parents and schools can use
day. We have distributed 36 million copies of our “Parents Guide” on talking
to children about drugs. We have just produced a new video on Attention Deficit
Disorder that has received national attention.

The flip-side of this equation is what happens when this country does not invest
in education, or when some of our young people get disconnected from education.
We know that about 44 percent of all the people on welfare rolls are high school
dropouts, and that 82 percent of all the people in this Nation’s prisons and jails are
also high school dropouts.

That should tell us something. If we want to end welfare-if we want to keep peo-
ple from going on welfare in the first place-and keep them from going down the road
to violence and spiritual numbness, we need to invest in education.

And here I mean “invest” in the broadest sense: connecting fami to the learn-
ing process; making sure children know their basics; helping good teachers become
better teachers; and making sure our schools are safe, disciplined, and drug-free.

If the strength of this country is the self-reliance of our citizens, if we want the
“locus of power” to be the self-reliant American and not the government, then that
self-reliance comes in large part because they are educated and thinking Americans.

We know, for a fact, that people at the lowest level of literacy are ten times more
likely to be in poverty than persons at the highest level of literacy. We also know
that the sheer drag of poverty can have a detrimental effect on even the brightest
young person in a high-poverty school.

More importantly, we now know that changing our expectations of what poor and
disadvantaged children can achieve is central to helping them to learn their way
out of poverty. Two decades of research tells us that all children can learn to chal-
Jenging standards. In the 1990s equity and excellence must be seen as one and the
same. One cannot happen without the other.

THE DEPARTMENT'S GOALS.

Overall, the Department’s goals are defined by the eight National Education
Goals, first proposed by the Nation's governors under the leadership of then-Gov-
ernor Clinton and President Bush and most recently adopted by Congress in the
Goals 2000 legislation.

The goals are intended to focus the Federal government, States, local commu-
nities, schools, businesses, and parents as they work together to improve the edu-
cation system in the United States in such areas as achievement in core subjects,
parental involvement, and school safety.

‘To help reach these goals, the Department has fer the first time recently devel-
oped and begun implementing a strategic plan, Madeleine Kunin, the Deputy Sec-
retary, has taken a strong leadership role in developing this plan and she is here
with me today to answer any specific questions you may have.

‘This strategic plan reflects our efforts to restructure the Federal role in education,
focus on performance, streamline and reduce the number of our programs, and im-

rove internal Department management. Our strategic plan makes us a leader in
implementing the Government Performance and Results Act.

"Phe strategic plan establishes four key priorities. The first three focus on our pro-

ms and initiative
#1: To help States and communities enable all elementary and secondary stu-
dents to reach challenging academic standards.
eit? To create a comprehensive school-to-work opportunities system in every
ite.
1eti,te ensure access to high-quality postsecondary education and life-long
learning.

In order {0 accomplish these priorities, we recognized that we had to change the
way the Department does business, leading to the plan’s fourth priority:

#4: To transform the Department into a customer-responsive, high-perform-
ance organization to support the three substantive priorities.

The inclusion of performance indicators in the strategic plan holds this Depart:
ment accountable for results, I think we need to be held accountable if we are
spending the taxpayers’ money. Examples of our performance goals include:



3

looking forward to the hearing today because of the overview of the
Department.

So often in my other committee, we only take it an issue at a
time. And thank goodness on this committee we can look at whole
departments and the scope and nature of the whole Department,
so I am looking forward to it, Mr. Chairman.

I appreciate the opportunity to be here. I submit the statement.

Again, I appreciate you leaving the record open for other Mem-
bers who would like to give a statement.

[The prepared statement of Hon. Gene Green follows:]

PREPARED STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF TEXAS

Thank , Mr. Chairman, and I am honored today to be serving as ranking
member for this very important hearing on the future of the Department of Edu-
cation. Let me say that last year, as a member of the Education and Labor Commit-
tee I worked closely with Secretary Riley's office to improve the Chapter I formula
and bring more funding to disadvantages children in high growth states within the
Elementary and Secondary Education Act. In conjunction with the Secretary's office,
Congress last year produced other very important pieces of legislation to help im-
prove education in this country: Goals 2000, School-to-Work Opportunities, and Na-
tional Service.

This year, supporters of those pieces of legislation face a changed political envi-
ronment. We must strongly defend the progress we have made in recent years from
critics who want total elimination of the Education Department. The Education De-

artment, like all federal agencies, do not have all the answers. However, Sec. Riley
fas shown how the Education Department can be a partner with states and local
districts in establishing a framework in which reform can take place.

Supporters of the Education Department must also be leaders in the effort to
bring efficiency and improved management of federal programs. It is not enough to
say that we want to establish programs to help kids: those programs have to work
and have to use the taxpayer's money wisely.

Looking ahead, I anticipate a discussion today about several issues: the Depart-
ment’s direct loan program; a response to legislation that would consolidate or elimi-
nate the DoEd; how rescissions would affect Chapter I programs and School-to-Work
Opportunities; and how the federal government should work with local districts to
improve our schools.

closing, I want to thank Chairman Shays for his serious and thoughtful ap-
proach toward the issues that this subcommittee has been considering. And I look
forward to our discussion today with the Secretary.

Mr. SHAYS. Mrs. Morella.

Mrs. MoreLLa, Thank you, Mr. Chairman. It is a pleasure for me
to be here.

I thank you for having this overview hearing, particularly be-
cause of my interest in education and having Secretary Riley and
Governor Kunin here.

You are going to include my statement in the record. I just want-
ed to make a few points.

First of all, I want to commend you on the Blue Ribbon Award
for Excellence in Education program. I say that because so many
schools in my district have reaped the benefit and have used this
as kind of a catalyst for moving ahead in terms of continuing with
educational excellence.

I hope that you will comment on something that I think appears
to be working and that is the direct student loan. I know it is prob-
ably special to you.

More than 75 percent of the students in my district go on to col-
lege, and every other year, 1 do a format on financing of higher
education. The last one I had, there were 600 people who were all


110

gatekeeping and other delivery mechanisms there to the higher
education community.

Mr. Suays. I was mentioning to one of my staff, when the De-
partment of Education was created, there wasn’t the political clout,
it seems to me, to consolidate ali education programs. In other
words, HHS wasn’t going to give up certain education programs, or
some committee within Congress didn’t want to see that happen.
The Department of Agriculture has nearly 11 percent of the edu-
cation programs. They weren’t willing to give them up. So what the
creators of the department got was a name, a Cabinet official, and
status, and it met the agenda. But this has really been a tremen-
dous surprise to me, to see that the department has less than 50
percent of the total Federal money spent on education.

The Federal Government spends more than $66 billion on edu-
cation, it doesn’t spend $33 billion, which is what the department
spends. A good chunk of the $33 billion are educational grants, Pell
grants and so on. If you took those out, there may be more of a
bureaucracy in education in other departments than there is in the
Department of Education. It would be interesting for me to pursue
that one. Do you know what I’m saying?

Mr. HANSEN. I do, and I actually don’t have a clue as to how
many staff are running those 300 programs in the other agencies,
and that might be helpful as well.

Mr. Suays. I think it is an interesting pursuit.

You were here for the testimony of the GAO and the Inspector
General. What struck you from that testimony?

Mr. HANSEN. I think a couple of things, one I do praise the Presi-
dent’s budget for trying to consolidate and eliminate duplicative
programs. The 1981 Block Grant Program consolidated programs
that over the last 15 years brand new reincarnations popped up of
those old programs, so I do think that the consolidations that they
have talked about would make a difference.

I do think that there is a major concern on the higher education
side of things about two things, the proprietary school issues and
the types of students—type of institutions that should be receiving
aid and also the delivery mechanism, be it direct lending or relying
on the private Euaranteed program.

Mr. SHays. Can you respond quickly to the direct lending issue?

Mr. HANSEN. Sure. I even mentioned that when Mrs. Morella
was here she indicated that survey of about 100 schools that are
in the program this year, of how satisfied they are with the pro-
gram. It should be noted, the Department has spent $600 million
in the first 18 months to get the program up and running, have
been able to hold the schools’ hands very carefully and very firmly.
There are over 8,000 schools that would need to be participating
in the program if it was a full blown program.

I think it is very easy for the Government to give money away,
it is not as easy to collect it, and the Department has been talking
about using the IRS or other sources to collect these loans, and it
is very premature for people to come up representing the adminis-
tration and claiming this program a success. Not one loan has been
collected yet. The first loans were just made for the fall semester
in September.


69

rect lending by the 1997/98 academic year. It is the $4.1 billion
that you asked us to discuss.

First, we must point out that application of requirements of the
Federal Credit Reform Act of 1995 may have distorted the cost
comparison between direct lending and the Guaranteed Loan Pro-
gram in favor of direct lending. We must also point out that the

epartment had to follow these requirements just as any other
Federal agency would have to do in doing a similar cost compari-
son.

Under the act, administrative costs are excluded in estimating
the net Federal cost of making or guaranteeing loans. According to
Department analysts, including administrative costs for both guar-
anteed and direct loans in the cost comparison would reduce the
$4.1 billion direct loan savings estimate to about $2 billion, but,
again, let me emphasize that that would not be in accordance with
current law. However, the actual savings from accelerating direct
lending could be considerably more or less than $2 billion.

Student loan cost estimates are highly dependent on forecasts of
variables such as interest rates, inflation rates, and student loan
default rates. These are difficult to predict. Changes in all or some
of these variables can result in significant variations in cost and
savings estimates. Finally, direct loans have only existed since July
1994. Estimating the cost and savings of direct lending is especially
difficult and less precise because of the limited experience.

