U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

22–384 PDF 2017

FEDERAL STUDENT AID: PERFORMANCE–BASED 

ORGANIZATION REVIEW 

JOINT HEARING 

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT OPERATIONS 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

AND THE

SUBCOMMITTEE ON HIGHER EDUCATION ON 

WORKFORCE TRAINING 

OF THE

COMMITTEE ON EDUCATION AND THE 

WORKFORCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

NOVEMBER 18, 2015 

Serial No. 114–85 

(Committee on Oversight and Goverment Reform) 

Serial No. 114–34 

(Committee on Education and the Workforce) 

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

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

http://edworkforce.house.gov 


AKING-6430 with DISTILLER
(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

JASON CHAFFETZ, Utah, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

JIM JORDAN, Ohio 

TIM WALBERG, Michigan 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

CYNTHIA M. LUMMIS, Wyoming 

THOMAS MASSIE, Kentucky 

MARK MEADOWS, North Carolina 

RON DESANTIS, Florida 

MICK MULVANEY, South Carolina 

KEN BUCK, Colorado 

MARK WALKER, North Carolina 

ROD BLUM, Iowa 

JODY B. HICE, Georgia 

STEVE RUSSELL, Oklahoma 

EARL L. ‘‘BUDDY’’ CARTER, Georgia 

GLENN GROTHMAN, Wisconsin 

WILL HURD, Texas 

GARY J. PALMER, Alabama 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

MATT CARTWRIGHT, Pennsylvania 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

BRENDA L. LAWRENCE, Michigan 

TED LIEU, California 

BONNIE WATSON COLEMAN, New Jersey 

STACEY E. PLASKETT, Virgin Islands 

MARK DeSAULNIER, California 

BRENDAN F. BOYLE, Pennsylvania 

PETER WELCH, Vermont 

MICHELLE LUJAN GRISHAM, New Mexico 

SEAN MCLAUGHLIN, Staff Director 

DAVID RAPALLO, Minority Staff Director 

KATIE BAILEY, Government Operations Subcommittee Staff Director 

SHARON CASEY, Deputy Chief Clerk 

SUBCOMMITTEE ON GOVERNMENT OPERATIONS

MARK MEADOWS, North Carolina, Chairman 

JIM JORDAN, Ohio 

TIM WALBERG, Michigan, Vice Chair 

TREY GOWDY, South Carolina 

THOMAS MASSIE, Kentucky 

MICK MULVANEY, South Carolina 

KEN BUCK, Colorado 

EARL L. ‘‘BUDDY’’ CARTER, Georgia 

GLENN GROTHMAN, Wisconsin 

GERALD E. CONNOLLY, Virginia, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

STACEY E. PLASKETT, Virgin Islands 

STEPHEN F. LYNCH, Massachusetts 


AKING-6430 with DISTILLER
(III) 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN KLINE, Minnesota, Chairman 

Joe Wilson, South Carolina 

Virginia Foxx, North Carolina 

Duncan Hunter, California 

David P. Roe, Tennessee 

Glenn Thompson, Pennsylvania 

Tim Walberg, Michigan 

Matt Salmon, Arizona 

Brett Guthrie, Kentucky 

Todd Rokita, Indiana 

Lou Barletta, Pennsylvania 

Joseph J. Heck, Nevada 

Luke Messer, Indiana 

Bradley Byrne, Alabama 

David Brat, Virginia 

Buddy Carter, Georgia 

Michael D. Bishop, Michigan 

Glenn Grothman, Wisconsin 

Steve Russell, Oklahoma 

Carlos Curbelo, Florida 

Elise Stefanik, New York 

Rick Allen, Georgia 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Ranking Member 

Rube ́n Hinojosa, Texas 

Susan A. Davis, California 

Rau ́l M. Grijalva, Arizona 

Joe Courtney, Connecticut 

Marcia L. Fudge, Ohio 

Jared Polis, Colorado 

Gregorio Kilili Camacho Sablan, 

Northern Mariana Islands 

Frederica S. Wilson, Florida 

Suzanne Bonamici, Oregon 

Mark Pocan, Wisconsin 

Mark Takano, California 

Hakeem S. Jeffries, New York 

Katherine M. Clark, Massachusetts 

Alma S. Adams, North Carolina 

Mark DeSaulnier, California 

Juliane Sullivan, Staff Director 

Denise Forte, Minority Staff Director 

Jennifer Lynne Prescott, Professional Staff Member 

Alissa A. Strawcutter, Deputy Clerk 

SUBCOMMITTEE ON HIGHER EDUCATION AND WORKFORCE TRAINING 

VIRGINIA FOXX, North Carolina, Chairwoman 

David P. Roe, Tennessee 

Matt Salmon, Arizona 

Brett Guthrie, Kentucky 

Lou Barletta, Pennsylvania 

Joseph J. Heck, Nevada 

Luke Messer, Indiana 

Bradley Byrne, Alabama 

Carlos Curbelo, Florida 

Elise Stefanik, New York 

Rick Allen, Georgia 

Rube ́n Hinojosa, Texas 

Ranking Minority Member 

Hakeem S. Jeffries, New York 

Alma S. Adams, North Carolina 

Mark DeSaulnier, California 

Susan A. Davis, California 

Rau ́l M. Grijalva, Arizona 

Joe Courtney, Connecticut 

Jared Polis, Colorado 


AKING-6430 with DISTILLER

AKING-6430 with DISTILLER
(V) 

C O N T E N T S 

Page 

Hearing held on November 18, 2015 ...................................................................... 1 

WITNESSES 

Mr. James Runcie, Chief Operating Officer, U.S. Department of Education 

Oral Statement ................................................................................................. 8 

Written Statement ............................................................................................ 10 

Ms. Melissa Emrey-Arras, Director, Education, Workforce, and Income Security, U.S. Government Accountability Office 

Oral Statement ................................................................................................. 20 

Written Statement ............................................................................................ 22 

The Hon. Kathleen Tighe, Inspector General, U.S. Department of Education 

Oral Statement ................................................................................................. 43 

Written Statement ............................................................................................ 45 

Mr. Ben Miller, Senior Director, Postsecondary Education, Center for American Progress 

Oral Statement ................................................................................................. 60 

Written Statement ............................................................................................ 62 

Mr. Justin Draeger, President, National Association of Student Financial 

Aid Administrators 

Oral Statement ................................................................................................. 71 

Written Statement ............................................................................................ 73 

APPENDIX 

Chairman Meadows Statement .............................................................................. 124 

Ranking Member Connolly Statement ................................................................... 128 

Chairwoman Foxx Statement ................................................................................. 130 

Ranking Member Hinojosa Statement ................................................................... 132 

RESPONSE from Mr. Runcie to Questions for the Record .................................. 138 

RESPONSE from Ms. Emrey-Arras to Questions for the Record ........................ 200 

RESPONSE from Inspector General Tighe to Questions for the Record ............ 202 

RESPONSE from Mr. Draeger to Questions for the Record ................................ 206 


AKING-6430 with DISTILLER

AKING-6430 with DISTILLER
(1) 

FEDERAL STUDENT AID: PERFORMANCE– 

BASED ORGANIZATION REVIEW 

Wednesday, November 18, 2015 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT OPERATIONS, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, JOINT

WITH THE SUBCOMMITTEE ON HIGHER EDUCATION AND

WORKFORCE TRAINING, COMMITTEE ON EDUCATION AND THE

WORKFORCE, Washington, D.C. 

The subcommittees met, pursuant to call, at 9:06 a.m., in Room 

2154, Rayburn House Office Building, Hon. Mark Meadows [chairman of the Subcommittee on Government Operations] presiding. 

Present from the Subcommittee on Government Operations: Representatives Meadows, Jordan, Walberg, Mulvaney, Buck, Carter, 

Chaffetz, Connolly, Maloney, Clay, Plaskett. 

Present from the Subcommittee on Higher Education and Workforce Training: Representatives Foxx, Guthrie, Messer, Curbelo, 

Stefanik, Allen, Kline, Scott, Hinojosa, Jeffries, Adams, DeSaulnier, 

and Courtney. 

Mr. MEADOWS. The Subcommittee on Government Operations of 

the Committee on Oversight and Government Reform and the Subcommittee on Higher Education and Workforce Training of the 

Committee on Education and the Workforce will come to order. 

And, without objection, the chair is authorized to declare a recess 

at any time. 

Today, we gather to review the Federal Government’s first performance-based organization, the Office of Federal Student Aid. 

In 1998, amendments to the Higher Education Act transformed 

FSA into a Federal experiment, one that many don’t realize is still 

ongoing. Driving this transformation was an idea that innovation 

would foster by bringing private-sector talent into the government, 

giving that talent independence from the parent agency, providing 

generous compensation, and then holding that talent accountable. 

Today’s goal is simple. We are going to evaluate FSA’s performance since it was granted these responsibilities and flexibilities. 

There is no doubt that FSA is tasked with a far greater responsibility today than ever could have been imagined or anticipated in 

1998. The Federal Student Aid system is vast, complex, and growing. 

In 1998, the Free Application of Federal Student Aid was just 

being put on the World Wide Web. Today, FSA processes over 22 

million applications annually, and 99 percent of those applications 

are processed electronically. 


AKING-6430 with DISTILLER
2 

In 1998, 3.8 million Pell grants were awarded annually, costing $6.7 billion. Today, it is 8.3 million Pell grants that are awarded 

by FSA annually, costing close to $32 billion. In 1998, FSA owned and managed $45 billion in Direct Loans outstanding principals, and the other $150 billion was funded and 

owned by a public-private partnership in the FFEL program. 

Today, FSA owns and manages a staggering amount of $1.18 trillion in Federal assets. 

Now, while FSA’s responsibility has increased dramatically, 

there has not been an increase in accountability. Let’s be clear: 

Congress has not done its part. We created this thing, and then 

walked away. Congress has only called the FSA’s Chief Operating 

Officer, the owner of the PBO, to testify three times since 2010. 

This entire enterprise was set up for oversight, but in the halls of 

Congress we need to do better. 

Now, while I acknowledge Congress has to do its part, let me be 

clear: FSA is failing to live up to its side of the deal, as well. One 

only needs to consider the inspector general’s recent ‘‘Management 

Challenges’’ report for evidence that FSA is failing to deliver. Each 

challenge the IG flagged this time around was raised in last year’s 

report, as well. 

And these are not insignificant challenges but mission-critical 

areas that FSA must manage effectively. These areas include: improper payment reporting, oversight and monitoring, and IT system development and implementation, of which we heard in this 

very room yesterday some of the challenges there. And I’m concerned that FSA made significant progress to be removed from the 

GAO’s high-risk list in 2005, but now it’s backsliding. 

And I’m doubly concerned about the culture being fostered by 

FSA. We will hear from school stakeholders today that the working 

relationship with FSA has become so strenuous that it is having 

an adverse effect on, ultimately, those people that they should be 

serving: the students. 

During the committee’s hearing yesterday, the Department received an F—an F—for its failure to effectively secure the personal 

information of millions of students across the country. Today, I suspect Washington may receive an F for allowing the Office of Federal Student Aid to expand into higher education. I’m not convinced it’s been a healthy endeavor for students, parents, or taxpayers. 

But I look forward to hearing from our witnesses today and now 

turn to the ranking member, the gentlewoman from New York, 

Mrs. Maloney, for her opening statement. 

Mrs. MALONEY. Thank you so very much, Mr. Chairman, for calling this important hearing. 

As I understand it, the goal of today’s hearing is to examine the 

Office of Federal Student Aid within the Department of Education. 

FSA is what is known as a, and ’’performance-based organization.’’ 

These entities have greater independence from the other agencies, 

more flexible hiring authority, and additional contracting flexibility. And they generally are more siloed from the rest of the other 

agencies. 

Some have suggested that this was a Clinton administration decision. In fact, the Clinton administration proposed this concept for 


AKING-6430 with DISTILLER
3 

the Department of Commerce, but it was Congress that created 

FSA within the Department of Education as a performance-based 

organization in 1998. 

The primary sponsors in the House of Representatives of the legislation creating it as a performance-based organization were Representative Buck McKeon, Representative William Clay, Rep. William Goodling, and Rep. Dale Kildee. 

During the markup of the legislation in committee, Buck McKeon 

and said this:‘‘For the first time, the day-to-day management of our 

student aid programs will be in the hands of someone with realworld experience in financial services. This individual will be given 

the hiring and contracting flexibility necessary to get results and 

will be paid based on performance. For the first time, the Department’s student aid assistance will be run like a business, adopting 

the best practices from the private sector and focusing on bottomline results.’’ 

Rep. McKeon’s legislation passed the House with a broad bipartisan vote of 414 to 4. In fact, every Member of Congress who is 

here today and was serving when this legislation was passed voted 

for it. 

The reason was simple. A few years earlier, the Government Accountability Office had added student loans to its high-risk list of 

programs that are especially vulnerable to waste, fraud, abuse, and 

mismanagement. As GAO stated at the time, the program had, 

’’generally succeeded in providing access to money for education,’’ 

end quote, but was, and I quote, ‘‘less successful in protecting the 

taxpayers’ financial interests.’’ 

And as a result of significant work over the next few years, by 

2005 GAO was able to remove student financial aid programs from 

its high-risk list, citing, ’’sustained improvements to address its financial management and internal control weaknesses.’’ That was 

great news. 

I want to be clear that I agree that Congress should examine 

whether it still makes sense today, 18 years later, to keep FSA as 

a performance-based organization. As Rep. Connolly said at yesterday’s hearing, we may want to consider bringing the Department 

up to date, particularly in the area of IT and data contracts. That 

is something I hope we can explore today. 

I also feel very strongly that we have to examine the actions of 

the student loan servicers. In August, the Consumer Financial Protection Bureau notified Navient, one of the Nation’s biggest student 

loan servicers, that after a 2-year investigation it had enough evidence to indicate the company violated consumer protection laws 

and was considering taking legal action against the company for its 

late-fee practices, among other potential abuses. 

A year earlier, in 2014, Navient had to pay $60 million to compensate tens of thousands of military servicemembers as part of a 

settlement with the Department of Justice for a, ‘‘nationwide pattern of violating the Servicemembers Civil Relief Act.’’ 

Navient also entered into a settlement with the Federal Deposit 

Insurance Corporation for, ‘‘deceptive and unfair acts and practices.’’ These included, and I quote, ‘‘allocating underpayments in 

a manner that maximizes late fees incurred by consumers.’’ 


AKING-6430 with DISTILLER
4 

Unfortunately, we do not have Navient or any other servicers 

here today. I hope we will have the opportunity to question them 

at a future hearing. 

Finally, while this hearing today and our hearing yesterday are 

important, the much more urgent priority for students in this country is addressing the exploding cost of college and the crippling 

debt students face when they graduate and enter the workforce. 

The Center on Budget and Policy Priorities issued a report recently warning that 47 States are now, ‘‘spending less per student 

in the 2014–2015 school year than they did at the start of the recession.’’ In fact, the average State has cut spending by 20 percent 

per student compared to the 2007 and 2008 school year. As a result, GAO reports that, ‘‘By fiscal year 2012, tuition had overtaken 

State funding as a source of revenue for public colleges.’’ 

This is a national emergency. The Obama administration and 

Democrats in Congress have tried to make significant improvements. For example, we successfully converted student loans to the 

Direct Loan Program, saving tens of billions of dollars. The administration has made other proposals, but many require statutory 

changes, so it is up to us here in Congress to act. 

The most critical higher education challenge confronting our Nation is how students will pay for the ever-increasing cost of college. 

I hope we can focus at least some of today’s discussion on this 

issue, and I hope we will hold another hearing in the near future 

to address this critical challenge. 

Again, I thank you for focusing on one of the most important 

issues in our country, the education of our young people. 

Thank you, and I yield back. 

Mr. MEADOWS. I thank the gentlelady. 

I now welcome and recognize the chairman of the Subcommittee 

on Higher Education and Workforce Training of the Committee on 

Education and the Workforce, the gentlelady from North Carolina, 

Dr. Foxx, for her opening statement. 

Ms. FOXX. Thank you, Mr. Meadows. 

Good morning, everyone, and welcome to this joint hearing. The 

title of the committees are too long. 

I thank Chairman Meadows for working with our committee on 

an issue that is critical to serving the best interests of students, 

families, and taxpayers. I’m a firm believer that collaborative efforts such as this are what most often produce the practical solutions the American people deserve. 

We all know that the current Federal financial system is broken. 

That deserves repeating. We all know that the current Federal financial aid system is broken. National student loan debt is at an 

all-time high, and a complex patchwork of grant, loan, and repayment programs has become so difficult to navigate that it often discourages individuals from pursuing a higher education. 

Students, families, and taxpayers deserve better. That’s why simplifying and improving student aid remains a leading priority as 

Congress continues its work to strengthen higher education. Addressing the challenges within the Federal financial aid system is 

an important part of that effort and one we have discussed extensively in our subcommittee. 


AKING-6430 with DISTILLER
5 

But that’s not why we are here today. Instead, we are here to 

examine the agency tasked with managing the system, the Office 

of Federal Student Aid, or FSA. That agency is responsible for administering every Federal loan, grant, work-study, and repayment 

program under Title IV of the Higher Education Act. In other 

words, FSA is in charge of delivering billions of taxpayer dollars to 

millions of eligible students, as well as managing more than a trillion dollars of outstanding student loan debt. 

Additionally, the agency is expected to provide guidance about financial aid policies to thousands of colleges and universities and 

has the authority to revoke an institution’s ability to participate in 

the aid programs should they not comply with that guidance. Needless to say, FSA plays an enormous role in the higher education 

system and has the ability to help or disrupt the lives of students. 

