Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

1

U.S. DEPARTMENT OF EDUCATION (ED)

 OFFICE OF POST SECONDARY EDUCATION 

Transcription for Negotiated Rulemaking Sessions 

and Public Hearings 2012

Deliverable 4: Transcription of Public Hearing held 

in the 8th Floor Conference Room located at 1990 K 

Street N.W., Washington, D.C. on May 31, 2012

The public hearings began as noticed in the 

Federal Register at 9:00 a.m.
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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PRESENT

EDUARDO OCHOA, Assistant Secretary for 

Postsecondary Education

LYNN MAHAFFIE, Senior Director for Policy 

Coordination, Development and 

Accreditation Services

DAVID BERGERON, Deputy Assistant Secretary 

for Policy, Planning and Innovation

RON SANN, Office of General Counsel

AJITA TALWALKER, Office of the Under 

Secretary
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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ALSO PRESENT

CYNTHIA LITTLEFIELD, Association of Jesuit 

Colleges and Universities

ANGELIA MILLENDER, Broward College

MARK SARVER, eduKan

MEGAN MCCLEAN, National Association of 

Student Financial Aid Administrators

VICKIE SCHRAY, Bridgepoint Education

JOAN ZANDERS, Northern Virginia Community 

College

RICH WILLIAMS, United States Public Interest 

Research Group

LAUREN SAUNDERS, National Consumer Law 

Center

WES HUFFMAN, Coalition of Higher Education 

Assistance Organizations

DANIEL TOUGHEY, TouchNet Information System

ERIC RODRIGUEZ, Nelnet Business Solutions

ARNIE MILES, Georgetown University

JOHN SUESS, University of Maryland-Baltimore

County

ROBERT BARBIERI, Higher One

CHRISTINE MULLINS, Instructional Technology 

Council

CHRISTOPHER MULLIN, American Association of 

Community Colleges

MAUREEN BUDETTI, National Association of 

Independent Colleges and Universities
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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CONTENTS

Asst. Secretary Ochoa

Welcome and Introduction ............. 4

Cyndy Littlefield, Association of Jesuit

Colleges and Universities ............ 9

Angelia Millender, Broward College ........ 21

Mark Sarver, EduKan ....................... 29

Megan McClean, National Association of 

Student Financial Aid Administrators 35

Vickie Schray, Bridgepoint Education ...... 42

Joan Zanders, Northern Virginia Community 

College ............................. 51

Rich Williams, United States Public Interest 

Research Group ...................... 72

Lauren Saunders, National Consumer Law

Center .............................. 84

Wes Huffman, Coalition of Higher Education 

Assistance Organizations ............ 91

Daniel Toughey, TouchNet Information

System .............................. 96

Eric Rodriguez, Nelnet Business

Solutions .......................... 108

Arnie Miles, Georgetown University ....... 125

John Suess, University of Maryland-Baltimore

County ............................. 131

Robert Barbieri, Higher One .............. 140

Christine Mullins, Instructional Technology 

Council ............................ 148

CONTENTS(Cont'd)
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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Christopher Mullin, American Association of 

Community Colleges................. 155

Maureen Budetti, National Association of 

Independent Colleges and Universities ... 160

Daniel Toughey, TouchNet

Information System ...................... 165
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 P-R-O-C-E-E-D-I-N-G-S

2 9:06 a.m.

3 ASST. SEC. OCHOA: Good morning of 

4 behalf of the U.S. Department of Education, I 

5 welcome you to this public hearing. We 

6 appreciate your interest and the time that 

7 you're taking to share your thoughts and 

8 recommendations with us.

9 Let me take a moment to introduce my 

10 colleagues here with me.

11 David Bergeron, Deputy Assistant 

12 Secretary for Policy Planning and innovation, 

13 and Ron Sann, an attorney from our Office of 

14 General Counsel.

15 As you know, we published a notice 

16 in the Federal Register expressing our intent 

17 to convene a committee to develop regulations 

18 designed to prevent fraud in the Title IV 

19 programs, especially in light of the 

20 ever-changing and advancing technology.

21 Our intent is to ensure that Title 

22 IV funds are used properly and are, in fact, 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 provided to eligible individuals for their 

2 legitimate postsecondary pursuits. This 

3 hearing is the first step in that process.

4 The Department held a similar 

5 hearing last week on May 23rd in Arizona. 

6 We're also accepting written comments through 

7 our electronic system, and if you have actually 

8 hard copies of those comments and you wish to 

9 leave them with our staff outside the room, 

10 you're welcome to do so as well.

11 In September of 2011, the Office of 

12 Inspector General issued the Department an 

13 investigative program advisory report 

14 outlining concerns about fraud in distance 

15 education programs. 

16 As a result, the Department issued 

17 a Dear Colleague letter, GEN-11-17, alerting 

18 institutions to the issue and providing 

19 guidance to assist in addressing it.

20 Since the OIG's report was 

21 released, we have established an internal task 

22 force to take a closer look at the issue, 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 presented the topic at several conferences, 

2 including the most recent federal student aid 

3 conference, and now are taking steps to look at 

4 longer-term solutions.

5 In that context, regulatory changes 

6 may be appropriate. Along with the issue of 

7 fraud in the Title IV programs, we are 

8 interested in looking at potential issues 

9 around the use of debit cards and other 

10 mechanisms for disbursing federal student aid 

11 funds and improving and streamlining the 

12 campus-based programs.

13 It's important to remember that 

14 these regulations are being developed in the 

15 context of current law. We can't change the 

16 Higher Education Act through our regulations, 

17 so some issues, such as the allocation formula 

18 for the campus-based programs, are not on the 

19 table.

20 That should not constrain anyone's 

21 comments, but please recognize this important 

22 limitation on our actions. The purpose of this 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 hearing is for us to hear from you. We will not 

2 engage in a lot of dialogue or address questions 

3 about what issues may or may not be part of an 

4 eventual negotiating session.

5 We will use the information 

6 provided to us at these hearings, as well as any 

7 written comments we receive, to inform our next 

8 negotiated rulemaking process. 

9 We expect to announce the next round 

10 of negotiated rulemaking during the summer 

11 through a notice in the Federal Register that 

12 will specify the subject matter for 

13 negotiations and will request nominations for 

14 negotiators.

15 Thank you again for being here. 

16 And we will begin with our first presenter, who 

17 is Cyndy Littlefield from the Association of 

18 Jesuit Colleges and Universities.

19 MS. LITTLEFIELD: Good morning, 

20 everyone. It's always such an honor to kick 

21 off these sessions.

22 First of all, I want to say to Dr. 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 Ochoa, thank you for your years of service. We 

2 understand you will be leaving us soon, so on 

3 behalf of the Higher Ed community, I want to 

4 thank you for all of your assistance and 

5 availability that you have made to all of us in 

6 higher education. So we wish you well, going 

7 back to California, I understand.

8 Good morning, everyone. I am 

9 Cynthia Littlefield, Director of Federal 

10 Relations of the Association of Jesuit Colleges 

11 and Universities. In this capacity, I have the 

12 honor of representing all of the 28 Jesuit 

13 campuses in the United States. 

14 AJCU is also affiliated with 100 

15 international Jesuit institutions, some of 

16 which were founded in the 1500s, I might add.

17 I speak today in response to the 

18 inquiry by the Department of Education on three 

19 areas: distance education and potential fraud 

20 and abuse; the use of electronic fund 

21 transfers; and the potential of negotiating 

22 on-campus-based aid programs for purposes of 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 meeting the President's executive order, 

2 13563, improving regulation and regulatory 

3 review. 

4 We appreciate the opportunity to 

5 have this dialogue today.

6 In the area of distance education, 

7 AJCU founded Jesuit Net, our distance education 

8 consortium, over 12 years ago, amongst our 

9 Jesuit institutions, and we developed our own 

10 competency-based distance education component 

11 for all of our distance education courses.

12 To date, there are approximately 

13 400 programs online, with many of our Jesuit 

14 institutions also developing their own 

15 distance education programs while utilizing 

16 our competency-based distance education 

17 program, which has been acknowledged by the 

18 Department of Education.

19 Since the Jesuit institutions are 

20 heavily engaged in distance education, any 

21 discussion on future regulatory action 

22 regarding distance education is of concern. 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 Also, it is exacerbated because of the 

2 soon-to-be requirement of state authorization 

3 on distance education.

4 There is a cause and effect on the 

5 cost of that regulation alone, which according 

6 to Regis University, is costing anywhere 

7 between $125,000 to $150,000 to be distance 

8 education authorized in all states in the 

9 Union.

10 In consultation with our Jesuit 

11 institutions, we asked if they were aware of any 

12 potential fraud or abuse that could have 

13 occurred in this area of distance education. 

14 None of our institutions offered that there 

15 were any concerns over fraud and abuse.

16 Two of our institutions expressed a 

17 new trend of graduate students taking out a 

18 heavy amount of loan volume. One institution 

19 noted that 15 students dropped out of school 

20 soon after they registered. 

21 To rectify that problem, that 

22 institution is now delaying disbursements 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 about two weeks, so the student can solidify the 

2 beginning of their online work. In this way, 

3 the serious students will be staying, and that 

4 is one way to augment this potential concern in 

5 prevention of fraud.

6 Another one of our institutions 

7 proffered the following, that federal student 

8 loans, between the Stafford and Grad PLUS loans 

9 for grad students, can cover assumed tuition 

10 and fees plus a reasonable allowance for room, 

11 board, books, transportation, and 

12 miscellaneous personal expenses.

13 It is left to the school's 

14 discretion to define what is reasonable. Many 

15 people are troubled if they see working adults, 

16 many with potential good salaries, borrowing to 

17 the cost of attendance figure for distance ed 

18 online programs.

19 And so that is a developing trend

20 amongst two of our institutions, but certainly 

21 not amongst the others.

22 From time to time, there's been 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 national articles that indicate potential 

2 quality issues with some distance education 

3 courses. At our Jesuit institutions, quality 

4 is certainly equitable with the delivery of our 

5 traditional-based education courses in person 

6 on our campuses. And any new regulations to 

7 weed out faulty abuse by other higher education 

8 entities will also impact those institutions 

9 who deliver quality distance education, much 

10 like the gainful employment regulations.

11 If there is a negotiated rulemaking 

12 session on this subject, then the hope would be 

13 that all institutions are equitably 

14 representative, including traditional-based 

15 institutions.

16 Now in the area of using electronic 

17 fund transfers, AJCU appreciates the study that 

18 was released yesterday by the United States 

19 student PIRG organization citing potential 

20 complication with excessive fees charged by 

21 banks to students. 

22 The last thing any of us want in 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 higher education are more fees and higher 

2 interest rates. Because of that, we 

3 understand that there may be a need to delve 

4 deeper into these complications.

5 Some of our Jesuit institutions do 

6 not use credit cards, and still prefer using 

7 checks for payments, while acknowledging that 

8 it would be easier to track payments with debit 

9 cards, etcetera, should there be a problem.

10 There are also now in place 

11 third-party payment plans, of which everyone is 

12 familiar with, such as the 10-month paying 

13 plan, that a few of our institutions have in 

14 place.

15 On one hand, you don't want to 

16 interfere with an opportunity to provide 

17 payment options for students and parents. On 

18 another hand, you want to protect students from 

19 excessive banking fees.

20 If this is the intended focus in a 

21 potential negotiating rulemaking session, then 

22 the only question AJCU would ask, and truly, 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 we're torn about this issue, if this is really 

2 a regulatory or a legislative issue. Perhaps 

3 it's a combination of both.

4 And the final area to address, and 

5 the one of more -- most concern to AJCU, is the 

6 campus-based aid programs, and this is our main 

7 purpose for asking to speak today.

8 The campus-based aid programs at 

9 our Jesuit campuses remain a very high 

10 priority, second only to the Pell Grant

11 program. Each of these three campus-based aid 

12 programs, the Supplemental Educational 

13 Opportunity Grant, or SEOG, Federal Work-Study 

14 Program, and the Perkins Loan Program, all 

15 perform important niches in the delivery of 

16 federal student aid to needy students. 

17 The programs have worked well for 

18 decades, the only problem being that there has 

19 been insufficient funding to meet the heavy 

20 demands by emergent student populations.

21 Ten years ago, to give an example, 

22 our Jesuit institution had a 10 percent average 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 of Pell Grant student population. Now, we have 

2 increased that population to 22 to 23 percent. 

3 It has been a goal of our institutions to do so.

4 The SEOG Program described lately 

5 as duplicative of Pell Grants is hardly the 

6 case. SEOG is a campus-based aid program with 

7 delivery of funds to the institution's 

8 financial aid officer for distribution to the 

9 neediest of students. Federal Work Study

10 assists students to pay their expenses while 

11 working in school. And the Perkins Loan

12 Program, although not funded since 2004, 

13 remains an excellent program for students to 

14 avoid private loans at higher rates, and 

15 provide opportunities for attending college.

16 So in an effort to be helpful today, 

17 I polled our AJCU financial aid folks to see if 

18 there were any regulatory issues on 

19 campus-based aid that had to be addressed now 

20 through the negotiated rulemaking process. 

21 And all unanimously said no.

22 One institution wrote, "Any changes 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 to the campus-based aid program should be done 

2 during the reauthorization process, where 

3 program policy is foremost, rather than 

4 budgetary issues, and where public comment is 

5 more easily and readily attained from a wide 

6 population."

7 Other institutions had similar 

8 comments.

9 So the real question is, is there a 

10 compelling reason to have a negotiated 

11 rulemaking session on campus-based aid at this 

12 time? We would answer, no, there is not.

13 In looking at the Department of 

14 Education's plan for retrospective analysis of 

15 existing regulations dated August 22, 2011, on 

16 page 17, multiple questions are posed that the 

17 Department will focus on.

18 One was, has Congress amended the 

19 authorizing statute such that prompt review of 

20 regulations is necessary? That answer is no.

21 Does the Department of Ed 

22 anticipate reauthorization of the authorizing 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 statute in the near term, such that prompt 

2 review of existing regulations would likely be 

3 disrupted or not lead to regulatory revisions 

4 that could be implemented before 

5 reauthorization? And we would say the answer 

6 is yes to that.

7 All of our Jesuit institutions are 

8 concerned about the closeness of time to 

9 reauthorization of the Higher Education Act. 

10 Next year, hearings will begin, and the process 

11 of reauthorization will start. Why waste the 

12 time and effort of regulatory rulemaking when 

13 Congress is beginning the reauthorization

14 phase? It simply makes no sense.

15 And on one particular program, the 

16 Perkins Loan Program, of which AJCU is 

17 extremely involved with, we are working with 

18 the administration on the redesign of that 

19 program, which was articulated in the beginning 

20 on the FY `10 budget. As we go through this 

21 process, we ask if it would be helpful to spend 

22 time on regulatory rulemaking when this effort 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 is underway. Clearly, Congress has to decide 

2 many of those issues.

3 And finally, there was serious 

4 concern when the Department issued this 

5 rulemaking notice that included campus-based 

6 aid as a potential rulemaking opportunity that 

7 it possibly meant that the Department was 

8 trying to implement the administration's FY `13 

9 budget priorities for attaching net tuition 

10 pricing, needy student issues, and graduation 

11 rates to campus-based aid programs.

12 Clearly, that has been articulated 

13 by the White House and officials at the 

14 Department of Education that that is not the 

15 case. And we appreciate that.

16 So AJCU strongly encourages the 

17 Department of Education to not include 

18 campus-based aid programs in the upcoming 

19 negotiated rulemaking session, because 

20 reauthorization is months away, and there is no 

21 overriding concern that regulatory relief is 

22 needed because the programs function well.
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 It will be in the reauthorization

2 process where a healthy national debate will 

3 occur on the viability of these campus-based 

4 aid programs.

5 And finally, for the record, AJCU 

6 supports the Department trying to minimize 

7 regulatory burden for our colleges and 

8 universities. It is just in the instance of 

9 campus-based aid that the timing, we believe, 

10 is not appropriate.

11 I want to thank you for this 

12 opportunity. 

13 ASST. SEC. OCHOA: Our next speaker 

14 is Angelia Millender from Broward College.

15 MS. MILLENDER: Good morning, and 

16 thank you. My name is Angelia Millender, and 

17 I'm the Vice President for Student Affairs and 

18 Enrollment Management at Broward College. 

19 I don't stand here today speaking 

20 for all community colleges in the United States 

21 of America, nor do I stand here speaking on 

22 behalf of just Broward College. I stand here 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 as a 30-year administrator and faculty and 

2 teacher in the K through 12 system that has an

3 interest in this issue since we disperse aid to 

4 30,000 in an open access institution.

5 I agree with the dialogue and will 

6 support any action to curtail the fraud 

7 associated with federal student aid funds. I 

8 further support the recommendations made to 

9 eliminate checks and use electronic funds 

10 disbursements and making adjustments to the 

11 cost of attendance for distance learning 

12 students.

13 However, these two elements will 

14 not fully resolve the issue, because students 

15 who don't have bank accounts will get their 

16 funds on pre-paid debit cards, which could be 

17 no different from the recent fraud rings around 

18 the federal tax returns.