Now let’s shift gears once again to a related student aid program.
The Department’s procedures for determining which schools can
participate in student aid programs are referred to as gatekeeping.
In response to numerous problems related to poor gatekeeping
practices, the Department and the Congress have made a number
of changes to strengthen the Department’s gatekeeping ability. For
example, the Higher Education Amendments of 1992 included pro-
visions that require provisional certification of schools until the
demonstrate administrative and financial responsibility, establis!
the State postsecondary review entities to conduct comprehensive
reviews of schools, ‘and. require crediting organizations to include
among their criteria such factors as maximum student loan default
and dropout rates and minimal job placement rates.

The legislative and administrative changes made to the
gatekeeping process should, if properly implemented, help address
many of the problems in the Federal student aid programs. How-
ever, because most of these changes were recently implemented it
is too soon for us to determine their effect.

In conclusion, the Department of Education has been proactive
in identifying ways to streamline its operations. However, it ap-
pears that there may be further opportunities to streamline beyond
what the Department has proposed by consolidating additional pro-
grams within the Department and in other Federal agencies.

With respect to the Direct Loan Program which is still—much is
still uncertain. The Clinton administration has proposed a major
change, moving it from limited voluntary participation to full man-
datory participation by the 1997/98 academic year. While the cost
savings cited in the Department’s budget proposal may be over-
stated because the Department has to exclude administrative costs


24

Structure of FFEL and Direct Loan Programs

Federal Family Education Loan Program )
aes

Bills & Payment

Se ary ‘Subsidy Bills (Defauted Loans)
Markets ‘& Payment Bills & Payment
Loan® (Cefaulted
Transfers) Loans)
Claim
Payments

Program
Data

Oa AE Reinsurance
Biling & Payments U.S. Department of
Guaranty Education
Agency

Direct Loan Program

Enrollment
Coan Funds ‘Student/

School, Borrower
Loan Funds.

Application

U.S. Department
of Education


10

We have been able to attract talented people who are making an
impact. I submit to you, and certainly Madeleine Kunin is one of
them, again a former Governor who has had that level of education
experience, Don Wurtz who is here, our Chief Financial Officer,
headed the General Accounting Office task force on the Depart-
ment, and was one of the people who had gone into the Department
in great depth, and as you know, some of their criticism over the
past years has been rather significant. Don is with us today.

Leo Kornfeld could not be with us. He is out of State, but he is
managing our direct loans and has a national reputation in that
area. We have attracted people who are top education people
throughout the country, and I am very pleased and proud of our
top staff in Education.

We are making real progress. A new financial management sys-
tem is currentl, ‘ing developed, and this system will be fully in
place by 1998. We have done a better job of gatekeeping in order
to protect the integrity of the Student Loan program.

ur research arm, OERI, has been entirely re-focused and we
have already made the Department a key point on the Internet—
over 15,000 visits a week. The new Direct Lending program is radi-
cally cutting the time that it takes for a college student to get a
loan from 3 weeks to 1 day.

We are getting strong support and encouragement from our cus-
tomers. And on the chart, you will note it is chart 8, I think in your
data there, to show the difference of the streamlining of the Direct
Loan program, and Governor Kunin will discuss that somewhat
more.

I was at a university here recently and had a student tell me
what a difference it was that they could get their loan the next day
and didn’t have to wait 3 weeks. I had a community college presi-
dent tell me recently in Oregon that it enabled her students to pro-
ceed in the school year without having to get temporary loans,
waiting until they got their permanent loans and how much better
it worked and served all of them.

The community colleges did a survey, and some of the comments
that came back—this was not us doing the survey, it was the com-
munity colleges—a very strong part of America’s education system,
by the way, and a couple of these quotes, “the Department’s service
has been good and timely” came out of that survey. Another quote,
“many programs never reach the students as rapidly as this has.
It’s been bipartisan and kept the best interests of the student up
front.” And a final quote, “This has been the freshest breath of air
in a long time. Finally, a program that the financial aid office con-
trols. We like that and the students like it.”

So we have had those kinds of responses. Direct lending is an ex-
ample of a solid public-private enterprise. We have cut out the mid-
dleman to reduce costs and increase savings. The private sector is
totally responsible for all the essential administrative functions
from loan origination to complete loan services. The Direct Loan
program is not a bunch of government clerks wearing green eye
shades and shuffling papers.

I would like to suggest, then, that we are representing real
change, significant change, change from the way this Department
has been managed in the past. We have been doing business dif-


29

around labor, a lot of them very serious, regulatory-type functions,
a piece of it training, but that is not the main piece, it is a very
large and important Department of the government.

‘ow, look at our Department, and what we do. About half of our
funds are in the direction of higher education, Pell grants, student
loans, those programs dealing, Mr. Chairman, with some 8,000 dif-
ferent institutions, colleges, universities, and so forth.

The other half deals, of course, with other areas. The special tar-

eted focus on disabled children, on disadvantaged children, chil-
Gren with limited English proficiency, and so forth, really puts us
then in a very focused pro-education involvement, that is not just
a work-force-type operation, and if we were moved there and be-
came a part of this very big organization, Education would be a
small piece of it, and it ‘would be back again an office like it was
in HEW. And as I pointed out, we have reduced the people in our
Department doing the same function from 7,700 down to 5,000 as
a separate Department. And we think that big is not necessarily
beautiful. I have talked to Congressman Gunderson about his pro-
posal, he is a thoughtful person, and he is really thinking some is-
sues out. He, in creating what I would call a kind of
megabureaucracy, has savings that are listed, but they are savings
which really come from the same kind of thing we are doing now.

And I don’t see how moving us with Labor is going to exacerbate
the ability to save money. I mean we are doing consolidations. We
are doing terminations. We are doing phaseouts and we plan to
continue to do so. But we want to work with you all, whomever is
going to do it. But moving us into Labor is not going to enable us
to do any more of that.

It would be, according to his numbers, some $100 million to re-
duce duplicate staff offices and that is a legitimate consideration
for savings. Our people have looked at all of the duplications. Like
Secretary, there would just be Secretary, one Deputy, and so forth.
And they come up with a $19 million figure as opposed to $100 mil-
lion as far as any duplication that is out there. So we don’t think
there are any savings to speak of. We think it would take us off
of our focus on education, an important function of this country.
Now in this era of information, it has to be education and it would
be a real mistake to deemphasize education at this time.

Mr. SHays. Thank you, Mr. Secretary. My time is up. I do want
to make sure that before we leave we are able to clarify what you
mean by 2 percent administrative costs. I won’t ask that question
now. But I do want to make sure that we deal with it, if you have
someone who can document that for us.

What we are going to do since we have one minority member, is
to go first to Connie Morella and then to Mr. Green. Candidly, I
don’t mind a little interaction between the Members if someone
wants to jump in to clarify what someone else is asking.

Mrs. Morella, you may have the floor.

Mrs. More... Thanks. I just find it pretty remarkable that you
can recommend that we go from 240 programs, I was looking at the
list of them, down to 68. How come it is happening now and not
earlier? How come all of a sudden? Is it because there is a new
wave or a new climate that is making us do inventory and sayin;
we don’t need to do this and we can consolidate that? If you would


98

grams—there are a number of Programs in this category. With re-
spect to some of these at least, there was local experience.

Mr. Suays. And so let the local government in those cases do it.

Ms. BLANCHETTE. Well, that is the potential. We have been very
careful to say potential candidates because there are a number of
issues beyond special ones.

Mr. Suays. I understand. I’m not asking you to set policy for us,
but if in fact some of us want to return more to local government
a good place to start would be an example like this. You are not
advocating that we do it, but if we are going to do it, this would
be the area.

Ms. BLANCHETTE. This is a good example.

Mr. SHays. Would you agree with that, Ms. Van Riper?

Ms. VAN RIPER. Yes, particularly in the small programs where
the delivery systems are already established.

Mr. SHays. Thank you. I’m going to thank all three of you for
coming to testify. You have really been very excellent witnesses.

Ms. Van Riper, I would love it if you would just kind of commu-
nicate with my staff. I have a sense of what I’m asking for in terms
of having all our Inspectors General give us their priorities. How-
ever, we will need to define those priorities. I’m willing to have
them defined a lot of different ways.

The bottom line is, you have given us so much. I would love it
if you would give us a sense of priority. You have really both done
a wonderful job, and we thank you.

Ms. BLANCHETTE. Thank you, sir.

Mr. SHays. Regretfully, we will be having a lot more inter-
action—I’m teasing. Thank you very much.

T would like to call on our next witness, Mr. Hansen.

Mr. Hansen, if you would stand and raise your right hand. As
you know, we swear in all our witnesses.

[Witness sworn.]

Mr. SuHays. For the record, the witness has responded in the af-
firmative.

Mr. Hansen, we went over time with our other witnesses, but do
welcome your testimony and would just affirm for you that your en-
tire testimony will be submitted for the record. You have four
Members here who would love to ask you some questions, but feel
free to make sure that you have touched on the high points of your
testimony.

STATEMENT OF WILLIAM D. HANSEN, FORMER ASSISTANT
SECRETARY FOR MANAGEMENT AND BUDGET, AND CHIEF
FINANCIAL OFFICER, U.S. DEPARTMENT OF EDUCATION

Mr. HANSEN. Thank you very much, Mr. Chairman, and I do ap-
preciate the opportunity to be before the subcommittee today.

This is a very important subcommittee, and it is a very impor-
tant committee. This committee was the one that handled the bill
to create the Department back in 1978 and 1979 when the debate
took place back then. I still have some old wounds from former
chairman Ted Weiss when he chaired this subcommittee when I
worked at the Department. He was a very aggressive and very
helpful chairman in helping the Department do a better job in
managing its functions. I also appreciate the good work that Mr.


gl

Mr. Towns. Ms. Van Riper.

