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89–771 PDF 2003

FEDERAL DEBT MANAGEMENT—ARE AGENCIES

USING COLLECTION TOOLS EFFECTIVELY?

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY

AND FINANCIAL MANAGEMENT

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JUNE 17, 2003

Serial No. 108–61

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

JOHN SULLIVAN, Oklahoma

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

WILLIAM J. JANKLOW, South Dakota

MARSHA BLACKBURN, Tennessee

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

CHRIS BELL, Texas

———

BERNARD SANDERS, Vermont

(Independent)

PETER SIRH, Staff Director

MELISSA WOJCIAK, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHILIP M. SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY AND FINANCIAL MANAGEMENT

TODD RUSSELL PLATTS, Pennsylvania, Chairman

MARSHA BLACKBURN, Tennessee

STEVEN C. LATOURETTE, Ohio

JOHN SULLIVAN, Oklahoma

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

CAROLYN B. MALONEY, New York

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

MIKE HETTINGER, Staff Director

LARRY BRADY, Professional Staff Member

AMY LAUDEMAN, Clerk

MARK STEPHENSON, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on June 17, 2003 ............................................................................... 1

Statement of:

Gregg, Richard L., Commissioner, Financial Management Service, Department of Treasury; William H. Campbell, Assistant Secretary for

Management, Department of Veterans Affairs; Theresa S. Shaw, Chief

Operating Officer, Federal Student Aid, Department of Education; and

Deanne Loonin, staff attorney, National Consumer Law Center ............. 6

Letters, statements, etc., submitted for the record by:

Campbell, William H., Assistant Secretary for Management, Department

of Veterans Affairs, prepared statement of ................................................. 22

Gregg, Richard L., Commissioner, Financial Management Service, Department of Treasury, prepared statement of ............................................ 9

Loonin, Deanne, staff attorney, National Consumer Law Center, prepared

statement of ................................................................................................... 42

Platts, Hon. Todd Russell, a Representative in Congress from the State

of Pennsylvania, prepared statement of ...................................................... 3

Shaw, Theresa S., Chief Operating Officer, Federal Student Aid, Department of Education:

Followup questions and responses ........................................................... 73

Prepared statement of ............................................................................... 33

(1)

FEDERAL DEBT MANAGEMENT—ARE AGENCIES USING COLLECTION TOOLS EFFECTIVELY?

TUESDAY, JUNE 17, 2003

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY AND

FINANCIAL MANAGEMENT,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:03 p.m., in room

2154, Rayburn House Office Building, Hon. Todd R. Platts (chairman of the subcommittee) presiding.

Present: Representatives Platts, Blackburn, Towns and Maloney.

Staff present: Mike Hettinger, staff director; Dan Daly, counsel;

Larry Brady, Kara Galles, and Tabetha Mueller, professional staff

members; Amy Laudeman, clerk; and Mark Stephenson, minority

professional staff member.

Mr. PLATTS. A quorum being present, the Subcommittee on Government Efficiency and Financial Management will come to order.

We are going to try to get in a couple of brief statements and get

as many of your opening statements before we have a series of

three votes on the floor. We will see if we are able to squeeze in

most of the statements, break and then come back to questions

after those three votes.

A priority of this subcommittee is the responsibility to ensure

that Federal agencies are managing their finances wisely. An important part of a solid, financial management effort is the collection

of debts owed to the Federal Government. This subcommittee,

under the leadership of former chairman, Steve Horn, and my colleague and current member of the subcommittee, Representative

Carolyn Maloney, developed legislation that was enacted as the

Debt Collection Improvement Act of 1996, a law that made sweeping reforms to the way the Federal Government manages debt.

Since that time, the subcommittee has held numerous hearings focusing on implementation of the act.

Today’s hearing will look at the debt collection successes and

challenges at the Veterans Administration and the Department of

Education’s Office of Federal Student Aid. We will also hear from

the Treasury Department’s Financial Management Service for a

look at governmentwide progress in implementing the Debt Collection Improvement Act and from a consumer law advocate regarding

debt collection efforts under the act.