19 As such, I would also include 

20 additional components for a more comprehensive 

21 approach to this issue. People who tend to 

22 commit fraud and other crimes usually know, the 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 longer they stay around, the chance is, they 

2 might get caught. 

3 Certainly, the payoff comes too 

4 soon in the semester, and this process alone 

5 breeds Pell runners, which also lowers the 

6 institution's student success rate.

7 If the ED does not change the 

8 disbursement timing for online with these other 

9 strategies, then the problem may continue. As 

10 such, regulations that modify these processes 

11 to include unequal disbursements should allow 

12 direct cost, tuition, books, and fees to 

13 disburse first, and no balance funds 

14 immediately. 

15 The balance could be disbursed 

16 later in the term, which is similar to 

17 incremental budgeting model by the grant 

18 funders in California. Also, mandates on 

19 institutions to include in their policies that 

20 more than physical presence, as is required in 

21 face-to-face instruction, be the same as 

22 required in online instructional modalities.
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 Institutional officers also want 

2 and need more flexibility and the discretion to 

3 limit sub and unsubsidized loans for certain 

4 groups of students, and require these students,

5 at minimum, to achieve a certain level of 

6 academic success before loan debt is incurred.

7 Not limiting loans for students who 

8 enter institutions like ours many times 

9 under-prepared creates defaulters. The 

10 amounts of money students can get prior to 

11 showing signs of successful completion invites 

12 fraud, whether online or in person.

13 Additionally, I would like to bring 

14 focus to what I believe will be an unintended 

15 consequence of the elimination of ATB. I know 

16 that that is not the focus of the discussion 

17 today, but I do recall that you indicated we 

18 could make comments.

19 Students who earn high school 

20 credentials not defined in the current ED 

21 definition of high school diploma or its 

22 equivalency are still allowed admissions to 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 open access institutions, such as community 

2 colleges, but not -- will be allowed to get 

3 federal student aid when the ATB provision is 

4 eliminated.

5 Currently, prior to this regulation 

6 being effective July 1st, these students could 

7 take and pass an improved ATB test and qualify 

8 for federal student aid. For example, 

9 students who hold certificates of completion, 

10 in most cases, have completed all credits and 

11 compulsory attendance, but after July 1st, 

12 2012, will not qualify for federal student aid.

13 This specific language eliminates 

14 students who cannot pass high-stakes exit exams 

15 and earn a credential with the word diploma in 

16 its title.

17 This issue is deeper than the name. 

18 Yet those who complete their GED at a minimum 

19 cut score quality. The federal definition 

20 allows homeschooled students who are not 

21 required to pass high-stakes testing but only 

22 require parental certification of high school 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 completion eligible for aid.

2 Further, a foreign diploma is 

3 eligible for aid, as well as these others, based 

4 on an equivalency determination that is not 

5 always uniform. 

6 And when you add diploma mills to 

7 the picture, and those who get through our 

8 system because even with our best efforts to try 

9 to catch them, some will get aid.

10 In my opinion, states should 

11 regulate those diploma mills as businesses, in 

12 the business of education, rather than 

13 institutions validating the paper they sell.

14 Make no mistakes, high school 

15 graduates are no better prepared for college as 

16 a result of the numerous high school completion 

17 types than they were before we had them. 

18 Many children are still being left 

19 behind, and more will be left behind if the ED

20 allows the different definition of high school 

21 completion to include the word diploma.

22 I could be -- it could simply be 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 stated that high school completion or its 

2 equivalent in the language provided. These 

3 credentials, regardless of what they are 

4 called, will define these young adults for a 

5 lifetime, add to their struggles to get a job, 

6 and may cause them to eventually give up. 

7 I stand here as an advocate making 

8 a case for an opportunity for many. I 

9 respectfully ask the ED to modify this language 

10 in the federal student aid is under your 

11 purview. I don't know what that takes.

12 These states' definition of high 

13 school completion is too disparate for any 

14 uniformity to make any sense. And 

15 back-and-forth politics between the states' 

16 Department of Ed and the US Department of Ed 

17 must end on this issue.

18 I strongly believe that if measures 

19 are implemented to curtail the fraud and 

20 require students to show progress before mounds 

21 of money are thrown at them, then we should have 

22 no worries about these students who need 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 opportunity.

2 When a completion credential is 

3 named something that does not qualify, we 

4 further contribute to the victimization of No 

5 Child Left Behind, literally.

6 Any educator should know that 

7 high-stakes testing has made no difference but 

8 made the testing companies quite profitable, 

9 but it has not made any difference in the 

10 overall success rates of students across this 

11 nation.

12 I am appreciative of this 

13 opportunity, and I certainly thank you for your 

14 time.

15 ASST. SEC. OCHOA: Thank you. Our 

16 next speaker is Dr. Mark Sarver.

17 DR. SARVER: Good morning. Thank 

18 you for the opportunity to address this group 

19 and present suggestions for regulatory changes 

20 to further help institutions combat fraud and 

21 protect students and taxpayers from fraudulent 

22 activity.
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1 As noted by the Inspector General, 

2 fraud rings have taken advantage of the 

3 expansion of distance education to commit 

4 significant fraud against Title IV programs and 

5 the higher education community. I am here to 

6 represent that community.

7 My name is Dr. Mark Sarver, and I am 

8 the Chief Executive Officer of EduKan, a 

9 consortium of community colleges in Kansas. 

10 And we have been delivering online education 

11 since 1999. 

12 The federal Pell Program is an 

13 integral part of EduKan's mission to be 

14 convenient, accessible, and affordable for our 

15 students, many of whom are first-generation, 

16 non-traditional learners who simply cannot 

17 afford to enroll in postsecondary programs 

18 without the assistance Pell provides.

19 It is my hope that my testimony 

20 today will facilitate continued discussion on 

21 the development of regulations designed to 

22 prevent fraud and otherwise ensure the proper 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 use of Title IV, HEA program funds within the 

2 context of current technologies.

3 I intend to illustrate the ways in 

4 which a practical application of an existing 

5 technology has the potential to deliver direct 

6 benefits to postsecondary institutions, the 

7 federal government, and taxpayers, by 

8 detecting and preventing fraud, while also 

9 indirectly benefitting the administration and 

10 efficiency of financial aid programs by 

11 reducing the burden on regulated parties as 

12 mandated by Executive Order 22866.

13 Recognized in the distance 

14 education arena for its innovation, EduKan has 

15 pioneered many industry firsts, including the 

16 use of gesture-based biometrics for student 

17 authentication. 

18 Although we were initially driven 

19 by our commitment to reduce the cost and burden 

20 of physical proctoring of tests, once launched, 

21 we quickly realized the potential value of 

22 biometrics to address the issues of academic 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 integrity, particularly financial fraud.

2 EduKan is the first institution in 

3 the country to fully implement this technology 

4 into our learning management system as a way to

5 not only corroborate identity, but to also 

6 systematically and proactively analyze 

7 available data to detect and deter possible 

8 fraud.

9 When a student enrolls in an EduKan 

10 class, he or she is required to establish a 

11 biometric profile using an input method they 

12 already have on their computer, such as a mouse, 

13 touch pad, keypad or stylus. 

14 Because each student's gestures are 

15 as unique as a fingerprint, each time a student 

16 authenticates his or her identity, the system 

17 captures those unique gestures.

18 For example, I created a biometric 

19 profile using my finger and my touch pad. My 

20 unique identifier or password is 224. Even if 

21 you watch me create the profile, you would not 

22 be able to authenticate the identity 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 successfully because you cannot replicate my 

2 gestures. My speed, height, angle and 

3 approach is unique as my fingerprint.

4 In addition to recording the 

5 original gesture and comparing it to data 

6 points from previous authentications to ensure 

7 accuracy, the program also captures the IP 

8 address of the person's computer, which allows 

9 us to identify those students who are working 

10 together or in the same location at the same 

11 time or submitting the same answers.

12 Dynamic gesture-based biometrics 

13 like the system used at EduKan can be used to 

14 identify Pell runners and straw students 

15 participating in a fraud ring. 

16 Although many schools are 

17 front-loading courses with mandatory 

18 faculty-student engagement activities, Pell 

19 runners have learned how to circumvent these 

20 preventative measures. 

21 Even if a ringleader enrolls a large 

22 number of straw students, a biometric 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 authentication program will prevent successful 

2 authentications, while a close examination of 

3 IP addresses will reveal the identity and 

4 location of the fraudulent activities.

5 Furthermore, the random-generated 

6 requests for authentication will expose 

7 individuals attempting to complete and submit 

8 fraudulent academic work. Logging off before 

9 an authentication is an indicator of potential 

10 fraud.

11 A biometric program like the one we 

12 use at EduKan will provide data to support 

13 further investigation into the students' 

14 activities and resulting disciplinary action.

15 It was our intent to have a program 

16 in which the average, honest student can easily 

17 enroll and successfully complete their 

18 coursework. However, I firmly believe that 

19 institutions must expand, that the practical 

20 application of biometrics to confirm student 

21 identity across multiple events as part of the 

22 application, enrollment, and attendance 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

34

1 process, in combination with retaining IP 

2 information in the student data system, will 

3 set the standard for fraud detection and 

4 prevention in higher education.

5 I would ask the members of this 

6 committee to consider how the use of dynamic 

7 gesture-based biometrics can be deployed at 

8 college campuses, particularly those that are 

9 primary targets of Pell runners.

10 And I thank you for the opportunity 

11 to address this committee. I would entertain 

12 any questions, if you have any. 

13 ASST. SEC. OCHOA: Any questions?

14 DEP. ASST. SEC. BERGERON: No 

15 questions.

16 ASST. SEC. OCHOA: Our next speaker 

17 is Megan McClean.

18 MS. McCLEAN: Good morning, 

19 everyone. On behalf of the National 

20 Association of Student Financial Aid 

21 Administrators, I thank you very much for the 

22 opportunity to comment on proposed negotiated 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

35

1 rulemaking issues this morning.

2 NASFAA has always believed that 

3 negotiated rulemaking remains the best process 

4 for promulgating regulations, and appreciates 

5 the history of collegiality that ED has 

6 developed in its approach to this statutory 

7 requirement.

8 We'd like to begin with just a 

9 general observation, that the biggest problem 

10 we've seen with the negotiated rulemaking is 

11 the tendency to overload a single team with more 

12 issues than it can reasonably and effectively 

13 cover.

14 Therefore, we urge ED to invest 

15 sufficient resources in this endeavor to 

16 maximize its effectiveness.

17 On today's topics, we offer the 

18 following comments. Related to the 

19 campus-based programs, we appreciate ED's 

20 ongoing efforts to meet the President's 

21 directive to conduct a retrospective analysis 

22 of regulations. The campus-based program 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

36

1 regulations are generally well-constructed, 

2 but have not been given a comprehensive review 

3 for some time.

4 Given how close we are to 

5 reauthorization, this may not be the most 

6 optimal time, but should it occur, we do have 

7 a few suggestions. 

8 In the federal Work-Study Program, 

9 we suggest a review of time sheet and 

10 record-keeping rules and disbursement options 

11 to determine whether changes are needed to 

12 allow or maximize the use of current 

13 technologies.

14 We also suggest reviewing the 

15 program's specific disbursement rules to 

16 determine whether they can more efficiently be 

17 incorporated into the general provision cash 

18 management rules.

19 In the FSEOG Program, one of the 

20 persistent issues that institutions find 

21 difficult is the order of awarding. The law 

22 requires priority for Pell Grant recipients, 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

37

1 and that within that priority, awards must be 

2 made to students with the lowest EFCs. However, 

3 the requirement to award strictly in lowest EFC 

4 order is an interpretation of the law. 

5 We would like to see more 

6 flexibility in how the institution could 

7 identify the lowest EFCs, including a 

8 reasonable cutoff that the school can set, 

9 based on its experience in packaging its 

10 student population.

11 On another topic, two issues 

12 related to the return of Title IV funds got 

13 short shrift due to lack of timing during the 

14 program integrity negotiations. Our members 

15 continue to express confusion over the 

16 treatment of modules and the definition of 

17 withdrawn.

18 We believe those issues should be 

19 revisited, and given the opportunity for a 

20 fuller discussion than occurred at the previous 

21 negotiation. 

22 With regard to fraud, we believe 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

38

1 that due diligence is more common than 

2 indifference on the part of schools. It's 

3 important to bear in mind that fraud does not 

4 look the same everywhere, and that one school's 

5 indicator of fraud may be another school's 

6 normal student characteristic.

7 We urge ED to recognize that schools 

8 know their populations best.

9 At the same time, we believe ED can 

10 help support and expand institutional efforts 

11 in a number of ways: providing training in 

12 recognized fraud and facilitating best 

13 practices on institutions of similar types 

14 would be very useful.

15 In addition, many schools are 

16 fearful of invoking professional judgment, and 

17 therefore, ED could more strongly support 

18 school use of this provision.

19 A report on fraud in distance 

20 education by the OIG released last September 

21 pointed out other actions that ED could take to 

22 assist schools in identifying potential fraud. 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

39

1 OIG suggested that ED establish 

2 computer-matching agreements with prison 

3 systems to help identify applicants that are 

4 incarcerated and therefore ineligible for most 

5 forms of federal student aid, as we've seen that 

6 inmates are apparently a target of some fraud 

7 rings.

8 The OIG report also observed that ED 

9 has the ability to collect and analyze web 

10 server logs for IP information in its own 

11 systems, as well as examine and correct 

12 vulnerabilities in its systems that create 

13 opportunities for the fraud rings to operate.

14 Centralizing the effort to identify 

15 potential fraud as much as possible would 

16 greatly improve the efficiency of those 

17 efforts.

18 We also believe that ED needs to 

19 improve its own response to reported fraud from 

20 schools. One of the biggest frustrations that 

21 we have heard from schools is that when they 

22 report suspected fraud, nothing happens.
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

40

1 Schools should not be expected to 

2 act as enforcement agencies, but should be able 

3 to rely on government agencies that are 

4 responsible for investigation and enforcement.

5 And finally, this morning, we just 

6 want to wrap up by saying that we think it's 

7 important as a community to recognize that 

8 despite its challenges, distance education is 

9 here to stay, and is a fixture of our modern 

10 world. It will get more sophisticated, and we 

11 don't want to inhibit innovation or the ability 

12 to react to new threats.

13 Thank you very much for your time.

14 ASST. SEC. OCHOA: Next speaker is 

15 Vickie Schray.

16 MS. SCHRAY: Good morning. My 

17 name is Vickie Schray, Vice President of 

18 regulatory affairs for Bridgepoint Education.

19 The mission of Bridgepoint 

20 Education is to provide high-quality 

21 innovative education services to enrich the 

22 lives and communities the company serves.
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 Bridgepoint owns and operates two 

2 regionally-accredited universities, Ashford 

3 University and University of the Rockies.

4 Bridgepoint Education's 

5 institutions offered over 1,400 courses, 85 

6 degree programs with 140 specializations. Our 

7 total enrollment, as of March 31st, 2012, was 

8 94,863 students, of which 99 percent were 

9 exclusively attending classes online.

10 Before I offer my recommendations, 

11 I would like to commend the US Department of 

12 Education for their approach in responding to 

13 the Inspector General's investigative program 

14 advisory report. 

15 Rather than immediately launching 

16 into rulemaking, the Department sought to 

17 better understand the issue by meeting with 

18 institutions and creating an internal task 

19 force to better explore the issue.

20 I encourage the Department to 

21 continue this collaborative approach to 

22 addressing important issues that affect 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

42

1 taxpayer investment in higher education and our 

2 nation's students.

3 While the proliferation of distance 

4 education has been a major driver in helping to

5 provide greater access to students who did not 

6 previously have access to higher education, it 

7 has also created new vulnerabilities in the 

8 administration of Title IV.

9 The growth of online education has 

10 been viewed by some as contributing to the 

11 transformation of higher education and playing 

12 an instrumental role in helping to meet the 

13 President's completion agenda.

14 Development of burdensome 

15 regulations that lag best practice would be 

16 detrimental to the promise of increased access 

17 and choice to our nation's students, especially 

18 those that have been traditionally 

19 under-served.

20 No fraud or abuse of the Title IV 

21 funds can be tolerated. The issue of 

22 preventing fraud in higher education is far too 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

43

1 important to wait for the promulgation of final 

2 regulations.

3 Instead, we encourage the 

4 Department to work collaboratively with 

5 institutions to identify those issues that can 

6 be addressed immediately under current 

7 authority, and second, those issues that may 

8 require regulatory or statutory changes.

9 First, issues that should be 

10 addressed under current authority. As the OIG 

11 reported, the scope of this problem is too large 

12 for the OIG to investigate on its own. 

13 Conversely, given the complexity 

14 and national scope of the issue, institutions 

15 need assistance from the Department to 

16 effectively thwart the efforts of the fraud 

17 rings.

18 As my colleague from Ashford 

19 University testified at the Phoenix hearing, 

20 our institution has invested in technology, 

21 policies, procedures, training, and staff to 

22 detect and prevent fraud in our distance 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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44

1 education programs.

2 Institutions are clearly the first 

3 line of defense, but greater communication and 

4 sharing of pertinent information related to 

5 potentially fraudulent activity by individuals 

6 is needed.