In the 1990s, the Government Accountability Office designated 

FSA as a, ‘‘high-risk agency with longstanding management problems,’’ To improve the efficiency and effectiveness of FSA and to 

mitigate the mishandling of limited resources moving forward, Congress in 1998 converted the agency to a performance-based organization that would have to meet specific objectives under the Higher 

Education Act. 

Nearly two decades and trillions of dollars later, many would 

argue FSA is not achieving the intended results. It’s our job to find 

out why and identify opportunities for reform to ensure taxpayer 

dollars are well-spent and students are well-served. 

Numerous reports reveal FSA is rife with inefficiencies that have 

led to a lack of communication with students, institutions, and loan 

servicers; improper payments; inaccurate reporting of data; failure 

to ensure borrowers are aware of the repayment options available 

to them; mismanagement of contractors and vendors; poor customer service—and I could go on, but we only have a limited time. 

After the last comprehensive review of the agency in 2008, the 

Department of Education’s Office of Inspector General found FSA 

has failed to meet its responsibility as a performance-based organization, such as developing a 5-year performance plan with external 

stakeholders and establishing annual performance reviews for the 

agency’s top executives. 

Due to these and other failures, the inspector general noted that 

FSA, ‘‘has been unable to realize the expected benefits of the initiatives and has hindered its progress in meeting the requirements of 

the Higher Ed Act.’’ 

This is about more than checking boxes. When FSA fails to fulfill 

its responsibility, it jeopardizes hardworking taxpayers’ money intended to help students. We need to demand better. As Congress 

works to strengthen higher education, we must ensure the Office 

of Federal Student Aid is serving the best interest of students, families, and taxpayers. 

I look forward to hearing from our witnesses about how to 

achieve just that. Thank you for joining us today. 

And thank you again, Chairman Meadows, for working with us 

on this important hearing. 

Before I concluded my opening remarks, I do want to recognize 

our colleague Congressman Hinojosa, who announced last week his 

decision not to seek reelection after serving nearly 20 years in ConVerDate Sep 11 2014 12:40 Jan 11, 2017 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 F:\22384.TXT APRIL

AKING-6430 with DISTILLER
6 

gress. As the ranking member of the Subcommittee on Higher Education and Workforce, Mr. Hinojosa has been an ardent champion 

for students, families, and workers. Mr. Hinojosa is to be commended for his service to our country, and I wish him and his family all the best in the years ahead. 

I yield back. 

Mr. MEADOWS. I thank the chairwoman for her eloquent words, 

and now recognizing the gentleman of which we owe a debt of gratitude to, the ranking member of the Subcommittee on Higher Education and the Workforce, the gentleman from Texas, for his opening statement. 

Mr. HINOJOSA. Thank you, Chairman Meadows and especially 

Chairwoman Foxx, for your very kind and generous remarks. I 

really appreciate everything you said, and we will visit on that. 

I also want to thank Ranking Member Maloney for holding this 

important hearing. 

Today’s joint committee hearing will examine the Office of Federal Student Aid as a performance-based organization and the 

management and administration of these programs. And I want to 

welcome our distinguished panel of witnesses for joining us this 

morning to share their views on how the Federal Government can 

continue to best serve our students. 

As we have heard this morning, the Office of Federal Student 

Aid, known as FSA, became a PBO as part of the 1998 reauthorization of the Higher Education Act and was the first PBO established 

by Congress to manage the operational functions supporting financial aid programs. This model was crucial for the Department of 

Education to provide necessary services to our students and to ensure efficiency and accountability. 

While the focus of today’s joint hearing is on FSA’s performance 

as a PBO, some of my colleagues may attempt to discredit FSA, the 

Federal Student Aid, and its work in successfully transitioning to 

the Direct Loan Program. In my view, the Department’s move to 

direct lending in 2010 continues to provide students with a streamlined loan origination system, and it provides the Department with 

better oversight against fraud, waste, and abuse. 

Ladies and gentlemen, I must underscore that, while there is always room for improvement, I understand that FSA has been 

working to address areas of improvement for quite some time. And 

I want to emphasize three points which contributed to address the 

need to improve accessibility and affordability of higher education. 

First, we must remember that FSA is the largest provider of financial aid for students in the United States. In 2015, FSA delivered approximately $128 billion in federal student aid to nearly 12 

million students at 6,100 institutions of higher education, amounts 

that had never been reached before in our country’s history. 

Secondly, I’m also aware that FSA has worked diligently to ensure students are receiving their financial aid funds in a timely 

manner so that they can pay for their education and be ready on 

the first day of classes. 

Thirdly, FSA is responsible for managing programs that ease the 

burden of student loan debt for borrowers. FSA plays a vitally important role in helping borrowers repay their student loans through 

income-driven repayment plans. 


AKING-6430 with DISTILLER
7 

At the same time, I must express my concerns regarding student 

loan servicers. Several investigations and reports, including a report issued by the Consumer Financial Protection Bureau, have 

found that Federal student loan servicers have not provided appropriate services and guidance and protections to borrowers. 

So, with this in mind, I applaud the Obama administration for 

taking steps to make college more affordable for students and families by issuing a StudentAid Bill of Rights to give every borrower 

the right to an affordable repayment plan. Furthermore, every borrower has the right to quality customer service, reliable information, and fair treatment. 

Along those same lines, the Departments of Education, the 

Treasury, and Consumer Financial Protection Bureau issued ‘‘Joint 

Statement of Principles on Student Loan Servicing’’ in September 

of this year. This is a positive step in the right direction. I wish 

to remind my colleagues that every student, regardless of their socioeconomic status, has an equal opportunity to both secondary 

education and access to financial aid. 

As you are aware, tuition costs and student loan debt have risen exponentially, surpassing the $1.2 trillion that Chairwoman Foxx 

mentioned. We must do all that we can to help borrowers repay 

their debt. 

With that, I look forward to hearing from our distinguished 

guests on these matters, and I yield back. 

Mr. MEADOWS. I thank the gentleman. 

I will hold the record open for 5 legislative days for any members 

who wish to provide and submit a written statement. 

Mr. MEADOWS. We will now recognize our panel of witnesses. 

I’m pleased to welcome Mr. James Runcie, who currently serves 

as the Chief Operating Officer at the U.S. Department of Education. Mr. Runcie served as the Deputy Chief Operating Officer of 

FSA from 2010 to 2011 and Acting Chief Operating Officer of the 

Department of Education until his full appointment in 2012. 

Welcome. 

I welcome Ms. Melissa Emrey-Arras—is that correct? All right. 

She serves as the Director of Education, Workforce, and Income Security at the Government Accountability Office. She oversees national studies on both K-through-12 and higher education issues. 

I welcome back Ms. Kathleen Tighe, who currently serves as the 

Inspector General at the U.S. Department of Education. Ms. Tighe 

also chairs the Council of Inspector Generals on Integrity and Efficiency and in 2011 was appointed by President Obama to the Recovery Accountability and Transparency Board and the Government Accountability and Transparency Board. 

Welcome. 

I welcome Mr. Ben Miller, who currently serves as the senior director of postsecondary education at the Center for American 

Progress. Mr. Miller previously served as the director for higher 

education at New America as well as a senior policy advisor in the 

Office of Planning, Evaluation, and Policy Development at the Department. 

And I also welcome Mr. Justin Draeger, who currently serves as 

the president and CEO of the National Association of Student Financial Aid Administrators. In this capacity, he serves as the priVerDate Sep 11 2014 12:40 Jan 11, 2017 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 F:\22384.TXT APRIL

AKING-6430 with DISTILLER
8 

mary voice of the NASFAA and the liaison between the 3,000 financial aid offices and Congress and the Federal Government. 

Welcome to you all, and thank you for being here. 

Pursuant to Oversight and Government Reform Committee rules, 

all witnesses will be sworn in before they testify. So I’d ask that 

you please rise and raise your right hand. 

Do you solemnly swear or affirm that the testimony that you’re 

about to give will be the truth, the whole truth, and nothing but 

the truth? 

Thank you. Please be seated. 

Let the record reflect that all witnesses answered in the affirmative. 

And in order to allow time for discussion, we would appreciate 

if you would please limit your oral testimony to 5 minutes. However, your entire written statement will be made part of the record. 

Mr. Runcie, you are recognized for 5 minutes. 

WITNESS STATEMENTS 

STATEMENT OF JAMES RUNCIE 

Mr. RUNCIE. Thank you, Chairman Meadows, Chairwoman Foxx 

and Ranking Members Maloney and Hinojosa and members of the 

committee, for the opportunity to discuss Federal Student Aid as 

a PBO. My name is James Runcie, and I serve as FSA’s Chief Operating Officer. 

FSA is the largest source of federal student aid for postsecondary 

education in the U.S. During fiscal year 2015, we delivered more 

than $127 billion in aid to more than 13 million students attending 

approximately 6,100 postsecondary institutions. During this time, 

we processed nearly 20 million FAFSAs. Our loan portfolio is currently more than $1.2 trillion, with 42 million individual recipients 

and 193 million loans. 

We use a public-private partnership that leverages almost 1,300 

Federal employees and more than 12,000 contracted employees. 

Since FSA became a PBO, we have had numerous successes in 

transforming the delivery of student aid. FSA has responded to 

rapidly changing landscapes in the delivery of federal student aid. 

To accommodate growth and mitigate risk, FSA contracted with 

four private-sector servicers, who levy their commercial practices to 

expedite the delivery of services. As a result of the capital markets’ 

decline in 2008, we injected $112 billion into the markets, ensuring 

that every student that depended on federal student aid received 

it. 

We updated our systems, increased capacity, and provided training to thousands of financial aid professionals at thousands of 

schools to move to 100-percent direct lending. And we entered into 

agreements with not-for-profit loan servicers. We successfully implemented 11 NFPs, and we did all of these things with no negative impact to students and families. 

The PBO contracting flexibilities allow us to structure contracts 

in a way that include performance requirements and protections for 

students and borrowers. Spurred in part by the PBO legislation 

and landmark procurement laws passed by Congress, FSA has 


AKING-6430 with DISTILLER
9 

been a government leader in delivering its mission through the 

adoption of commercial solutions and systems. 

This year, FSA achieved $150 million in cost avoidance through 

successful contract negotiations. We have saved $105 million since 

2009, thanks to the culture of accountability established by the 

PBO. We are proud to have earned 14 consecutive annual clean financial statement audit opinions. 

While we have strengthened our financial position, we also have 

strengthened our program compliance process to ensure the proper 

administration of federal student aid funds. We have increased efforts to detect fraud in the FAFSA, and we have significantly reduced the time to complete the online application—more than 1 

hour in 2009—to less than 24 minutes in 2015. 

The FAFSA is but one integrated application among many in our 

complex operating environment. In 2015, we documented and assessed more than 2,600 internal controls across 36 business processes. We found that 96 percent of these controls are designed and 

operate effectively. The remaining 4 percent had immaterial deficiencies, for which we have established corrective actions. 

Within the last several years, we have effectively launched and 

implemented major modifications to our operating environment due 

to legislative, regulatory, and policy changes. Examples include but 

certainly are not limited to the IRS Data Retrieval Tool, new income-driven repayment plans, the 150-percent Direct Subsidized 

Loan limit, and a comprehensive enterprise data warehouse. 

Through the recent Cyber Sprint, FSA has made significant 

progress in implementing additional protections to customer data. 

In addition, implementation of CyberArk at our Virtual Data Center, completed last month, has remediated many of our audit access 

control findings. 

The need for Federal aid will continue to grow, and FSA must 

continue to adapt. We must be in a position to continue responding 

to rapid regulatory market changes, to recruit and retain specialized talent, to negotiate commercial contracting, and to provide the 

most effective program compliance in order to continue to fulfill our 

mission. 

Taking full advantage of each authority granted as a PBO was 

a critical element to our mission success. The employees that I represent at FSA are focused on the future of the organization—a future that includes the early availability of the FAFSA in October 

2016; implementing prior-prior; repay and servicing improvements; 

launching a new student complaint system; expanding our oversight capacity; and increasing security of our systems. 

I appreciate the opportunity to provide the committee with an 

overview and welcome any questions that you may have today. 

Thank you. 

[prepared statement of Mr. Runcie follows:] 


AKING-6430 with DISTILLER
10 


AKING-6430 with DISTILLERInsert offset folio 1 here 22384.001
11 


AKING-6430 with DISTILLERInsert offset folio 2 here 22384.002
12 


AKING-6430 with DISTILLERInsert offset folio 3 here 22384.003
13 


AKING-6430 with DISTILLERInsert offset folio 4 here 22384.004
14 


AKING-6430 with DISTILLERInsert offset folio 5 here 22384.005
15 


AKING-6430 with DISTILLERInsert offset folio 6 here 22384.006
16 


AKING-6430 with DISTILLERInsert offset folio 7 here 22384.007
17 


AKING-6430 with DISTILLERInsert offset folio 8 here 22384.008
18 


AKING-6430 with DISTILLERInsert offset folio 9 here 22384.009
19 


AKING-6430 with DISTILLERInsert offset folio 10 here 22384.010
20 

Mr. MEADOWS. Thank you, Mr. Runcie. 

Ms. Emrey-Arras, you are recognized for 5 minutes. 

STATEMENT OF MELISSA EMREY–ARRAS 

Ms. EMREY-ARRAS. Thank you. I am pleased to be here today to 

discuss the results of our work examining FSA’s efforts to monitor 

and oversee the Direct Loan Program. 

FSA administers the Direct Loan Program and oversees the performance of contractors supporting this program. These contractors 

include loan servicers responsible for billing and other services, as 

well as companies managing the Department’s defaulted loan information system. 

To address longstanding management weaknesses, the Higher 

Education Act was amended to establish FSA as the first PBO. A 

PBO is intended to transform the delivery of public services by 

committing to achieving specific, measurable goals with targets for 

improvement in exchange for being provided with more flexibility 

to manage its operations. 

Accordingly, FSA’s strategic plan includes several goals focused 

on monitoring contractors and serving the needs of borrowers. 

However, recent questions have been raised about FSA’s management of the Direct Loan Program, including its oversight of contractors. 

In March 2014, we found that FSA’s limited planning and oversight of its IT contractor prevented Education from providing timely benefits to borrowers who completed loan rehabilitation. Loan 

rehabilitation allows borrowers who make nine on-time monthly 

payments in 10 months to have a default removed from their credit 

reports. However, no rehabilitations were processed from October 

2011 until April 2012 due to issues with FSA’s IT system, and FSA 

officials said they needed until January of 2013 to clear the resulting backlog. 

My statement today provides additional findings from our recently completed work on FSA’s management of the Direct Loan 

Program and will focus on how well FSA, one, provides instructions 

and guidance to Direct Loan servicers, and, two, monitors and documents calls between Direct Loan borrowers and servicers. 

In terms of FSA’s instructions and guidance, we found that FSA’s 

communications to loan servicers are sometimes lacking, resulting 

in inconsistent services to borrowers. Six of the seven servicers we 

interviewed reported various issues resulting from absent, unclear, 

and inconsistent guidance and instructions. 

For example, one servicer said there were no instructions for how 

to apply over- or underpayments to borrower accounts. If a borrower has multiple loans, some servicers spread an overpayment 

amount evenly across the loans, while other servicers target the 

higher-interest loans first. 

Furthermore, FSA is not consistently sharing all clarifications on 

Direct Loan Program instructions with all servicers. Accordingly, 

we are recommending today that FSA review and improve how it 

provides instruction and guidance to servicers. 

In terms of FSA’s call-monitoring process, we found that FSA’s 

monitoring has methodological weaknesses and is poorly documented. For example, we found that FSA monitors far fewer outVerDate Sep 11 2014 12:40 Jan 11, 2017 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 F:\22384.TXT APRIL

AKING-6430 with DISTILLER
21 

bound calls than inbound calls, even though one servicer told us 

that it makes 60 times more outbound calls than inbound calls, and 

that outbound calls are made to borrowers who are often delinquent and at risk of default. 

Also, the methodology for selecting calls for review is not welldefined, and it relies on servicers to implement, with no verification 

from FSA to ensure its integrity. Accordingly, we are recommending today that FSA implement a more rigorous methodology 

for monitoring calls. 

In addition, we found weaknesses in how FSA documents the results of its call monitoring. For example, some recent monitored 

calls did not consistently track errors over time. In addition, the 

monthly summary reports only capture errors if four or more occur 

in the same call. If a servicer fails to answer all of the borrower’s 

questions but does not compound this problem with three additional errors, the report does not capture this information. Accordingly, we are recommending today that FSA improve documentation of its call monitoring. 

FSA faces challenges in the Direct Loan Program that affect its 

ability to function effectively as a PBO. If FSA fails to strengthen 

its instructions and guidance to servicers and improve call monitoring, differences between servicers will persist that could financially hurt borrowers or risk the integrity of the program. 

Thank you. This concludes my statement. 

[Prepared statement of Ms. Emrey-Arras follows:] 


AKING-6430 with DISTILLER
22 


AKING-6430 with DISTILLERInsert offset folio 11 here 22384.011
23 


AKING-6430 with DISTILLERInsert offset folio 12 here 22384.012
24 


AKING-6430 with DISTILLERInsert offset folio 13 here 22384.013
25 


AKING-6430 with DISTILLERInsert offset folio 14 here 22384.014
26 


AKING-6430 with DISTILLERInsert offset folio 15 here 22384.015
27 


AKING-6430 with DISTILLERInsert offset folio 16 here 22384.016
28 


AKING-6430 with DISTILLERInsert offset folio 17 here 22384.017
29 


AKING-6430 with DISTILLERInsert offset folio 18 here 22384.018
30 


AKING-6430 with DISTILLERInsert offset folio 19 here 22384.019
31 


AKING-6430 with DISTILLERInsert offset folio 20 here 22384.020
32 


AKING-6430 with DISTILLERInsert offset folio 21 here 22384.021
33 


AKING-6430 with DISTILLERInsert offset folio 22 here 22384.022
34 


AKING-6430 with DISTILLERInsert offset folio 23 here 22384.023
35 


AKING-6430 with DISTILLERInsert offset folio 24 here 22384.024
36 


AKING-6430 with DISTILLERInsert offset folio 25 here 22384.025
37 


AKING-6430 with DISTILLERInsert offset folio 26 here 22384.026
38 


AKING-6430 with DISTILLERInsert offset folio 27 here 22384.027
39 


AKING-6430 with DISTILLERInsert offset folio 28 here 22384.028
40 


AKING-6430 with DISTILLERInsert offset folio 29 here 22384.029
41 


AKING-6430 with DISTILLERInsert offset folio 30 here 22384.030
42 


AKING-6430 with DISTILLERInsert offset folio 31 here 22384.031
43 

Mr. MEADOWS. Thank you. 