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I am very pleased to note that both the Veterans Administration

and the Department of Education have done much to improve debt

collection efforts and our witnesses today will testify that the departments are giving debt management a high priority in their

strategic planning and that such focus has paid off for American

taxpayers.

In terms of all Federal agencies, implementation of the Debt Collection Improvement Act is also improving. Federal agencies are

now referring almost all of their eligible debts to the Financial

Management Service whose collection results continue to improve

each year. FMS has collected about $15 billion in delinquent debt

through its Offset Program and more than $100 million through its

contracts with private collection agencies. During fiscal year 2002

alone, collections by private contractors amounted to $43 million.

This represents a 6-percent increase over fiscal year 2001.

While we have had many successes, at the same time more may

need to be done before the Debt Collection Improvement Act will

realize its full potential and we will examine some of these issues

and how we can go forward from here as well.

Today, the subcommittee is delighted to hear from Mr. Richard

Gregg, Commissioner of the Financial Management Service, Department of Treasury; the Honorable William H. Campbell, Assistant Secretary for Management and Chief Financial Officer, Department of Veterans Affairs; Ms. Theresa S. Shaw, Chief Operating

Officer, Federal Student Aid, Department of Education; and Ms.

Deanne Loonin, staff attorney, National Consumer Law Center in

Boston, MA.

I want to thank each of your for being here today and I certainly

look forward to your testimonies to complement your written statements you have provided.

[The prepared statement of Hon. Todd Russell Platts follows:]

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Mr. PLATTS. I will now yield to the ranking member, the gentleman from New York, Mr. Towns, for the purpose of an opening

statement.

Mr. TOWNS. Thank you, Mr. Chairman.

Billions of dollars of non-tax debt are owed to the Federal Government. In 1996, recognizing that our current collection laws were

inadequate, this subcommittee passed the Debt Collection Improvement Act which established new tools and expanded existing tools

to improve collection practices.

I would like to commend the chairman for continuing the subcommittee’s active role in the area of Federal debt collection. I

should also mention the leadership and dedication of my colleague

from New York, Carolyn Maloney, who has also been involved in

this issue from day one.

As a result of efforts of many in this room today, the Federal

Government is beginning to realize the benefit of a more centralized debt collection system. In the last few years, the Federal Government’s centralized debt collection activities at the Financial

Management Service have begun to work more efficiently. Increased management attention by program agencies and improved

use of debt collection tools by the Department of Treasury have resulted in advancement in Federal debt collection.

Since enactment of the Debt Collection Improvement Act, $15 billion in delinquent, non-tax debt has been collected; $2.8 billion last

year alone. There has been improvement in the Government’s collection efforts and I commend the Treasury and the agencies for

their work. However, there seems to be room for improvement.

I want to thank the chairman for agreeing to our request for a

witness from the National Consumer Law Center for today. As part

of our oversight responsibility, this subcommittee is meeting to discuss Federal agency implementation and compliance with DCIA. It

is my hope that as a result of this hearing, we will be closer to

meeting our goal of having an efficient, effective and fair Federal

debt collection system.

On that note, Mr. Chairman, I yield back my time and I am anxious and eager to hear from the witnesses.

Mr. PLATTS. Thank you, Mr. Towns.

If I could ask each of our witnesses and anyone who will be advising them as part of their testimony here today, to stand and we

will administer the oath before we get to your opening statements.

[Witnesses affirmed.]

Mr. PLATTS. Thank you. The clerk will note that all witnesses affirmed the oath.

I would like now to proceed directly to testimony. Mr. Gregg, we

will begin with you, followed by Mr. Campbell, Ms. Shaw and finally, Ms. Loonin. The subcommittee appreciates the substantive

written testimonies each of you has provided and respectfully ask

that each of you keep your oral testimonies to approximately 5

minutes. Given that we are going to try to get all these in before

we break and get into questions after our floor votes, trying to

watch that 5 minute clock would be very helpful.

Mr. Gregg, we will begin with you.