7 An important role for the 

8 Department of Education is to collect 

9 information that would be used to alert and 

10 assist institutions in their detection and 

11 prevention of fraud. For example, the 

12 Department could create a centralized database 

13 or watch list of students that have been 

14 identified as potentially engaging in student 

15 identify fraud and suggest particular 

16 safeguards or actions by the institutions prior 

17 to certifying or releasing loan funds.

18 We also support the OIG's 

19 recommendation that the Department should 

20 immediately deploy the National Student Loan 

21 Data System to provide institutions with 

22 real-time data through flags regarding data 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

45

1 elements such as common student addresses, 

2 student attendance patterns, and loan activity 

3 on the institutional student information 

4 record data to assist institutions in the 

5 detection and prevention of fraud.

6 The Department in the October 20, 

7 2011 Dear Colleague letter stated that 

8 institutions have the authority to make more 

9 frequent disbursements of Title IV funds so 

10 that not all the payment period's award is 

11 disbursed at the beginning of the period.

12 We agree that spreading the 

13 disbursements would delay the creating and 

14 release of a credit balance, and discourage 

15 fraud ring participants.

16 We urge the Department to provide 

17 additional guidance to assist institutions in 

18 developing new policies for distance education 

19 students, and would welcome the opportunity to 

20 work collaboratively with you on this important 

21 issue.

22 The second set of recommendations 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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46

1 focus on those issues that may require 

2 statutory or regulatory change. We encourage 

3 the Department to work with Congress to amend 

4 the Higher Education Act to exclude room and 

5 board from the cost of attendance calculation 

6 and limit student borrowing to direct 

7 educational cost for online students.

8 As our institution provides one of 

9 the lowest-cost options for earning an online 

10 degree resulting in credit balance, we are also 

11 attractive to those who are intent on 

12 fraudulently accessing financial aid funds.

13 Our online student population is 

14 predominantly independent adults working full 

15 time, and allowing them to borrow for room and 

16 board may not be in their best interest. 

17 We believe limiting the cost of 

18 attendance is a commonsense approach to 

19 addressing this issue, and will likely decrease 

20 the amount of debt incurred by online students 

21 and reduce funds available as a credit balance 

22 or refund to those individuals who want to 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

47

1 defraud the government.

2 While the OIG recommends that 

3 institutions serve as the entity collecting and 

4 retaining the IP addresses, we understand that 

5 institutions would carry out those duties at 

6 the direction of the Department as manager of 

7 the federal Direct Loan Program.

8 In other words, the institution 

9 would simply carry out an administrative task 

10 for the Department. We urge the Department to 

11 ensure that any new regulations protect the 

12 institution from liability for carrying out 

13 these IP data collection tasks.

14 We encourage the Department to 

15 develop through negotiated rulemaking 

16 regulations that provide explicit guidance and 

17 flexibility to institutions to take necessary 

18 steps if they suspect a student is engaging in 

19 student identity fraud.

20 These steps may include delaying 

21 release of stipend funds and/or credit balances 

22 beyond 14 days while investigating suspicious 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 situations, and/or while requiring and 

2 weighting documentation providing the 

3 student's identity as deemed appropriate by the 

4 institution.

5 Holding institutions responsible 

6 only for taking action on what they know and 

7 when they know it, providing assurance that 

8 institutions acting in good faith or having 

9 certain safeguards in place will not be blamed 

10 for fraudulent or criminal behavior of 

11 students, providing that institutions who have 

12 taken the appropriate steps to prevent fraud 

13 are not penalized by those fraudulent students 

14 who do succeed in enrolling and who ultimately 

15 drop out by excluding these students from the 

16 institution's cohort default rate and gainful 

17 employment measures such as repayment rate and 

18 debt-to-income ratios, establish clear 

19 guidelines for what an institution should do in 

20 cases whereby fraud cannot be proven by the 

21 institution, but behaviors indicate that it is 

22 likely, for example, hold loans, return loan 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 funds, hold stipends, require notarized 

2 identity documents, and report to the OIG.

3 In closing, we agree that 

4 institutions are the first line of defense in 

5 combating fraud, but believe that a collective 

6 and collaborative approach with the OIG, the

7 Department, and the institutions is needed to 

8 share important information, identify tools, 

9 and develop guidance to assist institutions in 

10 detecting and preventing fraudulent activity.

11 Thank you very much for this 

12 opportunity this morning.

13 ASST. SEC. OCHOA: Our next speaker 

14 is Joan Zanders.

15 MS. ZANDERS: Good morning. I am 

16 Joan Zanders. I'm just beginning my 26th year 

17 as a director of financial aid, and currently 

18 serve as the Director of Financial Aid and 

19 Student Support Services at Northern Virginia 

20 Community College.

21 We are a school of six full 

22 campuses, many sites, and over 78,000 students 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 in Northern Virginia. Our students come from 

2 180 countries. We are in close proximity to 

3 Washington, DC and we really are a microcosm of 

4 the world.

5 About three weeks ago, I had the 

6 opportunity to watch 7,700 students graduate 

7 from NoVa. We are educating Northern 

8 Virginia. Community colleges are completing 

9 degrees.

10 What I see generally are the problem 

11 areas, and that's what I'm here to address this 

12 morning. I really needed that graduation to 

13 see the other side of it.

14 I'm largely speaking from my own 

15 experiences this morning, not necessarily for 

16 my college, but from things that I have seen, 

17 especially in the last few years. 

18 I am a true believer in higher 

19 education as an equalizer, but I also know full 

20 well that we must be good fiduciaries of the 

21 public trust and tax dollars, or we will likely 

22 loose public support for these programs and 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 risk the futures of many of our nation's 

2 children and grandchildren. I am speaking for 

3 our future.

4 It has to be about access and 

5 accountability. We must have both, not just 

6 for the colleges, but for the students. And I 

7 think to some extent, we have gone so far on the 

8 side of access that we have forgotten a little 

9 bit about the accountability side.

10 Since the Federal Register did give 

11 us the leeway to address additional issues, I 

12 am going to use that opportunity. I will start 

13 with the fraud and abuse, however. But I want 

14 to mention that fraud and abuse come in many 

15 disguises. It's not just all about distance 

16 education.

17 The first batch of ISIRs I pulled in 

18 this year at NoVA included over 300 independent 

19 students with nothing but zeros on the ISIRs. 

20 Over 100 dependent files were pulled in with all 

21 zeros for both the student and the parents.

22 Of these, less than ten indicated 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 any means-tested benefits. I'm not sure how 

2 one lives in Northern Virginia on nothing, but, 

3 none of these were selected for verification by 

4 the Department of Education.

5 Of those who were independent, and 

6 these were independent for a variety of 

7 reasons, we found one student who was 19 years 

8 old, not married, and claiming six dependents 

9 with no income. We had another one who was 

10 claiming dependents -- or many who were 

11 claiming dependents other than children or 

12 spouse without any income, emancipated minors 

13 in states with no emancipation rights, to many, 

14 many homeless students. 

15 I have a colleague who said she 

16 tracked homeless students for a year, and of the 

17 300 who claimed homelessness, when all was said 

18 and done, five of them were actually qualified 

19 to be homeless. Because that question makes a 

20 student independent, it changes everything. 

21 It changes the EFC completely.

22 Some of these I know are mistakes, 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

Programs – Public Hearing May 31, 2012

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1 but are some attempts to defraud? We don't 

2 know. 

3 More and more people seem to be 

4 being paid under the table, not reporting taxes 

5 at all. And since we're using current year, I 

6 also wonder how many students have just not 

7 filed their taxes yet, they're putting in all 

8 zeroes, they're not flagged for verification, 

9 and nothing ever comes of a change in those 

10 figures. I don't know why these files are not 

11 of more concern.

12 Item number two, each year, largely 

13 because of where we are in the country, we 

14 receive hundreds and hundreds of files where 

15 students do not meet the citizenship match. 

16 In most instances, these students 

17 are going to the social security administration 

18 to update their citizenship status, which I was 

19 told would happen within a few days, but which 

20 seems to be taking months.

21 Why cannot the Department of 

22 Homeland Security share information in a timely 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 fashion with the Social Security 

2 Administration? We are asked as financial aid 

3 directors to view citizenship documents and 

4 determine aid eligibility when we know that 

5 there are websites that allow creation of 

6 citizenship documents.

7 How can we, as lay people, possibly 

8 know that we have a valid document? I am a huge 

9 vocal advocate for the DREAM Act, so please 

10 don't take this the wrong way. I truly believe 

11 in the DREAM Act. 

12 But that's not optional at this 

13 point, because Congress can't make a decision 

14 on it. But why must financial aid 

15 administrators determine the validity of 

16 citizenship documents when we, as a country, 

17 have the means to do that if departments would 

18 communicate with one another in a timely 

19 fashion?

20 Online classes are the likely 

21 targets for scammers, since students have never 

22 had to appear on campus in many instances. 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 But contrary to that premise, the 

2 only fraud ring we have found thus far involved 

3 on-campus students who were otherwise 

4 dependent filing as recently married with 

5 spouses who didn't make enough to file taxes, 

6 thus making the student independent and much 

7 more eligible for grant aid.

8 None of these students were 

9 selected for verification, and were found due 

10 to red flags coming from communications with 

11 the students. 

12 I actually had to push the OIG to 

13 investigate further because on initial view, it 

14 appeared there wasn't enough money at risk to 

15 continue the investigation. 

16 When all was said and done, two 

17 colleges were involved and a ring was 

18 established, but it was very, very difficult to 

19 get the OIG to pursue it. I'm now on a 

20 first-name basis with the OIG.

21 The formula continues to be 

22 streamlined in an attempt to simplify the 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 process for students and families. I realize 

2 how very difficult it is to verify the value of 

3 assets if a family chooses not to be forthcoming 

4 with the information.

5 For some reason, one of my staff 

6 members recently had a reason to ask further 

7 questions of a parent. Listed on this file 

8 were $30,000 in assets. When all was said and 

9 done, we found two beach houses of over $1.5 

10 million value each.

11 At the same time, in years past, 

12 because of the farm crisis, farms were 

13 eliminated, family farms were eliminated as an 

14 asset in the formula. Then, because family 

15 farms were eliminated, family businesses were 

16 eliminated, or small businesses were 

17 eliminated.

18 I come from an area where farms are 

19 selling for about $10,000 an acre or more, but 

20 the formula hasn't changed. I'm sorry, but 

21 these are not normally needy people. 

22 I've had farmers ask me what their 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 AGI could be to get a Pell Grant. Though I 

2 couldn't and wouldn't provide a figure due to 

3 the many variables the farmer needed to know, 

4 indicating that he can make his AGI say anything 

5 it needed to say to get a Pell Grant, and all 

6 they have to do is buy seed early, buy 

7 fertilizer early, buy machinery early. 

8 And I'm not picking on farmers, but 

9 what happens when the AGI is manipulated and 

10 assets are not there, then the burden falls on 

11 individuals with W-2 income. They pick up the 

12 balance.

13 I am told we might get to a FAFSA 

14 that would fit on a postcard. That would be 

15 simple, but would it be fair? If we start going 

16 down that road, those with only W-2 income again 

17 will be the ones who are carrying the load for 

18 everyone.

19 We seem to be streamlining 

20 ourselves right into a major Pell Grant deficit 

21 with a formula that has little to do with 

22 reality. If we insist on simplifying to the 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 point that we can't really ensure that needy 

2 students are receiving the funds, why not take 

3 all the millions of dollars that we are using 

4 to determine who gets the limited dollars and 

5 provide at least the first two years of 

6 postsecondary education for everyone? I think 

7 the money would be better spent.

8 As I mentioned earlier, we're a 

9 large community college. In the past two 

10 years, we've seen a huge increase in the number 

11 of students with loan debt in excess of $45,000. 

12 Often these students are coming 

13 back to us with bachelor's degrees, master's 

14 degrees, doctoral degrees, taking minimal 

15 credits in a new program, and borrowing the 

16 maximum amount in loans.

17 Some are legitimate programs. We 

18 have nursing programs and oftentimes have 

19 advanced degree programs coming back to take 

20 those programs. But some of these students 

21 have been to five, six, seven different 

22 postsecondary institutions.
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 I have seen loan volumes of over 

2 $200,000 on more than one occasion. Most of 

3 these are not flagged by the Department, 

4 because there is undergraduate excess 

5 available to the student. 

6 We are running reports on aggregate 

7 loan volumes to find these students and then 

8 checking NSLDS. Most have much unpaid 

9 interest in collection costs. 

10 I can think of three particular 

11 files just as examples. A husband and wife, he 

12 was a master's, she was a doctorate, with a 

13 combined loan total of about $350,000, and 

14 income of about $150,000. And they're coming 

15 back to us, taking minimum credits, and 

16 borrowing the maximum.

17 A mother with an income range of 

18 $6900 to $11,000 on two different years, 

19 totally maxed out on her own student loans, and 

20 has thus far borrowed PLUS Loans for her 

21 children to the tune of over $250,000. I think 

22 we know who's going to pay that money back.
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 A colleague of mine reported a 

2 potential new student to his college who was on 

3 her fourth college in two years, and who had 

4 already borrowed over $22,000 in student loans. 

5 She happened to also be getting a senior citizen 

6 waiver due to the fact that she was now 91 years 

7 old.

8 We can't discriminate on the basis 

9 of age. We know that. But we're hearing more 

10 and more of what we are now terming granny 

11 scams. And since loans for students who die 

12 are forgiven, we can justly assume who will be 

13 paying these loans back.

14 I'm not sure how we address this 

15 program, but it is becoming a big problem. I 

16 feel somebody is going to set up shop in a 

17 nursing home. 

18 Students are now able to borrow at 

19 two different schools simultaneously if the 

20 loan periods don't overlap. No notice is sent 

21 to the schools until the loan total for the year 

22 is exceeded. 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 Would it be possible to provide MRRs 

2 for loans to prevent loan over-awards before 

3 they happen, or an ICR flag on a subsequent 

4 transaction that indicates loans at more than 

5 one school? We have to literally go into COD 

6 to figure these things out. 

7 On the campus-based issue, there is 

8 currently no provision included in regulation 

9 that allows a college to deny a Perkins Loan for 

10 other than unwillingness to repay. I recently 

11 had a student with over $90,000 in loans 

12 absolutely insisting that he could get a 

13 Perkins Loan and I really had no right to deny 

14 it.

15 I checked with the Department, 

16 there was nothing there, unlike sub and un-sub 

17 loans that we do have a right to deny on a 

18 case-by-case basis. That doesn't help our 

19 default rates.

20 Currently, there's no requirement 

21 for colleges to collect other college 

22 transcripts from students who move from college 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 to college. I think that could help some of the 

2 balance problem, if we were required to have 

3 transcripts. 

4 I know that would be burdensome for 

5 many schools, and in some instances, it's 

6 considered to be a hindrance for students to 

7 return to college. But we're seeing enough 

8 bounce that something has to change, and we're 

9 paying for credits over and over again that have 

10 already been completed because students owe 

11 bills at previous schools.

12 We've requested transcripts 

13 recently from a student who had been to five 

14 different colleges. She couldn't get four of 

15 the five because she owed four of the five 

16 money. 

17 Some students just really need a 

18 chance to start over, but the question is, how 

19 many times? If there are any credits that 

20 would transfer towards the current degree, it 

21 would be in the student's best interest to bring 

22 in these credits, thus saving the student 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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63

1 and/or taxpayer additional funds, and moving 

2 the student closer to degree completion.

3 We've had students who really are 

4 bouncing from school to school and having 

5 nothing completed. We don't really want to be 

6 next in that process.

7 Two additional issues truly need 

8 the attention of the Department of Education. 

9 The first is a return to Title IV, as was 

10 mentioned by Megan McClean. It was not 

11 negotiated to satisfaction two years ago, and 

12 the current regulation is unfair to students 

13 and nonsensical when different real scenarios 

14 are considered.

15 Example 1, two students enrolled in 

16 the same exact classes, but due to timing, if 

17 the student drops the 16-week class for the 

18 semester the week before the eight weeks is over 

19 and has two remaining eight-week classes, the 

20 student owes nothing back. 

21 If he tries to stay in the course two 

22 additional weeks, withdraws in the ninth week, 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 completes the first two classes successfully, 

2 goes two weeks longer than his brother, he's 

3 going to owe money back.

4 A student enrolls in three 16-week 

5 classes and one weekend class. During the 

6 weekend class, which is held during the third 

7 week of the term, he drops his three 16-week 

8 classes, since he's failing them. Since he was 

9 still in the weekend class, he's not subject to 

10 R2T4. 

11 He finishes his weekend class, 

12 possibly even with an F, and owes no money back, 

13 whereas the student who may have withdrawn 

14 after that period would owe all kinds of money 

15 back. 

16 This is the one that borrows me the 

17 most. A student registers for three five-week 

18 modules, especially in the summer time, three 

19 credits in each module. She declines her loan, 

20 but receives a Pell Grant at three-quarter 

21 time.

22 She successfully completes one 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 module. Between modules one and two, she 

2 learns her mother has a health problem and 

3 decides it best to drop modules two and three. 

4 Because she never started two and three, the 

5 school must adjust her Pell Grant to the less 

6 than half-time status.