Inspector General Tighe, you are recognized for 5 minutes. 

STATEMENT OF THE HON. KATHLEEN TIGHE 

Ms. TIGHE. Thank you all for inviting me here today to discuss 

the work of the Office of Inspector General involving the U.S. Department of Education’s Office of Federal Student Aid as a performance-based organization. 

As many of you know, the Federal Student Aid programs have 

long been a major focus of our audit and investigative work, as 

these programs are large, complex, and susceptible to fraud and 

abuse. We look to promote efficiency and effectiveness in FSA programs and operations and, in doing so, help to protect America’s 

students from harm and help safeguard the taxpayers’ investment 

in higher education. 

As already noted during this hearing, FSA delivered about $130 

billion in student aid this year to 13 million students and managed 

an outstanding loan portfolio that has grown to $1.2 trillion. This 

makes FSA one of the largest financial institutions in the country. 

As a PBO, FSA is responsible for managing both the oversight 

and administrative functions that support these programs. In 2008, 

we determined that FSA was not completely fulfilling its responsibilities as a PBO in the areas of systems integration, cost reduction, and planning and reporting. The work we have performed 

since 2008 has focused in significant part on areas within FSA’s 

oversight and administrative responsibilities. 

That work continues to identify problems in FSA’s oversight of 

program participants. For example, our 2015 audit found weaknesses in FSA’s process for performing program reviews, including 

that staff did not adequately document fiscal testing for timely disbursements or determine whether schools had implemented Direct 

Loan quality assurance systems, and there was limited evidence of 

supervisory reviews, all of which may leave FSA with limited assurance that program reviews are appropriately identifying and reporting instances of noncompliance. 

Another 2015 audit found that FSA’s followup process for OIG’s 

external audits was not always effective because audits were not 

always closed timely and FSA did not always maintain appropriate 

documentation to show that corrective actions were completed. Not 

ensuring corrective actions are taken as quickly as possible allows 

deficiencies to continue to exist, and the risk remains that related 

programs were not effectively managed and that taxpayer funds 

are not being used as intended. 

FSA, as a PBO, also has the responsibility for managing the administrative functions of the Title IV programs. Recent OIG work 

has identified weaknesses in this area. For example, results from 

our recent improper payments audits found that FSA has not taken 

full advantage of the Improper Payments Elimination and Recovery 

Act to identify and reduce improper payments in the Pell grant and 

Direct Loan Programs. We have identified issues with FSA’s improper payment methodologies that render its improper-payment 

estimates for these programs inaccurate, incomplete, and unreliable. 


AKING-6430 with DISTILLER
44 

OIG worked conducted over the last several years has also identified weaknesses in FSA’s contract management—an area of concern, as FSA relies heavily on contractor support to accomplish the 

purposes of the PBO. 

We have seen weaknesses in FSA’s monitoring of its debt management system, its contracts with the Title IV servicers, and its 

contracts with private collection agencies. We have identified issues 

such as not ensuring contract milestones were met, lack of proper 

invoice validation, the failure to confirm the adequacy of 

deliverables, and the failure to ensure adequate IT security of contractor-operated systems. 

Without improved contractor monitoring, FSA has limited assurance that it is receiving the products and services it is paying for, 

impacting both students’ and taxpayers’ interests. 

My written testimony provides more detailed information on 

these findings as well as other examples of our recent work that 

shows that FSA needs to improve its oversight and management so 

as to ensure Title IV programs are serving the interests of students. 

For the next reauthorization of the Higher Education Act, Congress may want to consider adding specific requirements for oversight and contract management to the purposes and functions of 

the PBO and require FSA’s performance plans to establish measurable goals and objectives in these areas. 

My office is committed to working with FSA, the Department, 

and Congress to address the areas of risk within the Federal Student Aid programs to reduce fraud and abuse. 

Thank you very much. 

[Prepared statement of Ms. Tighe follows:] 


AKING-6430 with DISTILLER
45 


AKING-6430 with DISTILLERInsert offset folio 32 here 22384.032
46 


AKING-6430 with DISTILLERInsert offset folio 33 here 22384.033
47 


AKING-6430 with DISTILLERInsert offset folio 34 here 22384.034
48 


AKING-6430 with DISTILLERInsert offset folio 35 here 22384.035
49 


AKING-6430 with DISTILLERInsert offset folio 36 here 22384.036
50 


AKING-6430 with DISTILLERInsert offset folio 37 here 22384.037
51 


AKING-6430 with DISTILLERInsert offset folio 38 here 22384.038
52 


AKING-6430 with DISTILLERInsert offset folio 39 here 22384.039
53 


AKING-6430 with DISTILLERInsert offset folio 40 here 22384.040
54 


AKING-6430 with DISTILLERInsert offset folio 41 here 22384.041
55 


AKING-6430 with DISTILLERInsert offset folio 42 here 22384.042
56 


AKING-6430 with DISTILLERInsert offset folio 43 here 22384.043
57 


AKING-6430 with DISTILLERInsert offset folio 44 here 22384.044
58 


AKING-6430 with DISTILLERInsert offset folio 45 here 22384.045
59 


AKING-6430 with DISTILLERInsert offset folio 46 here 22384.046
60 

Mr. MEADOWS. Thank you, Inspector General. And thank you for 

your insightful report. 

Mr. Miller, you are recognized for 5 minutes. 

STATEMENT OF BEN MILLER 

Mr. MILLER. Good morning. Thank you, Chairman Meadows, 

Chairwoman Foxx, Ranking Member Maloney and Ranking Member Hinojosa and members of the committee, for having me today. 

This month marks the 50th anniversary of the Higher Education 

Act, landmark legislation that has made our country stronger by 

allowing millions of low- and middle-income Americans to access 

and afford college. 

But, today, the growing price of college threatens to undermine 

the goals of the Higher Education Act. State disinvestment keeps 

driving public tuition higher, no longer can part-time work afford 

tuition bills, and family incomes have stagnated. As a result, Federal student loans are now the norm for people in college. Today, 

over 40 million Americans owe a collective $1.18 trillion in Federal 

student loans. Seventy percent of bachelor’s-degree graduates borrow for college. 

Under current law, the Federal Student Aid office, or FSA, cannot fix the underlying conditions that leads students to borrow. But 

a strong, effective, and efficient FSA is still important for students. 

It can help them apply for aid easily, get dollars to them when they 

need it, guide them through the repayment process, and protect 

them from bad actors lurking throughout the system. 

In the last several years, FSA has done a lot to meet these goals. 

It has made applying for aid simpler and faster by using skip logic 

on questions and allowing for the easy importation of tax data. 

Next fall, it will implement a policy change known as prior-prioryear that helps families apply for aid sooner and better plan for 

college costs. This idea has bipartisan, bicameral support. FSA has 

also implemented repayment options that allow borrowers to make 

affordable payments based upon their income. 

Perhaps the greatest sign of FSA’s recent successes was the 2010 

transition following legislation that required all Federal loans be 

issued by the Department of Education. FSA worked with thousands of institutions to make this change in just 3 months, and 

students saw no interruption in their flow of aid dollars. This 

change also saved taxpayers money by no longer having to pay expensive subsidies and guarantees to lenders, in exchange for offering an undifferentiated product whose terms were set by Congress. 

These are all important developments that have helped the government’s benefits work better for the students who receive them. 

They show FSA’s strong commitment to getting dollars to students 

quickly and on time. And they show the importance of having an 

agency structure with clear goals for efficiency and effectiveness. 

Still, there are places where Federal Student Aid can be 

strengthened, possibly through changes to its structure. For one, 

FSA and Congress must determine how to better use oversight 

tools and accountability metrics to protect students from institutions that take advantage of them. 

Yesterday’s announcement that 85,000 former Corinthian students may be eligible for loan discharges and Monday’s nearly $100 


AKING-6430 with DISTILLER
61 

million settlement between the Federal Government and the Education Management Corporation show the importance of early action to weed out bad colleges. The government alleged EDMC improperly compensated recruiters in an operation where it sought 

anyone with ‘‘a Pell and a pulse,’’ yet the company still received billions in Federal aid over the last several years. 

Second, FSA should demand its contractors better serve students. Today, it contracts with four companies that service the majority of student loans and is required to work with several others 

through a congressional earmark. In the mid-2000s, the inspector 

general found that three of the four main servicers and several of 

the earmarked ones had improperly billed the government millions 

of dollars for inflated loan subsidies. One of them also settled a 

claim by the U.S. Department of Justice for overcharging 

servicemembers. 

These are servicers whose prior behavior suggests the need for 

significant scrutiny to protect students and taxpayers. Fortunately, 

the move to direct lending and the fact that these individuals are 

all contractors means that FSA can address these challenges 

through changes much more easily than it could in the old bankbased system. 

Finally, the public and policymakers need additional performance 

data about institutions, servicers, and the loan portfolio. In particular, greater information about loan delinquency by institution, 

outcomes for borrowers in forbearance, and what happened to borrowers before they defaulted would help guide policy changes that 

better serve students. A greater use of data for risk analysis could 

also lead to new pricing structures for servicers and collectors that 

reward them for helping the most vulnerable borrowers. 

But strengthening FSA cannot be our only strategy for addressing affordability. We must act to address the underlying structural 

problems that drive up price and debt. We must tackle State disinvestment and encourage colleges to improve and spend sensibly. 

Doing so is the best way to ensure the Higher Education Act continues to meet its goals for the next 50 years. 

Thank you again for having me today, and I look forward to your 

questions. 

[Prepared statement of Mr. Miller follows:] 


AKING-6430 with DISTILLER
62 


AKING-6430 with DISTILLERInsert offset folio 47 here 22384.047
63 


AKING-6430 with DISTILLERInsert offset folio 48 here 22384.048
64 


AKING-6430 with DISTILLERInsert offset folio 49 here 22384.049
65 


AKING-6430 with DISTILLERInsert offset folio 50 here 22384.050
66 


AKING-6430 with DISTILLERInsert offset folio 51 here 22384.051
67 


AKING-6430 with DISTILLERInsert offset folio 52 here 22384.052
68 


AKING-6430 with DISTILLERInsert offset folio 53 here 22384.053
69 


AKING-6430 with DISTILLERInsert offset folio 54 here 22384.054
70 


AKING-6430 with DISTILLERInsert offset folio 55 here 22384.055
71 

Mr. MEADOWS. Thank you, Mr. Miller. 

Mr. Draeger, you are recognized for 5 minutes. 

STATEMENT OF JUSTIN DRAEGER 

Mr. DRAEGER. Chairman Meadows and Chairwoman Foxx, Ranking Members Maloney and Hinojosa, thank you for inviting me to 

testify today. 

Collectively, NASFAA’s 3,000 member schools serve 90 percent of 

all undergraduates in this country. And the issues I will describe 

today are not isolated incidents. One out of every three schools has 

reported to NASFAA significant operational shortfalls with FSA 

that, unfortunately, have only worsened in recent years. 

As institutions, we view ourselves as partners with FSA, and we 

celebrate their successes, particularly in regards to simplifying the 

financial aid form and improving their counseling tools. But these 

successes notwithstanding, FSA is consistently falling short in 

other areas, particularly in their partnerships with institutions, 

and that has detrimental effects on students. 

In our written remarks, we have included several examples of 

this lack of partnership, including one where FSA took unilateral 

action last year without consulting schools that resulted in some 

students being mistakenly placed into student loan repayment 

while they were actually still in school. 

Now, schools are reluctant to complain about this disservice because FSA ultimately holds all the cards in terms of a school being 

able to offer financial aid funds to students. The underlying perception to our members is that you keep your complaints to a minimum or you risk a Federal program review. And this feeds into 

a second major issue with FSA, its lack of accountability to partners or the public. 

The most pervasive problems at FSA—and this has been reported by over a thousand schools in each of your districts, serving 

6.5 million students—are long delays in program participation 

agreement changes, long delays in closing out program reviews, delayed guidance in relation to deadlines that institutions have to 

meet, and even publishing simple benchmarks about how long it 

should take to get responses on compliance issues. 

These issues have been going on for years. In fact, in 2012, we 

provided input to FSA about how they could improve their service 

to partners. Yet, still today, FSA’s strategic plans continue to lack 

appropriate performance metrics that could be used to measure 

progress on these issues. 

Of the many examples that we have provided in our written testimony, the most recent example that can be found that highlights 

these issues is in FSA’s implementation of gainful employment reporting. And for those of you who might be unfamiliar, the Department recently defined what it means to be gainfully employed, 

which is a statutory criteria schools have to meet in order to offer 

financial aid for certificate programs. 

The entire rollout process can be described as nothing less than 

a time-consuming debacle that took already-limited time away from 

counseling students. 

In response to schools’ complaints about this process, FSA officials are quick to point out that schools had 9 months to meet this 


AKING-6430 with DISTILLER
72 

massive data reporting requirement, which, quite frankly, is intellectually dishonest. We have provided a timeline in my written testimony, also available here in the room, that shows that FSA didn’t 

even begin issuing operational guidance until 3 months after the 

final regulations were published. 

Then, in the space of 5 months, leading right up to the deadline, 

FSA issued roughly 300 pages of additional implementation guidance, the bulk of which included a technical reference guide—all of 

it being issued and updated right up to the reporting deadline. 

Then, as that reporting deadline came and went, FSA continued to 

issue guidance on compliance. 

And here’s where it gets truly disturbing. At the same time that 

ED was continuing to issue guidance to schools, they began sending 

a series of threatening letters to all types of schools—4-year public, 

private, community colleges, and proprietaries—threatening them 

with administrative incapability findings, a term that basically 

means that students at those schools could lose financial aid. 

Now, FSA claims that schools showed a shocking lack of compliance, without even considering the idea that it was perhaps their 

own rollout and timing that contributed to the bulk of these problems. As it turns out, most of these schools were not out of compliance. They simply had data reporting errors that produced conflicting results at FSA. 

Eventually, 10 weeks after these deadlines and after two threatening letters, FSA finally released a tool that schools could actually 

use to determine whether all the data conflicts had been resolved. 

And, of course, how does this ultimately affect students? Well, 

one financial aid administrator in Ohio summarized it best when 

she said, ‘‘GE reporting has been an incredibly frustrating experience—an experience in wasted time that could have been more productively spent helping our students and families.’’ 

Despite these examples that we have cited here and as best as 

we can tell, FSA continues, through self-assessment, to give itself 

high marks, pay healthy bonuses, and avert responsibility for these 

persistent issues. Now, we really do see FSA as a partner, but partnership is not a one-way street. We have provided several recommendations on ways that we hope we can address these issues. 

And despite FSA’s many successes and despite my belief that 

their staff are as dedicated to students as any financial aid administrator in this country, I also believe we will continue to have 

these problems until there are meaningful cultural and structural 

changes at this agency. 

Thank you. 

[prepared statement of Mr. Draeger follows:] 


AKING-6430 with DISTILLER
73 


AKING-6430 with DISTILLERInsert offset folio 56 here 22384.056
74 


AKING-6430 with DISTILLERInsert offset folio 57 here 22384.057
75 


AKING-6430 with DISTILLERInsert offset folio 58 here 22384.058
76 


AKING-6430 with DISTILLERInsert offset folio 59 here 22384.059
77 


AKING-6430 with DISTILLERInsert offset folio 60 here 22384.060
78 


AKING-6430 with DISTILLERInsert offset folio 61 here 22384.061
79 


AKING-6430 with DISTILLERInsert offset folio 62 here 22384.062
80 


AKING-6430 with DISTILLERInsert offset folio 63 here 22384.063
81 


AKING-6430 with DISTILLERInsert offset folio 64 here 22384.064
82 


AKING-6430 with DISTILLERInsert offset folio 65 here 22384.065
83 


AKING-6430 with DISTILLERInsert offset folio 66 here 22384.066
84 


AKING-6430 with DISTILLERInsert offset folio 67 here 22384.067
85 


AKING-6430 with DISTILLERInsert offset folio 68 here 22384.068
86 


AKING-6430 with DISTILLERInsert offset folio 69 here 22384.069
87 


AKING-6430 with DISTILLERInsert offset folio 70 here 22384.070
88 


AKING-6430 with DISTILLERInsert offset folio 71 here 22384.071
89 


AKING-6430 with DISTILLERInsert offset folio 72 here 22384.072
90 


AKING-6430 with DISTILLERInsert offset folio 73 here 22384.073
91 

Ms. FOXX. [Presiding.] Thank you, Mr. Draeger. 

And, again, thanks to all of our witnesses who are here today. 

I would now like to recognize Mr. Allen for 5 minutes for questions. 

Mr. ALLEN. Thank you, Madam Chairman. 

And thank you, panel, for being here today to talk about this 

very important work that you do. I mean, $1.18 trillion outstanding 

in debt, serving 41 million borrowers, that’s a big job. And, certainly, we need to look at this very, very carefully to see if we are 

getting the results that we want out of this program. 