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STATEMENT OF RICHARD L. GREGG, COMMISSIONER, FINANCIAL MANAGEMENT SERVICE, DEPARTMENT OF TREASURY;

WILLIAM H. CAMPBELL, ASSISTANT SECRETARY FOR MANAGEMENT, DEPARTMENT OF VETERANS AFFAIRS; THERESA

S. SHAW, CHIEF OPERATING OFFICER, FEDERAL STUDENT

AID, DEPARTMENT OF EDUCATION; AND DEANNE LOONIN,

STAFF ATTORNEY, NATIONAL CONSUMER LAW CENTER

Mr. GREGG. Mr. Chairman and members of the subcommittee,

thank you for inviting me to testify today to provide an update on

the Financial Management Service’s implementation of the Debt

Collection Improvement Act. I would also like to congratulate you,

Chairman Platts, on your appointment as chairman of the subcommittee.

This subcommittee’s longstanding support has been central to

helping Treasury to implement a remarkably successful, governmentwide debt collection program. This program has focused management attention across government agencies in making debt collection a priority, significantly increased the collection of delinquent debt and greatly improved the Government’s ability to accurately report on outstanding delinquent debt.

FMS collects various types of delinquent debt through two major

programs. I would like to briefly provide an overview of them.

First, the Treasury Offset Program compares the name and taxpayer identification numbers of debtors with those of recipients of

Federal payments. If there is a match, the payment is reduced or

offset to satisfy the debt. Using this same methodology, FMS also

levies Federal payments to collect delinquent Federal income taxes

for the IRS.

The second major program is Cross Servicing under which Federal agencies refer delinquent debt to FMS for collection by means

of a variety of tools.

I am pleased to report that the Treasury debt collection program

is, in my view, fully mature. Moreover, it has developed into an integral component of sound, effective financial management at the

Federal level. As a result of the debt collection program, FMS has

collected billions of dollars of debt, much of which would not have

been collected otherwise.

Since enactment of DCIA, FMS has collected about $17.6 billion

in delinquent debt, sharply increasing collections through numerous program enhancements and working with agencies to overcome

the obstacles for participation. For example, we have worked hard

to have agencies refer eligible debt in a timely manner. For the

Treasury Offset Program and cross servicing, currently about 91

percent of the debt identified as eligible has been referred. Every

year since fiscal year 1999, FMS has collected over $2.6 billion in

delinquent debt. In fiscal year 2002 alone, Treasury collected over

$2.8 billion including $1.47 billion in past due child support, $1.2

billion in Federal non-tax debt, and $180 million in State and Federal tax debts.

I would now like to give the subcommittee a progress report on

some of Treasury’s well established collection initiatives as well as

some new efforts.

The offset of Social Security benefit payments continues smooth- ly. For fiscal year 2002, FMS collected about $55 million in Federal

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non-tax debts and we have collected over $36 million thus far in

2003. I would also note that the administration proposes to amend

the DCIA to offset additional SSA payments to improve collection

of delinquent child support debt. The House version of the Welfare

Reform legislation includes a similar provision and we are working

with the Senate to also have a provision in there. About $55 million over 5 years and $113 million over 10 years in child support

collections are at stake.

We have also made excellent progress in collecting tax debt. For fiscal year 2002, about $60 million in delinquent Federal income

tax was collected, primarily as a result of the Social Security benefit levy which accounts for $43 million of the total. In fiscal year

2003, we have already collected $61 million including $50.5 million

in Social Security levies.

State governments have also benefited from our debt collection

program. The FMS implemented the program to collect delinquent

State tax in 2000. In fiscal year 2002, $119 million was collected

and in 2003, we have already collected $136 million for the States.

Currently, 30 or the 41 States that collect income tax and the District of Columbia, are participating.

FMS issued regulations providing guidance to agencies on garnishing private sector wages to collect agency debt. FMS views administrative wage garnishment as a powerful and important collection tool within enormous potential. So that agencies can take full

advantage of FMS’ centralized processes and established safeguards, we continue to strongly encourage them to use administrative wage garnishment through FMS. We appreciate the subcommittee’s support in this effort.

In the past 5 years, private collection agencies have collected over $156 million. The present contract with five private collection

agencies went into effect October 1, 2001 and we have seen continued improvements. In fiscal year 2002, PCAs collected $43 million

and have already collected $45.6 million in 2003.