Ms. VAN Riper. I think the underlying premise as far as the Fed-
eral presence in education is to assure the equity and the parity,
and I also can’t answer your question as to whether you can assure
those if the funding and the responsibilities are vested totally in
the States.

Ms. BLANCHETTE. One comes to mind. One thing that perhaps
the Federal Government can do is point out the inequities, that if
you are within a State—well, if you are in a State government,
State education agency, you probably can see the inequities or a
lack or parity in your own State, but you wouldn’t necessarily know
about it across State. So a potential Federal role would be educat-
ing decisionmakers at the State and local levels as to what the sit-
uation is.

Mr. Towns. So I think that, based on what you are saying, even
though you said that you did not have the total answer, but based
on what you are saying it seems to me that the Federal Govern-
ment has a serious role in terms of some of the thinking that is
going on. It seems to me you are saying that based on some of the
problems. Well, you are saying that the problems do exist.

Ms. BLANCHETTE. The problems exist.

Currently we are doing work looking at education financing, and
we haven’t completed that, but preliminary results, yes, there are
differences, and we are looking at some of the systems within
States to reduce those differences, and we will be reporting on
those by fall.

Mr. Towns. Thank you very much, Mr. Chairman.

Mr. SHays. I thank the gentleman.

Mr. Scarborough.

Mr. SCARBOROUGH. Thank you, Mr. Chairman.

I wanted to really follow up on some questions that were asked
of you regarding the Department of Education overall and whether
it is handled better on a local or State or Federal level. We are
spending right now approximately $33 billion on the Federal De-
partment of Education bureaucracy, and according to your testi-
mony it says the Department of Education is charged with manag-
ing the Federal investment in education and leading the long-term
effort to improve education. Established in 1980, the Department’s
stated purpose is to ensure access to education and to promote im-
provements in the quality and usefulness of education.

Now we have heard testimony today about spending almost a bil-
lion dollars on educating cosmetologists, and only one member on
the panel has a good haircut—and it is a nice haircut—and we also
hear horror stories from all of you who are saying that the Federal
Government is not managing its resources well, and I was struck
by, when you were asked a question about block grants, you said
we have to look into how services are delivered at the local level,
and I would like to pose that question to you. How are services
being delivered on the Federal level, and how have they been deliv-
ered since this education bureaucracy was set up in 1980?

Ms. BLANCHETTE. In terms of services? You are talking about in
terms of the mandate for the Department?

Mr. ScarBoroucu. Right.


11

ferently, we can always do a better job, we know that, and we are
willing certainly to try to do it.

I am open to any good, positive suggestions to find real savings.
I think any discussion about improving what we do is healthy, and
I welcome it. But I would urge the committee not to get sidetracked
or caught up in some new organizational chart debate or lose sight
of the essential core of what we are trying to do, which is to im-
prove teaching and learning in America.

The greatest problem of American education that it faces at any
level—State, local, Federal—is not having the tenacity to stay on
course. We are starting to see real progress in American education
because we spent the last decade learning what to improve in
building a bipartisan consensus around some basic goals, which
emanated, as you know, from the States. The best thing we can do
for American education right now is to have some plain old-fash-
ioned American tenacity.

Finally, Mr. Chairman, the American people have made edu-
cation a national priority themselves. They believe it is a national
priority. I submit to you they are not negative about education in
any sense of the word, they are pro education, they want to invest.
in the future of their children.

Last week, the Wall Street Journal and NBC released a poll that
showed that 79 percent of all Americans are opposed to any cuts
in the Department of Education’s programs. The American people
recognize that education has to be a national priority in this new
information era. They are tuned in, they have made that connec-
tion.

So I want to urge this committee to work with us in a bipartisan
fashion to reflect this national priority. I think it is the right way

0.
Pvould welcome the opportunity to work with each of you and
with the committee as we move forward together.
Let me ask Governor Kunin to say a few words, then we will be
happy to respond to questions.
[The prepared statement of Mr. Riley follows:]

PREPARED STATEMENT RicHarD W. Rivey, SECRETARY, U.S. DEPARTMENT OF
EDUCATION

INTRODUCTION

Mr. Chairman, I welcome the opportunity to come before this oversight Commit-
tee to explain the many reforms that we are undertaking to transform this agency
into a Department of Education for the new Information Age we are now entering.
I would like to submit my prepared statement for the record and make a short sum-
mary statement.

Let me begin by telling you who we serve and what we do. The purpose of this
Department, the smallest cabinet agency in the Federal government, is to ensure
equal access to education and to promote educational excellence throughout the na-
fon,

I believe that in today’s global economy, education has to be seen as a national
priority. The knowledge and skills individuals learn in school to a large extent de-
termine their level of economic success.

In 1992, for example, the average annual earnings for those with a bachelor’s de-
gree were 74 percent, higher than’ those with a high school diploma, and 155 percent
higher than those who had not graduated from high school (Chart 1).


97

Mr. SHays. When we talk about cosmetology, my criticism isn’t
that someone would choose that profession but that we are in fact
encouraging people, through loans, to pursue this career when in
fact they are unlikely to get a job. Their attitude may be, “I got this
education. A lot of good it did me. I’m not paying back the loan.”

Ms. VAN RIPER. Exactly.

Mr. SHays. OK.

Ms. VAN RIPER. The other consequence of the failure to make re-
funds is that if the students don’t pay their debt and they don’t pay
the full amount of it and they are determined to be in default, it
affects their eligibility for any future financial aid if they decide to
return and try to get an education that they can use.

Mr. Suays. For the record, whatever a student may use as an ex-
cuse, if they had a loan, they had an obligation, and they should
pay it back. If our Government isn’t making them pay it back then
I have a problem, but I understand why they may reason that way.

You both have done a wonderful service, but I think I realize
why I’m a little frustrated. I thought I was going to be able to say
we have five departments to look at, but we don’t have to spend
as much time with the Department of Education. You have made
me realize that, regretfully, there is a gold mine of opportunity
here.

Ms. Blanchette, you did something that I think is very interest-
ing and reinforces a continual sense that we don’t have a full pic-
ture. Even within a Department, we don’t know everything a De-
partment does. On page 4 of your statement, you talk about other

‘ederal education related programs. You point out that the Depart-
ment of Education, as a former member illustrated, is responsible
for $33.4 billion, which is less than 50 percent of the total of Fed-
eral educational programs.

I just want to say to you that I learned during the HUD inves-
tigation that the Department of Agriculture had a lot of housing
programs. It is interesting to know that the Department of Agri-
culture manages approximately 26 education related programs, and
that is something I think we need to take a look at as well. That
just fascinated me.

But let me just ask you this one last point. On page 6 of your
statement you said, “Besides the program consolidation proposed
by the Department, we identified two additional streamlining op-
portunities, vocational rehab and small, specifically targeted post-
secondary programs.”

You then go on to say in your statement that it is local education
that does a lot of these programs. Are you suggesting that we give
the programs to the local governments to focus on and we stay out
of it?

Ms. BLANCHETTE. Well, the point there was that for these par-
ticular programs there was a history of services actually being pro-
vided at the local level in a number of instances, and because of
that, because again, as I mentioned earlier, if you are only—can do
it if you are a local entity, a State, and your only role is to take
money from the Federal Government and to distribute it locally,
you are not in as good a position to actually run a program as you
would be if you had actual experience, and in some of these pro-


102

has spent $600 million in the first 18 months in getting this pro-
gram up and running to handle 100 schools. I would be very dis-
turbed if those 100 schools were not satisfied.

T also think it is important to note that the budget savings that
have been talked about need to be kept in context. The Guaranteed
Program and the Direct Loan Program have the same interest
rates, they have the same terms and conditions, they have the
same loan limits. Congress was very careful in passing this law in
1993 to ensure that students were not adversely affected because
of decisions that a college campus made about which way to handle
the delivery of this program.

It is very important to also note that this year there were 100
schools participating with loan volume around $1 billion. If you
consider that the private sector has made over $200 billion in loans
over the last 20 years, with this year included, I think it is very
easy to say that it is too early to tell of the major success of the
direct loan program. Not one loan has been collected. Loans just
started going out last September. It is very easy to make loans. It
is not as easy to collect loans and to handle the collection process
end, and I don’t think that the administration even has their mind
clear yet on how best to do this.

There has been a study that Congress mandated be on your desk
on February 10 of last year that the Department of Education and
the White House, have still not yet responded to about whether the
IRS should be the ultimate loan collector or whether it should be
contractors and other Government entities. This is a serious prob-
lem. The Department talks about using private sector contractors
while at the White House and other places you still have people
talking about having the IRS step in and, instead of serving as a
debt collector, to now serve as the loan collector for every student
across the country. That is a serious problem.

I would mention one other problem. We are talking about de-
faults and some of the cosmetology school issues. The Direct Loan
Program, cap bill has been introduced by Chairman Goodling and
by Bart Gordon. It is H.R. 530. It is a bipartisan bill, and the rea-
son it is a bipartisan bill Primarily is because of the integrity of
default measures that are in this bill.

Right now, schools participating in the Direct Loan Program do
not have to calculate their default rates, and the calculation of
school default rates has been the best trigger that the Government
currently has to kick the bad schools out of the program, to keep
the shoddy schools out of the program. I think it is no mistake that
half of the schools that want to participate in the Direct Loan Pro-
gram next year are proprietary schools, and this should raise seri-
ous red flags to Congress as they consider the integrity issues with
this program.

I would like to finish up on a couple of cost saving issues as well.
I have mentioned the Department’s S&E salaries and expenses.

Mr. Towns. Please summarize because what happened is, there
is a vote on.