7 On top of that, since she dropped 

8 the two later-starting classes while not 

9 attending another class, the school is required 

10 to complete R2T4 for her. 

11 She will owe back part of the 

12 less-than-half-time Pell even though the 

13 amount she received was exactly what she would 

14 have received if she had registered for only 

15 three credits to start with. Totally unfair to 

16 the student.

17 This formula needs major work, and 

18 I'm not going to go into the details of this. 

19 I'm going to send this to the Department. 

20 But I would like us to look at a 

21 totally different formula. Let's forget R2T4 

22 and focus on what the student should receive in 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 the next term.

2 I agree there have to be 

3 consequences. But why not look at minimizing 

4 the amount of availability for aid in the coming 

5 term so that the student doesn't have an 

6 outstanding bill? 

7 Number one, it's very difficult for 

8 the student to repay that money and 

9 consequently then return to college, so they're 

10 sitting there with a debt on their account. 

11 If instead, that student who fails 

12 to complete what they started were restricted 

13 to a lesser enrollment status, we would 

14 possibly encourage success.

15 Let's say a student finishes three 

16 out of twelve credits. Next term, they can be 

17 no more than half-time status, whatever the 

18 status is, plus a status. If they finish 

19 nothing, they can enroll for less than 

20 half-time status, no loans, no anything, except 

21 for the Pell Grant. 

22 If they can prove success at that 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 level, then they would increase their aid in 

2 future terms. I'll send the details of that to 

3 the Department.

4 I know this would be cumbersome at 

5 first, but I think it can be done through NSLDS 

6 and reporting the student has changed schools. 

7 Transcripts would be required to show exactly 

8 what the student was eligible to receive in the 

9 coming term. 

10 Changing programs would not have an 

11 impact, student is still required to complete 

12 at a given level -- at a reduced level in order 

13 to receive Pell Grant in the future or other 

14 types of aid.

15 The last issue of concern is the 

16 recently-voiced limitation on paying for book 

17 charges with Title IV aid when charges from a 

18 non-college-owned bookstore are applied to the 

19 student's account. I think the vast majority 

20 of colleges now have non-college-owned 

21 bookstores, and this issue really needs to be 

22 addressed.
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1 If community colleges were forced 

2 to release money to students for books prior to 

3 census date, with the churn that we have, we 

4 would lose thousands of dollars from that early 

5 release aid. 

6 If we didn't collect the money from 

7 the student, the only way to cover it would be 

8 with increased tuition for our students, which 

9 is not a good solution at all.

10 What I frequently refer to as the 

11 theory of over-correction is alive and well 

12 across the country, and not just in financial 

13 aid. 

14 My fear in bringing forward these 

15 issues and possible solutions is that we will, 

16 once again, overcorrect, causing more problems 

17 instead of solutions, and hurting students.

18 I firmly believe that we must find 

19 a balance between access and accountability, 

20 and have an expectation that access will yield 

21 results. If we do so, committing fraud and 

22 abuse will be much more difficult. 
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1 And I am more than willing to work 

2 with the Department on any of these issues. I 

3 would invite the Department and Congress to 

4 come spend a week in our office. I would love 

5 to have you experience the issues that we see 

6 on a regular basis, and maybe it would help 

7 formulate better policy.

8 Thank you. I greatly appreciate 

9 working with the Department of Education.

10 ASST. SEC. OCHOA: The next speaker 

11 is Rich Williams.

12 MR. WILLIAMS: Hello, everyone. 

13 Good morning. My name is Rich Williams. I'm 

14 the higher education advocate with the United 

15 States Public Interest Research Group, a 

16 national public interest advocacy and student 

17 advocacy organization.

18 Thank you very much for the 

19 opportunity to make public comments. I'd like 

20 to spend my time today addressing an issue that 

21 has been -- we've been hearing growing 

22 complaints about from our student membership 
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1 around the rapidly growing market of campus 

2 debit cards, including debit cards designed for 

3 the sole purpose of disbursement of federal 

4 student aid.

5 While we believe a well-structured 

6 debit card program can provide benefits to 

7 students, many current programs provide little 

8 to no choice for students, while high fees on 

9 grant and loan money leave students deeper in 

10 debt.

11 Wall Street is headed back to 

12 campus, continuing a long track record of

13 targeting college students to push bank 

14 products that leave them deeper in debt.

15 People would be shocked to learn 

16 that some of the biggest banks in this country 

17 are skimming potentially hundreds of millions 

18 of dollars in financial aid dollars meant for 

19 students, millions of students are impacted, 

20 and they are the most neediest students in the 

21 country.

22 Banks and other financial firms are 
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1 taking advantage of a variety of opportunities 

2 to form partnerships with colleges and 

3 universities to produce campus student ID cards 

4 and offer or receive student aid disbursements 

5 on debit cards or pre-paid cards.

6 In addition to on campus services, 

7 such student ID functions offered on the cards, 

8 some cards offer traditional debit card 

9 services linked to bank accounts. Others 

10 provide additional, reloadable pre-paid card 

11 functions. Financially, disbursement is the 

12 biggest.

13 While schools are obtaining 

14 revenues and reducing costs for outsourcing 

15 certain services, the relationships between 

16 schools and financial institutions have raised 

17 certain questions, because students end up 

18 bearing some of the costs directly, including 

19 per swipe fees for using your debit card as a 

20 debit card of fifty cents, a pay to pay fee; 

21 inactivity fees of $10 or more starting six 

22 months of inactivity, not even a full academic 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 year; overdraft fees of up to $38; and plenty 

2 more.

3 Other issues include the effect of 

4 aggressive marketing strategies by partnering 

5 banks on student choice and weak consumer 

6 protections on certain cards that hold student 

7 aid funds.

8 Above all, these deals provide an 

9 unprecedented opportunity to market and bundle 

10 financial products with virtually no 

11 competition, including credit cards and 

12 private student loans.

13 We recently released a report, "The 

14 Campus Debit Card Trap," which details many of 

15 the comments in greater detail. Some of the 

16 key findings that we report, millions of 

17 students are affected. Almost 900 of the 7300 

18 campuses participating in the federal student 

19 aid program now have banking partnerships.

20 Higher One, the biggest financial 

21 firm, has partnerships with 520 campuses, 

22 enrolling over 4 million students. Currently 
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1 over 12 percent or one in eight of all federal 

2 aid recipients national disburse their aid 

3 money onto Higher One bank accounts. Wells 

4 Fargo, the biggest bank in the market, partners 

5 with 43 campuses that enroll over 2 million 

6 students. 

7 And there's big money at stake. 

8 Higher One makes 80 percent of its revenues by 

9 siphoning fees from student debit cards. 

10 These fees include ATM and other transaction 

11 fees, overdraft fees, and interchange fees that 

12 are imposed on merchants who accept the cards.

13 Most of the students who are 

14 impacted are the neediest. Students most 

15 reliant on financial aid come from low and 

16 moderate income backgrounds. 

17 The service appears to be endorsed 

18 by the colleges. Huntington Bank paid $25 

19 million to co-brand and link their checking 

20 accounts with Ohio State University student 

21 IDs. Other schools receive substantial 

22 payouts, revenue sharing deals, and large 
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1 reductions in administrative costs.

2 Many bank contracts require aid 

3 recipients to visit their website before they 

4 choose how to receive their aid either into 

5 existing accounts, onto a check, or a 

6 disbursement card. They co-brand with the 

7 college, which implies an endorsement, even if 

8 it's not the case. 

9 These relationships create at least 

10 the appearance of a conflict of interest. 

11 Banks count on students letting their guards 

12 down as consumers when the school logo is 

13 attached. 

14 Based on our evaluation of the 

15 issues surrounding the growing campus card 

16 marketplace, and other potential impacts to 

17 students, we have created a framework for 

18 discussion on best practices that offer 

19 specific recommendations to the Department of 

20 Education to improve safeguards for students.

21 A few of the specific 

22 recommendations include, the Department should 
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1 do more to collect information about the 

2 marketplace, which is currently opaque, 

3 including thorough annual compliance audit 

4 surveys already required of third-party 

5 servicers. 

6 Additionally, the Department 

7 should enforce current regulations requiring 

8 institutions to provide all contracts with 

9 third-party services, including modified or 

10 renewed contracts. These contracts should 

11 always be publicly available in an easily 

12 accessible database.

13 I might add, many of these contracts 

14 are being signed for a decade or longer time 

15 periods, while there's no restrictions on how 

16 quickly banks can change and modify the bank 

17 accounts, including the fees and terms and 

18 conditions that the students have on their 

19 accounts.

20 Three, the Department should 

21 enforce current rules that ban any credit 

22 function, such as overdrafts, on bank accounts 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 where a school or an agent of the school opens 

2 the account on behalf of the student, 

3 establishes a process the student must follow 

4 to open a bank account, or similarly assists the 

5 student or parent in opening a bank account.

6 Four, we include a variety of 

7 recommendations about updating the 

8 Department's current regulations in light of 

9 new bank tactics concerning the disbursement of 

10 financial aid. 

11 A few of them fall back ultimately 

12 to the principle that the Department should 

13 create rules that ensure students have a clear 

14 and unbiased choice about where to bank and 

15 which financial aid disbursement method they 

16 wish to use.

17 Certain tactics currently mislead 

18 students, including mailers from the bank to 

19 the student before they even set on campus, 

20 potentially even including a debit card which 

21 they are instructed to activate; setting up 

22 tables on campus during orientation and other 
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1 events to market their products; co-branding 

2 with the University logo; misleading language 

3 about the purpose of debit cards, including 

4 phrases like, you must activate your card now 

5 in order to receive aid; and even giving gifts 

6 to students to open checking accounts. 

7 These may sound familiar, because 

8 they are mostly heavily restricted or banned 

9 practices in relation to credit cards. 

10 However, with debit cards, totally legal.

11 Additionally, the Department

12 should ban all fees on financial aid dollars, 

13 whether disbursed to a pre-paid card or a bank 

14 account in partnership with the school. 

15 Financial aid dollars are taxpayer money 

16 designed to pay for educational expenses, not 

17 an education in high bank fees.

18 The Department should require all 

19 banks and financial firms to accept or disburse 

20 federal student aid to make their affinity 

21 agreements with schools public, just like with 

22 credit card agreements. The Department should 
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1 ban co-branding of materials including debit 

2 cards, websites and mailers, unless a student 

3 opts in to the service.

4 Regulators should require the 

5 campus provide an adequate number of regularly 

6 replenished on-campus ATMs. I think this is 

7 where we're seeing many of the problems. 

8 Currently, banks are able to meet 

9 the minimum letter of the law by having one ATM 

10 on campus. As you can imagine, when financial 

11 aid is disbursed, there's a run onto those ATMs, 

12 and they break down or run out of money within 

13 the first day. 

14 And I report, we have a picture of 

15 a line 50 students long on the day of 

16 disbursement at one community college. That 

17 ATM broke down within two hours and students 

18 were forced to use ATMs -- foreign ATMs and 

19 incur not only up to a $3 charge from their bank 

20 provider, but an additional charge from the 

21 owner of the ATM. 

22 ATMs should also be made available 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 24 hours a day. Currently, many of them are 

2 placed in buildings that are locked up, leaving 

3 students no choice but to use foreign ATMs, 

4 again incurring the fee.

5 The Department should create rules 

6 -- or the Department should create additional 

7 guidance to help schools better understand 

8 federal aid requirements in the ever-changing 

9 bank landscape. 

10 The Department should also advocate 

11 that schools negotiate out fees from their 

12 contracts, and possibly reward those who do.

13 The Department should more 

14 aggressively pursue and collect complaints 

15 related to debit cards and financial aid 

16 disbursement, investigate potential 

17 violation, and use their current authority to 

18 find banks and financial firms participating in 

19 third-party servicing contracts that are 

20 violating those rules.

21 And finally, the Department should 

22 act in strong partnership with the Consumer 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 Financial Protection Bureau and attorney 

2 generals around the country to enforce rules 

3 and create new ones that protect students.

4 We would like to submit a full copy 

5 of our "Campus Debit Card Trap Report" as our 

6 written comments, which has additional details 

7 about our comments and additional 

8 recommendations.

9 We look forward strongly to working 

10 with the Department of Education and colleges 

11 moving forward to protect students and their 

12 financial aid from being whittled away by bank

13 fees.

14 Thank you.

15 ASST. SEC. OCHOA: Thank you.

16 Our next speaker is Lauren 

17 Saunders.

18 MS. SAUNDERS: Good morning. I am 

19 Lauren Saunders, managing attorney with the 

20 National Consumer Law Center. We advocate on 

21 behalf of low-income consumers and seek to 

22 protect them in their financial lives.
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1 Thank you for this opportunity to 

2 testify today on behalf of our low-income 

3 clients. We support efforts to reduce fraud 

4 and increase efficiency in disbursement of 

5 higher education funds. But we think the 

6 Department needs to do more to ensure that 

7 students have the choice of where to bank, and 

8 that they are protected from unnecessary fees, 

9 risks, and inconveniences when the school 

10 selects their account.

11 The education that a student 

12 receives in college is more than what takes 

13 place in the classroom. Encouraging students 

14 to make wise financial choices and to learn how 

15 to manage a financial account is essential.

16 Schools should not skew the choice 

17 that a student makes, or worse, make bad choices 

18 for them by choosing an institution that 

19 provides the most revenue to the school.

20 The school account can provide 

21 convenience and other benefits to students. 

22 But some schools offer pre-paid cards and not 
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1 full-fledged bank accounts, and other offer 

2 accounts like Higher One that purport to be 

3 checking accounts, but that have many of the 

4 limitations of pre-paid cards, such as numerous 

5 fees, a lack of branches to make deposits, and 

6 small ATM networks.

7 Even when schools choose a 

8 traditional bank account, ATM networks vary, 

9 and overdraft fees in particular have been a 

10 problem for many students at some banks. A 

11 recent study found that 17 percent of consumers 

12 ages 18 to 24 incurred overdraft fees, a rate 

13 nearly twice as high as that of older consumers.

14 Not all banks are the same. Citi 

15 and HSBC do not permit debit card and ATM 

16 transactions to trigger overdraft fees, nor 

17 does Bank of America on debit cards. Other 

18 banks permit, and sometimes encourage, 

19 overdraft fees.

20 Wells Fargo and US Bank, two banks 

21 that have among the largest numbers of school 

22 contracts, permit overdraft fees on debit cards 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 and ATM transactions. Those two banks are also 

2 among a small number of banks that offer 300 

3 percent short-term small loans, account 

4 advance payday loans that can trap consumers in 

5 a cycle of debt.

6 Department rules prohibit turning a 

7 school-selected card into a credit instrument, 

8 yet banks that solicit consumers to opt in to 

9 overdraft protection on their debit card skirt 

10 that rule.

11 Direct deposit to an account of the 

12 student's own choosing should always be the 

13 first choice, one that is actively encouraged. 

14 Many students already have bank accounts when 

15 they start school, especially the large number 

16 of older students who have already been 

17 managing their financial affairs.

18 Even when opening a new account, a 

19 student may have a variety of reasons for 

20 preferring an account other than the one that 

21 has the contract with the school. The student 

22 might prefer a bank that has a broader free ATM 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 network or branches in the student's home city, 

2 has lower fees, does not encourage overdraft 

3 fees or overspending, has more sophisticated 

4 mobile apps or other financial management 

5 tools, or is a smaller, community-based 

6 institution with more personal service.

7 The Department already has rules 

8 that require students to affirmatively consent 

9 to an account that the school selects for them. 

10 The Electronic Funds Transfer Act has similar 

11 rules that restrict mandated accounts and 

12 unsolicited debit cards. Unfortunately, 

13 these rules seem to be honored more in the 

14 breech.

15 The Department should revise its 

16 model forms and find multiple early, easy, and 

17 convenient steps in the financial aid 

18 application and agreement process for the 

19 student to indicate their choice of direct 

20 deposit, or, if they prefer, a paper check.

21 Schools should not wait until the 

22 funds are ready to disburse, resulting in 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 delays if the student selects an option other 

2 than the school-selected account.

3 If the student does choose an 

4 account selected by the school, the school has 

5 a high obligation to ensure that the account is 

6 appropriate for students and does not result in 

7 unnecessary fees. Many students will rely on 

8 their school's endorsement, and these accounts 

9 may stay with students for a long time, for many 

10 years to come. A report from Consumers Union 

11 just this week shows how difficult it is to 

12 change banks.

13 The Department should ban 

14 revenue-sharing in order to ensure that schools 

15 do not have a conflict of interest when they 

16 select a contract. The Department should also 

17 set standards for school-selected or endorsed 

18 accounts.

19 The Department of Labor, for 

20 example, put forth guidance on the fees 

21 appropriate on pre-paid cards used by states to 

22 pay unemployment benefits.
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1 Standards for these accounts can 

2 assist schools in negotiating the best deals 

3 for their students. Department and schools 

4 together should ensure that students are 

5 clearly informed that they can decline an 

6 account and can transfer any money to their own 

7 account easily and without charge. 