One of the things that I hear in my district is that there are lots 

of jobs, very good-paying jobs available. And I have been amazed, 

at my short time here in Congress and on this Educational and 

Workforce Committee, that there is such a disconnect between the 

business community or manufacturing or the job creators and those 

in the education business. And somehow we’ve got to bring those 

together, because we’ve got students that are getting an education 

without the idea of perhaps what they are going to do and how 

they are going to pay this money back. 

With that, Mr. Runcie, I’d like to start out with my first question. The bipartisan budget agreement just signed into law allows 

the Federal Government and its contractors to use predictive dialing to reach borrowers on their cell phones in order to help them 

avoid or get out of default. 

Can you discuss the administration’s views on how this technology will aid FSA’s efforts to assist these struggling borrowers? 

Mr. RUNCIE. Sure. 

You know, part of the difficulty of making sure that students do 

not go into default or late-stage delinquency is being able to reach 

them. You know, that is sometimes the biggest impediment to making sure that they can get the tools and the resources they need 

to address some of their default management, you know, issues. 

And so that is a tool that would be helpful in order to increase 

some of the efficiencies around reaching out and getting these students and borrowers to act. We’ve got income-based repayment, 

we’ve got lots of tools that they can use that we’ve rolled out over 

the last couple of years. And the ability to reach them so that 

they’re aware of these through something like TCPA would be tremendously helpful. 

Obviously, you know, that’s going to take some time to implement, and it’s going through a process now, but we stand ready to 

use that type of technology to address those issues. 

Mr. ALLEN. So, in other words, the administration is in favor of 

using this method to get in touch with the students in accordance 

with the bipartisan budget agreement? 

Mr. RUNCIE. I’m just saying that it would—I believe so, but, just 

from an operational standpoint, it would help outcomes. 

Mr. ALLEN. Okay. Thank you, sir. 

Ms. Emrey-Arras, like I said, we’re 41 million borrowers, $1.18 

trillion. And the GAO found that the FSA is lacking, resulting in 

inconsistent and ineffective programs for borrowers. 

How has the lack of guidance and communication affected 

servicers’ ability to assist our borrowers? 


AKING-6430 with DISTILLER
92 

Ms. EMREY-ARRAS. Basically, servicers treat borrowers differently. So you could have the same borrower with the same financial circumstances, and they might get completely different advice, 

depending on which servicer they contact. 

This is because Education has not provided consistent instructions and guidance to servicers on how to apply payments like underpayments and overpayments, how to deal with different types of 

income documentation, and the like. So there is really missing instruction that could really help ensure consistency and serve borrowers. 

Mr. ALLEN. Has the FSA been diligent in oversight of this issue? 

Ms. EMREY-ARRAS. We believe that FSA could do more. For example, servicers we spoke with said it would be very helpful to 

have a manual, which would be just very simple in terms of what 

the instructions are for implementing the program to make sure 

that there is consistency. 

So that is something that we have put out there as part of our 

recommendation to provide guidance, that FSA consider having a 

basic operations manual for servicers. 

Mr. ALLEN. Uh-huh. As the chair of our hearing said this morning, Congress obviously needs to step it up. What can Congress do? 

Ms. EMREY-ARRAS. Well, we haven’t made any recommendations 

to Congress in this testimony. I will defer to others on that point. 

Mr. ALLEN. Okay. All right. 

Well, I’m just about out of time, so I’ll yield back the balance of 

my time. 

Ms. FOXX. Thank you, Mr. Allen. 

Mr. Hinojosa, you are recognized for 5 minutes. 

Mr. HINOJOSA. Thank you, Madam Chair. 

My first question is to Mr. Runcie. 

I understand that many borrowers are unaware of the Federal 

Government’s income-driven repayment plans. What is the FSA 

doing to increase awareness about income-driven repayment plans 

that I mentioned? 

Mr. RUNCIE. There are a number of things that, you know, we’re 

doing, but what I want to emphasize is the rate of growth in the 

takeup in income-based repayment. It’s been phenomenal. So a significant percentage of the portfolio and a growing percent is now 

using income-based repayment. 

A lot of that has to do with we’ve had targeted email campaigns. 

We’ve changed the incentive structure for our servicers. We’ve created Web sites with information about income-based repayment. 

We’ve worked with Treasury and Intuit in terms of mechanisms 

and activities that create awareness around these programs. 

So we’ve done a lot, but, more importantly, the outcomes are evidencing that the outreach and the awareness that we’re putting out 

there is making a difference. 

Mr. HINOJOSA. I’ll be back to you. 

Mr. Ben Miller, as you know, student loan debt stands at the 

$1.2 trillion that has been repeated over and over again. In your 

expert opinion, what steps has the Obama administration taken to 

expand accessibility and affordability in higher ed? 

Mr. MILLER. So there’s been a number of important steps. 


AKING-6430 with DISTILLER
93 

And, I mean, obviously, the best form of student loan debt is no 

student loan debt. And this is something where the Obama administration has done a lot, especially beginning with the Recovery 

Act, where it invests in a lot of additional money in Federal Pell 

grants to help the lowest-income students. 

It then followed that up in 2010 with additional money for Pell 

grants by ending the bank-based loan system, which allowed, I believe, about $36 billion to go to Pell grants. 

The result is that, before this administration came in, the Pell 

grant had been a largely stagnant maximum award. It has now 

gone up by a little bit over $1,000, which has meant a lot for lowincome students. 

In addition, several of the income-driven repayment plans that 

have already been discussed have been important for helping borrowers manage their debt so that, now, basically any borrower who 

enters repayment knows that they will be able to cap their loan 

payments at about 10 percent of their discretionary income. If they 

engage in public service, they’ll be able to get forgiveness after 10 

years, and, otherwise, they’ll be able to get forgiveness after between 20 and 25 years. 

Mr. HINOJOSA. I agree with you. Those are very good things that 

occurred. I was chairman of the committee, and so I agree with 

you, because we were addressing what the presidents of universities and the chancellors of university systems told us needed to 

be done. 

My third question is to Mr. Runcie. 

Several investigations have found that Federal student loan 

servicers whose contracts are managed by OSS may not be providing appropriate services. In September this year, 2015, the 

CFPB published a 150-page report detailing those servicers’ issues 

and policy recommendations to fix the management of loan servicing. 

What is FSA doing to ensure that those servicers are using due 

diligence in managing their portfolio? 

Mr. RUNCIE. Yeah, and I believe the CFPB report also included 

information around sort of private loan servicers, as well. 

But, you know, FSA has—in October of 2014, we came out with 

a new incentive structure and pricing model that we provided to all 

of the servicers, the TIVAS as well as the NFPs. And the structure 

of those contracts and the way the pricing is, it puts a tremendous 

amount of economic value on keeping students in repayment—— 

Mr. HINOJOSA. Excuse me. Time is running out. Can members of 

this committee, of the two committees, get copies of that latest instruction manual that you are discussing here? 

Mr. RUNCIE. Yes, we can provide the—— 

Mr. HINOJOSA. Well, let me say that, as time is running out, I 

want to say that this is amazing to me, a business as big as higher 

education, where we are talking about billions and trillions of dollars, that we don’t have penalties for some of these that are violating the rules, like the one that just took bankruptcy and was 

shut down. 

What is the name of that organization, that university? Corinthian. 

Mr. RUNCIE. Yeah. 


AKING-6430 with DISTILLER
94 

Mr. HINOJOSA. All of this to say that it seems to me that Congress should give instructions that the people who violate, as they 

are, should receive penalties that are to the individuals who are 

making those decisions. There should be fines and imprisonment. 

There has to be something that is going to stop this. 

It was back before 2010, and if I may quickly say, that we were 

seeing students getting student loans at 10 and 12 percent from 

banks and other groups, even from universities. New laws came in, 

as were pointed out, that we could make direct loans at 5 percent. 

And then, of course, the lobbyists came down on us real hard to 

stop doing that because their banks were not making all that 

money with guaranteed Federal loans. 

So we really need to really put in some time and come up with 

penalties that are going to stop that type of decisionmaking that 

was going on. 

I yield back. 

Ms. FOXX. Now, Mr. Meadows, you’re recognized for 5 minutes. 

Mr. MEADOWS. Thank you, Madam Chairman. 

Mr. Runcie, I’m going to come directly to you. The oral testimony 

Ms. Emrey-Arras and Ms. Tighe was kinder than perhaps the written testimony that I’ve seen. And so I’m going to come to you because my role is more oversight, not as much on the policy side of 

things. 

So how much do we pay out in improper payments every year? 

Mr. RUNCIE. Well, we have improper payment estimates. So we 

don’t actually make payouts. Right? So, for instance, we have—— 

Mr. MEADOWS. But you have oversight. You’re the COO. And so 

as we look at the improper payments, how much do the American 

taxpayers—can they recognize in terms of improper payments? 

Mr. RUNCIE. So improper payments there are two categories. 

There are direct loans and Pell. 

Mr. MEADOWS. Combined, what’s the total? 

Mr. RUNCIE. The combined total is about $1.8 billion of estimated 

improper payments. That’s done through sampling techniques, and 

we look at information and then extrapolate that it would be one 

point—— 

Mr. MEADOWS. Well, I’ve only got 5 minutes. So let me interrupt 

you. 

If that’s your official testimony, I guess my question is, is how 

do you know? Because you’ve changed the methodology, didn’t you, 

Mr. Runcie, on how you evaluated improper payments? 

Mr. RUNCIE. That methodology was approved by OMB. So—— 

Mr. MEADOWS. You changed it in fiscal year 2013. 

Mr. RUNCIE. That’s right. 

Mr. MEADOWS. And then the improper payments amount doubled. Is that correct? That’s the information I have—— 

Mr. RUNCIE. We changed. 

Mr. MEADOWS. —from about $2 billion to about $4 billion? 

Mr. RUNCIE. No, it’s about $2 billion. I’m not sure the timeframe 

that you’re talking about, but the estimated improper payment—— 

Mr. MEADOWS. How many times have you changed the way that 

you figure improper payments, Mr. Runcie? 

Mr. RUNCIE. Once since I’ve been at FSA. So we changed it—— 


AKING-6430 with DISTILLER
95 

Mr. MEADOWS. Well, I’m going to give you a chance to check with 

your folks behind you. Because I have information that would indicate you’ve changed it twice. 

Mr. RUNCIE. Okay. So what I’m saying is that when we change 

the improper payment methodology, it’s based upon some analysis 

that we do. That analysis was—we had some disagreement in 

terms of the appropriateness of—— 

Mr. MEADOWS. I’d say major disagreement. So let me go on a little bit further. So let me interrupt because I need to get to an answer here. 

Mr. RUNCIE. Okay. 

Mr. MEADOWS. Here’s my concern. You have improper payments 

of about $2 billion under a scenario that you’re—and I’m rounding 

off. You change the scenario after that same method of calculating 

it showed that you had $4 billion in improper payments, and you 

go retroactively to OMB and say: We want a new process to be able 

to evaluate that. Is that in general terms how it worked? 

Mr. RUNCIE. My understanding is OMB is the authority. They 

sign off on it. It is—— 

Mr. MEADOWS. I agree. 

Mr. RUNCIE. And it is appropriate. 

Mr. MEADOWS. All right. So are you following OMB guidelines? 

Be careful how you answer. 

Mr. RUNCIE. OMB has approved the methodology that we use 

for—— 

Mr. MEADOWS. Are you using their approved methodology? 

Mr. RUNCIE. That’s what we used for 2015 and 2014. 

Mr. MEADOWS. Okay. So let me ask you this, then. Their methodology, from what I understand, would include a sample size of 300. 

And yet according to the information I have, you’re only analyzing 

79 cases, which is statistically not accurate. It’s not even following 

what OMB has indicated. Are my numbers correct? 

Mr. RUNCIE. I don’t have the numbers—— 

Mr. MEADOWS. Ms. Tighe, are they correct? 

Ms. TIGHE. FSA originally went to OMB with a sample size of 

about 311 reports. I believe they did get permission to, when they 

realized they weren’t going to have that sample size, they went and 

got permission to use draft reports. But that dropped them to about 

90 reports instead of 311. 

Mr. MEADOWS. Yeah. I show 79 plus 21, so—is the numbers that 

I show. 

So, Mr. Runcie, let me tell you why I’m troubled by this. Let’s 

put it in education terms. It’s like a student is going through and 

taking an SAT and we’re getting certain trends. And then all of 

sudden we don’t like the trends we see and we change the goalpost, 

we change the way that we do the methodology, so that the SAT 

scores look a little bit better. Would you not agree that that’s what 

the Department of Education has done? 

Mr. RUNCIE. We’re a performance-based organization. We have 

an obligation to continue to refine, innovate, and look at best practices. 

Mr. MEADOWS. All right. In the 24 seconds that I have left, at 

what point will you start to comply with the OMB guidance on how 


AKING-6430 with DISTILLER
96 

we’re to have a sample size with 300? At what point are you going 

to do that? 

Mr. RUNCIE. The methodology that we use has been approved by 

OMB. 

Mr. MEADOWS. Okay. That’s your testimony. All right. Here’s 

what I would ask you to do is report back to this committee with 

OMB and see if they’re in compliance. And I would ask the inspector general and GAO to see if they concur with your decision. 

And I appreciate the patience of the chair. 

Ms. FOXX. Thank you, Mr. Meadows. 

Ms. Plaskett, you’re recognized for 5 minutes. 

Ms. PLASKETT. I think—— 

Ms. FOXX. We’re alternating between Education and Oversight. 

So it is your time. 

Ms. PLASKETT. Thank you. I don’t want to, you know, mess up 

the protocol. Thank you so much. 

Ms. Tighe, yesterday at the Oversight and Government Reform 

Committee you testified that a company in Georgia, a subcontractor, refused to give your office access to information you needed. Is that correct? This was regarding a Federal Information Security Management Act? 

Ms. TIGHE. That’s correct. 

Ms. PLASKETT. Okay. And you testified that the name of the company that refused to give you that access was TSYS. Is that correct? 

Ms. TIGHE. That’s correct, TSYS. 

Ms. PLASKETT. And who’s the prime contractor since that—— 

Ms. TIGHE. Accenture. 

Ms. PLASKETT. This is a government contract paid for by taxpayer funds to a subcontractor? 

Ms. TIGHE. Yes. 

Ms. PLASKETT. And did you ask for TSYS, for a copy of the contract? And if so, did they give it to you? 

Ms. TIGHE. Well, there’s many layers of issues. We asked for— 

after we were—did not get the complete information we needed to 

audit the system that they were operating, we asked FSA for a 

copy of the contract between Accenture and TSYS. They suggested 

initially that we go directly to Accenture ourselves and get a copy 

of it. I personally thought it was FSA’s responsibility because the 

subcontractor was operating their system and that they should go 

get a copy. They were not able to do that. 

Ms. PLASKETT. But wouldn’t—I mean, I know that you want to 

go talk about the Department. But this is a contractor and a subcontractor to the government. 

Ms. TIGHE. Yes. 

Ms. PLASKETT. And don’t they have a responsibility to give you 

that information when you ask for it? That’s a yes or a no. Do they 

have a responsibility to give you that information? 

Ms. TIGHE. Yes. 

Ms. PLASKETT. And so what is the mechanism that you have in 

place to ensure that they do that rather than going to the Department, but to get that information from the contractor? 

Ms. TIGHE. Well, my mechanism when they don’t supply information to me is to do a subpoena. I have—— 


AKING-6430 with DISTILLER
97 

Ms. PLASKETT. And have you done that? 

Ms. TIGHE. I have not done that in this case yet, no. 

Ms. PLASKETT. Do you plan on doing that? 

Ms. TIGHE. For the contract, I don’t know. We have contemplated—I mean, my biggest concern was not the contract itself. 

My biggest concern is the information that we needed to do our 

vulnerability assessment of the mainframe on which the common 

origination disbursement system rests in Columbus, Georgia, that 

we were not able to do because TSYS did not give us all the information we needed. That information I may yet subpoena. 

Ms. PLASKETT. But, I mean, I have a fundamental problem with 

a contractor or subcontractor to the government, the United States 

Government, not giving the inspector general information when 

they’re asking for it. 

Mr. Runcie, from the Department’s perspective, don’t your contractors and subcontractors have an obligation to give that information to the IG? 

Mr. RUNCIE. I believe so. 

Ms. PLASKETT. And when do you think the subpoena power 

should be enforced to make sure that that happens? 

Mr. RUNCIE. That’s not my call. But what I will say is that we 

tried everything that we could. I mean, I think we worked with the 

inspector general, OCIO. We got the prime, we got the subcontractor, we got our contracting officer. We had a number of people 

exert a maximum amount of effort to get them to provide the information that the inspector general wanted. And I was disappointed 

that we couldn’t get that. 

Ms. PLASKETT. So can the Department withhold funds from not 

just the subcontractor but primarily the contractor, Accenture, 

until it complies with the request of the inspector general? 

Mr. RUNCIE. Our contract is with Accenture. And if—— 

Ms. PLASKETT. Because they haven’t given the information either. Have they? Accenture. 

Mr. RUNCIE. Well, it’s not their information. It’s the information 

that the subcontractor—— 

Ms. PLASKETT. Well, the contract itself. Right? Would be for 

Accenture. 

Mr. RUNCIE. Yes. But the contract—my understanding, based 

upon conversations with our contracting officer, is that is a commercial contract between Accenture and TSYS. We don’t have the 

contractural right to get that contract. 

Ms. PLASKETT. What do you say to that, Ms. Tighe? 

Ms. TIGHE. I’d say that view is interesting in light of the fact 

that TSYS is in charge of operating one of most significant data 

systems that FSA has. 

Ms. PLASKETT. Well, you know, I know that the chairman of 

Oversight and Government Reform, Mr. Chaffetz, yesterday talked 

about writing a letter to the subcontractor. I think that a letter 

also needs to probably be written to the contractor in this case. 

Ms. TIGHE. I would agree. 