We have also been careful to make sure that compliance reviews

are performed onsite at each PCA on an annual basis to assure,

among other things, adherence to laws and regulations. As a result,

we have seen no substantiated cases of abusive tactics under our

contracts.

Looking ahead, we have several significant improvements underway. In 2001, FMS began phasing in the program to collect delinquent debts through offset of Federal salary payments, the centralized process, and we have collected $1.9 million in fiscal year 2002

and $1.1 million thus far in fiscal year 2003.

We have also been working with the Department of Education on

referral of student loan debts for collection through centralized salary offset. In our view, this step would complement Education’s

successful collection efforts through their own PCAs. We believe

their participation would greatly boost the salary offset program

and will continue to work with them on this effort.

Another new element of our debt collection program is the offset

of non-Treasury disbursed payments under which debts in the FMS

debtor data base will be compared to non-Treasury disbursed vendor payments. When there is a match, participating disbursing

agencies will offset the payment. Non-Treasury disbursed vendor

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payments will also be levied to collect Federal tax debt. The Department of Defense is already participating in this initiative and

we are working with the Postal Service and USDA’s Commodity

Credit Corp. to take in their vendor payments.

Ensuring that delinquent debtors are barred from obtaining Federal loans is a high priority for FMS and the agencies. We have developed a system we call debt check to allow lending agencies to

access information from the FMS delinquent debtor data base so

that government loans are not made to previously identified delinquent debtors. This has already been implemented in the Small

Business Administration and we continue to roll it out.

Another program, FED Debt, scheduled for implementation in

2005, is a web-based system that will replace the current cross

servicing computer system and enhance the effectiveness of that

program by providing increased flexibility, automating a number of

processes currently handled manually, and improving system access for customers and service partners.

In summary, Treasury’s debt program is one that is both robust

and effective and has consistently met or exceeded its performance

measures. Nonetheless, we continue to work to enhance the program. In addition to maximizing our statutory authority, we believe that the need for congressional oversight is critical. We also

believe that agencies and the Inspectors General can enhance the

program as well.

Be assured that the debt collection program will remain a high

priority for the Department of Treasury. I would be happy to answer any questions you and other members of the subcommittee

may have.

[The prepared statement of Mr. Gregg follows:]

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Mr. PLATTS. Thank you.

We will continue and see if we can get in at least two if not all

three statements before I have to run over to vote.

Mr. Campbell.

Mr. CAMPBELL. Mr. Chairman and members of the subcommittee,

it is my pleasure to appear before you regarding the Department

of Veterans Affairs’ implementation of the Debt Collection Improvement Act [DCIA], of 1996. My staff has worked with all VA elements as well as the Department of Treasury’s Financial Management Service to take the necessary steps to ensure our full compliance with the law’s requirements.

In our previous appearances before the subcommittee, we testified about our progress in referring eligible debt to the Treasury

Offset Program [TOP], and for cross servicing. In recent years, we

have consistently referred well in excess of 90 percent of eligible

debt to the TOP and cross servicing programs. VA has made extensive efforts to reduce the creation of debts and to collect those that

have been established.

At the end of fiscal year 1996, the year in which the DCIA was enacted, VA had $4.2 billion in total receivables with $2.4 billion

delinquent. When we last testified before the subcommittee in

2001, VA had $3.8 billion in total receivables at the end of fiscal

year 2000, with $1.4 billion delinquent. As of March 31, 2003, VA

had $3.5 billion in total receivables with $1.2 billion delinquent.

The trend continues to improve. Of the $1.2 billion in delinquent debt at the end of the second quarter of this fiscal year, $328 million was attributable to the direct home loan mortgages held by VA; $312 million to compensation and pension overpayments; $106 million to defaulted guaranteed home loans; $46 million to readjustment benefit overpayments; and $318 million to charges for medical care and services

owed to VA’s Medical Care Collection Fund [MCCF].

The majority of the $318 million for medical care is comprised of

claims filed with third-party health insurers. These claims are not

referable to Treasury for cross servicing or administrative offset because they are not sum-certain amounts owed. The Veterans

Health Administration has developed a revenue improvement plan

to improve the MCCF program. The plan concentrates on improving patient intake, medical documentation, medical coding, billing

and collection of accounts receivable.