8 They should ensure that any account 

9 arranged by the school has sufficient free ATM 

10 access, does not carry any overdraft fees or 

11 credit features, provides ample free access to 

12 account information, does not carry 

13 unnecessary or excessive fees, complies fully 

14 with Regulation E, and carries deposit 

15 insurance, and has terms that are clearly and 

16 conspicuously disclosed to the student before 

17 the student decides to accept the account.

18 I've described these issues at 

19 greater length in the written testimony that we 

20 have already submitted. Thank you for this 

21 opportunity to testify. 

22 ASST. SEC. OCHOA: Thank you. 
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1 So, next speaker is Wes Huffman.

2 MR. HUFFMAN: Good morning. My 

3 name is Wes Huffman, and I'm the Legislative 

4 Director for the Coalition of Higher Education 

5 Assistance Organizations, or COHEAO. And I am 

6 here to offer this testimony on behalf of our 

7 board of directors and members. 

8 I would like to present the 

9 following comments on the upcoming negotiated 

10 rulemaking on several important issues, but 

11 most particularly, the campus-based programs 

12 and Perkins Loans. That's kind of the main 

13 issue for COHEAO.

14 COHEAO is a coalition comprised of 

15 colleges and universities and commercial 

16 organizations with a shared interest in 

17 improving access to postsecondary education. 

18 Specifically, COHEAO members have 

19 expertise in the Perkins Loan Program and other 

20 student financial assistance programs. They 

21 are the ones who administer the Perkins Loan

22 Program, working with students over a number of 
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1 years from the time a Perkins Loan is first 

2 disbursed until it is fully repaid.

3 In the vast majority of cases, the 

4 loans are fully repaid, showing a sign of 

5 success with the program, with financing going 

6 to students for generation after generation. 

7 As many of you all know, Perkins 

8 Loans are offered at low interest with 

9 well-crafted cancellation benefits, and more 

10 importantly, or perhaps most importantly, 

11 Perkins Loans also feature the human touch of 

12 campus-based services, which allows on-campus 

13 administrators to provide Perkins borrowers 

14 with one-on-one service to assist them in the 

15 management of their student debts.

16 Campus-based servicing is 

17 especially important today, at a time when many 

18 students are graduating with thousands of 

19 dollars of student debt, and the government is 

20 trying to increase counseling and education to 

21 help manage that debt.

22 Perkins Loan administrators are 
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1 already providing this counseling in many 

2 fashions, and are quite focused on expanding 

3 the provision of financial education for their 

4 students, and in some cases, former students, 

5 as they are repaying the loans.

6 COHEAO commends the Department for 

7 its efforts in streamlining regulations and 

8 appreciates the focus on campus-based 

9 programs. We are extremely hopeful the 

10 negotiated rulemaking effort will produce 

11 regulations which allow the programs to operate 

12 more smoothly for students and schools, while 

13 still safeguarding taxpayer funds.

14 In particular, COHEAO would 

15 encourage the Department to create a regulatory 

16 structure which allows campuses to engage 

17 students efficiently and effectively using 

18 modern communication tools and methods, which 

19 students prefer and expect from their college 

20 or university.

21 We are also hopeful the Department 

22 will give strong consideration to the cost 
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1 benefits for colleges and universities of going 

2 paperless, and the benefits afforded to 

3 students, such as easily accessible but secure 

4 personalized documents and information as it 

5 continues in these streamlining efforts.

6 As the Department knows, many 

7 schools turn to third-party servicers to assist 

8 them with the administration of the Perkins 

9 Loan Program. 

10 COHEAO fully supports the efforts 

11 to maintain program integrity in the Title IV 

12 programs, in particular, Perkins Loans, but we 

13 would also support any efforts from the 

14 Department to identify and eliminate areas of 

15 excessive redundancy in the area of third-party 

16 oversight.

17 In the discussion of the Perkins 

18 Loan Program, we suggest that extra care be 

19 taken to avoid adding administrative burden. 

20 The Department deserves nothing but praise for 

21 attempting to streamline regulations governing 

22 the Title IV program, particularly 
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1 campus-based, but there is always concern about 

2 unintended consequences.

3 Perkins Loans regulations have been 

4 reviewed multiple times in recent years, 

5 including significant regulatory changes as 

6 part of negotiated rulemaking in 2007, 2009, 

7 and 2012. 

8 COHEAO members were honored to 

9 participate in each of those negotiations 

10 involving the Perkins Loan Program, and we are 

11 hopeful the Department will again seek our 

12 members during the review of the campus-based 

13 programs. 

14 Members of COHEAO have an expertise 

15 on both the front end and back end aspects of 

16 the Perkins Loan Program, which would serve the 

17 negotiating committee quite well as it reviews 

18 these programs, and we look forward to the 

19 opportunity to submit nominations for 

20 negotiations.

21 Thank you for the opportunity to 

22 testify.
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1 ASST. SEC. OCHOA: Thank you. 

2 We're going to shortly take a break, but if 

3 Daniel Toughey is here, then his testimony 

4 would put us back on schedule. 

5 So come on up.

6 MR. TOUGHEY: Thank you. Good 

7 morning. My name is Dan Toughey, and I'm 

8 President of TouchNet Information System. 

9 And we'd like to thank the 

10 Department of Education for reviewing an 

11 important issue of the distribution of credit 

12 balances, of Title IV funds, and as it relates 

13 to technology currently available on the 

14 market.

15 It's our hope that the 

16 establishment of a committee will allow a 

17 thorough examination of the distribution 

18 processes and practices currently in place, in 

19 light of the growing complaints by students 

20 expressing their dissatisfaction of the 

21 banking products being aimed at it today.

22 As background, TouchNet is a 
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1 leading provider of electronic payments and 

2 electronic software for the higher education 

3 industry for the past 20 years. We focus 100 

4 percent of our energy and effort on colleges and 

5 universities, and we have a large, installed 

6 base of client institutions that collectively 

7 represent about 6 million students.

8 During the past decade, TouchNet 

9 has worked with many of our client institutions 

10 to work on streamlining and automating the 

11 student aid disbursement process. In that 

12 time frame, we've observed a numerous number of 

13 approaches and programs. We've acquired a 

14 significant amount of knowledge on how to do the 

15 job right. 

16 Our current software offering 

17 called TouchNet E-refunds enables colleges and 

18 universities to electronically distribute 

19 Title IV money using the ACH system, or more 

20 commonly referred to as direct deposit.

21 Students are able to enroll online. 

22 They're able to see and manage and get text 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV 

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1 notifications of activity within their refund 

2 in their student account. And most 

3 importantly, they're able to receive their 

4 funds electronically into their own bank 

5 account.

6 This solution has literally saved 

7 our client institutions millions and millions 

8 of dollars of postage, checks, printing, and 

9 handling the cost. 

10 But more important than that, 

11 folks, more important is what it has not done, 

12 and it has not caused any student protests, any 

13 lawsuits, or any negative press for our client 

14 institutions.

15 The key to a direct deposit program 

16 and the savings an institution can recognize is 

17 directly related, naturally, to the number of 

18 students that select the direct deposit option.

19 Many of our client institutions 

20 have achieved success rates of around 50 to 60 

21 percent or more without mandating electronic 

22 disbursements, as currently provided for in the 
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1 FSA guidelines.

2 Several of our institutions have 

3 mandated electronic disbursements, and have 

4 achieved success rates of over 80 percent. 

5 This is very similar to the success rates that 

6 private employers and the Social Security 

7 Administration receive with direct deposit 

8 programs of payroll and government benefits, 

9 respectively.

10 Folks, there is little doubt --

11 there is no doubt that direct deposit is the 

12 low-cost, student-friendly approach to 

13 delivering Title IV funds. The challenge, 

14 however, is to increase the participation rate 

15 to 100 percent so colleges and universities can 

16 stop cutting checks and start cutting costs 

17 better every day.

18 Now, as you're very aware, there's 

19 a growing trend in the higher education 

20 community to outsource financial aid 

21 disbursement to third-party servicers 

22 affiliated with banking entities.
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1 The allure to institutions of not 

2 having to deal with this difficult process of 

3 disbursements of financial aid seems to 

4 outweigh the downside risks of allowing 

5 third-party banks and their banking partners to 

6 have direct access to student borrowers.

7 Unfortunately, there's also a 

8 growing number of students who are crying foul 

9 because they've been taken advantage of by 

10 these providers. Hardly a day goes by without 

11 another news article, a new report, or website 

12 postings complaining about unreasonable fees 

13 and the heavy-handed process that banks are 

14 using to sell their products.

15 Ladies and gentlemen, there is a 

16 significant problem in the industry, and 

17 something needs to be done about it now. 

18 That being said, TouchNet is not 

19 opposed to using debit cards as part of a 

20 balanced approach to a financial aid 

21 disbursement program. In fact, we most likely 

22 will have one in a future offering.
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1 However, students must be protected 

2 from excessive charges and aggressive business 

3 practices that are sometimes used to push bank 

4 products and debit cards. 

5 Because of this, the Department of 

6 Education will have to take a more active role 

7 in providing guidelines and a framework that 

8 ensure a level of fairness and transparency 

9 when providing bank products as part of a Title 

10 IV funds disbursement process.

11 It is absolutely vital that the 

12 student refund process and problems of today do 

13 not become and do not emulate the student loan 

14 problems and process of the past. 

15 Therefore, today, we submit to the 

16 Department of Education what we call the 4 for 

17 4 E-Disbursements Framework as it applies to 

18 bank products. As you can imagine, it has four 

19 tenets.

20 The first one is, to restrict 

21 third-party marketing to students. The 

22 process of distributing financial aid is based 
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1 upon a relationship between the higher 

2 education institution and the student. No 

3 third-party servicer should be allowed to 

4 market its products and services directly to 

5 students without each student's individual 

6 consent.

7 And we must restrict the 

8 co-branding of these bank products and debit 

9 cards with the institution's logos, which 

10 implies an endorsement by the institution.

11 And further, we must prevent 

12 third-party servicers from mailing or 

13 distributing plastic cards to students without 

14 their consent. We need to stop carpet-bombing 

15 students with plastic. That was point number 

16 one.

17 Point number two is, we need to 

18 present unbiased enrollment options. 

19 Students must be able to choose their 

20 electronic disbursement options without undue 

21 bias and pressure. Direct deposit and bank 

22 products must be presented equally with a 
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1 balance of information that allows the student 

2 to make a good decision.

3 Enrollment must be easy for both 

4 options, available online for both options, and 

5 able to be completed within just a few minutes.

6 In short, direct deposit cannot be 

7 harder to enroll in than opening a new bank 

8 account.

9 The third tenet is we need to 

10 eliminate exclusivity for bank contracts. 

11 Long-term exclusive contracts between 

12 third-party service providers and institutions 

13 are common today. However, such contracts are 

14 not advantageous for students or the 

15 institution. 

16 New, lower-cost bank options always 

17 become available over time, and institutions 

18 need the flexibility to add or subtract such 

19 products without contract restrictions with 

20 their third-party service providers.

21 This will promote competition 

22 between third-party service providers and 
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1 allow the institutions to choose the best 

2 products for their students at any time.

3 And the fourth and the final tenet 

4 of the framework would be, we must disclose all 

5 fees up front. All fees for bank products 

6 associated with the Title IV disbursement 

7 process must be transparent and visible.

8 The fees should be highlighted in a 

9 single table similar to the nutrition label 

10 required by the FDA on food products. Such a 

11 financial fee label would simplify the 

12 information presented to students in a 

13 transparent matter.

14 This will reduce the confusion, 

15 make costs clearer, and of course, eliminate 

16 hidden fees.

17 At the same time, TouchNet does not 

18 believe that bank fees should be regulated by 

19 the Department of Education, provided there's 

20 some kind of framework or rules that are 

21 established properly, as I just mentioned, the 

22 competitive forces of the market will drive 
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1 costs to a reasonable level.

2 As the process goes forward, which 

3 I certainly hope it does and needs to, I think 

4 it's very important to understand that high 

5 fees is only part of the problem. In fact, it's 

6 the visible part of the problem. 

7 But even more troublesome is the 

8 enrollment process itself that is both overly 

9 aggressive and deceptive at times.

10 Today, some third-party service 

11 providers in effect are saying to students, we 

12 have your money, come get it, but get it our way.

13 I truly believe that most schools do 

14 not understand up front when they sign these 

15 contracts what they are getting into, but then 

16 find themselves locked into five-year 

17 exclusive agreements and no way out.

18 In conclusion, the 4 for 4 

19 E-Disbursements Framework provides a practical 

20 and effective set of guidelines to ensure the 

21 integrity of the financial aid disbursement 

22 process. It should be seriously considered.
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1 The advancement of electronic 

2 payments, while a best practice, must be 

3 administered with the needs of the student 

4 borrower in mind. Aggressive and misleading 

5 business practices must not be associated with 

6 the disbursement of Title IV federal financial 

7 aid.

8 As a model to reference in your 

9 review, I would encourage you to go to the US 

10 Treasury Department program called Go Direct. 

11 Effective March 2013, less than on 

12 year from now, all federal benefits, including 

13 social security and veterans benefits, will be 

14 disbursed and received electronically.

15 Although the Go Direct program is 

16 not perfect -- in our opinion, nothing is -- it 

17 does follow the basic tenets of the 4 for 4 E 

18 Disbursement Framework I just talked about.

19 Once again, TouchNet would like to 

20 thank the Department for their consideration of 

21 this vital issue, and we wish the Department 

22 much success addressing them in the coming 
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1 months.

2 Thank you. 

3 ASST. SEC. OCHOA: Thank you, Mr. 

4 Toughey. I apologize for mispronouncing your 

5 name earlier.

6 We will take now a fifteen-minute 

7 break.

8 (Whereupon, the proceedings went 

9 off the record at 10:39 a.m. and resumed at 

10 11:00 a.m.)

11 ASST. SEC. OCHOA: All right, 

12 folks. We're going to reconvene. Our next 

13 speaker is Eric Rodriguez.

14 MR. RODRIGUEZ: Good morning. My 

15 name is Eric Rodriguez. I'm a certified fraud 

16 examiner, and I'm also the manager of fraud 

17 aversion department for Nelnet.

18 Since 1978, Nelnet's been one of the 

19 leading education planning and education 

20 financing companies in the United States, and 

21 provides a comprehensive suite of products and 

22 services to education-seeking families and 
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1 operational product services to institutions 

2 that service them.

3 Simply put, the company helps 

4 families prepare, plan, and pay for education. 

5 Over the past decade, Nelnet has 

6 grown from existing primarily as a financial 

7 provider in the student loan industry to 

8 offering a diverse set of products and services 

9 for both schools and consumers.

10 This shift has helped Nelnet become 

11 a premier organization, not only in education 

12 finance, but also in education services as 

13 well.

14 Nelnet is focused on providing 

15 outstanding services to help students and 

16 institutions that service them reach their 

17 goals. The company offers a broad range of 

18 financial services, technology-based 

19 products, and tools to assist the 

20 education-seeking family throughout the 

21 learning life cycle.

22 Nelnet currently operates five 
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1 segments, asset generation and management,

2 student loan and guarantee services, tuition 

3 payment processing and campus commerce, 

4 enrollment services and list management, and 

5 software and technical services.

6 We support more than 24 colleges and 

7 universities in their goals to recruit and 

8 retain students and help students and families 

9 research, find, and apply to schools that match 

10 and encourage their education and career goals.

11 We provide customer services for 

12 nearly five million student loans today, 

13 borrowers, and indirectly service an 

14 additional 10 million borrowers on our hosted 

15 system.

16 We provide services that allow 4800 

17 private and faith-based K-12 schools and 

18 approximately 650 colleges and universities to 

19 easily evaluate, manage, and grant financial 

20 aids and donations for their institution.

21 In addition to those schools, we 

22 overcome affordability concerns with our 
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1 tuition payment plans and convenient online 

2 payment options. We're helping more than 

3 about 1.5 million families.

4 In the past year, Nelnet's loan 

5 servicing payment processing segment increased 

6 its number of borrowers to provide customer 

7 service on behalf of the Department of 

8 Education by about eight percent, which makes 

9 it around 3 million new accounts there.

10 In total, by the end of last year, 

11 we serviced more than $76 billion of 

12 Department-owned and Federal Family Education 

13 Loan Programs, student loans for nearly 5 

14 million borrowers.

15 With our goal to provide the best 

16 service to our customers and consistently be

17 number-one ranked student loan servicer for the 

18 Department of Education, we continue to make 

19 business decisions that will bring 

20 improvements to this area.

21 Our operations rely on stable, 

22 secure processing, transmission, and storage 
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1 of confidential information within computer 

2 systems and networks. Although we believe we 

3 have robust change management and information 

4 security procedures and controls, cyber 

5 security system stability and the continued 

6 development and enhancing of our training, 

7 controls, audit procedures, processes, and 

8 practices remain a priority.

9 Now, I bring nearly about 30 years 

10 of experience in the fraud detection and 

11 prevention in the credit card arena, debit 

12 card, store of value, loans, and counterfeit. 

13 I find fraud to be kind of a difficult beast to 

14 tame. I mean, we have to be able to work 

15 together to be able to reduce fraud.