Ms. PLASKETT. Okay. Thank you. 

I have no further questions. Thank you. 

Ms. FOXX. Thank you very much. 

Mr. Guthrie, you’re recognized for 5 minutes. 


AKING-6430 with DISTILLER
98 

Mr. GUTHRIE. Thank you, Madam Chairwoman. I appreciate 

that. And I appreciate you all being here. This is a timely subject 

to me. I have one child that just left college, one in college, and one 

we just did a college tour, and you sit there, as they say, the cost 

of attendance. And you’re saying: How do people do this? It is very 

difficult. And it’s something that I know we’re involved in doing. 

And so since you’re kind of peers with my age group, I have a 

lot of—that’s why I hear a lot of parents talk about the affordability of college. So it is on a lot of people’s minds. A lot of that 

happens at the State level, I get it. But having an adequate and 

a good service program. And I can’t go without pointing out, because I started talking about this in 2009, and I still say it again: 

$10 billion of Federal money that’s paid by students back to the 

Federal Government. So the profit from operating the program goes 

to pay for the Affordable Care Act. So that’s almost $1 billion a 

year goes to pay—so I just want to remind people that money that 

students pay for their colleges is diverted to the Affordable Care 

Act. So almost $10 billion over 10 years. That’s over 10 years. 

So, Mr. Runcie, I want to ask you a question. Throughout the 

GAO’s testimony, there are numerous examples of FSA falling 

short in its management and oversight of servicing contracts. A 

major consequence of the oversight deficiencies is that borrowers in 

turn face inconsistent experiences in services. This is a far-reaching 

consequence that FSA, as a performance-based organization, is 

tasked with fixing. Keeping in mind that until these problems are 

rectified borrowers will continue to lack the kind of service required by FSA’s PBO designation. And I have a few questions 

based on that. 

When will the clearer guidance to help servicers interpret income 

documentation be ready? 

Mr. RUNCIE. So, I just want to give you some context in terms 

of why there may be some differences between, you know, the 

servicers and how they, you know, treat specific incidents. Right? 

So we had to stand up the TIVAS, the four servicers, in a pretty 

short window. And we allowed them to use their commercial practices and their commercial, you know, operations. And because of 

that there are variations. And those servicers also provide those 

services to the FFEL program. So there were inconsistencies there 

from a servicing perspective. But in order for us to quickly ramp 

up to deal with the volume that we did, we had to leverage our 

commercial operations. 

There were differences in some of their practices. Those differences still exist. And we provided guidance and clarification for 

some of those. But ultimately we’re entering into a recompete process that will start in January of 2016. And through that process 

we’re going to be able to do some things like standardize common 

practices, have common branding, and to address some of those 

issues. 

Mr. GUTHRIE. Okay. So I understand that. And I understand how 

quick, because it all happened in the Affordable Care Act quickly. 

We had discussed it in this committee for a while, but it kind of 

just came into being because of the money needed to pay for the 

Affordable Care Act. 


AKING-6430 with DISTILLER
99 

So when will the—so I understand the problem. So when is it 

going to be fixed? 

Mr. RUNCIE. Well, first of all, some of this stuff has been—some 

of the things we can address we’ve addressed, like the capitalization of interest. Other things like over and underpayments that 

were mentioned before, we’re working with CFPB. They’re an organization that understands some of the issues around what the best 

practices in terms of dealing with that. So, you know, I don’t have 

a specific timeframe. But I would say within 2016 certainly. 

Mr. GUTHRIE. Within 2016. 

Mr. RUNCIE. Yeah. 

Mr. GUTHRIE. And then also the servicers expressed for a common manual, I think we talked about it a little earlier with Ms. 

Tighe, similarly to those that exist with. 

Mr. GUTHRIE. FFEL in order to help solve consistency. Do you 

have plans to have a common manual? And when will that be 

ready. 

Mr. RUNCIE. Yeah. The common manual will be something that 

based upon our recompete strategy we’ll be able to put together. 

However, the common manual that existed before, there were still 

differences between the way those servicers who used the common 

manual, you know, addressed borrower issues. So I think the platform that we’re—the place we’re looking to go is to be able to 

standardize a number of processes as we go through recompete 

process. 

Mr. GUTHRIE. Is there a date that you think—— 

Mr. RUNCIE. Well, the recompete process is going to start 2016, 

January 2016. That’s our target. The contracts themselves wind 

down—the existing contracts today wind down in 2019. So there 

would be a transition period. 

Mr. GUTHRIE. Okay. I’m about to run out of time, but real quick, 

I have a bill that—we’ve seen, particularly Indiana University be 

extremely successful with financial accounting. So I have a bill, 

H.R. 3179. But my understanding in the law that currently requires financial counseling, but I think up to 40 percent of the students interviewed said that they don’t remember, recall, ever being 

financially counseled. So we know that financial counseling makes 

a difference. It does in the Indiana model anyway, and the Indiana 

University has been very successful. Is there a plan to fix that 

problem under the current law? We’re trying to change the law, but 

is there a plan to fix where we are under the current law? 

Mr. RUNCIE. Yeah, I mean, you know, there are policy changes 

that can be made. But clearly we—our exit counseling—it does 

make a huge difference. I think the multiple’s you’re two times less 

likely to miss a payment if you go through counseling, at least our 

counseling that we have in place. And so we have a lot of the tools. 

You know, I’m not sure what the hit rate is in terms of, you know, 

people actually using those tools, but it is a requirement. 

Mr. GUTHRIE. Thank you. My time has expired. 

Ms. FOXX. The gentleman’s time has expired. 

Mr. Scott, you’re recognized for 5 minutes. 

Mr. SCOTT. Thank you, Madam Chair. 

Mr. Runcie, we’ve heard from a number of sources that the 

FAFSA form is so complicated that a significant number of people 


AKING-6430 with DISTILLER
100 

are not applying to college or not getting the aid to which they’re 

entitled. They are a lot of suggestions in simplifying the form. One 

is using prior-prior year taxes. Have you adopted that? 

Mr. RUNCIE. Yes, Congressman Scott, we have a project timeline 

and a plan, and we’ve allocated resources to have prior-prior instituted by October of 2016. And that would be a tremendous opportunity to increase access and make it simpler and easier for people 

to complete the FAFSA. 

Mr. SCOTT. Another recommendation was to have easier access 

to Internal Revenue information. Have you adopted that policy? 

Mr. RUNCIE. Yes, I mean, we have—you know, the income—we 

have the DRT tool, which is a data retrieval tool that allows for 

automatic retrieval of the tax information right into your FAFSA 

form, as well as for income-based repayment for those repayment 

plans. You can also leverage the automatic IRS tools. 

Mr. SCOTT. So that’s available now? 

Mr. RUNCIE. Yes, that is available now. 

Mr. SCOTT. What about if you are eligible for a means-tested program, are you using that recommendation? 

Mr. RUNCIE. I’m sorry, for what tested? 

Mr. SCOTT. Means-tested, like foods stamps or other kinds of income-based programs. If you’re eligible for those programs that you 

would have a simplified FAFSA form? 

Mr. RUNCIE. I’m not sure on that. I’m going to have to come back 

to you on that, Congressman Scott. 

Mr. SCOTT. Are there any additional changes that you will be 

recommending that might need congressional action? 

Mr. RUNCIE. Not at this time. I think we’re just really focused 

on making sure that we can hit the prior-prior and then move the 

FAFSA form from January to October. Historically the FAFSA 

form has been available in January. This is a tremendous change 

because while you’re applying for school in the fall, you can now 

know how much you’re eligible to get in terms of financial aid. 

That’s going to make a lot of difference in terms of people having 

the understanding that they can actually be able to go to college. 

So that’s a huge, huge step. 

Mr. SCOTT. We had a question about allocation of payments 

when a person has multiple loans. How were those allocated in 

terms of whether or not the payment goes to those loans with higher interest rates? 

Mr. RUNCIE. Yeah. So that’s where there has been some flexibility. And that’s the issue that we’re working on with CFPB and 

other agencies who have expertise in terms of what would be the 

best practices for borrowers. So that is an issue that we’re focused 

on and we’re going to address, you know, as soon as we establish 

what the best practices are and make that commonplace across—— 

Mr. SCOTT. Are there any efforts to participate in outreach to 

maximize the number of students applying for financial aid or to 

inform students of various repayment plans rather than just react 

to their applications? 

Mr. RUNCIE. Yeah. So we have targeted outreach campaigns. So 

we do emailing. We have a lot of social media, whether it’s Twitter, 

you know, Facebook, YouTube. So we leverage that infrastructure 


AKING-6430 with DISTILLER
101 

to provide as much information about our repayment plans as possible. 

In terms of the front end, in terms of the takeup in FAFSA, we 

have a FAFSA completion project and a FAFSA completion tool 

that we’ve used to create more FAFSA filers, a greater percentage 

of high school seniors filing FAFSAs, which is an indication as to 

whether you will enroll in college. 

Mr. SCOTT. In terms of efficiency, are there any investments that 

you need to make in terms of equipment or software that would 

help you become more efficient that you don’t have funding for? 

Mr. RUNCIE. You know, I think—well, we’re in the process of establishing enterprise data warehouse, which is one of the things 

that we’re trying to leverage, create an infrastructure where we 

can use more data to have more predictive analysis, as well as to 

look at how we can improve ourselves operationally. Also, from a 

program compliance standpoint, we would be able to leverage some 

of that data to, you know, find out where there’s more risk. I think 

our issue is the entire infrastructure needs to grow, and in order 

to be able to grow the infrastructure and have the type of security, 

and some of the other things that we need, we’re going to need additional resources. 

I saw the budget, the Senate and the House budget. I don’t know 

if it’s appropriate to bring that up, but with that shortfall, there 

may be certain things that we will not be able to deliver. 

Mr. SCOTT. If you could give us the details on what you could not 

deliver without the money, that’d be helpful. 

Mr. RUNCIE. Okay. Terrific. Thank you. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Ms. FOXX. Thank you, Mr. Scott. 

Mr. Walberg, you’re recognized for 5 minutes. 

Mr. WALBERG. Thank you, Madam Chairman. Thank you to the 

panel for being here. 

Mr. Runcie, when was the last time FSA released a performance 

plan? 

Mr. RUNCIE. We released our strategic plan—I believe it was updated—I believe we released it—if it hasn’t been released, it will 

be released within the next month. 

Mr. WALBERG. Before that when was the last plan released? 

Mr. RUNCIE. We update our strategic plan every year. Every few 

years we have what we call a full strategic plan where we do an 

environmental scan. We solicit market information. We talk to—— 

Mr. WALBERG. But when was the last plan that was introduced? 

Because I understand it’s supposed to be every 5 years. Correct? 

Mr. RUNCIE. Yeah. 

Mr. WALBERG. When was the last plan? 

Mr. RUNCIE. The last plan—I think we just issued one this— 

within the next month I think we’re issuing a plan. And before that 

we issued a plan in 2012. In 2012. So in 2012 we issued a strategic—— 

Mr. WALBERG. It wasn’t 2010? When it was supposed to be back 

in 2010, it wasn’t released until 2012? 

Mr. RUNCIE. I know in 2012 we released a plan. I’ll have to get 

you that information. I want to be precise. But—— 

Mr. WALBERG. I’d appreciate that. 


AKING-6430 with DISTILLER
102 

Who’d you consult with when creating these plans? 

Mr. RUNCIE. Well, what we do is we do a bunch of market research. We do environmental scans. And then there is a 30-day notice period where we send out the plans so stakeholders can provide comment on the plan. And that’s why I’m a little bit confused. 

Because I know we sent a plan out, I believe, September of this 

year with a 30-day notice period so that we could get comments 

back on the plan. And we’ve done that historically and we’ve gotten 

comments. I don’t believe this year we got a single comment. 

Mr. WALBERG. Who would you normally consult with? 

Mr. RUNCIE. Stakeholders that represent, you know, student 

groups. So student associations, school associations the Hill. So we 

would send that out to those stakeholders. 

Mr. WALBERG. Mr. Draeger, when did the FSA consult you about 

it’s 2015 plan? 

Mr. DRAEGER. The last time that we were consulted by FSA was 

in 2012 where we highlighted for them the participation agreement 

delays, the delays in closing out program reviews, delays in guidance. 

Mr. WALBERG. So that was 2012. 

Mr. DRAEGER. Correct. 

Mr. WALBERG. Not presently for the 2015 plan? 

Mr. DRAEGER. We continue to raise the issue, but outside the 

context of an update to their plan. 

Mr. WALBERG. In your experience, has FSA consistently consulted with schools, with leaders, with students, and other stakeholders prior to implementing a new plan? 

Mr. DRAEGER. That has not been our experience, and we have 

not heard from schools that have been consulted directly either. 

Mr. WALBERG. Mr. Runcie, then, by statute you’re required to 

consult interested parties prior to implementing a new plan. Did 

you consult NASFAA? And I guess would you say NASFAA’s an interested party? 

Mr. RUNCIE. Well, my records, which I checked before I came 

here, indicate that we sent a notice to Justin Draeger, who is the 

head of NASFAA. So it was sent to him this year. 

Mr. WALBERG. Well, we got a conflict here. So if you could supply 

us with accurate information as to that letter—— 

Mr. RUNCIE. We will supply that to you. 

Mr. WALBERG. We’d appreciate that because Justin is shaking 

his head saying he’s never received that letter. 

Mr. RUNCIE. I understand that. And I will provide you the information. 

Mr. WALBERG. Mr. Draeger, in your testimony you discuss how 

the working relationship between schools and FSA has become so 

strenuous that it’s ultimately hurting students. Can you elaborate 

a bit more and discuss potential solutions? 

Mr. DRAEGER. Yeah. I think one of the starkest examples has 

been the delays in the Department of Education in getting to 

schools all sorts of guidance which we’ve highlighted in our GE reporting example. Closing out program reviews. We have an instance where a large public 4-year school submitted all documents 

for a program review in October 2012. It wasn’t until May 2015 


AKING-6430 with DISTILLER
103 

that they were ever informed that their documents were being reviewed. 

So we have significant timeframes where basically these program 

reviews aren’t being closed out. It’s perpetually hanging over the 

heads of these schools. And no entity, public or private, can operate 

with that level of uncertainty. 

Mr. WALBERG. What recourse do they have if they’re having 

problems in getting action from FSA. And I guess who can they appeal to as well? 

Mr. DRAEGER. Yeah. The structure of FSA is such that there 

really is no appeal for the school. FSA provides all the guidance. 

They do all the program reviews. They make the determination 

about who can and can’t participate in the Title IV programs. 

Mr. WALBERG. So it’s a black hole. If it doesn’t work for them, 

ultimately they have no recourse. 

Mr. DRAEGER. We’re not familiar with any benchmarks that are 

published. There’s no recourse beyond going back to the same entity that you’ve been trying to work with. 

Mr. WALBERG. My time’s expired. Thank you for your testimony. 

Mr. RUNCIE. So is it possible for me to address that with the—— 

Ms. FOXX. I’m sorry, but the time is up. 

Mrs. Maloney. 

Mrs. MALONEY. I first would like to give him the time to address 

this. 

Mr. RUNCIE. Thank you. I appreciate that. 

So there may be anecdotes, but what I have is a folder of facts. 

I have the statistics on the cycle time for all our program reviews, 

our recertification applications. And so I’ll just give you an example 

of why that—it’s important to look at the facts. Just let me just put 

it this way. 

So there was a 72 percent decrease in our cycle time, the days 

to conduct a program review, between 2011 and 2015. Last year 

the program review—we did 291 program reviews, and average 

processing time was 249 days. And as I mentioned, that was a significant reduction. 

If you look at the recertification applications which are another 

point of contact with the schools, those are down significantly as 

well over the years. If you look at the approval applications, double 

digit percent reductions in the response time. 

So when you’re looking at a hundreds of actions, and if you look 

at the totality of it, there are about 2,000 interactions with the 

schools, all of those cycle times have been down significantly over 

the last 4 years. We can provide you with the information. So this 

anecdotal information about our performance is just not accurate. 

Mrs. MALONEY. Thank you. 

First of all, I would like to be associated with the comments of 

Dr. Foxx in support of our friend Ruben Hinojosa, and express my 

gratitude for his leadership and friendship. We’ve had the opportunity to serve together on the Financial Services Committee where 

he served with great distinction as he did in the overall body for 

his district. We will miss you, and I’m sad you’re leaving. 

I have a series of questions on the principles on student loan 

servicing. I understand others have expressed interest in it. And if 


AKING-6430 with DISTILLER
104 

I don’t have a chance to finish, I’d like to place them in the record 

for a response later. 

Ms. FOXX. Without objection. 

Mrs. MALONEY. Mr. Runcie, according to the Consumer Financial Protection Bureau, student loan debt is now at $1.2 trillion, and is 

now second only to mortgage debt. It is now even higher than credit card debt, which is staggering. So this is really incredible to see 

this type of large consumer debt growing in our country. 

And earlier this year the Department of Education joined the 

CFPB and the Department of the Treasury in soliciting information 

about student loan servicing from public. And one key complaint 

raised by numerous respondents was, ‘‘Servicers of both private 

and Federal student loans may not inform borrowers experiencing 

financial hardship about available alternative repayment plans.’’ 

We need to address this, and end this, and make sure students 

know all their alternatives. And how does your office examine 

whether servicers are providing repayment information to borrowers that is complete, accurate, timely, and also includes alternatives? 

Mr. RUNCIE. Yeah. So and we have to—and, yeah, I agree with 

some of the findings that were mentioned today. We monitor calls. 

You know, but we could do that more efficiently, have more consequences around the call monitoring that we do. 

As I mentioned before, in October of 2014 we changed the structure so there’s a tremendous incentive on the part of the servicers 

to make sure that they keep—they inform borrowers of all their repayment plans so that they could stay current on their obligations. 