Mr. HANSEN. OK. Just very briefly, I think that we need to also
keep in mind that whether the Department of Education exists in
its current structure or not is not to be viewed as pro-education or
anti-education. We need to get the deficit under control. Every stu-


118

There have been some problems around this country, and most
of those issues are taken care of very adequately at the State and
loca] level, and I fee}.

Mr, SoupER. Having been in the Department of Education,
would you have that same concern of State relative to local?

Mr. ISEN. In many regards, I frankly do as well. I do appre-
ciate Governor Allen in Virginia’s position that education should
even be thrown back from the State to the local level and to the
parents as much as possible—a philosophy that I support. I think
that a lot of time turning Federal bureaucracies over to State bu-
reaucracies is not going to change things. As I said in my written
testimony, any time we can get Federal programs directly to the
students, directly to the families, directly to the institutions that
serve them, we are much better off. Secretary Riley was correct in
his statement when he was here before and said that we have got.
a real class higher education system, and the Pell Grant Program,
the Student Loan Programs basically go directly to students and to
families, empowers them to make a choice to go to Penn State Uni-
versity, to go to Indiana, University of Indiana, go to Texas South-
ern, or to Notre Dame, or wherever it is they want to go and with
no strings attached.

I think also at the elementary and secondary level those are
grams like the Chapter 2 Block Grant Program with the flow-
through of funds directly to the school district is a better program.
It is fess regulatory, it is less burdensome, the moneys are better
used and more flexibly is used locally. So I think any time we can
do that at the Federal level, to get programs closest to the families
and te the students and to the campuses or the schools, we are bet-
ter off.

Mr. SoupDer. Thank you.

As a graduate of both Indiana and Notre Dame, I need to say for
the record, because I took flak all last fall, that also Purdue would

e—__

Mr. HANSEN. I'll add that to my list.

Mr. Suays. Well, since you run from Indiana, it is probably nice
that you went to Indiana, right?

Mr. Souper. Right.

Mr. Suays. Just quick , for the record, the Department of Edu-
cation was supposed to de a study, I think, on the IRS’ ability to
help with the collection of student loans. Are you aware if that
study has been done?

Mr. HANSEN. That is the one I just referenced. When the bill was
passed in 1993, in August, they were given 6 months to get the
study done. It was supposed to be up to Congress on February 10
of last year, and I understand it is still sitting in the White House
somewhere.

Mr. Suays. OK. That relates to the IRS.

Mr. HANSEN. That is the IRS feasibility study.

Mr. SHays. Are you aware if we are asking the IRS to do collec-
tions in different areas besides this?

Mr. HANSEN. The IRS does not collect loans, they are a tax col-
lection entity. They were asked by the Department of Education—
one of the initiatives that we started back in 1989—was this IRS
offset to where, if you were delinquent or defaulted on a loan, you


65

45,000 were not US. citizens. These ineligible recipients were awarded over $70
million in Pell Grants and another $45 million in Stafford Loans. We recommended
that the Department strengthen its existing citizenship verification process.

Also in September 1994, we issued a report on the Pell Grant closeout practices
and procedures. For award year 1991-92, over half of the approximately 6,700 par-
ticipating institutions submitted expenditure reports that contained discrepancies
totaling over $356 million. To address these reporting errors, the Department made
some basic assumptions to close accounts which were inconsistently applied and
which did not correct the underlying problem of inaccurate, untimely reporting prac-
tices by participating institutions. We made specific recommendation which, if im-
plemented, should strengthen the closeout policies and procedures and safeguard
millions of dollars from possible misuse.

SUCCESSES & CHALLENGES IN SFA PROGRAM ACCOUNTABILITY

Program Monitoring

Monitoring of program participants has been a weakness in the Department. In
December 1993 and January 1994, we issued reports on the effectiveness of the De-
partment’s regional oversight and monitoring of the institutional, lender and guar-
anty agency functions in the SFA programs. We made many recommendations to
improve significant deficiencies regarding organizational structure, effective man-
agement information systems, hiring practices and training, reporting and resolu-
tion standards, performance standards, and targeting entities for review.

We have been advised of many improvements the Department has implemented
or plans to implement to strengthen monitoring of schools after they begin participa-
tion in the SFA programs. While efforts to improve institutional monitoring are en-
couraging, our experience suggests that unless weak or unscrupulous schools are
screened out by the Gatekeeping process, significant harm occurs to the student and
the taxpayer before the school can be terminated from program participation.

We have also been advised that the Department has been developing a strate
to monitor the financial condition and other aspects of the guaranty agencies, whicl
is crucial with the advent of the Federal Direct Student Loan Program. Several
guaranty agencies have decided to cease participation in the Federal Family Edu-
cation Loan Program, and it is ‘anticipated that others will do the same. Emphasis
on the protection of Federal assets and continued student access to Federal loans
is imperative.

In additional to the Department’s regional oversight function, our office is in the
process of developing new, or revising our existing audit guides for guidance to the
non-Federal auditors to conduct their independent audits required of the SFA pro-
gram participants: schools, lenders, guaranty agencies, and third-party services. The
audit guides are being drafted with the intent of making the audits more effective
by focusing on areas of high risk.

Failure to Pay Refunds

Another area of concern regarding program accountability relates to failure on the
part of institutions participating in the current loan programs to py Joan refunds
when students withdraw from school during the periods for which the loans were
made. As we testified before a Senate subcommittee in May of 1994, students are
being victimized by schools’ failure 0 pas refunds; and when loan defaults result,
the taxpayer is victimized as well. By Filing to pay loan refunds, schools are keep-
ing money they have not earned for services they have not rendered and, when done
intentionally, this amounts theft of public funds. While it is not possible to accu-
rately quantify the magnitude of this problem, it is among the most frequently rec-
ognized problems in our audits and investigations of schools, Departmental program
reviews of schools, and in non-Federa} audits of schools required by the Higher Edu-
cation Act (HEA).

Several amendments to the Higher Education Act enacted in 1992 will help in ad-
dressing the refund problem but will not solve it, In our Senate testimony last year
we offered several recommendations for changes in statute to help reduce the refund
problem. These included requiring schools to report regularly to the Department the
status of their refund liabilities, enacting changes to program fraud provisions to
counter a recent court decision that weakens the ability to prosecute refund fraud
cases, and enacting legislation facilitating our use of asset forfeiture as a means of
Fecovering Federal funds stolen by schoo! owners via their failure to repay loan re-

funds.

We have also testified concerning a remedy that we believe would significantly af-
fect this situation. It is one that we recommended as part of the 1993 reauthoriza-
tion of the HEA: the Department should be authorized to obtain personal guaran-



7

Streamlining Federal Education Programs

Recently, the Department of Education has made progress in its effort to stream-
line operations and reduce costs. For example, in its fiscal year 1996 budget pro-
posal, the Department identified 41 programs—such as Dropout Prevention Dem-
onstrations and Teacher Corps—for rescission, elimination, or phase-out. In addi-
tion, the Department proposed consolidating another 39 categorical programs—such
as adult education and family literacy programs—into 12 broader programs. (See
app. I.) Past hearings on the Department have focused on achieving additional sav-
ings and efficiencies by consolidating, coordinating, or eliminating redundant edu-
cation programs throughout the government. The need to look beyond Department
of Education proj rams for opportunities to achieve cost savings t rough consolida-
tion is supported by our past analysis of multiple employment training programs.‘
For that body of work, we classified programs as potential consolidation candidates
because they served the same clients, shared similar goals, or offered similar serv-
ices.

Direct Lending

The guaranteed student loan program—now entitled the Federal Family Edu-
cation Loan Program (FFELP)—has provided Lillions of dollars in student loans to
postsecondary education students over the last 25 years, But problems have contin-
ually plagued the program, such as high student loan defaults and the lack of accu-
rate and timely information required for sound management decisions. These prob-
lems are attributed partly to a complex and multilayered delivery system involvin,
thousands of schools and lenders, about 40 guaranty agencies, and other partici-
pants. The Federal Direct Student Loan Program (FDSLP), originally authorized by
the Higher Education Amendments of 1992, was established in part because of prob-
lems with FFELP.

FDSLP is in part an effort to simplify the student loan process by eliminating pri-
vate sector lenders and guaranty agencies, and to reduce federal costs mainly by
eliminating interest subsidy payments to lenders. Under the direct loan program,
the government makes the loans, but the schools actually disburse the funds on be-
half of the government.

The direct loan program, as originally authorized, was to operate as a 4-year pilot
program. The Department was to select schools, which were to represent 5 percent
of the student loan volume, to participate in the program over the 4 years. But that
changed with the Student Loan Reform Act of 1993. Under that legislation, the di-
rect Ioan program is to be gradually phased in over 5 years, beginning with the
1994-95 academic year. In the first year, direct loan volume is to represent 5 per-
cent of new student loan volume; in the second year, 40 percent; in the third and
fourth years, 50 percent; and by the fifth year (the 1998-99 academic year), 60 per-
cent. The Department can exceed the goals for years 3 through 5 if more schools
want to participate. However, in the Department’s 1996 budget, FDSLP loans would
constitute 80 percent of student loan volume in the 1996-97 academic year and 100
percent in 1997-98,

To achieve additional cost savings, the Department proposes an accelerated and
full implementation of FDSLP. In its fiscal year 1996 budget, the Department main-
tains that full implementation of direct lending, combined with other legislative
charges,® would reduce student loan program costs by $12 billion during fiscal years
1995 through 2000. The Department estimated that fully implementing FDSLP by
academic veer 1997-98 would save about $4.1 billion.

Critics have challenged the assumptions that underlie the Department’s cost-sav-
ings estimate for FDSLP, indicating that actual savings could be considerably less.
One frequently cited concern stems from the exclusion of administrative costs—
mostly the costs to service direct loans—from cost comparisons between FFELP and
FDSLP because of Federal Credit Reform Act requirements.