16 It's pretty much devastating to the 

17 consumers, especially to the borrowers 

18 themselves, when fraud occurs and there's loss, 

19 they have to clear the credit bureaus, they have 

20 to deal with the schools, they have to deal with 

21 the guarantors, all different types of segments 

22 throughout there.
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1 Now, identity theft affects over 

2 about 11 million Americans in 2010. That's one 

3 out of 20. That's a lot. That's a lot. I'm 

4 elated to hear the Department of Education 

5 Office of Inspector General has taken this 

6 issue to heart, and taken important steps in 

7 acquiring information to help mitigate these 

8 risks. It's going to help mitigate these risks 

9 to our student populations, to taxpayers, and 

10 all the educational institutions. 

11 I read the memorandum from the 

12 Office of Inspector General entitled, 

13 Investigative Program Advisory Report, 

14 Distance Education Fraud Rings, and I do concur 

15 with their findings. We do have big issues in 

16 fraud, specifically, identity theft.

17 We need to take proactive steps in 

18 mitigating the risks by adding preventative 

19 measures, not just fight the fires as they come.

20 There are many steps that we can 

21 take to institute and help reduce the number of 

22 identity theft incidents and reduce the burden 
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1 of the OIG officers and the educational 

2 institutions.

3 Let's start with distance learning 

4 programs. Large percentage of these colleges 

5 or universities that offer distance learning 

6 programs are lower tuition rates, yet the 

7 student, as you've heard from many who have 

8 testified already, take the maximum amount.

9 So, I go out there, I go to a school, 

10 my tuition's going to be $2,500, I take out 

11 $10,000, so I'm going to walk away with $7,500, 

12 $6,500, somewhere around there.

13 I believe that we should cut those 

14 costs to be just the cost of the tuition and 

15 books. You guys are familiar with the fraud 

16 triangle from Donald Cressey. You have the 

17 three parts there, you have the pressure, you 

18 have the opportunity and the rationalization. 

19 Take away one of those, you're going 

20 to curtail the fraud there. So let's take away 

21 that opportunity. Let's take away that $7,500 

22 that's there that they can take.
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1 If I'm a fraud ringleader, and I'm 

2 going to go onto a distance learning school and 

3 see I'm only going to be allowed to get $2,500, 

4 the cost of tuition, fees, and books, I'm not 

5 going to bother. It's not worth my time. So, 

6 why even bother? Right there, you've solved 

7 your problems with distance education.

8 Now, we look at that, and there's 

9 other traditional types of identity theft as 

10 well. There's the Student PLUS Loans. Here, 

11 we have identity theft which occurs where the 

12 parent is not signing these loans. You have 

13 the uncle, the aunt, the brother, the sister, 

14 and it's not until they graduate from school 

15 that these loans go into repayment. 

16 And when these loans go into 

17 repayment, and we start to collect, the parent 

18 says, I never signed this, and most of them are 

19 electronic, of course. So there's another 

20 issue there. Those loans are huge, the Parent 

21 PLUS Loans. You can take out $40,000, $50,000. 

22 Those burdens go to the taxpayers, then.
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1 What can we do in these instances? 

2 We need to have some form of validation. 

3 Currently, today, I know we have the FAFSA 

4 that's out there. We also do a run through 

5 Social Security Administration. 

6 In my experiences, looking at these 

7 fraud cases, the actual FAFSA does have the 

8 parent information, and the student loan 

9 application does not.

10 So if we were able to work and maybe 

11 bounce against these databases, we would be 

12 able to probably curtail a lot of these frauds. 

13 We would be able to see that the FAFSA had the 

14 parent name and the actual loan application had 

15 someone else's name in place there.

16 In addition, we should do some other 

17 sorts of verification, maybe through voter 

18 registration. I know not everyone is 

19 registered, but it's going to help out a lot 

20 there.

21 Other items we can look at to help 

22 within these is when we provide these loans, 
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1 again, we should segment how we send out these 

2 loans. 

3 They should be -- you heard it a lot 

4 from a lot of other people here, you should 

5 actually send out what's needed for the 

6 tuition, fees, and books, and stagger the rest 

7 of those going forward.

8 Most of them do not want to wait a 

9 long period of time to get that money. They're 

10 going to want to go in, get the money, drop out 

11 of school, take it. So if you take that 

12 opportunity away from them there, they're 

13 probably not going to continue.

14 Another item I looked at is with 

15 identity theft, it's a very difficult crime to 

16 prosecute. First of all, the statute of 

17 limitations, many of the times, again, like I 

18 said, they apply for the loans, it's not going 

19 to be years until they graduate, and finally 

20 until someone resolves the issue, it may be 

21 five, six, seven, eight years, in that time the 

22 statute of limitations are gone. 
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1 So OIG is burdened with trying to 

2 investigate these, and not being able to 

3 prosecute.

4 My solution that would be, would 

5 they apply through the FAFSA systems, or they 

6 apply through the government websites for the 

7 loans, we should put out there a banner stating 

8 that you're entering a government website or a 

9 government computer system, and any 

10 falsification could be prosecuted as far as 

11 using an unauthorized computer system.

12 This process then would allow us to 

13 prosecute regardless of those timeframes, and 

14 it will also allow us to have the ability to go 

15 after these fraud rings with less -- if you want 

16 to say, less proof as far as seeing -- you know, 

17 trying to prove that it's identity theft. We 

18 actually can capture that they've signed on, 

19 their IP address, so we can prove that in court, 

20 then we can prosecute.

21 And again, most of these are going 

22 to be higher dollar amounts from the student 
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1 PLUS Loans.

2 Other recommendations that I have 

3 that I've seen is training, training of the 

4 university financial aid offices, training of 

5 the guarantors, training of the servicers. 

6 Training is very important. We need to be able 

7 to train our front lines to be able to recognize 

8 fraud.

9 We need to be able to capture this 

10 information. NSLDS is a perfect area. We 

11 should have a fraud file in place there. We 

12 don't, so, most of these fraud rings are going 

13 to be jumping from school to school to school, 

14 and the next school doesn't know they've just 

15 defrauded another school.

16 So, if we can capture that 

17 information up front, place it in a database 

18 that we utilize like NSLDS, at least the other 

19 schools have the opportunity to look at that 

20 flag and make a decision, or refer it to OIG.

21 We need an easy way, as well, to be 

22 able to track and follow these frauds. Maybe 
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1 a website with a main database that OIG can use, 

2 and that the schools can enter this information 

3 as well.

4 We need to start capturing IP 

5 addresses. We're accepting all these online 

6 applications, yet we don't know who these 

7 individuals are. We have no way of tracking 

8 them. 

9 Capturing their IP address will 

10 help us not only in trying to identify them, but 

11 we can see if we're seeing the same IP address 

12 over and over and over again and see if there's 

13 a pattern, so that we can tell that there is 

14 maybe a fraud ring hitting a certain sector, a 

15 certain area.

16 We need to update each other. We 

17 need to have some sort of quarterly events, 

18 whether it's with OIG, the institutions, so 

19 that we can see what the fraud trends are and 

20 what the areas are that are being affected.

21 We need participation from the 

22 universities, from the guarantors, from the 
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1 lenders, from everyone, from the Department of 

2 Education.

3 Verification, again, we've brought 

4 this up. You've heard it from everyone. We 

5 have a lot of individuals applying for colleges 

6 who don't have a high school diploma, don't have 

7 a GED. We should be verifying this. We need 

8 to have some sort of system in place. 

9 Let it be the institutions, 

10 Department of Ed. The Department of Ed should 

11 probably use their systems to see who they have 

12 on file for graduates, so that we can verify 

13 this information, make it a little easier.

14 Recently, I've read an article that 

15 there was about $250,000 in losses due to a 

16 fraud ring entering and applying, and none of 

17 them had actual high school diplomas. They 

18 were all fake. 

19 Actually, I'm from Lincoln, 

20 Nebraska, and we, right in our backyard, we just 

21 had a fraud that occurred there as well. A 

22 mother applied for student loans using her 
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1 son's information, took over $200,000 as well. 

2 The son didn't know anything about it.

3 So it happens in nice, quiet areas. 

4 It happens in large cities. It happens 

5 everywhere. Part about it is, we have to be 

6 able to work together and try to curtail that.

7 I know the second sector of this was 

8 use of technology. There is a lot of pros and 

9 a lot of cons of how this should go. I do 

10 support the use of technology, because it makes 

11 it easier for investigation. It makes it 

12 easier to track.

13 In the same aspect, I don't like the 

14 idea of any significant banking institution 

15 taking advantage of students with fees as well. 

16 So, there's got to be a balance there, and 

17 that's something that we can find. But I don't 

18 think it should curtail the electronic 

19 processing.

20 Cooling-off periods is another 

21 thing I've heard, and I'm kind of an advocate 

22 of. If it's a traditional school where they're 
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1 going to school and not online, we should not 

2 be sending all of those funds up front. 

3 Again, like I said, we should be 

4 sending those funds to pay the tuition costs and 

5 the fees and possibly the books, and then the 

6 rest, there should be a cooling period to make 

7 sure that they're in school and attendance is 

8 checked, at least for the first three weeks, 

9 make sure they're there.

10 Even the bookstores, books can run 

11 us several hundred dollars, a couple of 

12 thousand dollars. We should probably 

13 advocate, if there is a local bookstore, using 

14 vouchers for that bookstore, not using online 

15 bookstores as well to make purchases. Those 

16 funds that are not used from those accounts can 

17 then be returned to the Department of 

18 Education.

19 Again, I just want to say that I 

20 applaud the efforts of the Department in 

21 examining what can be done and what must be done 

22 to combat the fraud within the Title IV funding 
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1 area, and offer numerous resources and 

2 assistance to the Department for developing new 

3 tools to mitigate fraud and streamline 

4 distribution processes.

5 I want to thank you guys for your 

6 time.

7 ASST. SEC. OCHOA: Thank you. 

8 We're going to -- we have a gap here in the 

9 scheduled testimonies, but if these 

10 individuals are here, they're welcome to come 

11 up now.

12 Next on the list, we have Arnie 

13 Miles, Charlie Leonhardt, and Heidi Wachs 

14 listed together. I'm not sure if any of them 

15 are here.

16 MR. MILES: Thank you. My name is 

17 Arnie Miles. I'm a middleware architect for 

18 Georgetown University. I'm also the project 

19 lead for the common identity trust 

20 infrastructure, which is a joint partnership 

21 between the Postsecondary Electronic Standards 

22 Council and InCommon.
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1 The Postsecondary Electronic 

2 Standards Council is an organization located 

3 here in DC that is devoted to standing up 

4 standards for data communications across 

5 higher ed. 

6 They have a strong representation 

7 from admissions officers, registrars, and 

8 service providers, be they profit or 

9 non-profit, all the big service providers that 

10 contribute to the higher ed arena.

11 InCommon is the de facto expert in 

12 identity management and federation with over --

13 with almost 280 higher ed institutions 

14 participating in a federation. Our project 

15 CommiT is designed to provide three things. We 

16 provide single sign-on for students. We 

17 provide a privacy protecting unique identifier 

18 for students, which is a big boon to higher ed 

19 institutions when the students show up. But, 

20 and most importantly for this conversation, we 

21 provide enhanced level of assurance for 

22 credentials as they go through the system. We 
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1 have been working about a year now, and in 

2 October, we intend to roll out our first 

3 prototype.

4 Participants include testing 

5 agencies, several large higher ed service 

6 providers, five or six of the major 

7 institutions, and our project is going to -- let 

8 me catch my breath here a second. Our project 

9 is going to be rolling out a database that 

10 contains the minimum amount of information to 

11 uniquely identify a human being, and to provide 

12 password reset.

13 The unique identifier will allow 

14 real-time connection to attribute stores that 

15 are housed in a variety of different locations, 

16 like College Board, ACT, high school 

17 transcripts, letter of recommendation, all the 

18 various places that a high school student 

19 touches en route from high school to 

20 university.

21 We have met with the CIO of FSA, who 

22 has expressed an interest in joining us in a 
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1 pilot project and participating as a service 

2 provider and a consumer of our attributes.

3 What ends up happening is we will 

4 provide a credential, and when the student 

5 first shows up, it's a low-level of assurance 

6 credential, very similar to what you might get 

7 from Google or OpenID or Facebook. That means 

8 it's the same person every time, but that person 

9 can assert that they're Donald Duck, if they so 

10 choose, and no one knows the wiser.

11 As they interact, as this student 

12 interacts with the system, however, events 

13 happen. For example, they show up to take an 

14 exam, and they're required to show a photo ID, 

15 and the proctor checks that photo ID against the 

16 ticket that the person provides. That event is 

17 captured in the CommiT data store. 

18 They show up for another exam, they 

19 show up for the ACE or the ACT or any other exam. 

20 Those events are captured.

21 They go to their guidance office at 

22 the high school and say, I want to start the 
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1 process. The guidance officer can go into the 

2 system and say, I verify that this student is 

3 who they say they are.

4 As they go through these events 

5 accumulate, the interaction with the system 

6 accumulates. And as these interactions 

7 accumulate, we have a better assurance that the 

8 student is, in fact, who they say they are.

9 If we know the student is in fact who 

10 they say we are, we've gone a long ways towards 

11 preventing this sort of fraud that we're here 

12 to address today.

13 We also have a mechanism for 

14 accessing in real-time from the authoritative 

15 sources records of graduation from high school, 

16 letters of recommendation, and exams, which 

17 also increase our level of assurance.

18 So students, when they arrive, when 

19 they apply for student loans, FSA has a good 

20 sensation that this student is who they say they 

21 are as they move into their further assurance 

22 processes, those further assurance processes 
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1 are also documented in CommiT.

2 When the student arrives at the 

3 campus, the student has what we call an InCommon

4 Silver or a NIST level of assurance two 

5 credential. We can assert, with authority, 

6 that the student is who they say they are 

7 because we have verified their photo IDs 

8 multiple times. We have checked their 

9 credentials. We have access to the high school 

10 transcripts. Their guidance counselor has 

11 vouched for them. All of these events have 

12 happened and are stored.

13 The events happen anyway. The 

14 effort really isn't monumental for anybody to 

15 add to the process.

16 In a moment, Jack Suess is going to 

17 speak to you about InCommon, which is the key 

18 to this entire process. InCommon is already 

19 providing the federated infrastructure to 

20 enable this sort of sharing of attributes and 

21 credentials amongst institutions, so I'm going 

22 to turn it over to Jack now. 
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1 Thank you very much.

2 ASST. SEC. OCHOA: Thank you. And 

3 Jack Suess is our next speaker.

4 MR. SUESS: Hi. It's an honor to 

5 get a chance to speak before you. My name is 

6 John Suess. I'm the Vice President of IT and 

7 CIO at the University of Maryland-Baltimore

8 County. I'm also the chair of the InCommon

9 Federation here in -- that's part of the United 

10 States higher education.

11 I come to you speaking really both 

12 as an institutional CIO, so one that might have 

13 to implement some of the requirements that 

14 would come forth, and also as someone who has 

15 been working with higher ed on trying to develop 

16 standards that we think may begin to address 

17 some of the concerns that were outlined in the 

18 Inspector General's report.

19 I wanted to take a moment and just 

20 speak a little bit about InCommon, to give just 

21 a little bit of background, since it may not be 

22 clear.
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1 InCommon has been around for almost 

2 a decade. We developed a number of the 

3 federated identity technologies. These are 

4 acronyms such as SAML, the secure access markup 

5 Language. We've developed software called 

6 Shibboleth.

7 This technology is now used by 

8 banks, by businesses; federations are operated 

9 in over 30 countries around the world. Most of 

10 Europe operates their entire higher education 

11 system using federated technology.

12 And so it's a tried and true 

13 technology that's been out there for a number 

14 of years.

15 In the United States, we presently 

16 have 278 universities that are members of 

17 InCommon. These universities represent about 

18 7.5 million students today. They're most of 

19 the larger institutions that are part of 

20 research and education.

21 In addition, we have 100 sponsored 

22 partners. These sponsored programs are 
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1 corporate entities that generally offer 

2 software as a service or cloud options to higher 

3 education.

4 Finally, we have 22 agencies or 

5 government labs that are members of InCommon. 

6 National Science Foundation, National 

7 Institutes of Health, Department of Energy are 

8 all members of InCommon and used for higher ed 

9 to be accessing government resources in those

10 contexts that are there.

11 One of the key things I wanted to 

12 highlight is over the last two years, I've spent 

13 quite a bit of time working with the government 

14 FICAM activities, the Federal Identity and 

15 Credential Access Methods group that's out of 

16 the GSA, and also the NSTIC Initiative for the 

17 national strategy for trusted identity in 

18 cyberspace.

19 InCommon is a trusted framework 

20 provider that is recognized by FICAM, and we 

21 strongly encourage the Department of Ed as it 

22 thinks about these processes that it's doing to 
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1 leverage the work that is being done in other 

2 government agencies around these activities.

3 For higher ed, what we would like to 

4 be able to do is know that students accessing 

5 the FAFSA form may go through the same process 

6 that faculty doing grant-funded research do 

7 with NSF or NIH, and not have to implement 

8 completely different solutions for the 

9 Department of Ed vis-a-vis the Department --

10 NIH, NSF, etcetera. And so we strongly 

11 encourage that there will be great 

12 institutional benefits if there could be a 

13 common approach that the Department of Ed looks 

14 at across multiple agencies.