That was—you know, so we’re still in the process of seeing the impact of that pricing change. But we’re committed to making sure 

that we adjust that model to make sure that we have the proper 

incentives in place so the servicers will provide all the information 

they can about their repayment plans. 

Separate from that, you know, we’re doing our part in terms of 

our outreach, our communication, and, you know, leveraging our 

Web sites and so forth. 

Mrs. MALONEY. Okay. How much of loan servicers’ compensation 

is currently based on achieving specific customer service standards? 

Mr. RUNCIE. Well, we have surveys. So there’s a customer survey 

that is a component that’s used. And based upon how they perform 

when we blend the customer survey along with some of the other 

components, for instance, you know, the percentage of loans that 

are in current repayment and certain other attributes, we look at 

that, but we also look at the survey results to see how they’re performing from a customer perspective. And that determines their allocation which determines their economics. So we do use that as a 

part of our model. 

Mrs. MALONEY. Okay. Thank you. My time has expired. Thank 

you, and I place the rest of my questions into the record to be answered. Thank you. 

Ms. FOXX. Thank you, Mrs. Maloney. 

Ms. Stefanik, you’re recognized for 5 minutes. 

Ms. STEFANIK. Thank you, Madam Chair. 

I represent a number of higher education institutions in northern 

New York ranging from SUNY schools to community college to priVerDate Sep 11 2014 12:40 Jan 11, 2017 Jkt 000000 PO 00000 Frm 00110 Fmt 6633 Sfmt 6633 F:\22384.TXT APRIL

AKING-6430 with DISTILLER
105 

vate colleges. And I’ve visited every single one of them. And one of 

the conversations that I frequently have with students is that student aid programs are complex and challenging for them to understand. 

And my question is for Mr. Runcie. One of the statutory purposes 

of the Federal student aid PBO is to make aid programs more understandable for students and their families. However, just last 

month GAO released a report that found many eligible borrowers 

aren’t even aware of income-driven repayment plans, and therefore 

aren’t able to make the decision to lower their payments and reduce the risk of defaulting on their loans. 

How are you addressing this failure, and how are you educating 

servicers to make sure they can accurately explain this maze of repayment options to borrowers so they can access the help they need 

to repay these loans? 

Mr. RUNCIE. Yes, I mean, so part of it is the overall complexity 

of student loan programs. So there are a lot of statutory programs. 

Certain things that we don’t have control over. So it makes it much 

more difficult to make a decision about what the right repayment 

plan is. 

In terms of income-driven repayment, we put out a targeted campaign that yielded pretty impressive results. We are doing another 

targeted campaign once we come out with REPAY. REPAY is an 

income-driven program that’s going to expand the available universe of people that can participate in income-based repayment by 

another five million. 

So on the heels of that, we’re going to make sure that we send 

out a targeted email campaign. We’ve worked with other parties, 

as I mentioned before, Treasury, in terms of the income tax process. We’ve worked with Intuit in the past. So we’re going to leverage partners and our own infrastructure and the servicers as well. 

Because, as I mentioned before, we changed the pricing model 

there. 

So there are lots of things that we have done and that we plan 

to do. But I think what’s most important is that since we started 

taking these actions, you can see the significant increase in the 

adoption of income-based repayment. So while there may be some 

folks that aren’t aware, our hope is that as we continue to roll out 

our communications plan and our information, we will strengthen 

the universe of people who aren’t aware. But, you know, I think 

we’re continuing to push on that, you know, on that front, and 

we’ve made some tremendous, I think, progress. 

Ms. STEFANIK. Well, I agree with you. Students have to be made 

aware of this. And this is a generational crisis that we are facing 

here with historic amount of student debt. And as a Millennial myself this is pushing off our next generation of leaders from buying 

their first home, from being able to save for the future. So I suggest we fix this program so that our young people are able to make 

good decisions and not default on their student loans. 

My next question is for Mr. Draeger. In your testimony, you 

talked about the importance of accountability. And the lack of accountability, which is a key part of a PBO, tremendously erodes the 

good will between institutions and FSA. And you reference reporting requirements. Besides the gainful employment reporting disVerDate Sep 11 2014 12:40 Jan 11, 2017 Jkt 000000 PO 00000 Frm 00111 Fmt 6633 Sfmt 6633 F:\22384.TXT APRIL

AKING-6430 with DISTILLER
106 

aster that you referenced in your testimony, have there been other 

instances where unclear guidance or poor communication made it 

challenging for schools to do their jobs? 

Mr. DRAEGER. There have been several examples where schools 

have tried to seek guidance from the Department of Education as 

deadlines loomed, whether it’s with reporting requirements dealing 

with subsidized Stafford loan limitations which went into effect in 

the last year. The interesting—I’m also dealing in facts. We have 

20 percent of our schools have reported operational shortfalls. 

That’s a real number. Twenty percent representing six and a half 

million students where they cannot do their jobs because of the 

operational shortfalls that I’ve cited in my testimony. 

The accountability thing, to me, is most acute when you look at 

the Department’s last annual report where they acknowledge that 

they failed to achieve 2 out of 13 of their strategic objectives dealing with customer service to schools, customer service to students. 

But then in the very next paragraph they detailed those failures 

as successes. They said, ‘‘Given the volume of new requirements 

over the past year, the small reduction in these scores on this metric is an indication of the success of FSA’s outreach and support efforts.’’ The problem with self-assessment is even when the Department fails them, deem it a success. 

Ms. STEFANIK. Thank you. I yield back. 

Ms. FOXX. Thank you. 

Dr. Adams, you’re recognized for 5 minutes. 

Ms. ADAMS. Thank you, Madam Chair. And I want to thank the 

leadership of both subcommittees for this hearing. And I want to 

thank the witnesses as well. 

I spent 40 years in the classroom, Bennett College in Greensboro, 

so higher education is a tremendous interest of mine. 

So let me just piggyback on the last question about default and— 

because institutions are penalized as well, in addition to the students, and the things that they can do when they leave. So let me 

ask Ms. Emrey-Arras, do you believe that our institutions of higher 

education should play a role in better counseling students on these 

programs, or should it be up to Congress and the administration 

to increase the participation in the programs? And if so, what 

should they look like? 

Ms. EMREY-ARRAS. We haven’t looked specifically at the role of 

schools. However, we have looked at the role of servicers and the 

Department in educating borrowers about repayment options. And 

while I agree with Mr. Runcie that the takeup rate has increased 

in terms of income-based repayment options, there is still a very 

wide gap between those that are eligible and those that, in fact, 

participate. 

And part of the challenge is that although there are in fact targeted campaigns, as Mr. Runcie mentioned, there is not an acrossthe-board notice to people when they enter repayment about these 

options. So that simply telling people when they start repaying 

what the options are is not happening across the board. And that 

needs to be done. 

Ms. ADAMS. Thank you. 

Mr. Runcie, if you could—what’s your response to the institutions 

of higher education and their role? 


AKING-6430 with DISTILLER
107 

Mr. RUNCIE. Well, in terms of—so, yes. You know, the institutions, there is exit counseling and some institutions do a pretty fabulous job in terms of exit counseling where they make sure that the 

students understand the obligations and the consequences of defaulting. 

You know, we also obviously, you know, are involved from a servicing standpoint. We reach out and we provide information. If you 

look at the cohort default rates for all schools, whether they’re proprietary schools or private schools or HVCUs, those cohort default 

rates have all dropped about 20 percent within the last two cohorts, which is a tremendous, tremendous reduction. 

So whether it’s the schools or the Department of Education, you 

know, there has been a noticeable impact in terms of the reduction 

in the cohort default rates. 

Ms. ADAMS. Okay. Sounds like both should be involved. 

But, Mr. Miller, since the 2008 economic downturn, many states 

have made significant cuts in funding for higher education. In 

North Carolina, our general assembly, and I was a part of that at 

one time, and our governor have made gutting higher education a 

regular activity. I didn’t support that. But in my hometown of 

Greensboro, the University of North Carolina at Greensboro has 

eliminated, for example, 390 class sections or about six percent of 

its course offerings to offset a $4 million budget cut. So can you 

speak to the effect of a State disinvestment on increased college 

tuition costs and greater student loan debt, especially for low-income students? 

Mr. MILLER. Essentially what we’re seeing in this country now 

is a great cost shift where it used to be that States viewed public 

higher education as a public good they should be subsidizing and 

making affordable for all students. That is increasingly not the 

case. Essentially what’s happening is that institutions such as the 

one as you described, their cost of providing the education is not 

really growing, and they’re probably keeping it level. 

Instead, all that’s happening is the State is pulling money out 

and asking students to make up the difference themselves. And the 

effect of this essentially is you’re making students borrow. And 

even worse, you’re increasing the risk of trying college for low-income people. 

To get back to your question about default rates, essentially this 

is what we’re seeing, that a lot of our defaults are coming from borrowers who try college for maybe a semester or two and they drop 

out. A study from the Association of Community College Trustees 

found that most borrowers in defaults from Iowa community colleges owed a little bit under $5,000. And so essentially what we’ve 

done is we’ve slashed State funding, raised tuition, made college almost like a lottery ticket for students, where if they graduate, 

they’ll probably repay. And if they drop out, they will find themselves in dire financial straits. 

Ms. ADAMS. Oh. Okay.Thank you very much. I’m about out of 

time. Madam Chair I yield back. 

Ms. FOXX. Thank you. 

Mr. Carter, you’re recognized for 5 minutes. 

Mr. CARTER. Thank you, Madam Chair. And thank all of you for 

being here. 


AKING-6430 with DISTILLER
108 

Ms. Tighe, let me start with you if I could. You’re the inspector 

general of the Department of Education. How many investigations 

do you conduct on FSA? 

Ms. TIGHE. We do a number of investigations related to the programs and operations of FSA. But as far as FSA employees, not 

that many. 

Mr. CARTER. Okay. And I’m more concerned about the operations 

than I am—— 

Ms. TIGHE. I don’t have the numbers, and I can get back to you 

on specifics. But it’s a good part. We do annually about 250 to 300 

investigations we have open. I imagine probably over half of those 

relate to FSA programs and operations. That’s my guess, and I will 

be happy to give you specific numbers later. 

Mr. CARTER. Okay. It’s my understanding that there are four different areas that FSA is obligated to. Do you know if they’re meeting their obligations in those four areas that are outlined in the 

statutes? 

Ms. TIGHE. Well, I mean, we have, as I’ve testified, concerns, particularly over their management, their oversight of their—the various participants in their programs, and also in the management 

of their regular day-to-day activities. As far as the program participants where we see our greatest risk of fraud, one of areas we’ve 

highlighted in the last few years is our still growing problem of 

fraud rings. These are fake students who prey upon our distance 

education programs and particularly in our low-cost community colleges pretending to be students signing up for classes and getting 

disbursements of Federal student aid. 

We did a report to FSA a few years ago with a number of recommendations that FSA do some system enhancements and other 

things to address this problem. FSA has taken some steps, but 

we’re still seeing the problem grow. 

Mr. CARTER. Okay. What can we do? What can we do in this 

committee, what can we do in Congress, to help you with that? 

Ms. TIGHE. I think one of the areas that actually is within your 

all’s responsibility, one of the issues that drives the costs are the 

cost of attendance. I think there’s a statutory requirements related 

to that. We need to be looking at the difference—is all the money 

that you need when you go to a brick and mortar school and you 

have to have room and board the same that you need if you already 

have a job and a house and you’re doing an online program from 

home. Do you need the same amount of money disbursed to you? 

Because if we can reduce the amount of money that goes out that 

is not needed, first of all, you reduce the debt, but you also reduce 

the attractiveness of the programs for fraudsters. 

Mr. CARTER. Okay. Mr. Runcie, let me ask you. It appears that 

a lot of the problems that we see in the student loan industry is 

being laid at—the blame is being laid on the servicers. But aren’t 

you in charge of the servicers? I mean, don’t you have direct responsibility for that? 

Mr. RUNCIE. Certainly I have and we have direct responsibility 

for that. But again, you know, what we’re talking about are a number of findings, and they’re issues that we continue to address and 

we’ve done—and I think throughout the course of this testimony 

I’ve highlighted some things that we’ve done to address that. 


AKING-6430 with DISTILLER
109 

Mr. CARTER. But it seems to me all I’m seeing here is finger 

pointing. And, look, you know, this is a serious problem. Now, unlike my colleague, I’m not a Millennial, but I’m an employer. And 

I see students coming out—I’m a pharmacist. And I see pharmacy 

students coming out with $150,000, $200,000 in student debt. And 

I see them coming out and they tell me: Well, my goal is to have 

it paid off in 6 years. Six years. And that’s good if they can do that. 

But can you imagine? I mean, what are we doing? What are we 

doing to help with this situation? 

Mr. RUNCIE. Well, Congressman Carter, I think the overall statutory environment—you know, there are statutory limits. And some 

of those limits are high. We don’t control some of the policies that 

allow for students to get the types of debt that they sometimes 

incur. What we’ve tried to do is through GE, CDRs, and other accountability metrics make sure that institutions don’t prey upon 

students by loading them up with debt with no ability to get a job 

they couldn’t manage those debts. 

Mr. CARTER. And I understand that. But I’m a little bit frustrated by the finger pointing here, I’ll tell you. Ultimately the responsibility lies with you guys, and you have to make sure that the 

servicers are doing their part. 

Mr. RUNCIE. Absolutely. 

Mr. CARTER. Thank you, Madam Chair. I yield back. 

Ms. FOXX. Thank you, Mr. Carter. 

Mr. Clay, you’re recognized for 5 minutes. 

Mr. CLAY. Thank you, Madam Chair. And thank you all for being 

here today. 

This year President Obama issued an executive order that sets 

forth a student aid bill of rights. This included specific directives 

to agencies to increase protections for student loan borrowers. 

Mr. Runcie, can you briefly describe the specific rights the administration believes students should have. 

Mr. RUNCIE. Yes. So some of the principles, making sure that 

students have access to financial aid, that they are not harmed, 

and that, you know, we give them the tools to make sure that they 

can repay their obligations. Those are some of the general points. 

But under that there were certain specifics around making sure 

that there’s common branding, that students can make complaints. 

So we’re putting together a comprehensive complaint system so if 

students and borrowers have complaints we can log them, we can 

track them, and we can be responsive and use those to make sure 

that we make changes to benefit students and borrowers. So there’s 

a litany of different things that are in there. A lot of those will be 

probably addressed as we go through our recompete process and 

through some of the outreach that we plan on doing. 

Another thing was sort of transparency and providing awareness. 

And, you know, we’ve already had some targeted email campaigns 

with notifications to students and borrowers. So we’re looking to 

get more information out to them so that they can make better decisions. 

Mr. CLAY. And the administration has also proposed critical improvements to Federal student aid that requires statutory changes. 

And that means it’s up to Congress to act. For example, the adminVerDate Sep 11 2014 12:40 Jan 11, 2017 Jkt 000000 PO 00000 Frm 00115 Fmt 6633 Sfmt 6633 F:\22384.TXT APRIL

AKING-6430 with DISTILLER
110 

istration has proposed eliminating the tax liability for certain discharged student debt. 

Mr. Runcie, can you tell us why this proposal is important? 

Mr. RUNCIE. Yeah. It’s important because, you know, if we eliminate—depending on how much debt we’re talking about, it could be 

a substantial burden, economic burden. So, you know, let’s say, for 

instance, someone had a situation where they were falsely misled, 

took out loans, and eventually those loans were discharged. It 

would be very difficult to accept that someone would get a large tax 

bill, you know, after the fact. 

And so, you know, it’s important so that we can actually produce 

a real make hold. It wouldn’t be a real make hold if you had a 

large tax obligation at the end. 

Mr. CLAY. And statutory changes are required to implement this 

proposal. 

Mr. RUNCIE. Yes. That’s right. 

Mr. CLAY. And Congress has not enacted these changes yet. 

Have they? 

Mr. RUNCIE. No. Not as far as I know. 

Mr. CLAY. And the administration has also proposed statutory 

changes to create stronger protection for student and borrowers 

from the predatory practices of some student loan assistance companies. For example, some firms charge high fees for services that 

students can access for free from government Web sites. And, Mr. 

Runcie, Congress has not enacted these proposed changes to protect borrowers from such predatory practices. Has it? 

Mr. RUNCIE. No. 

Mr. CLAY. And so we must act too and protect these borrowers 

from some of these practices. You know, and I listen to my colleague, Mr. Carter, talk about what you all are doing. But I also 

realize too that at the State level budgets are strained, State budgets are strained, which means less money for these colleges. And 

it also means that they have to raise fees in order to sustain. 

And does anyone on the panel have any opinions about the actual cost of going to school now and what maybe we can do to kind 

of tamp that down? Mr. Miller. 

Mr. MILLER. Yeah, I mean, absolutely. That’s the biggest problem 

is that by the time FSA gets to the borrower, they’ve already 

picked up the loan and the underlying conditions have already occurred to put them in a bad spot. I mean, I think our biggest problem is right now, the Federal Government is handing out a lot of 

dollars, and it’s doing its part to help support higher education. It 

doesn’t demand anything from States or institutions about what it 

does. 

And so it says it’s okay to a State to say: We’re going to slash 

all our money and charge a maximum Pell recipient, the lowest income person in college, thousands of dollars. There are single moms 

out there who might be walking away with $57,000 in loan debt 

because ther’s nothing from the Federal Government to ask that 

schools and—I’m sorry. Schools, institutions, and States do their 

part. And it’s a problem. The Federal Government cannot unilaterally achieve affordability. 

Mr. CLAY. And the ultimate impact is that it puts college out of 

reach for low and moderate income students. 


AKING-6430 with DISTILLER
111 

Mr. MILLER. Correct. It puts it out of reach and it also makes it 

much riskier for the people who try it and it doesn’t work out. 