Gatekeeping

Department gatekeeping practices have been subject to criticism for several years.
Congressional oversight, both through hearings and reports; our reports; and the
Department's Office of Inspector General's reports have detailed a series of problems
and called for legislative changes and administrative reform. These problems in-
cluded instances of the Department (1) allowing schools that failed to meet federal
requirements to participate in federal student aid programs and (2) failing to iden-

4Multiple Employment Training Programs: Overlap Among Programs Raises Questions About.
Efficiency (GAOHEHS 94- 193, July 11, 1994).

*For example, the Student Loan Reform Act of 1993 reduced lenders’ reimbursements for de-
faulted loans from 100 percent to 98 percent.


16

Another example of our new flexible regulatory approach was demonstrated in
last year’s reauthorization of the Elementary and Secondary Education Act (ESEA).
In totally revamping Title I-at $7 billion the largest program in the ESEA-we pro-
moted new approaches that enable staff in individual schools to decide on the best
strategies for improving teaching and learning.

The new Title I also expands the school wide option to 20,000 low income schools,
enabling them to blend their Federal funds with state and local resources to up-
grade entire schools, and not just target Federal funds on individual students.

We have a new management goal of eliminating 25 percent of grant regulations
for fiscal year 1996 and an additional 25 percent for 1997. We are reaching these
new management goals by giving grantees much earlier notification of their status,
by distributing grant funds electronically, and by eliminating unnecessary negotia-
tions affecting 6,000 grant continuations a year.

‘So we are making good progress. We plan on minimal regulations for the Title
I program, no regulations for the Goals 2000 and School-to-Work initiatives, and a
broad new waiver authority that I fully intend to use.

In addition, we have gone a step further by beginning a thorough Department-
wide review of all of our regulations to sort out those that are needed and those
we can do without.

GOOD MANAGEMENT PRACTICES

‘As we continue our work to redesign this agency, one of my chief goals has been
to instill a sense of good management. As a result we are becoming a more efficient
operation. Our current ceiling of about 5,100 FTE is significant reduction from the
7,700 employed in 1979 by comparable offices within HEW and six other agencies.
We are making progress on a number of fronts.

A new core financial management system is currently being developed to put the
Department's payment, grant and contract, and audit tracking systems in the main-
stream of business practices. This system will be fully in place by 1998.

We have used sound and up-to-date management practices to implement our new
direct lending program, including the competitive selection of private contractors to
handle loan processing and servicing. We have cut the time it takes for a student
to get a loan from three weeks to one day, and we have received strong support from
our customers. As you can see from Chart 8, we have reduced and simplified the
student loan process in a dramatic way.

We have combined many separate, and often duplicative, program monitoring ac-
tivities into a few coordinated monitoring teams, and refocused the emphasis of
monitoring from compliance to performance.

We are integrating our various educational research laboratories and technical as-
sistance centers into a coordinated support system for states and districts.

We have brought this agency into the Information Age. Today, the Department's
has become one of the prime sources of information on the Internet for information
about education and technology. As “PC Computing” magazine has observed, “There
may well be more K through 12 information on the Net than anything else.” Each
week, for example, the Department’s Online Library is visited by 15,000 people.

Our “Low Hanging Apples” Team has worked hard to identify unnecessary or bur-
densome day-to-day procedures, practices, or conditions in the Department that
could be easily corrected by quick changes to internal administrative activities. In
the last three years, over 500 such changes have been made.

For the first time in its history, the Department has issued Customer Service
Standards to help ensure that our staff provide the services that our customers
want and need. These standards require prompt, high-quality service; timely and ac-
curate information; easy access to services and information; and a pledge to make
customer input the driving force for organizational change.

And, we are strongly committed to the idea that you cannot spend taxpayer
money and operate programs without conducting objective and rigorous program
evaluations. We have used evaluation findings extensively in the past to shape our
efforts to improve the quality of the services we provide.

‘This is why I am concerned that our entire evaluation budget for the Title I pro-
gram and the School-to-Work Opportunities program is now part of the rescission
package that the full House will vote on this week. You cannot really open up the
regulatory process unless you have a strong evaluation system that keep you ac-
countable for results. This rescission jeopardizes our whole effort to focus on per-
formance and implement needed reforms.


99

Towns, a previous chairman, has done in the past years. So I do
appreciate this opportunity. ,

ir. SHAYS. You are a very smart man. I have learned a lot just
hearing you already. [Laughter.]

Having said that, however—— .

Mr. HANSEN. I would like to just touch briefly on a couple of is-
sues, and I will summarize my statement but I would like to hit
on a couple of key issues, and one is determining really what the
appropriate Federal role in education is. I think that all of the
questions that have been asked today, all of the questions that are

oing to be asked through the budget and appropriations and au-
thorization processes, that issue is going to be the bottom line. The
U.S. Congress needs to decide what the appropriate Federal role in
education should be.

Mr. Green mentioned, back in 1965 when a number of these
programs were created, in particular the Chapter 1 program and
others, there was a very different need. Less than half of our 25-
year-old adults in this country were high school graduates in 1965.
There were some inequities in numerous areas across this country,
and so a number of these programs were put into place. I think
every evaluation that has been conducted probably showed that
these programs specifically haven’t made a demonstrable difference
in a lot of individual lives. Rather, what has happened was that
the Federal level had helped people at the State and local levels
focus more on what the priorities should be, and it has been
through the State and local moneys that have been spent and
where we now today have 94 percent of our 25-year age population
having a high school diploma or equivalent.

I would like to talk just a little bit about what the Federal role
should not be. It should not be one of intrusiveness, one of
micromanagement, one of overregulation, one of overburdening pa-
perwork requirements. I would just give one brief example of the
type of situation I’m talking about.

There was a 1991 survey in Ohio where all the school districts
were surveyed to determine what was required upon each super-
intendent in terms of paperwork burden. Each superintendent, on
average, was asked to fill out 330 forms; 157 of those forms and
reports were submitted to the State, and 173 were required by the
Federal Government. This indicates that 55 percent of the paper-
work and administrative burden were federally driven, and in light
of only 6 percent of the money being paid to compensate.

I agree with the comments that the former Secretaries Alexander
and Bennett have made recently about the Federal role in edu-
cation, about whether there needs to be a Department of Education
to handle that Federal role. I agree with the guiding principles that
they have talked about, which are deregulation, choice, innovation,
and accountability, and serious assessment.

Some of the proposals that have been submitted or talked about
to dismantle the Department are serious proposals and should be
addressed by this subcommittee. I think there are a number of
ways in which the oversight and functions of the Department
should be considered. This is not an anti-education statement. As
the earlier witnesses have indicated, there are more programs and
more money being spent in the Federal Government on education


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50

education and labor has already merged. Now we need to change
the Federal Government to reflect that fact. As we proceed with
that important debate we welcome our witnesses here today.

[The prepared statement of Hon. Christopher Shays follows:]

PREPARED STATEMENT OF HON. CHRISTOPHER SHAYS, A REPRESENTATIVE IN
CONGRESS FROM THE StaTE OF CONNECTICUT

Today’s oversight hearing will discuss opportunities for cost savings in the De-
partment of Education. I believe that significant savings can be achieved through
a consolidation or elimination of duplicative programs and improved efficiencies in
program administration.

e Department seems to agree. At our March 13 hearing, Secretary Riley indi-
cated that the department’s $30.4 billion FY96 budget request called for terminating
or consolidating 68 of 240 programs, for an estimated savings of $800 million. The
Subcommittee hopes to identify additional opportunities for cost reduction in DoEd
programs and in the large number of administrative offices that manage them.

Tn today’s hearing, experts from both the public and private sectors will testify:
DoEd’s Office of Inspector General, General Accounting Office, and a former DoEd
Assistant Secretary for Management and Budget. We look forward to their views
and recommendations on how additional cost reductions can be achieved.

The DoEd Inspector General is expected to report today that the Student Finan-
cial Aid (SFA) programs, which constitute a large portion of DoEd’s operations and
funding, ere vulnerable to fraud and abuse. These problems, according to the IG,
are due mainly to the complexity and design of the programs, and to the multitude
of entities administering them.

The IG will call for an improved DoEd “gatekeeping” process, to prevent weak and
unscrupulous schools from participating in SFA programs. The department has
made some strides to improve the process as a result of legislation in 1992, accord-
ing to the IG, but many improvements have yet to be made.

jetekeoping is particularly important in the area of vocational training. The IG
recommended in 1993 that labor market needs and the performance of schools in
graduating and Placin their students should be considered in SFA funding for voca-
tional training. The IG is expected to report in today’s hearing that while the de-
partment took some action on that report, many problems remain.

Savings should also be possible through a reduction in student and family loan
defaults. The IG reports that since 1965, the Federal Family Education Loan pro-

am has suffered $57 billion in defaults, with $4.7 billion in 1993 alone. Moreover,
there are estimates that future default liabilities are between $11 and $13 billion.
Congress enacted a number of legislative provisions in 1992 to improve default pre-
vention and loan collections but the Subcommittee would like to know from today’s
witnesses if further action is needed.

.e performance of other loan programs could also be improved. In a 1994 report,
the IG found that in the 1992-93 award year, ineligible recipients received $70 mil-
lion in Pell Grants and $45 million in Stafford Loans. Also in a 1994 IG report, it
was found that over half of the 6,700 participating Pell Grant institutions in the
1991-1992 award year submitted expenditure reports with discrepancies totaling
over $356 million. The Subcommittee needs to know the status of measures being
taken by the department to correct these abuses.