15 One of the things in support of 

16 FICAM that InCommon has done which we think will 

17 give -- helpful here is we've launched what is 

18 the Assurance Program this year. 

19 This is a program where 

20 universities can submit for certification that 

21 they can offer level 1 and level 2 credentials 

22 that meet the FICAM-approved standards. 
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1 Our trusted framework documents 

2 have to be approved by FICAM. They explain the 

3 auditing process that we go through, the 

4 security process that we go through for these 

5 credentials.

6 We now have a committee that's made 

7 up of industry higher ed security leaders, 

8 higher ed auditors, that reviews the 

9 submissions that come in from institutions to 

10 ascertain if they are meeting the standards to 

11 be eligible for offering these higher 

12 credentials.

13 We think that this program is soon 

14 going to support Second Factor, as well as other 

15 mechanisms for improving reliability of 

16 credentials. It's really a place where we're 

17 trying to adopt best practices that meet both 

18 FICAM and NSTIC in terms of the approaches that 

19 they're outlining.

20 Our relationship to CommiT is that 

21 we see CommiT as a great project that could be 

22 bringing in identities into the higher 
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1 education ecosystem that automatically have 

2 come with a level of assurance 1 or 2.

3 By the fact that a student is having 

4 to register for CommiT, they're going to be 

5 applying through the CommiT process to 

6 universities, this allows us to have a 

7 transferral of trust that yes, in fact, their 

8 name is who they say they are, their ID, their 

9 alternate email address, all of these things as 

10 we issue credentials. 

11 We think this goes a long way 

12 towards meeting the Higher Education 

13 Opportunity Act requirements. And so we think 

14 that this fits where the Department of Ed is 

15 trying to go.

16 I would sort of end by saying just 

17 a couple of quick recommendations. One, we 

18 really do strongly encourage the Department of 

19 Ed to allow as one of the supported mechanisms 

20 -- approaches for identity verification for 

21 campuses to use the InCommon assurance approach 

22 that meets FICAM and NSTIC. 
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1 We think this fits with the other 

2 government strategies that are there. It 

3 adopts GSA-recommended practices. And we 

4 think it is really aligned very nicely with the 

5 program that you want to see in terms of 

6 improving identity verification.

7 Our second recommendation would be, 

8 and we have had discussions with the Department 

9 of Ed, but we think that the FAFSA form could 

10 be one of the key activities that becomes 

11 something that large numbers of entities would 

12 use their institutional credentials to be 

13 accessing the FAFSA form.

14 And so if the Department of Ed would 

15 extend FAFSA to be a relying party application 

16 under the FICAM framework, we think that this 

17 would have tremendous benefits, both for the 

18 Department of Ed, and for the higher education.

19 One, in doing so, the Department of 

20 Ed could encourage that students use their 

21 institutional credentials that have been 

22 approved at these higher levels of assurance as 
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1 a means of having some additional verification.

2 Now, you may still allow alternate 

3 means, but this would give you a chance for 

4 focusing many of your reviews on people who are 

5 using the non-institutional credentials that 

6 have lower levels of assurance, or have other 

7 processes that you put in place for those 

8 entities.

9 Lastly, I want to just highlight 

10 that the one thing I don't recommend is asking 

11 campuses to maintain lots of data on IP 

12 addresses, log files, other kinds of things. 

13 At many universities, this generates 

14 tremendous amounts of data. Discerning which 

15 students are coming from which IP address, and 

16 separating them from all other faculty and 

17 staff, or students who don't receive financial 

18 aid, will really be a nightmare in terms of 

19 whose log entries do we give you, what IP 

20 addresses do we keep.

21 And so I really worry about this 

22 idea of maintaining lots of log data that was 
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1 recommended by the Inspector Generals. We 

2 have processes as part of the assurance 

3 framework that require us to keep certain kinds 

4 of activities for relying parties, and so we 

5 think by following that, we would meet the 

6 spirit that you intended in that approach.

7 And that finishes my comments.

8 ASST. SEC. OCHOA: Thank you.

9 Our next speaker is Robert 

10 Barbieri.

11 MR. BARBIERI: Good morning. My 

12 name is Robert Barbieri, and I'm in-house 

13 counsel at Higher One. We certainly 

14 appreciate the opportunity to comment this 

15 morning.

16 As a leading provider of technology 

17 and payment services to higher education 

18 institutions, Higher One is particularly 

19 interested in regulatory reform that 

20 encourages the application of technology and 

21 innovation to improve the delivery of Title IV 

22 refunds to students and prevent financial aid 
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1 fraud.

2 Founded in 2000, Higher One's 

3 focused on helping college business offices 

4 manage operations and provide enhanced 

5 services to students. We work closely with 

6 colleges and universities to ensure that 

7 students receive financial aid refunds and 

8 credit balances securely and quickly.

9 Indeed, Higher One developed the 

10 first widely adopted refund disbursement 

11 solution, and has maintained a singular focus 

12 on higher ed. We do not offer or sell any 

13 credit products.

14 Currently, approximately 6.2 

15 million students at more than 830 campuses 

16 nationwide use our services. Historically, 

17 the disbursement of financial aid refunds has 

18 been paper-based, costly, and inefficient for 

19 institutions.

20 The Department of Education has 

21 worked towards modernizing refund 

22 disbursements through the use of electronic 
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1 funds transfers, or EFTs, to mitigate fraud, 

2 reduce expenses, and improve services to 

3 students.

4 Indeed, in its 2008 negotiated 

5 rulemaking, the Department acknowledged the 

6 emergence of EFTs in the disbursement of Title 

7 IV funds, and facilitated their use through its 

8 final regulations.

9 We believe that the Department 

10 should continue to support electronic 

11 solutions, especially as a means of fraud 

12 detection and prevention. Fraud deeply 

13 impacts federal and state governments, higher 

14 education institutions, students, their 

15 families, and taxpayers alike.

16 We cannot afford to tolerate the 

17 abuse of programs vital to our national 

18 interest, especially at a time when families 

19 are struggling through economic hardships, and 

20 institutions are facing budget cuts.

21 Higher One's solution helps prevent 

22 fraud by intrinsically analyzing disbursement 
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1 data for irregularities related to the amount 

2 of a refund, frequency, location, and general 

3 trends.

4 Furthermore, our platform employs a 

5 verification process that promotes the 

6 authentication of a recipient's identity. We 

7 believe it's imperative that all entities 

8 involved in the administration of Title IV 

9 programs work in concert to help mitigate the 

10 risk of fraud.

11 With respect to how students 

12 receive their refunds, Higher One has always 

13 made choice a hallmark of its solution. 

14 Students at schools that use Higher One's 

15 services can select to have their refunds 

16 electronically deposited into any domestic 

17 bank account, directly deposited to a checking 

18 account serviced by Higher One, or in some 

19 cases, have a paper check sent to them in the 

20 mail.

21 Students are never charged a fee to 

22 receive their refunds, regardless of how they 
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1 choose to receive their refunds. 

2 For many students and families, the 

3 lack of eligibility and accessibility of 

4 banking services represents a significant 

5 barrier to establishing a financial foothold, 

6 and we believe that it's important to provide 

7 access to financial products for all students.

8 An electronic refund distribution 

9 service would be incomplete if students who are 

10 unable to qualify for traditional banking 

11 services were not provided with the means to 

12 receive their refunds electronically.

13 It's also essential that the terms 

14 and conditions of each account are clearly 

15 communicated to the students in ways that they 

16 can understand.

17 All banks, credit unions, and 

18 check-cashing services charge for the services 

19 they provide. The large, traditional banks 

20 require capital to cover the costs of their vast 

21 networks of brick-and-mortar bank branches, 

22 and their fee schedules reflect this.
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1 Students often do not qualify to 

2 have the monthly fees or minimum balance 

3 requirements of such banks waived. 

4 Nontraditional or online banks choose a more 

5 streamlined, electronic means of servicing 

6 their customers, who are often less reliant on 

7 making the trip to bank branches and actually 

8 prefer the convenience of their laptop or smart 

9 phone.

10 These banks are able to pass along 

11 such cost savings to their customers, and as 

12 such, they're popular with college students. 

13 Higher One is one such company providing 

14 students with access to high-value, 

15 FDIC-ensured banking services. And we've 

16 enhanced our account offerings with features 

17 that meet the demands of the college students 

18 we serve.

19 We recommend that the negotiating 

20 committee that is ultimately appointed 

21 recognize the importance of electronic 

22 solutions, like Higher One's, in the delivery 
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1 of Title IV refunds, and the value of 

2 accessible, student-oriented checking 

3 accounts, and that any new regulations are 

4 carefully drafted to prevent unnecessary 

5 barriers to the use of EFTs and 

6 post-disbursement financial management 

7 options that are essential to such processes.

8 At the same time, we agree that the 

9 negotiating committee should explore whether 

10 enhanced disclosure of checking account fees to 

11 students is appropriate. 

12 Higher One favors transparency. 

13 Our banking website includes full disclosures 

14 of all fees that may be assessed on account 

15 holders, and even detailed tips on precisely 

16 how to avoid such fees.

17 The negotiating committee should 

18 also be aware of the potential unintended 

19 consequences of regulating banking fees that 

20 are associated with servicing checking 

21 accounts after electronic disbursements have 

22 been made, and should be mindful of the existing 
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1 regime of federal banking laws and regulations 

2 that have been promulgated by Congress and 

3 other agencies.

4 We thank you for this opportunity to 

5 comment. We've also submitted written 

6 comments, and we look forward to further 

7 sharing our experiences and assisting the 

8 Department as we can in the upcoming rulemaking 

9 process. 

10 Thank you.

11 ASST. SEC. OCHOA: Thank you.

12 At this point, we don't have any 

13 other scheduled speakers until 1:30. So are 

14 there any speakers that wish to step forward at 

15 this time that aren't scheduled?

16 MS. MULLINS: I'm not on the list, 

17 but may I go ahead?

18 ASST. SEC. OCHOA: Yes.

19 Please identify yourself.

20 MS. MULLINS: Good afternoon. I'm 

21 Christine Mullins. I'm the Executive Director 

22 of the Instructional Technology Council. 
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1 We represent community colleges 

2 around the country that have distance learning 

3 programs, so this is obviously a real item of 

4 interest to us. And we've informed our members 

5 about the different scenarios, as far as the 

6 distance learning fraud rings go, although I've 

7 heard comments that we should not really call 

8 it distance learning fraud rings, but just 

9 fraud rings, because these are fraudulent 

10 groups that have targeted -- all types of 

11 students are taking part in these rings, the 

12 face-to-face as well as the distance learning 

13 students. 

14 So I actually appreciate the 

15 recognition that the Department of Education 

16 has had as far as that goes. And I was a little 

17 concerned with the investigative report, the IG 

18 report, because -- and I've heard a couple 

19 comments today that perhaps we should limit the 

20 amount of money that students receive for 

21 distance learning -- the amount of money that 

22 distance learning students receive so that they 
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1 wouldn't be able to receive the housing 

2 allowance that all students are entitled to.

3 And I just wanted to mention that we 

4 shouldn't discriminate against those distance 

5 learning students who need that money and are 

6 taking the courses that they are enrolled for, 

7 just as any other community college student, 

8 and they have jobs, perhaps they're taking 

9 part-time work, or they're mothers who are at 

10 home who can't get a job, and they're taking 

11 classes at their local community college so 

12 that they can get those academic credentials so 

13 they can get better jobs, and they can work in 

14 the community.

15 So I think it would be wrong to 

16 discriminate against those students, because 

17 any community college student is entitled to 

18 that, that student financial aid, so the online 

19 students should be just as well.

20 And I just wanted to mention that 

21 this is an issue that community colleges are 

22 looking at. This has been a problem. They are 
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1 also interested in combating these fraud rings. 

2 They don't want to be seen as being 

3 negligent, and they have been making sure that 

4 these rings are available on the campus.

5 The president's forum had a really 

6 interesting session on this, where they had 

7 groups from different colleges, for-profit 

8 universities come to talk about what the steps 

9 that they're taking to combat these rings. And 

10 a lot of it is communication among their staff, 

11 making sure that the financial aid people are 

12 in touch with the faculty members so they all 

13 know what's going on, and they can work together 

14 to try and combat these rings. 

15 So it's not going on in isolation. 

16 I don't think the colleges are saying, oh, well, 

17 you know, this isn't an issue for us. They are 

18 taking those steps. So I really value 

19 the Department of Education's approach to let 

20 the colleges work together and try and combat 

21 this fraud, and it may be that different 

22 colleges have to use different methods, not 
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1 only the communication, but maybe delaying the 

2 financial aid that's disbursed, giving it out 

3 in chunks so that those who are committing fraud 

4 are not able to get as much money up front, 

5 communicating with the financial aid staff, 

6 making them know that they can say no to some 

7 of these perpetrators, because they're often 

8 very vocal, and they're not always the nicest 

9 of people, so sometimes it takes some educating 

10 the staff to make sure that they know that they 

11 can say no.

12 The staff at these different 

13 colleges do a lot of research to make sure that 

14 the -- students are who they say they are, 

15 going through, and someone was even saying that 

16 they're going on Google maps to make sure that 

17 addresses that some of the fraud rings are 

18 giving are actual, true addresses.

19 So I just want to make sure that 

20 folks know, and I know the Department of 

21 Education is aware of this, that the colleges 

22 really are taking steps to try and combat this. 
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1 And I think that a logical approach, 

2 and what I appreciate this forum, and as the 

3 Higher Education Act is reauthorized, there 

4 will be further discussion on this and other 

5 issues for student authentication and all of 

6 that. I think it's very important to have a 

7 real, reasoned approach and talk with those 

8 like at Northern Virginia Community College who 

9 are in the trenches trying to deal with this, 

10 and trying to work through it, rather than 

11 create a -- you know, throwing the baby out with 

12 the bath water type of thing, saying, oh, well, 

13 we're going to cut all financial aid to students 

14 who really need that money in order to graduate, 

15 just because we can't think of a way to combat 

16 this issue, not to punish those legitimate 

17 students, because there are students who 

18 definitely are ripping off the system.

19 So I appreciate your allowing me to 

20 make that point. 

21 Thank you.

22 ASST. SEC. OCHOA: Thank you.
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1 Are there any other speakers that 

2 wish to step forward at this point, that aren't 

3 on the schedule?

4 All right. Then we will break, and 

5 reconvene at 1:30.

6 Thank you.

7 (Whereupon, at 11:43 a.m., the 

8 meeting was recessed, to reconvene at 1:30 

9 p.m.)

10 A-F-T-E-R-N-O-O-N S-E-S-S-I-O-N

11 1:33 p.m.

12 MS. MAHAFFIE: Good afternoon and 

13 welcome back. We appreciate your interest and 

14 your continued comments.

15 I'm Lynn Mahaffie. I'm the Senior 

16 Director for Policy Coordination, Development, 

17 and Accreditation Service here in the Office of 

18 Postsecondary Education.

19 You met Ron Sann this morning, and 

20 in a couple minutes, we'll be joined by Ajita 

21 Talwalker from our under-secretary's office.

22 We have three people scheduled to
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1 speak. The first is Christopher Mullin.

2 Thank you.

3 MR. MULLIN: Good afternoon. My 

4 name is Christopher Mullin, and I serve as the 

5 Program Director for Policy Analysis at the 

6 American Association of Community Colleges.

7 AACC is a national organization 

8 representing the nation's 1132 community, 

9 junior, and technical colleges, and their more 

10 than 13 million students.

11 Community colleges are higher 

12 education's largest sector, currently 

13 enrolling close to half of all US 

14 undergraduates. 

15 Federal student aid is critical to 

16 access and success in postsecondary education. 

17 The Pell Grant Program has a particularly 

18 important role in facilitating student 

19 success, given the financial barriers of 

20 low-income students.

21 Last year, over 3 million students 

22 at community colleges received approximately 
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1 $11 billion to assist in meeting educational 

2 expenses. 

3 Because of the overwhelming 

4 importance of the Pell Grant and other Title IV 

5 programs to community college students, AACC 

6 and its member institutions are extremely keen 

7 to combat any abuses of these programs that 

8 could threaten their perceived integrity in the 

9 eyes of policy-makers and the public.

10 Even though all evidence suggests 

11 that instances of fraud are relatively rare, 

12 upon learning about fraud in the form of Pell 

13 runners and fraud rings as described in the 

14 Office of Inspector General's report and 

15 related media in the fall of 2011, AACC 

16 immediately took action to better understand 

17 the phenomenon.

18 We began contacting colleges and 

19 engaging in conversations to better understand 

20 the issues. In January of 2012, we convened 

21 staff and presidents from our colleges, along 

22 with a representative from our national council 
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1 for State Directors of Community Colleges, and 

2 policy analysts and specialists, to discuss 

3 federal student aid with an eye towards abuse 

4 in the programs.

5 What we learned, summarized in a 

6 report published in April of 2012, and that will 

7 be submitted with part of my remarks today, was 

8 that the extent of the problem is yet to be fully 

9 known, and that community colleges are actively 

10 engaged in practices to maintain the integrity 

11 of Title IV student aid, and that there are 

12 numerous actors within an institution that can 

13 help to prevent the abuse of federal student aid 

14 programs.