Mr. CLAY. Thank you. I yield back, Madam Chair. 

Ms. FOXX. Thank you very much. 

Mr. Curbelo, you’re recognized for 5 minutes. 

Mr. CURBELO. Thank you, Madam Chairman. And I thank both 

the committee chairmen and all the witnesses for this wonderful 

opportunity to discuss this important issue. I’ll just say briefly before my questions that we must do more to make sure that young 

people have all of the information they need to make rational 

choices before taking out a loan, before making a decision on what 

their path in higher ed should be. I get calls and I have encounters 

all the time with young people who are frustrated by this system 

and who are, quite frankly, trapped in this system. 

Ms. Emrey-Arras, I want to ask you, your testimony mentions 

FSA has not clarified how services should apply overpayments and 

underpayments—servicers, overpayments and underpayments to 

student loan balances. And FSA is now working with CFPB to establish a consistent approach to disseminate to servicers. But last 

month CFPB released a report saying servicers are not appropriately applying underpayments. Where do you see FSA’s responsibility for ensuring payments are applied correctly? 

Ms. EMREY-ARRAS. We believe that FSA needs to instruct 

servicers on how to officially apply underpayments and overpayments. They’re operating in a vacuum right now. Some do it one 

way, some do it another way. And borrowers are treated differently. So we think the responsibility lies on FSA to come up 

with consistent guidance to have it be one single program. 

Mr. CURBELO. Mr. Runcie, would you like to respond to that? 

Mr. RUNCIE. I agree with that. And what we want to do is if 

we’re going to make it uniform and create a standard, we want to 

make sure that we have best practices and the best information. 

So we’re working to make sure we get it right when we put it out 

there. 

Mr. CURBELO. Thank you. 

And, Mr. Runcie, I want to ask you about heightened cash monitoring. Could you discuss briefly what the standards are for putting 

institutions under this type of a program, either HCM1 or HCM2. 

And also what institutions can do to be removed from this status 

once it’s been applied by the Department? 

Mr. RUNCIE. Yeah. It varies. You know, they are put on for a 

number of reasons. But ultimately, you know, there’s a issue that 

needs to be resolved or potentially, you know, students and the 

Federal taxpayer may need to be protected. So it gives us an additional level of monitoring so we could actually monitor enrollment 

and cash flows and things like that. 

Mr. CURBELO. But what specifically can trigger that decision to 

go into an HCM1 or an HCM2? 

Mr. RUNCIE. It could be some financial—for instance, maybe 

there’s a delay with their financial statements. There’s an issue 

with issuing their financial statements that would trigger, you 

know, putting them on, you know, heightened cash monitoring. It 

could be something in a program review that comes out that we, 

you know, about the way they deal with, you know, return of Title 


AKING-6430 with DISTILLER
112 

IV. It could be a number of different things. And once it’s triggered, 

you know, there’s a heightened cash monitoring. 

Mr. CURBELO. So it’s probably fair to say that the Department 

has fairly broad discretion in terms of when to apply heightened 

cash management? 

Mr. RUNCIE. I think that’s right. 

Mr. CURBELO. Okay. By the way, Mr. Runcie, I’m not sure if 

you’re aware, but there’s a education leader by your last name in 

South Florida who is very well regarded in that community. 

Mr. RUNCIE. I won’t disassociate myself from my—he’s my borrower. 

Mr. CURBELO. Thank you very much for being here today. 

Madam Chair, I yield back. 

Ms. FOXX. Thank you very much. 

Mr. Courtney, you’re recognized for 5 minutes. 

Mr. COURTNEY. Thank you, Madam Chairman. And thank you to 

the witnesses. 

And Mr. Draeger, again, I always appreciate hearing your input. 

Your folks on the ground, you know, are really right there at the 

front trenches sort of dealing with this crisis of higher ed affordability. And the input, I think, is always really appreciated. 

I want to again just sort of underscore one point that you made 

which is that the FSA actually did a very good job in terms of implementing the direct student loan program. And I don’t think that 

for those who maybe don’t follow this stuff like a box score like 

some of us, I mean, that was a huge transformation of the student 

loan program where, again, we eliminated the loan origination 

wasteful spending that existed in the old system. 

And as Mr. Miller pointed out, the savings that was generated 

for that we were able to plow back into Pell to the tune of about 

I think it was $36 or $38 billion. And they actually did a pretty 

good job in terms of making that work. And, you know, I would just 

note that that didn’t happen, though, just because of FSA. It’s because Congress acted. We passed the Student Aid and Fiscal Responsibility Act as part of the budget reconciliation process with 

the Affordable Care Act. But we have to be a partner in terms of 

trying to help solve this problem. You know, the overhang of $1 

trillion of student loan debt which is being carried by college graduates right now is something that Congress can actually do something. 

When you look at the interest rates, these legacy loans that were 

written 10 years ago, 15 years ago in terms of the private student 

loans and compare them to what’s out there for consumer credit in 

terms of, you know, 30-year mortgages or credit cards, I mean, it’s 

outrageous that people are still repaying loans at six, seven, eight, 

sometimes nine and ten percent in the low interest environment 

that we’re in today. 

I just checked for SNCs this morning. The Treasury yield rate is 

2.16 percent. So the government, is only paying 2.16 percent to borrower. But it’s still receiving—government, you know, loans, public 

loans, at a far higher interest rate. 

We have a bill, H.R. 1484, the Bank on Students Emergency Student Loan Act which would allow people to refinance down their 

high interest rate loans to 3.8 percent. We have 184—excuse me, 


AKING-6430 with DISTILLER
113 

181 cosponsors in the House and yet the majority just refuses to 

move forward on this measure. And, yes, there will be a loss of revenue to the government in terms of allowing people to pay a lower 

rate of interest than what they’re paying right now. 

But I would argue that the purpose of the Stafford Student Loan 

Program was not to generate revenue to the Federal Government. 

And, frankly, that’s what the powers that be in the House are 

clinging to. And that’s why this bill so far, in any case, has not 

moved forward. 

But CBO has told us that it will save conservatively about 50 to 

$60 billion in repayment costs to people who are carrying these 

high interest loans. 

Mr. COURTNEY. And the Pew Research institute showed us the 

damage that’s doing to America’s society. People are delaying getting married. They are delaying having kids. They are delaying 

buying houses because they are carrying these high-interest rate 

rate loans which again, in every other sector of the economy, people 

can write down those kinds of rates. We do it with home mortgages. We do it with even credit cards. And yet, people are trapped 

in student loans. And Congress, frankly, has the key to open the 

door to fix that. 

So in any case, I’m going to get off my soapbox here a little bit 

because—again, I appreciate those comments on the direct student 

loan program. 

On gainful employment, I just want to make sure I understood. 

You seemed to suggest that after that back and forth which sounded pretty rough, that you sort of have found some equilibrium in 

terms of, you know, the reporting requirements? 

Mr. DRAEGER. Schools are finally—we’re finally given a tool 10 

weeks after the reporting deadline that allowed them to see whether there were any additional conflicting data. So after some of the 

back and forth with the Department, threats of administrative capability, schools were eventually given the tool to figure out whether they were in compliance. 

Mr. COURTNEY. Well, I’m glad to hear that. And again, I, you 

know, feel your pain because I know it was probably pretty onerous. But again, I would just sort of say from this side of the witness table, you know, when we are talking about Title IV which is 

I think $128 billion was the number that was tossed out there 

every year, I mean, frankly, I think the taxpayers should know 

that it is being used in a productive manner. And the gainful employment rules, in my opinion, are just, frankly, responsible governance in terms of saying that people who get benefit from this, 

which are some of these higher Ed institutions that are in the 

headlines today, they shouldn’t be part of the program. And the 

only way we are going to learn that is by having measurements, 

accountability which the gainful employment program was designed to do. 

So, you know, I thank your members for their, you know, persistence in terms of working that issue through. And with that I yield 

back, Madam Chairman. 

Ms. FOXX. Thank you very much. Mr. Connelly, you are recognized. 


AKING-6430 with DISTILLER
114 

Mr. CONNOLLY. Thank you, Madam Chairman. I thank you for 

being so gracious. Mr. Runcie, you are aware of the fact that we 

had a hearing yesterday on especially the deployment, or lack 

thereof, of IT in the Department of Education, especially with respect to student loans. 

Mr. RUNCIE. Yes, sir. 

Mr. CONNOLLY. And part of Ms. Tighe’s testimony involved the 

fact that some contractors, subcontractors with the Department did 

not allow her office access because they were afraid, given the fact 

that they had private clients as well as Department of Education 

clients, that the one could compromise the other. Well, okay, but 

we have got to be worried about the fact that a lot of our data involving the public sector is in their hands, and the IG has to have 

access to it, and frankly, so do you. Have you looked into that 

issue? 

Mr. RUNCIE. Yes, I was very much a part of that process. We 

did—— 

Mr. CONNOLLY. You don’t mean by that preventing Ms. Tighe 

from action? 

Mr. RUNCIE. No, no, no. Facilitating—— 

Mr. CONNOLLY. Right, right. 

Mr. RUNCIE. Trying to facilitate the process. As a matter of fact, 

Ms. Tighe, myself, the Department, OCIO, the prime, subcontractor, our contracting officer, we put a maximum amount of effort 

and pressure on both the prime and the subcontractor to get access 

to the information that the Inspector General required. 

Ultimately, we didn’t have a contractual mechanism to get, I 

guess in this particular instance, the contract between the prime 

and the sub. There were other issues too, in terms of the comprehensive nature of the user IDs that were provided or were not 

provided. So, you know, so at the end of the day, I was just as disappointed as I think the Inspector General was, but we didn’t have 

a vehicle to make them provide us the information. 

Mr. CONNOLLY. Well, let me just say, there needs to be a contractual vehicle. I’m sorry, Ms. Tighe. 

Ms. TIGHE. Yes, I think the vehicle is a contractual vehicle that 

would allow audit access. I mean, the real part of the problem, 

maybe even more than our access, is the Department, or FSA has 

a contractor operating in a major system and it has absolutely no 

visibility into the IT security of that system. That’s the problem. 

Mr. CONNOLLY. I think that you’re absolutely right, Ms. Tighe, 

and that’s the problem, Mr. Runcie. God forbid, but the data on 58 

million folks who have student loans or had student loans, let’s, in 

theory, say in the hands of the private sector, and they don’t allow 

us access to it, and that gets compromised, you know, that’s more 

than an uncomfortable position for you and your colleagues. And so 

that’s why this is important. It’s not just something nice to do, or 

following protocol. It’s essential if we are going to ensure that we 

have security with respect to our database, our database. So I 

think that’s got to be addressed. 

One final question. Also what came up yesterday was the history 

of why FSA is a PBO because we had a lot of frustration over why 

can’t you access this, and why can’t you access that for the CIO. 

Well, because Congress by statute created FSA as a PBO. Are we 


AKING-6430 with DISTILLER
115 

going to take a fresh look at that as to whether that still makes 

sense, that’s 1997 legislation, and Madam Chairman, once Mr. 

Runcie answers, I will, as promised, yield back. 

Mr. RUNCIE. So the FITARA, and the PBO, they are not mutually exclusive. All right, so the Department-level OCIO can have 

visibility, a level of control, and you know, be a part of the investment management and project management process that we have 

for our IT infrastructure. We have worked with the Department 

CIO and put together a plan that was submitted to OMB where he 

would have exactly that. And I’m not sure what the status is, but 

my understanding is it is close to being approved. That will not undermine our flexibility as a PBO. 

I think as a PBO, given all the changes both regulatory, statutory, and administrative initiatives, we need the flexibilities to be 

able to respond to all of those changes within short windows. But 

it does not exclude FITARA. 

Mr. CONNOLLY. It better not. 

Mr. RUNCIE. I hear you loud and clear. 

Ms. FOXX. The gentleman yields back. 

Mr. CONNOLLY. I do. 

Ms. FOXX. Thank you. It is now my turn. And as I indicated at 

the beginning of this to a couple of our witnesses, there’s so much 

that we need to get out and so little time. 

Mr. Runcie, I just want to be clear on something that has been 

said and alluded to. Ms. Tighe indicated that one of the things that 

can be done is that we not allow students to borrow more money 

than they actually need for their college. However, it’s my understanding that institutions aren’t allowed to stop students from borrowing money they don’t need, and if they try to stop them, or take 

too much time trying to counsel them, the school hears about it 

from you, and tells them to stop doing that. Is that correct? 

Mr. RUNCIE. Well, I mean, there are statutory limits and what 

the student is eligible for, you know, there is an eligibility amount 

that they receive. And if they want to, my understanding is if they 

want to use that full amount, you know, in most cases they will 

have access to it. There is this concept of professional judgment, 

but that’s very specific, and it doesn’t address the issue that the 

institutions face, what we’re constrained with from our regulatory 

framework. 

Ms. FOXX. Well, I have heard that from financial aid folks myself 

that they feel very constrained to be able to give that advice to students. 

Mr. Draeger, in your testimony, you discussed the troubling rollout of gainful employment reporting requirements and how schools 

did not have the necessary guidance in order to properly report 

their data. Even though FSA acknowledged they didn’t deliver 

guidance in an appropriate timeframe, they did not provide any 

deadline extensions to schools trying to catch up. You said schools 

are now starting to get responses, but do you have any explanation 

for why they haven’t until now? Have they all heard back and been 

removed from a limbo not of their own making? 

Mr. DRAEGER. It’s after letters have gone out to these schools accusing them of noncompliance even though it looked to be just data 

conflicts. It’s not clear to us that any widespread communication 


AKING-6430 with DISTILLER
116 

has gone back from FSA to schools letting them know that everything is in the clear. I understand that as of last night, some communications were going back out to these schools saying that they 

had satisfied the data conflict requirements. 

Ms. FOXX. You think the fact that we were having this hearing 

today might have had anything to do with the fact that they got 

an answer last night at 7 p.m.? 

Mr. DRAEGER. I think it makes a strong case that accountability 

is needed outside of FSA’s own self-assessments. 

Ms. FOXX. Well, I would tend to agree with you. 

Mr. Runcie, the FSA is charged with enforcing reporting requirements and timely monitoring of institutions. You say that you have 

facts and we are just looking at isolated incidents. But there’s one 

case where you took 7 years to complete a program review for 

which no fines were imposed for an additional 2 years. Then you 

imposed a fine of $10,000 for a mistake by a school in categorizing 

a burglary as a larceny. Based on these examples alone, it’s clear 

to me that it’s unacceptable for an organization that has such vast 

responsibility to make such arbitrary decisions. 

I have some questions I’m going to submit to you because we 

have so little time today, and I will be expecting a very prompt response from you. 

Ms. FOXX. But I think that based on the 35 outstanding recommendations from the IG, multiple findings of deficiencies by 

GAO, combined with the egregious insufficiencies we have heard 

today, I’m extremely concerned about FSA’s ability to serve students, borrowers, and taxpayers as well. And you have been given 

the high honor, in my opinion, of being a performance-based organization, and you have not lived up to that right that has been 

given to you. 

And I would suggest to you that if you come to us and say, you 

need more money to grow your infrastructure, that before you ask 

for more money, you’d better show this Congress that you have 

made some progress in straightening out your operation. Because 

we expect students—you also said there have been no negative impact to students and families and comment, after comment, after 

comment in this room and in reports have shown negative impact. 

You get my ire up and the ire of a lot of members when you start 

messing with our constituents. 

Thank you, I yield back. 

Mr. Jeffries, you are recognized for 5 minutes. 

Mr. JEFFRIES. Thank you, Madam Chair. Mr. Runcie, you testified earlier today, I believe, that there were approximately $2 billion in improper financial aid payments. Is that correct? 

Mr. RUNCIE. Yeah, the improper payment calculation yielded 

about $2 billion, but there weren’t $2 billion in payments. It was 

an estimation. 

Mr. JEFFRIES. And is that an estimation on an annual basis or 

is that an aggregate? 

Mr. RUNCIE. That’s an annual basis, or it was for 2015. 

Mr. JEFFRIES. Can you explain the general nature of these improper payments, or improper allocations? 

Mr. RUNCIE. Yeah, so first of all, a third of the improper payments could be—they could be underpayments, as well. So it’s just 


AKING-6430 with DISTILLER
117 

that it’s not accurate. Right? So, for instance, you know, if the information that was put in a FAFSA form was wrong, and so a student received more or less, you know, in the financial package, that 

would be considered an improper payment. Right? So there are instances like that, and so, you know, when we use a methodology 

to try to figure out how much of that is out there, we come up with 

the $2 billion. 

Mr. JEFFRIES. Now, what if any corrective actions have you taken 

to sort of address this improper payment situation? 

Mr. RUNCIE. Well, well, we have taken some of the recommendations from the IG and GAO in terms of putting in systems, edits. 

We have verification procedures that we put out there. So there 

have been a number of things that have helped the income. The 

IRS data retrieval has increased our ability to address improper 

payments because there’s less error for inaccuracy, less room for inaccuracy, so there’s some things that we have done to try to address that. 

Mr. JEFFRIES. Now, Ms. Tighe, you noted in your testimony, I believe, that there was an increasing risk of people attempting to 

fraudulently obtain Federal Student Aid in the context of distance 

education programs. Is that correct? 

Ms. TIGHE. That’s correct. 

Mr. JEFFRIES. And a distance education program would be one 

where activities is conducted either exclusively or primarily over 

the Internet. Is that right? 

Ms. TIGHE. Yes, that’s right. 

Mr. JEFFRIES. In your view, what makes these particular programs susceptible to an increased risk of fraud? 

Ms. TIGHE. Well, because all of the transactions are done online. 

And so you don’t know that the person who has signed up for classes and applied for Federal Student Aid is intending—they can misrepresent income. They can misrepresent their identity. They can 

misrepresent their graduation status from high school, and there’s 

really no other way to check that unless you go through some other 

more unusual verification processes with the students. 