Still, from a broader perspective, increased efficiency and program consolidations
may not be enough. However well intentioned, the accumulation of education and
training programs aimed at overlapping constituencies is wasting scarce resources
and obscuring the fundamental federal mission in education.

That mission lies in the development of a literate, technically competent citizenry
capable of performing productively in the global workplace. In recent hearings be-
fore this Subcommittee, Education Secretary Riley and Labor Secretary Reich both
testified that education is the most important factor in determining future earning
capacity. That testimony leads me to the conclusion that the national interest in
education and labor has already merged. Now we need to reform the federal govern-
ment to reflect that fact.

As we proceed with that important debate, we welcome our witnesses here today.

Mr. Suays. For the record, we might interrupt your testimony
when the ranking member shows so that he can put his testimony
in the record. At this time I would call on Connie Morella to see
if she has an opening statement.



95

point, but a basic point has to do with how administrative costs are
treated, long-term administrative costs.

I mentioned the Credit Reform Act of 1990 and its requirement
that long-term administrative costs be excluded from the computa-
tion of the net cost to the Government, and therein lies the prob-
lem or the difference and the difficulty in actually coming up with
a comparison. The administrative costs are probably different for
the two programs and occur over a different period of time, and in
the case of the Direct Loan Program many of those costs will be
beyond the 5 years used for the current estimate but would not be
included.

Mr. SouDER. So you are, in effect, saying that while there may
be savings the risk is greater to the Government because they have
costs that they don’t know whether they would absorb, but if it
wasn’t a Direct Loan Program the private sector would absorb
some of those losses?

Ms. BLANCHETTE. Well, risk ties in with interest rates, but no,
we are not specifically saying anything about risk in that instance.

Mr. SouneR. If the interest rates that the loans were out were
below what it costs for the cost of money for future loans, you
would be off in your projections on what you were going to make
on your loans and what it would take to keep the program funding,
and since you don’t have the administrative costs shared throug]
other types of loans in the private sector presumably we don’t have
to pick up their administrative costs.

In other words, in part of the assumption of Federal direct loans
being cheaper there was an assumption built in of certain types of
projections where this was going to head, whereas the private sec-
tor was absorbing some of that risk of those projections.

Ms. BLANCHETTE. That is true, but there are also payments that
go to the private sector under the guaranty program.

Mr. SoupeEn. Right, for default.

Ms. BLANCHETTE. Well, for defaults but also interest subsidies
that——

Mr. SOUDER. To cover their estimated risk. But it isn’t expand-
ing. In other words, if in actuality the risk was greater than they
thought, you wouldn’t expand the guaranteed payment to them,
which could happen in the Federal Government Interest rates
jump 20 percent; let’s say Clinton wins and the Democrats get back
in—I take back my comments.

Mr. Suays. He retracts it.

Mr. Sounder. I retract my statement.

Ms. BLANCHETTE. That would not occur, but of course the inter-
est rate—the interest rate paid to lenders could change as a result.

Mr. Souper. A dramatic change is what really affects these type
of loan Programs we have out in SBA, and here in the more direct
we have—I'm just saying the risk is probably greater based on
what I read there and what you are doing.

I just want to make a brief comment that, while I basically favor
moving back to the State level and the block granting, I would be
interested, and I think as we pursue over in the education sub-
committees for both early childhood and prior to college and post-
secondary—I am concerned too about some inequities between


33

on he was one of the leaders of education reform and setting the
standards in some States, in Kentucky later on.

But that national report, it didn’t come from the Department of
Education in Texas or any individual State because it was a na-
tional issue and I think that is how—that’s why the Department
of Education is so important as a national program because even
though only 6 percent of our funding for local education may come
from Federal sources, it is still a national concern and it has been
a national concern since the late 1950’s when we realized we were
behind on science and technology or science and space relation in
math and that is why I think ultimately the Department was cre-
ated.

When Secretaries Alexander and Bennett testified concerning the
abolishment and consolidation, we were having votes all the time
and I didn’t get to ask them, but I was wondering during their ten-
ure—and I don’t remember and no one has ever been able to an-
swer it—if during their tenure they individually recommended that
while they were sitting as the Secretary of Education. And no one
on either side, majority or minority, has been able to answer that,
but again I think that we shouldn’t defend a function just because
it is there. We should defend it because of what they do and again
these programs that you are offering, the cutting of the 30 percent
of programs, even coming in with a reduction of 1.6 billion in re-
quested revenue I think for the next fiscal year shows that—and
it just didn’t happen after November 8, 1994. It has been going on
for a couple of years that I know of.

Let me get to some of the questions I want to talk about in rela-
tion to not only your request for the $1.6 billion less in the consoli-
dation but some of the rescissions we are going to vote on this
week and the coordination that we already see between Depart-
ment of Labor and Education.

For example, the cutting of the 108 million for Tech Prep and I
know there is coordination now between the two departments and
how would that impact it.

And also one of the Department's major responsibilities is to safe
and drug-free schools and the cut or rescission of 482 million. And
granted I was in the legislature during the 1980’s and I wish I
could say we made our school campuses safer in Texas, but as a
national trend we haven't and I don’t know if we can blame it on
that the Department of Education hasn’t responded because our
school campuses aren’t as safe as we want or our test scores are
not as high as we want, but I also think that sometimes we can—
we are cutting off our nose to spite our face when we see that.

t And so if Mr. Secretary or Madam Kunin, if you would respond
0 that.

Mr. RILEY. Well, of course the $1.7 billion rescission item as far
as the Department is concerned comes directly out of our depart-
ment and, as you know, we are forward funded and some haven't
dealt with the education appropriations directly as you have.

Since the bill is finalized at the end of year, as you are well
aware, it is too late to plan the education planning for the next
year so education funds are forward funded, so in the 1994 budget,
1994-95, they really don’t get their funds until June-July of the
next year and the fact is that the money that is in the rescission


17

STAYING FOCUSED ON THE ESSENTIALS

In conclusion, I would like to suggest that our efforts represent real change-sig-
nificant change-from the way this Department has been managed in the past. We
have been doing business differently.

T will do all I can to work with the Committee and the Congress as a whole to
make the Department of Education’ more effective. We can always do a better job
and I am open to any good, positive suggestions by Committee members to find real
savings. But I want to urge this Committee to support our efforts to put these re-
forms in place and make them stick.

The last thing we need is to get side-tracked or caught up in some new organiza-
tional chart debate that will make the American people think we aren't focused on
the essentials of raising standards, improving teaching and learning, and making
sure their children are safe in school.

American people have made education a national priority, and I see no dimin-
ishment of public support for investing in education. We need to be bipartisan and
high-minded, to thi Jong term-something that the American people expect of us
when it comes to educating their children. We are not educating our children as Re-
publicans, Democrats, or Independents, but as Americans who represent the future
of our great country.

Twill be happy € answer any questions. Thank you.

Chart 1.—Average Annual Earnings by Level of Education: 1992

Level of Education duerage Aa

wal Earnings
Professional 74,560
Doctorate 54,908
Master 40,368
Bachelor's 32,629
Associate .. 24,398.
Some College 19,666
HS. Graduate 18,737
‘Not Finish HLS. 12,808,

Source: US, Bureau of the Census (1994)


61

funding for vocational training. We also recommended that the department take the
lead in convening an interagency task force to atudy different funding approaches
for vocational training. While the Department agreed initially with our rec-
ommendations, and we believe some action was taken in response to our report, it
is unclear at this time what further action the Department plans to address prob-
lems identified in the report.

William D. Ford Federal Direct Student Loan Program

The William D. Ford Federal Direct Student Loan Program (FDSLP) was author-
ized by the Omnibus Reconciliation Act of 1993, under the subtitle “Student Loan
Reform Act of 1993.” It replaced the Federal Direct Student Loan Demonstration
Program provided for in the Higher Education Amendments of 1992. The goals of
the new program are:

‘« to make college more affordable through flexible repayment options
* to save substantial sums of money by using federal borrowing, and
* to streamline the student loan system.

Under the FDSLP the Federal Government provides loan capital to student and
parent borrowers. This program simplifies the loan processes by eliminating the
services of guaranty agencies, lenders, and secondary markets.

To date, our work related to the Direct Loan program has consisted primarily of
providing independent advice and assistance to the Department in the design of pro-
gram systems and overseeing the performance of the recently issued financial state-
ment audit conducted by an independent public accounting firm, in accordance with
requirements of the Chief Financial Officers Act. In summary, these activities have
shaped our view that the Department's design and implementation efforts have pro-
gressed well so far, particularly considering the short time frames involved. How-
ever, system problems have been identified during start up which need to be cor-

to ensure effective control over the program as it expands from 5 percent to
40 nt of total new loan volume.
sented below is a discussion of the results of the first audit of the financial
statements for the Direct Loan program.

Financial Audit of the Federal Direct Loan Program

Last month an independent public accounting (IPA) firm under contract to the
OIG completed an audit of the Direct Loan program's financial statements for the
year ended September 30, 1994. The IPA issued an unqualified (clean) opinion on
the program’s financial statements and noted that nothing had come to their atten-
tion that caused them to believe that the Direct Loan program had not complied
with applicable laws and regulations which could have a material effect on those
statements.

Regarding the program's internal control structure, the IPA determined that con-
trols within its loan origination, servicing and reporting systems needed imposement
and provided recommendations for improvements in three areas: reconciliation and
reporting efforts, ability to monitor cash management, and school level controls.

ie IPA did not consider the conditions referred to above to be material weak-
nesses and also recognized that there were significant time constraints on the De-
partment to develop and implement the Direct Loan program.