15 Examples include providing 

16 bookstore credits, monitoring whether students 

17 are authentically engaged in the learning 

18 environment, disbursing aid over the semester, 

19 and mining data for multiple or similar data 

20 points.

21 This report makes clear that 

22 community colleges are already taking a variety 
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1 of steps to combat fraud in the Pell Grant

2 Program. Any regulations in this area should 

3 empower and support campus officials in these 

4 efforts, and not impose a one-size-fits-all 

5 approach where that is not warranted.

6 Our report also identified 

7 additional steps that the Department of 

8 Education can take, either through regulation 

9 or other changes to its procedures, to help 

10 institutions combat Pell Grant fraud. 

11 ED should deploy its National 

12 Student Loan Data System to provide more 

13 real-time information to institutions about 

14 prior attendance patterns and loan debt through 

15 the use of flags or messages on the student 

16 institutional student information report 

17 records that ED electronically sends to the 

18 colleges.

19 Timely information about students 

20 is critical in identifying potential cases of 

21 fraud, and we should be using tools that we have 

22 at hand to our best advantage.
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1 ED can also clarify when colleges 

2 are justified in placing fraud alerts on 

3 student records to further empower 

4 institutional actors.

5 AACC and its member institutions 

6 look forward to working with the Department on 

7 this important issue. I thank you for your 

8 time.

9 MS. MAHAFFIE: Thank you. 

10 Our next speaker is Maureen 

11 Budetti.

12 MS. BUDETTI: Good afternoon. I'm 

13 Maureen Budetti, and I'm the Director of 

14 Student Aid Policy at NAICU, the National 

15 Association of Independent Colleges and 

16 Universities.

17 I appreciate the opportunity to 

18 speak today on behalf of our nation's private, 

19 non-profit colleges and universities. 

20 NAICU represents 962 colleges and 

21 universities of varying size and mission, and 

22 our schools have long been supportive of the 
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1 success of the student aid programs, whether it 

2 be in their structure, administration, 

3 funding, or integrity.

4 NAICU and its members have also 

5 worked with the Department through a variety of 

6 negotiated rulemaking processes on a variety of 

7 topics, and we certainly are interested in 

8 participating in the development of the current 

9 efforts as well.

10 As described in the Federal 

11 Register of May 1st, 2012, the Department 

12 intends the upcoming negotiated rulemaking to 

13 cover several somewhat unrelated but very 

14 important topics, the so-called straw student 

15 rings, the use of debit cards, and the 

16 campus-based programs.

17 While NAICU has long been 

18 supportive of efforts to prevent fraud, at this 

19 time, we would like to focus to a larger extent 

20 on examination of the campus-based programs. 

21 However, I do note that since coming 

22 over to provide these remarks, I've spoken with 
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1 just two people who have really clarified to me 

2 the seriousness of the other issues, so we will 

3 be paying attention to those as well.

4 Your notice mentions your intent to 

5 improve and strengthen the federal 

6 campus-based aid programs. It also mentions 

7 that the Department's review of these programs 

8 is part of a larger effort to systematically 

9 review departmental regulations. And in this 

10 case, the Department would be looking at ways 

11 to improve the administration of those 

12 programs.

13 We are unaware of any major 

14 administrative problems associated with the 

15 campus-based programs. Therefore, we urge you 

16 to maintain these valuable programs, and not 

17 try to remake them through the regulatory 

18 process, especially on the eve of a scheduled 

19 reauthorization of the Higher Ed Act.

20 We deeply appreciate the 

21 Administration's support for and interest in 

22 campus-based aid. The three campus-based 
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1 programs are of vital importance to our 

2 schools. They often make the difference 

3 between a student attending college or not.

4 We are particularly appreciative of 

5 the Administration's innovative proposals to 

6 revitalize the Perkins Loan Program. Such a 

7 transformation would provide the benefits to 

8 federal student loans to students who are in 

9 real need of additional borrowing capacity and 

10 are now forced to seek it on the more expensive 

11 and restrictive private market.

12 We were disappointed when the new 

13 program was stripped from the 2009 SAFRA 

14 legislation, and hope that the reauthorization

15 will give Congress an opportunity to review and 

16 enact this very worthy proposal.

17 The campus-based aid programs are 

18 an essential part of the federal framework of 

19 need-based aid. By requiring a substantial 

20 match by colleges, these programs have changed 

21 student aid practices on campuses, while 

22 substantially growing the federal investment.
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1 Unfortunately, the lack of funding 

2 over the years has restricted their planned 

3 expansion to additional schools, and denied the 

4 assistance of SEOG, Work Study, and Perkins 

5 Loans to many needy students.

6 Currently, only about half of our 

7 schools participate in these programs. 

8 However, while we do not see a need for 

9 substantial regulatory change without a change 

10 in statute, colleges are reeling from the 

11 continuous rule-changing and substantial 

12 increase in regulatory burden from recent 

13 negotiated rulemaking sessions, and even more 

14 change is expected in teacher education this 

15 summer.

16 We encourage the Department to 

17 focus its effort on ongoing fraud and abuse 

18 where it happens, and as it happens, through its 

19 power of enforcement. 

20 Please do not focus your limited 

21 resources on remaking highly functional 

22 programs that are under the purview of Congress 
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1 in order to make any policy changes.

2 We appreciate again the opportunity 

3 to testify and look forward to working with you 

4 in the future.

5 MS. MAHAFFIE: Thank you.

6 Finally, we have Nathan Dean. Is 

7 Nathan Dean here?

8 Okay. We have nobody else 

9 scheduled to speak, but if there is anybody who 

10 would like to speak at this time, please let us 

11 know. 

12 (Pause.)

13 Ajita Talwalker from our 

14 undersecretary's office -- we have four more 

15 persons scheduled to speak, but I don't think 

16 he's back yet. 

17 We will be here until 4:00. If 

18 there's anybody who would like to speak, please 

19 let us know, and in the meantime, we'll wait and 

20 see if Nathan Dean comes back. 

21 (Whereupon, the proceedings went 

22 off the record at 1:43 p.m. and resumed at 2:08 
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1 p.m.)

2 MS. MAHAFFIE: Good afternoon. I 

3 just want to let you know, we have no more 

4 scheduled speakers. 

5 We will be here until 4:00 if 

6 anybody would like to speak, but I just wanted 

7 to let you know that we have nobody else 

8 scheduled. Thank you.

9 (Whereupon, the proceedings went 

10 off the record at 2:08 p.m. and resumed at 3:05 

11 p.m.)

12 MR. TOUGHEY: So I said I'd text my 

13 wife -- I'd text my wife, and I said, this is 

14 just great, because this is the only forum I 

15 know of I can talk and nobody challenges 

16 anything I say, and they just simply go next.

17 (Laughter.)

18 And so, I don't know that that 

19 happens very often. But anyhow, for 

20 everybody, I'm Dan Toughey. I'm President of 

21 TouchNet Information Systems. We're an 

22 electronic payment and ecommerce software 
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1 provider to higher education. 

2 We've been doing it for 20 years, 

3 and we have a lot of schools. Our school 

4 population represents about 6 million of the 19 

5 or 20 million or so students out there, so we 

6 have a pretty big footprint in the market.

7 But I made some comments earlier 

8 today, and so now I'm making comments as Dan 

9 Toughey, private citizen, and I think that 

10 they're very different than my comments were 

11 this morning.

12 But we were in an interesting 

13 conversation in the back about fees, related to 

14 campus debit cards, and why -- maybe why it 

15 won't be easier for schools to do better due 

16 diligence in the process of selecting those 

17 debit cards for more competitive fees, because 

18 clearly, when you look at the providers of these 

19 programs in the market today, in the higher 

20 education market today, there are more 

21 competitive debit card offerings out there, 

22 frankly, all over the place.
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1 But I mentioned briefly this 

2 morning, I said, well, as the committee goes 

3 forward, I really think the committee needs to 

4 focus on the process at least as much as the 

5 fees, because it's the process that is where the 

6 students get trapped. And of course, that 

7 report that just came out yesterday, and Rich 

8 Williams spoke about this morning, I think he 

9 called it the campus debit card trap.

10 And let me just describe the process 

11 -- not all third-party servicers use, but let's 

12 say, at least some, they represent a pretty good 

13 share of the market for this type of solution 

14 out there.

15 So, what happens -- what happens, 

16 it's really called a refund management program, 

17 and what the schools like about it is not 

18 necessarily the bank accounts and the debit 

19 cards and all of that. What they like about the 

20 program is that it completely outsources and 

21 off-loads the disbursement process to a third 

22 party and gets it completely out of the way of 
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1 the school.

2 And this process of disbursement is 

3 very painful for schools. I mean, they just --

4 you can see their eyeballs when you start to 

5 talk about it. 

6 And in fact, when you talk about the 

7 fraud element and more distributions are needed 

8 over time so that fraud doesn't happen sooner 

9 in the process, they're sitting back there 

10 going, oh my goodness, you're talking about 

11 more of these horrible distribution processes 

12 that have to take place. 

13 And of course, students are not easy 

14 to deal with in reality during this, because 

15 that's their money, in their opinion, and they 

16 want it now. Right? So it's different when 

17 they're paying the schools, obviously, right?

18 But how that process works in some 

19 cases right now is, the school signs up with a 

20 vendor who has a complete outsourced refund --

21 we call it student refund management program. 

22 And when it's time to make a disbursement, the 
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1 school then wires all the money. Okay, so 

2 maybe it's $10 million, depending on the size 

3 of the school, maybe it's more than that. 

4 Maybe it's less than that.

5 But they wire a complete lump sum to 

6 the third party servicer's bank partner. 

7 Okay? So every third party servicer that does 

8 this, has debit cards, they have to be 

9 affiliated with some kind of banks. 

10 Some of those banks are well known, 

11 Wells Fargo, otherwise, others of them, you've 

12 never heard of before, Bancorp, Fulton Bank. 

13 Things like this, okay? You've never heard of 

14 them before.

15 But those are the only folks that 

16 can issue debit cards and bank accounts, so 

17 organizations that present themselves somewhat 

18 as a bank really are affiliated with one of 

19 these banks.

20 But anyhow. So let's just use $10 

21 million for example, it's disbursement time. 

22 $10 million is wired over to the bank. 
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1 The bank, at that point, then the 

2 bank sets up, I'm going to say dummy accounts, 

3 but they call them soft accounts, for each 

4 student. The money goes into an account that's 

5 already established, okay, long before the 

6 student even knows this.

7 And then, the school sends over the 

8 list of students with their PII, and says, these 

9 are the students, these are the amounts. And 

10 I hate to say it this way, but basically, they 

11 say, go get them.

12 And so the third-party servicer 

13 then has all the money, and they have all the 

14 students' information, and they start the 

15 marketing process of get your refund, okay? 

16 Get your refund now, we have your money.

17 So the student then logs on to the 

18 third party servicer's website, typically 

19 using or has to use a 16-digit debit card number 

20 that they were sent in the mail to log on, and 

21 then they're asked to select, how do you want 

22 this distribution?
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1 And there's three ways generally 

2 presented, at least two ways, but sometimes 

3 three. The first way is, click here, and you 

4 can have your money right now. Okay? Boom. 

5 Next way is, if you want to do a 

6 direct deposit to your existing bank account, 

7 you have to print out a form and either mail it 

8 or fax it back in, plus, direct deposit takes 

9 two to three days to make happen. Right?

10 So basically, they have to -- they 

11 can open a bank account online, but they can't 

12 put in their bank account number for their 

13 existing accounts. They have to print out a 

14 form, mail it, or fax it.

15 Or the third way would be, if you 

16 want a paper check, and then, literally, this 

17 is a screen that's in that report that was 

18 mentioned this morning from Rich Williams, that 

19 there's all these steps for a check, and 21 days 

20 later, you get it.

21 So, you can see what happens to the 

22 students. I have two kids, college-aged, and 
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1 I have always said, they are no competition to 

2 this, that if they are asked to do one of those 

3 three, they would go, give me my money now. 

4 Right?

5 And when you do that, you just 

6 opened up a new bank account, and off you go. 

7 And that's why this process has become magic. 

8 Banks, for years, have tried to 

9 figure out, how do we open up -- partner with 

10 schools, how do we open up school bank accounts? 

11 They never get above 15 percent of the student 

12 population.

13 But using this method, tied to 

14 disbursement money, and the money is at the bank 

15 already, they're getting 40, 50, 60 percent or 

16 more of the student population clicking that 

17 money that basically says, give it to me now. 

18 Okay?

19 So now, we've got all of these 

20 students that have these bank accounts that 

21 they frankly don't need. Most students come to 

22 school with a bank account. The Federal 
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1 Reserve says that 92 percent of Americans have 

2 a bank account, and only 8 percent are truly 

3 un-banked. 

4 It might be a little bit different 

5 with college students, definitely different 

6 around border towns and that type of thing. 

7 But the fact of it is, this is, in most cases, 

8 another bank account that is now opened for the 

9 purpose of getting my financial aid refund 

10 money fast and now. Okay?

11 So there's the magic in the system. 

12 Regardless of what the fees are on that card or 

13 bank account, that's how those bank accounts 

14 are being opened, and the schools love it 

15 because they don't have to do any of this. 

16 The vendor loves it because all of 

17 a sudden, now there's a formula to open up a mass 

18 number of bank accounts and replicate this at 

19 campus after campus after campus after campus. 

20 Right?

21 And then we have all these new bank 

22 accounts out there. And so that basically, in 
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1 my opinion, is the process.

2 There are not good, fair, equal 

3 choices. If, in fact, direct deposit was laid 

4 there with the same ability to plug in your 

5 existing bank account number online at that 

6 moment, just like, open a new bank account for 

7 me, if those two choices were sitting there, 

8 equally presented, direct deposit would win 75 

9 percent of the time.

10 It's no different than with the 

11 Social Security Administration. Again, we 

12 were talking about that, that March 2013, they 

13 will go completely electronic. 

14 And so a social security recipient 

15 has to go up to their website, I'm sure they have 

16 call-in capabilities as well, but there sits 

17 two buttons. One says, go direct deposit, and 

18 one says, get a prepaid debit card, which is 

19 very close to what a bank account is. 

20 They look the same. They have the 

21 same positioning. They have the same 

22 marketing capability. There's no preference 
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1 one way or another.

2 And when you select, go direct 

3 deposit, it isn't putting the recipient through 

4 all of these hoops, now you have to go print this 

5 and send that. It is just simple, enter in your 

6 bank account number. If you select, I want a 

7 debit card, then you go over to Comerica's bank 

8 site, and they tell you about the debit card. 

9 Same thing. But then I put in my 

10 PII, versus it being pre-populated. That's 

11 another key point. The recipient puts in their 

12 personal information, their social security 

13 number, their birth date, those types of things 

14 that are needed to activate those accounts.

15 So, folks, I hate to say it, but it's 

16 the process, first of all. It's a process that 

17 schools love, and then it's a process that 

18 students can't get out of. There is not truly 

19 an opt-in mechanism happening here. This is 

20 not everybody, but this is some, okay, in a big 

21 part of the market it's happening out there.

22 So, then you move further 
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1 downstream, if you have the process the schools 

2 like, and you have a way to get, let's just say, 

3 50 percent of those students to take the bank 

4 account, and you have a five-year exclusive 

5 contract tied to that, then your fee structure 

6 is kind of in your hands. There's no 

7 competition. 

8 You know, there's no way out for the 

9 school. The students, you know, it's kind of 

10 like Facebook. Have you ever tried to close 

11 out a Facebook account? You can't do it. It's 

12 an act of Congress to try to get yourself out 

13 of Facebook, okay? The same thing kind of 

14 happens here, as well.

15 So that's why -- that's why this 

16 thing, in my opinion, has got to change just 

17 from the perspective of, I really believe that 

18 there's competition happening in the market 

19 around debit cards, and there's going to be more 

20 competition there, and the fees will come down 

21 and be more reasonable. And of course with the 

22 Consumer Financial Protection Bureau on this, 
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1 and everything else like that, that's all 

2 driving that.

3 But there's got to be the focus on 

4 the process, okay? The process is where the 

5 problem is, and the process is the heyday for 

6 the banks and the bank marketing partners that 

7 they've never had before. There's a little 

8 genius in that process, but it's really kind of 

9 changed the game dramatically.

10 So. So, I've always said that my 

11 kids would be no match for this. There's no 

12 way. I mean, if you picked up -- if my daughter 

13 Erin or Patrick got the email or a phone call 

14 that said, we got your financial aid money, come 

15 up to the website and pick your method, and you 

16 got up to the website or you're on the phone and 

17 they go, I can have it right now because it's 

18 already pre-populated in a bank account, and I 

19 can walk out the door and spend it, versus going 

20 through these other things? It's a hands down 

21 slam kind of situation.

22 So, anyhow, that concludes my 
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1 second and my last comment for the day on the 

2 topic. But anyhow, thank you very much for 

3 considering those comments.

4 ASST. SEC. OCHOA: Thank you. 

5 (Whereupon, the above-entitled 

6 matter was concluded at 3:17 p.m.)

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