But you have the ability—fraudsters do, of either borrowing, or 

stealing identities, signing up for class, applying for Federal student aid, getting disbursements of aid, and then walking away. 

Mr. JEFFRIES. Are there any steps that you would recommend 

that Congress take or consider in combating this fraud problem? 

Ms. TIGHE. I think a couple of recommendations I would address 

to you; one I talked about earlier which relates to cost of attendance. Do we need to have the same amount of money disbursed in 

distance Ed programs which typically are, you know, working parents sitting at home, already own a house, and you are not attending a brick-and-mortar school. Costs may be different. 

The second is, do we need to disburse the money at the beginning of a semester term all at once? Can we do it over the course 

of a semester or some other term? And that makes the fraud less 

likely to happen if there is less money up front to get. 

Mr. JEFFRIES. And lastly, I think you also expressed concern with 

the sort of sudden school closure phenomenon. Is that right? 

Ms. TIGHE. Yeah, we did an inspection a few years ago to look 

at, essentially, at FSA’s readiness to deal with school closures. 


AKING-6430 with DISTILLER
118 

Mr. JEFFRIES. And what if any steps, I guess the Corinthian College example would be—— 

Ms. TIGHE. Yeah. 

Mr. JEFFRIES. —a prominent case of the consequences of a sudden school closure both on the student side and on the taxpayer 

side. You know, is there anything that you would recommend that 

Congress do in strengthening our ability to address this situation? 

Ms. TIGHE. Well, I don’t know. I mean, I think FSA, our inspection certainly pointed to some areas that they needed to work on. 

They had a group sort of that I think Mr. Runcie mentioned, this 

publicly traded large school working group that was supposed to be 

keeping abreast of these issues. It hadn’t met in the 3 years before 

it was created and then didn’t meet regularly for 3 years. They 

need to do a better job of gathering financial information, and particularly from outside sources, and not just within FSA. I think for 

Congress, I would have to think about that. 

Mr. JEFFRIES. Thank you, Madam Chair. I yield back. 

Ms. FOXX. Thank you very much. Mr. Hinojosa, you are recognized for any brief closing comments you would like to make. 

Mr. HINOJOSA. Thank you very much, Chairman Foxx. I want to 

make a statement and then a closing remark. 

The congressional intent was for FSA to use best business practices and the members of both of these committees have intended 

to listen and learn to see how we can address the poor performance 

of servicers. And being that the servicers failed in their performance, why didn’t FSA replace the prime contractor Accenture, and 

the subcontractor, TSYS. I am going to request, respectfully request, that Mr. Runcie, and Mrs. Tighe give members of these two 

committees in writing, within 30 days, why the servicers’ contracts 

were not canceled, and new servicers given the Federal contract, 

just like we do in business. 

Mr. HINOJOSA. I was president of a large company and I remember having contracts with the Department of Defense to supply 

food for them. And many who did not meet the requirements were 

removed and a new provider given the contract. 

It seems to me that something as big as we are talking about 

here with $1 trillion in debt, and the amounts that were taken by 

the savings of getting rid of the middleman that were the lenders 

of student college loans and replaced by the Federal Government, 

where I, as chairman, was told that over a 10-year period we would 

save $96 billion, and with that, we took apart and put it into Pell 

grants. It seems to me that that should have been an action that 

should have been taken immediately, not to wait for us to have this 

kind of a hearing and see the weaknesses of the performance and 

that those people were not removed immediately. 

So in closing, let me say that I want to thank our distinguished 

panel for being here this morning. Today we heard those concerns, 

but we must not forget that it plays a vitally important role in expanding college access and affordability. 

Moving forward, I’m confident that FSA will continue to 

strengthen its management systems and performance in order to 

best serve our student borrowers. And with that I yield back, 

Madam Chair. 


AKING-6430 with DISTILLER
119 

Ms. FOXX. Thank you very much. Mr. Meadows, I would like to 

recognize you for closing comments. 

Mr. MEADOWS. Thank you, Madam Chair, and thank you for your 

leadership on a number of areas that relate to higher education. 

It’s certainly not only this hearing, but it’s been recognized time 

and time again, your commitment to students, and as you so accurately put it, our constituents. So I thank you for your leadership. 

Instead of doing a closing statement, I’m going to hopefully ask 

for a few things to clarify and wrap up some of this without going 

into a second line of questioning. But one of the big areas that we 

did not address that Ms. Tighe was a part of yesterday, was the 

whole cyber aspect because we had Dr. Harris here yesterday. And 

one of the questions that came up during that particular hearing 

made the potential liability from a cyber standpoint just frightening, Mr. Runcie. And when we asked Dr. Harris about some of 

the dashboard things that are on the—what the Issa-Connolly bill, 

or as Mr. Connolly would put it, the Connolly-Issa bill, it’s—as we 

look at that particular issue, Dr. Harris couldn’t answer one thing 

and he said that he didn’t know, that we would have to ask FSA. 

And so you’re here today so I’m going to ask you very quickly. 

Can you explain to these committees why there is no PIV cards 

to protect from an encryption standpoint to protect this some 139 

million Social Security, unique Social Security numbers that are 

there; why the very basic of encryption is not employed? Because 

as your Chief Information Officer, he couldn’t answer it. So can you 

answer that? 

Mr. RUNCIE. Yeah. Dr. Harris is the Department’s CIO. We have 

our own separate CIO who has 30 years—— 

Mr. MEADOWS. But he said this was your call. 

Mr. RUNCIE. Oh. 

Mr. MEADOWS. He couldn’t even look. That’s the reason I’m asking you is because he said he couldn’t look behind the curtain; that 

you’re the only one that could look behind the curtain, so I’m asking you. 

Mr. RUNCIE. So we’ve had two-factor authentication for some 

time. Right? It was level 3. 

Mr. MEADOWS. Yeah, but you went backwards. I was here yesterday. I don’t want to get into all of that. I guess let me ask you this 

question more specifically. When can we count on PIV cards being 

there, the basic encryption to protect all of these student’s Social 

Security numbers? When can we count on that from your agency? 

Mr. RUNCIE. By second quarter. 

Mr. MEADOWS. Okay, by second quarter of next year? I mean, 

let’s make sure that we’re talking about—I mean, second quarter 

10 years from now is a tough—— 

Mr. RUNCIE. Our target is the end of December, but there may 

be some constraints that move us into the next quarter. So that’s 

why I meant that quarter. 

Mr. MEADOWS. All right. 

Mr. RUNCIE. January through March. 

Mr. MEADOWS. All right, so in two quarters you will have it done. 

All right. So let me go to one other thing that a lot of people were 

excited about, this whole REPAY thing that here in just a few 

weeks, I guess, is going to be there. 


AKING-6430 with DISTILLER
120 

Do all the service providers, do they have what they need to 

make the best decisions and all of that, and to implement that, the 

contractors? 

Mr. RUNCIE. Yes. 

Mr. MEADOWS. And so you have been working on that as I understand for a while. Is that correct? 

Mr. RUNCIE. Yes, REPAY, the delivery of REPAY. Yeah. 

Mr. MEADOWS. And so dating back as far as as, I guess, from my 

records it showed that you had a proposed rule draft change contract change that went out in May of 2015, is that correct? 

Mr. RUNCIE. That sounds right. 

Mr. MEADOWS. And then a final contract change that went out 

in July of this year? 

Mr. RUNCIE. I believe that’s right. 

Mr. MEADOWS. And so I’m a little confused, so help me with this. 

And I don’t understand the process. But since the Secretary just 

put out the final rule on October the 30th, how did you send out 

those contract changes before a final rule was complete? I mean, 

was it just that we assumed that it was going to not change? 

Mr. RUNCIE. I know that we provided guidance. Because of the 

window that we are talking about, it’s obviously a tight timeframe, 

so if we waited until the last minute to give any sort of guidance 

or instruction—— 

Mr. MEADOWS. Well, but these aren’t—these are contract changes 

which is a lot difference than guidance and so are you assuming 

that the rule that just became final was going to be the final rule? 

Because on October 30, the final rule, it wasn’t exactly like the proposed rule. It actually changed. 

Mr. RUNCIE. I will have to get back to you with a timeline. 

Mr. MEADOWS. It sounds like we’ve got things backwards. 

Mr. RUNCIE. Yeah, I can confirm the time line and get that back 

to you. 

Mr. MEADOWS. I yield back. I thank the chairwoman for her patience. 

Ms. FOXX. Thank you very much. This has been a very interesting hearing to me, a very revelatory hearing, and I want to 

thank Mr. Meadows for co-chairing this. And I want to thank the 

OGR staff and our staff for putting the hearing together. 

There are a couple of things that have come up here that I think 

are important to point out. One is the issue of complexity. You 

know, I have been around in the Federal Government business for 

a long time. I was the director of an upward bound special services 

program at Appalachian State University. We dealt with financial 

aid, and very concerned, again, about what our students, what our 

students were getting in financial aid. 

When we talked today about FSA’s management of our broken 

financial aid system, I think it’s important to remember that in 

1990 there was only one forbearance option, and two repayment 

plans. In 2015, we have 13 forbearance options, 15 repayment 

plans, and the all new forgiveness programs. 

It’s clear, and Mr. Runcie, this is one area you and I agree on, 

you mentioned you have tremendous complexity to deal with. It’s 

clear we have allowed the system to become far too complex to 

serve students well. I believe it is the life of bureaucrats to make 


AKING-6430 with DISTILLER
121 

things complex. I think this administration has made things way 

too complex. And I think it’s going to be up to us to look for ways 

to make the system less complex because it is clear, FSA cannot 

administer this program. And if you cannot administer the program, your servicers cannot administer. 

And I agree with Mr. Carter. It appears that there is a lot of 

blame being foisted upon the servicers. That’s not where the problem is, Mr. Runcie. The problem is with the leadership of the FSA. 

If you gave clear guidelines to the servicers, if you did things in 

a timely fashion, we would not have this problem. And even the 

complexity you have generated could be gotten through. And 

there’s no benefit to the servicers to not explain things fully to students. I have inquired about that. The only problem is, they don’t 

have the guidance from you to be able to do it. And it’s so complex 

even financial aid administrators don’t understand it. That’s not 

the way it should be. It’s not the way it should be. 

Again, you are harming the people you are supposed to be helping. And that has to stop. Again, I thank all of you for being here 

today. I thank you for revealing a lot of things that I think will be 

useful to us as we look to the reauthorization of the HEA and I appreciate the time that you’ve given us. This hearing is adjourned. 

[Whereupon, at 11:36 a.m., the subcommittees were adjourned.] 


AKING-6430 with DISTILLER

AKING-6430 with DISTILLER
(123) 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD


AKING-6430 with DISTILLER
124 


AKING-6430 with DISTILLERInsert offset folio 74 here 22384.074
125 


AKING-6430 with DISTILLERInsert offset folio 75 here 22384.075
126 


AKING-6430 with DISTILLERInsert offset folio 76 here 22384.076
127 


AKING-6430 with DISTILLERInsert offset folio 77 here 22384.077
128 


AKING-6430 with DISTILLERInsert offset folio 78 here 22384.078
129 


AKING-6430 with DISTILLERInsert offset folio 79 here 22384.079
130 


AKING-6430 with DISTILLERInsert offset folio 80 here 22384.080
131 


AKING-6430 with DISTILLERInsert offset folio 81 here 22384.081
132 


AKING-6430 with DISTILLERInsert offset folio 82 here 22384.082
133 


AKING-6430 with DISTILLERInsert offset folio 83 here 22384.083
134 


AKING-6430 with DISTILLERInsert offset folio 84 here 22384.084
135 


AKING-6430 with DISTILLERInsert offset folio 85 here 22384.085
136 


AKING-6430 with DISTILLERInsert offset folio 86 here 22384.086
137 


AKING-6430 with DISTILLERInsert offset folio 87 here 22384.087
138 


AKING-6430 with DISTILLERInsert offset folio 88 here 22384.088
139 


AKING-6430 with DISTILLERInsert offset folio 89 here 22384.089
140 


AKING-6430 with DISTILLERInsert offset folio 90 here 22384.090
141 


AKING-6430 with DISTILLERInsert offset folio 91 here 22384.091
142 


AKING-6430 with DISTILLERInsert offset folio 92 here 22384.092
143 


AKING-6430 with DISTILLERInsert offset folio 93 here 22384.093
144 


AKING-6430 with DISTILLERInsert offset folio 94 here 22384.094
145 


AKING-6430 with DISTILLERInsert offset folio 95 here 22384.095
146 


AKING-6430 with DISTILLERInsert offset folio 96 here 22384.096
147 


AKING-6430 with DISTILLERInsert offset folio 97 here 22384.097
148 


AKING-6430 with DISTILLERInsert offset folio 98 here 22384.098
149 


AKING-6430 with DISTILLERInsert offset folio 99 here 22384.099
150 


AKING-6430 with DISTILLERInsert offset folio 100 here 22384.100
151 


AKING-6430 with DISTILLERInsert offset folio 101 here 22384.101
152 


AKING-6430 with DISTILLERInsert offset folio 102 here 22384.102
153 


AKING-6430 with DISTILLERInsert offset folio 103 here 22384.103
154 


AKING-6430 with DISTILLERInsert offset folio 104 here 22384.104
155 


AKING-6430 with DISTILLERInsert offset folio 105 here 22384.105
156 


AKING-6430 with DISTILLERInsert offset folio 106 here 22384.106
157 


AKING-6430 with DISTILLERInsert offset folio 107 here 22384.107
158 


AKING-6430 with DISTILLERInsert offset folio 108 here 22384.108
159 


AKING-6430 with DISTILLERInsert offset folio 109 here 22384.109
160 


AKING-6430 with DISTILLERInsert offset folio 110 here 22384.110
161 


AKING-6430 with DISTILLERInsert offset folio 111 here 22384.111
162 


AKING-6430 with DISTILLERInsert offset folio 112 here 22384.112
163 


AKING-6430 with DISTILLERInsert offset folio 113 here 22384.113
164 


AKING-6430 with DISTILLERInsert offset folio 114 here 22384.114
165 


AKING-6430 with DISTILLERInsert offset folio 115 here 22384.115
166 


AKING-6430 with DISTILLERInsert offset folio 116 here 22384.116
167 


AKING-6430 with DISTILLERInsert offset folio 117 here 22384.117
168 


AKING-6430 with DISTILLERInsert offset folio 118 here 22384.118
169 


AKING-6430 with DISTILLERInsert offset folio 119 here 22384.119
170 


AKING-6430 with DISTILLERInsert offset folio 120 here 22384.120
171 


AKING-6430 with DISTILLERInsert offset folio 121 here 22384.121
172 


AKING-6430 with DISTILLERInsert offset folio 122 here 22384.122
173 


AKING-6430 with DISTILLERInsert offset folio 123 here 22384.123
174 


AKING-6430 with DISTILLERInsert offset folio 124 here 22384.124
175 


AKING-6430 with DISTILLERInsert offset folio 125 here 22384.125
176 


AKING-6430 with DISTILLERInsert offset folio 126 here 22384.126
177 


AKING-6430 with DISTILLERInsert offset folio 127 here 22384.127
178 


AKING-6430 with DISTILLERInsert offset folio 128 here 22384.128
179 


AKING-6430 with DISTILLERInsert offset folio 129 here 22384.129
180 


AKING-6430 with DISTILLERInsert offset folio 130 here 22384.130
181 


AKING-6430 with DISTILLERInsert offset folio 131 here 22384.131
182 


AKING-6430 with DISTILLERInsert offset folio 132 here 22384.132
183 


AKING-6430 with DISTILLERInsert offset folio 133 here 22384.133
184 


AKING-6430 with DISTILLERInsert offset folio 134 here 22384.134
185 


AKING-6430 with DISTILLERInsert offset folio 135 here 22384.135
186 


AKING-6430 with DISTILLERInsert offset folio 136 here 22384.136
187 


AKING-6430 with DISTILLERInsert offset folio 137 here 22384.137
188 


AKING-6430 with DISTILLERInsert offset folio 138 here 22384.138
189 


AKING-6430 with DISTILLERInsert offset folio 139 here 22384.139
190 


AKING-6430 with DISTILLERInsert offset folio 140 here 22384.140
191 


AKING-6430 with DISTILLERInsert offset folio 141 here 22384.141
192 


AKING-6430 with DISTILLERInsert offset folio 142 here 22384.142
193 


AKING-6430 with DISTILLERInsert offset folio 143 here 22384.143
194 


AKING-6430 with DISTILLERInsert offset folio 144 here 22384.144
195 


AKING-6430 with DISTILLERInsert offset folio 145 here 22384.145
196 


AKING-6430 with DISTILLERInsert offset folio 146 here 22384.146
197 


AKING-6430 with DISTILLERInsert offset folio 147 here 22384.147
198 


AKING-6430 with DISTILLERInsert offset folio 148 here 22384.148
199 


AKING-6430 with DISTILLERInsert offset folio 149 here 22384.149
200 


AKING-6430 with DISTILLERInsert offset folio 150 here 22384.150
201 


AKING-6430 with DISTILLERInsert offset folio 151 here 22384.151
202 


AKING-6430 with DISTILLERInsert offset folio 152 here 22384.152
203 


AKING-6430 with DISTILLERInsert offset folio 153 here 22384.153
204 


AKING-6430 with DISTILLERInsert offset folio 154 here 22384.154
205 


AKING-6430 with DISTILLERInsert offset folio 155 here 22384.155
206 


AKING-6430 with DISTILLERInsert offset folio 156 here 22384.156
207 


AKING-6430 with DISTILLERInsert offset folio 157 here 22384.157
208 

Æ 


AKING-6430 with DISTILLERInsert offset folio 158 here 22384.158