Implementing the IPA’s recommendations could substantially eliminate the dif-
ficulties and delays currently encountered in the process and result in improve-
ments in reconciliation and reporting, cash management, and school level controls.
Department management was in general agreement with the need to improve con-
trol issues that were discussed in the auditor’s report. They recognized that there
would be start-up issues identified while implementing this program due to the
short period of time they had to make the program fully operational and have iden-
tifled and already started implementing activities to improve controls for the issues
raised.

The new program became operational on July 1, 1994 and had three months of
Joan activity by fiseal year end. We agree with the IPA that as the program expands
from five percent to approximately 40 percent (a direct loan volume increase of 700
percent) of the existing Federal Family Education Loan program volume, it is impor-
tant that management focus on improving the controls addressed by the rec-
ommendations in order to ensure accountability and control over program oper-
ations.

‘The Department is currently developing an action plan to address the specific is-
sues on which the recommendations focus. During regular audit status briefings
where the issues were first raised, Department managers said that they were aware
of many of the issues such as reconciliation and school software problems, and were
already working to resolve the identified issues. In our opinion, the Department is



114

has an immigrant problem, they would have more flexibility for
each of those areas instead of having to submit separate applica-
tions for each categorical program.

There is a cottage industry out there for grant writing proposals
that have been created over the last 20 years to have the experts
come in and write grant proposals for school districts, and I just
don’t think that is an efficient use of money. I think the money
should pet as simply and as quickly as it can to the States and the
local schools and get the paperwork out of the way.

Mr. Towns. How do we address the issue that was talked about
here earlier, following your line of thinking that you have a school
that does not have the wiring, does not have the capacity to even
pat computers in or even think about it? How do we address these

inds of issues in terms of this block grant kind of concept, rec-
ognizing that here’s a district that has been neglected down
through the years, and now we are talking about moving in and
computerizing, but they can’t even think about a computer because
their wiring does not permit it?

Mr. HANSEN. It is an important problem, and I’m just convinced
that over the last 30 years the Federal education dollars have been
going to address more of a quantity issue and trying to reach as
many people as possible versus a quality issue or a discretionary
function. What I mentioned earlier about the number of those kids
now at age 25—today 94 percent of those kids have a high school
diploma or an equivalent; in 1967 it was half of that. I think we
have come a long way.

On the special education side, earlier this century we had almost
100,000 children institutionalized in this country. Today, and I
think as a result of Public Law 94-142, only 5,000 or 6,000 chil-
dren are institutionalized. Clearly in some areas like the special
education program and the handicapped law created in 1972, the
Federal Government pushed by the American people, said every
child should receive a free and appropriate education, and over the
last 20 years we have made great progress that way. Congress
should now be looking at, now that the access issue is out of the
way, the quality and the other issues and making sure that Chap-
ter 1 and special education are integrated on the school site build-
ing. That is one of the problems with these Federal categorical pro-

ams.
ae went to Seattle when I was in the Department to an inner-city
school, and the Chapter 1 teacher and the special education teacher
couldn’t even talk to one another, they couldn’t teach one another’s
children, and it is those type of Federal constructions that need to
be removed, and I think that there has been a lot of success like
I just mentioned over the last 20 or 30 years to where the quantity
issue is not the issue of the day, it is the quality issue, and I hope
that that would be where the authorizers and this committee
looked at driving the Federal programs and how the programs are
constructed but also delivered.

Mr. Towns. Let me just ask one more question, Mr. Chairman.

Mr. Suays. Sure.

Mr. Towns. There are still some serious problems in the area of
integration. I mean there is still. I can show you a report just re-
cent in New York, so there are some serious problem in that area.


116

a management perspective as possible. It was written in the news-
papers last fall that one of these officials threatened to resign, and
they basically, as people from the outside could tell, put this new
reorganization together overnight to try to accommodate two politi-
cal appointees that maybe had differing views on the management
of the program. And today—and this is one issue, when you talk
about what this committee should be concerned about, the manage-
ment functions over at the Department of Education, you now have
two separate individuals handling the important management
functions of this Department. There was no outside Big Six ac-
counting firms, no analytical studies undertaken, OMB was not
consulted as best I can tell, GAO was not. Yet they had this divi-
sion that has been created in these programs overnight, and in
years Past there was an awful lot of congressional inquiry and
oversight into these programs by Senator Nunn and others over to
ensure that these programs are managed adequately and effi-
ciently. You now have a very deep fracture within the Department
in the management of the student aid programs and the
gatekeeping functions and the campus-based programs in totally
separate management lines of authority to the Secretary, and I
think that for the Secretary and the deputy to come up and talk
about how they have reinvented themselves and how well things
are working, I think that this is a hidden issue, but it is an impor-
tant issue. They talked about it only happening for 2 years and i
2 years it is going to go back to the way it should be. Why did they
do it in the first place?

Mr. Souper. In mild defense of the administration, under eve
President—and all you have to do is go into any agency and tall
to anyone who has worked in any agencies—you have these layers
of assistant secretaries and undersecretaries. Every time they can’t
resolve a political difference they create a new Department, and it
is part of the reason we are wasting so many dollars. It is just a
question of why did they come here and say they were not doing
that when in fact they appear to have done that.

You had_said in your testimony that when you—they consoli-
dated the Chapter 2 into block grant. Do you have any specifics on
the savings with that and what happened in the process of that?

Mr. HANSEN. The numbers at the time were—it was in the hun-
dreds of millions of dollars a year in program savings, but in De-
partment of Education management savings the Department of El-
ementary and Secondary Education administered those 42 categor-
ical programs and now today just handles the Chapter 2 program.
About 300-plus employees, I think it might have been close to 350
employees, were able to be removed from the Federal rolls over
time, and today, as I understand it, six people manage the Chapter
2 block grant program.

Mr. SouDER. So we went from potentially 350 people down to 6
people at the Federal level, plus the paperwork regulations, pre-
sumably, by not having all the different programs to deal with
went down substantially.

In your testimony you had said about the percentage of Federal
dollars versus the requirements. Have you seen any studies of
whether the actual programs that had been consolidated, whether
the children were less well served?


4

very anxious about how they were going to finance the education
of their children.

One couple sent me a plant to thank me for it, and I called them
to tell them it was very nice of them to do it. I asked them how
old are your children. They said we have two, 9 and 11. They are
interested in financing higher education. It was symptomatic of

at.

__If you would address the Student Loan program, how it is mov-
ing ahead, and I know what the administration wants to do and
whether or not we have had up to this point any indicators that
it truly not only is working but it will work in terms of the repay-
ments.

As Somebody who Chairs the Subcommittee on Technology, 1 am
also interested in the use of technology to excite young minds in
terms of education. I have supported methods to launch a satellite
dedicated to education that would connect classrooms across the
country and bring equity to our educational system.

Also, this does seem what the goals are of education and as we
move ahead recognizing that this is a key to competitiveness, it is
a key to upward mobility, as a key to quality of life and what
makes America great.

I thank you, Mr. Chairman,

[The prepared statement of Hon. Constance A. Morella follows:]

PREPARED STATEMENT OF HON. CONSTANCE A. MORELLA, A REPRESENTATIVE (N
ConcRrEsS FROM THE STATE OF MARYLAND

I would like to commend you, Mr. Chairman, for holding this important oversight
hearing regarding the Department of Education. I also welcome Secretary Riley and
extend my appreciation for his willingness to enlighten me and other members of
the Subcommittee about the future role of the DOE and efforts to make this agency
even more efficient and effective.

The Department of Education plays a significant role in ensuring that all Ameri-
cans have access to a quality education. Well-educated and highly skilled individ-
uals are the major resource of any modern society. The productivity of our edu-
cational system will set the pace for economic growth and the standard of living for
Americans as we face the challenges of the 21st century.

IT applaud the DOE for its Blue Ribbon Award for Excellence in Education Pro-

‘am. Every year, several schools in Montgomery County, Maryland, the district
that I represent in Congress, receive an award from the Department for affording
their students an outstanding quality of education, The program provides an incen-
tive for high school standards necessary to win a blue ribbon.

T also applaud the DOE for the success of the Direct Student Loan Program. More
than 75% of the students in my district go to college. More than 600 people attended
the last seminar that I sponsored regarding how to finance a college education. De-
spite concerns that are being raised in Congress about the ability of the DOE to
effectively run the program, have heard, first-hand, good reports about the Direct
Student Loan Program:

‘Students have told me that it is quicker and easier to borrow money under the
Direct Student Loan Program, and that there is no confusion about who to contact
for questions or repayment of their loans. Participating schools report that they re-
ceive tuition payments faster. It is my understanding that the Direct Student Loan
Program will save over $4.3 billion by Fiscal Year 1998 according to the Congres-
sional Budget Office (CBO).

ile America has the finest higher education system in the world, during the
past decade, students have been falling behind at the elementary and secondary lev-
els. American students perform lower on international tests than students from na-
tions with far fewer resources.

‘As we look at the major sectors of our economy, the educational system is the onl;
sector that has not brought technology to bear upon its operations. In a society ric
with information, we can no longer rely on skills appropriate only for the industrial

age.


93

You mentioned the termite infestation of that New Orleans
school where minorities are, and that is certainly horrible and it
is something that we need to take care of if at all possible, but yet
while they are slashing $100 million to take care of problems like
you mentioned in these inner city New Orleans schools, they are
spending $20 million to upgrade their own bureaucracy right down
the street. That certainly causes me a lot of concern, and I cer-
tainly would like for you all, if you could, to look into that situation
and see why they are taking tax dollars away from local commu-
nities, away from local schools, and pouring it into a bureaucracy
up here in Washington, DC.

Mr. Suays. Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman.

Let me get the percentages correct now, and I know 6 percent is
the average local funds; in some districts it is higher, in some it
is lower. Of that $33 billion, the expense here in Washington is 2
percent.

Mr. McNamara. That is my understanding, Mr. Green, yes.

Mr. GREEN. OK. So everything but 2 percent. Has that 2 percent
grown as a percentage of the revenue? Was it 1 percent in 1980,
or was it 5 percent in 1980? Do you have any of those numbers
that we can look at? Again, 2 percent of that $33 billion that is
taken in revenue, everything is sent back to the local communities
except 2 percent?

Mr. McNamara. The 2 percent is in testimony that the Depart-
ment gave recently, within the last couple of weeks. Other than
that, the money going back would be either Pell grants, guaranteed
loans, direct loans, and all of the formula grants.

Mr. GREEN. And also Chapter 1 funding. So that is all the De-
partment of Education, and, frankly, share Representative

carborough’s concern, but, again, if we are only keeping 2 percent
here in overhead and the rest of that, 98 percent, is going back to
the community, it sounds like it is a pretty good program now if
we are going to have a Department of Education, and I know there
are some folks who don’t want to have a Department of Education.

But, again, I have some concern that that school in New Orle-
ans—I can take you to the same school in Houston or New York
City or even in our rural communities, and education is a national
concern. Even though we don’t put any more than 6 percent of the
funding locally, it is still a national concern.

If we are only keeping 2 percent here and 98 percent is going
back to those schools in New Orleans for those jocal districts to de-
cide how hopefully, they would spend some of it on upkeep and
replacing that windowsill from termites. Of course, in New Orleans
and in some of our parts of Texas we can fight, termites we have
been fighting them for 200 years, and we just have a lot of them.

But, again, I just wanted to make sure the record was correct in
that we were talking about the 2 percent for administration here
in Washington. I’m not saying I’m happy with that, I would like
to see it 1 percent, because I want to see all that money back in
the classroom because we don’t educate any kids up here, and,
frankly, they are not educated in the school administration build-
ings gither, they are in the classroom, so as much as we can pull

at down.


38

dents was tremendous. There was a large gap. That gap has been
significantly closed during the period of Title I, Title t of formerly
Chapter 1. And there were lots of things we felt like needed to be
changed in Chapter 1 and we have changed a lot of things and we
are doing a more whole-school approach and away from a pull-out
approach and so on. But those programs have helped. There is no
question about it.

Tf you look at those gaps, Hispanic kids, minority kids, the gay
has closed significantly. It hasn't closed completely. We still nee
to work on it. If you look at disabled kids, and what has happened
there, it is tremendous, the percentages that now really have a sig-
nificant education that formerly would have simply been put aside
and not worried with. To see disabled kids working and productive
and excited about their life in this country, and if you look at all
the different areas that we are in, certainly higher education is
kind of a model for the world and we are very much, as I pointed
out earlier, in higher education and again that shifts away from
moving us to Labor. I mean, the importance of higher education is
not necessarily work force related and so forth.

So I think that we can make a very good argument and a lot of
good things have happened. I don’t have to tell you or anyone else
education doesn’t happen overnight and it is not a quick turn-
around and it involves culture. It involves habits and it involves
whether parents and communities are interested in education and
so forth. And a lot of that is taking shape and we are very hopeful.
As I indicated, we think we have turned the corner and we are see-
ing the kind of progress that—it is slow. It is not rapid, but it is
moving in the right direction and we think it is making a dif-
ference.

Mr. ScaRBOROUGH, I certainly hope so.

And let me say this, you mentioned talk about minorities and
handicapped children. There has been a tendency to frame a lot of
debates on the national level. If you are for helping minorities and
handicapped children on a State or local level, there has been a
tendency by some to say, well, that means you don’t care about
them because you don’t want a Federal agency. There are a lot of

eople that believe that we can actually help minorities, help
Fandicapped children, and help the truly disadvantaged more effec-
tively in the community or State level.

And I would like to point out Alice Rivlin for one, Director of
OMB for President Clinton, wrote a book in 1992. She brought up
a good point, 30 years ago, 40 years ago, because of some problems
on State levels, the Federal Government needed to step in_and
make sure there was a safety net in these areas because the State
governments were not capable of handling it. Ms. Rivlin pointed
out in her book, though that is correct, we now have some of our
most talented and capable people at the State level, and I am sure
that started about the same time that you all were Governors for
your respective States, but Ms. Rivlin said——

Mr. SHays. Make sure you don’t ask any questions that are going
to take too long to answer.

Mr. SCARBOROUGH. Well, this is a yes or no answer. I am just
trying to ask a question half as long as Mr. Green. It is hard piec-
ing together all these.


100

than there are in the Department of Education. So where these
programs are housed I don’t think is necessarily the important
issue, it is how these programs are managed ‘and what the func-
tions of those programs are and how the product is delivered to the
consumer.

I stated in my written statement that I don’t think that this com-
mittee or this Congress should change or abolish the Department
of Education just for the sake of changing the name on the door.
If you are just moving the current functions over to another agen-
cy, or calling it a new Department with the same functions and the
same problems intact, we are not solving the problems that are
about the Federal system of delivering aid.

I would like to just give a very brief description of the funding
history of the Department. It has been indicated that $33 billion
is the current bu get for the Department, funding 240 programs.
Back in 1980, the Department’s budget was about $14 billion with
about 130 programs. The Department at the time was actually a
bigger Department. There were 7,500 employees in 1981 when
Ronald Reagan came to office.

There were two major efforts that were undertaken in 1981 to
downsize the Department. The first was, the student loan collection
activities were privatized. The second was, there were 42 categor-
ical programs that were block Branted into the Chapter 2 Block
Grant Program. This saved the Department of Education hundreds
of millions of dollars and also allowed the Department to downsize
by several hundred employees when, instead of having 42 categor-
ical programs, we had one funding stream through the new Chap-
ter 2 Block Grant Program.

The thing that happened through the 1980’s and through today
is the fact that the Department of Education’s budget has more
than doubled, it has gone up over 50 percent in real dollars. That
is beyond inflation. The number of programs in the Department
have also increased from 130. Year in year out new programs have
been layered on top of one another, and today we have over 240
programs just in the Department and 300 additional programs
elsewhere.

I don’t think that there has been a very comprehensive, systemic
look at what the functions of the Federal Government are, what
the duplication is within the Government, and how those programs
could best be consolidated, zeroed out, or block granted.

I do think that Mr. Goodling in the Opportunities Committee has
laid it out very, very well. He has said that he wants to get rid of
the word “reauthorization.” He said he hopes it is stricken from the
dictionary and we shouldn’t assume that programs are going to be
reauthorized year in and year out but to make sure that everything
is being looked at from a clean slate. I would support that notion.

I would like to just remind the committee that when Secretary
Riley was here he somewhat tried to take credit for reinventing the
Department of Education, and he mentioned the fact that the De-
partment has gone down from 7,500 employees to around 5,000 em-
ployees. Again, the Department went down from 7,500 down to
about 4,500 employees during the 1980’s and early 1990’s, and
since the early 1990’s the Department has now grown to over 5,000
employees and they are now poised to hire a couple of hundred new


41

dent defaults on government-guaranteed loans, $2 billion a year is
an outrage. The government needs to stop guaranteeing 100 per-
cent of the loans. Expose the banks or States to even a fraction of
the risk and in a twinkling the loans would be better paid.

Do you have any reaction to that?

Ms. KunIN. Well, a few reactions. One is that in the present sys-
tem and the FFEL program, the banks have no risk at all, and now
the government does when we run it through direct lending. We
have more control over the whole system to reduce the risk, and
the part I would agree with is we shouldn’t have any defaults real-
ly and any loan loss. We see on the horizon and not too far awa’
where we will come out with no net loss, where our collections will
equal our default rate, two things are happening. Defaults are

ing down. Collections are going up. Don, do you have those exact
figures? This is Don Wurtz, who is our CFO.

Mr. Wurtz. We had $2.4 billion in defaults and we collected $1.6
billion, the highest amount we ever collected from tax refunds, off-
sets this year went up to $600 million. We are now instituting——

Mr. SHays. I’m sorry. For the recorder’s purpose, we need to
identify your name.

Ms. Kunin. Sorry. This is Don Wurtz, who is the Chief —

Mr. SHays. I am happy to have you give the answer. I wonder
if you could just step up and talk into the microphone. Just state
your name again, sir.

Mr. Wurtz. My name is Don Wurtz. I am the Chief Financial Of-
ficer of the Department.

Last year, we had defaults of approximately $2.4 billion. We had
collections in total of about $1.6 billion. The amount from refunds,
tax refund offsets which we coordinate with the IRS, has increased
to about $600 million and of that $1.6 billion—we are now institut-
ing programs for wage garnishment which we believe will have
substantial impact in the future and continue those collections.

People are under a great delusion when it comes to default. A
student who defaults can no longer borrow to get a car loan, can
no longer get a mortgage loan. Cannot get a job with the State or
Federal Government and that loan has no statute of limitations, so
it is a pretty drastic situation today and we are now sending out—
we are going to have about 3 million hits this year on tax refund
offsets and each of those students will get a letter explaining what
they are faced with.

Mr. Davis. I guess my question is, you think instead of sharin
the risk with the banks or the States that you can get to that goal
another way; is what you are saying?

Ms. Kunin. Yes.

Mr. Davis. That is what I wanted to hear.

Ms. Kunin. Yes, I think we can and that there is less risk when
the Federal Government basically makes the loan from the Federal
Treasury and we don’t have all these subsidies in place of the pri-
vate sector. We have those built in these savings and it is a much
more sound system. We have more of an incentive to collect than
ever before.

Mr. SHays. Let me call on Mrs. Morella, unless you have one
final question.

Mr. Davis, I did but I can wait.