At the end of the second quarter of fiscal year 2003, VA had referred $284.4 million or 97 percent of the $292.6 million in delinquent debt eligible for TOP. VA began participating also in the Tax

Refund Offset Program in 1985. The Department collected $343

million from 1985 through 1999 when the Tax Refund Offset Program became part of TOP. VA has collected $110 million from TOP

over the last 3 calendar years and so far this year, through May,

TOP has collected $40 million for the Department of Veterans Affairs.

In implementing the cross-servicing requirements of DCIA, at

the end of the second quarter of this fiscal year, VA referred $171.4

million or 95 percent of the $180.6 million in delinquent debt eligible for the cross-servicing program. The eligible debt remaining at

the end of the second quarter of fiscal year 2003 is made up of debt

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from a few smaller benefit programs and miscellaneous veterans

health debt such as vendor debt, employee debt and non-Federal

sharing agreement debt. We continue to work toward referring

most of this remaining debt for cross servicing throughout the fiscal year.

We have some other collection tools. Each year VA sells approximately 15,000 to 25,000 properties that we acquire due to foreclosure of our guaranteed loans. In fiscal year 2002, VA sold a total

of 16,000 properties for $967 million. VA has also amended its regulations to comply with the revised Federal Claims Collection

Standards [FCCS] and they will be published in the Federal Register soon. The amended regulations include a new regulation to

authorize VA’s use of the administrative wage garnishment as well

as a regulation barring delinquent debtors from obtaining certain

benefits while a debt is outstanding.

We also have a debt management center in St. Paul, MN. VA has

had an automated collection system since 1975 and the Debt Management Center has operated this system since its creation in

1991. The Debt Management Center utilizes every collection tool

available to Federal agencies such as automated payment processing and collection systems; benefits and salary offset; credit bureau

reporting; and private collection agency referrals, compromises in

litigation and writeoffs.

The DMC developed a fully automated set of procedures for identifying and referring all eligible debts to the TOP and cross-servicing programs. In addition, we run a Financial Services Center in

Austin, TX. The FSC reviews VA vendor payments daily to systematically identify, prevent and recover improper payments made to

commercial vendors. In fiscal year 2002, the FSC recovered more

than $2.2 million, a 44 percent increase from the preceding year

when they collected $1.6 million.

In a 2001 fiscal year report, the General Accounting Office recognized the FSC’s efforts to recover excess expenditures as a good example of effective government financial management. VA has also

fully centralized its permanent change of station travel payment

processing at the Financial Services Center. This consolidation will

greatly increase efficiency, reduce improper payments and improve

internal controls and accountability over VA travel funds.

Mr. Chairman, this concludes my statement. I certainly appreciate the opportunity to discuss the progress we have made in implementing DCIA. We still have a way to go and will continue to

work hard. I would be pleased to answer any questions the subcommittee may have.

[The prepared statement of Mr. Campbell follows:]

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Mr. PLATTS. Thank you, Mr. Campbell.

We are going to try to get in one more. Ms. Shaw and Ms.

Loonin, we will save you for after the break.

Ms. SHAW. Mr. Chairman and members of the subcommittee, I

am pleased to be here today to discuss with you the implementation of and compliance with the Debt Collection Improvement Act

of 1996 by the Department of Education with special emphasis on

my area of responsibility, the Office of Federal Student Aid.

I especially would like to thank you, Chairman Platts, for this

opportunity and look forward to working with you and the other

members of the subcommittee as we continue to look for ways to

improve the Federal Government’s debt collection tools.

I also must congratulate you, Chairman Platts, as it is my understanding that you recently made your last payments on your student loans. I am pleased that you were able to avail yourself of

these programs and to recognize firsthand their importance.

Mr. PLATTS. I am waiting for verification of that in writing so I

can celebrate at that point.

Ms. SHAW. I am the Chief Operating Officer for Federal Student

Aid and FSA is the organizational unit within the Department of

Education with the operational responsibility for the collection of

defaulted student loans and to a great extent the implementation

of the Debt Collection Improvement Act.

For many years now, the Department of Education has been the

primary source of federally supported student loans. Students have

received over $500 billion in loans since the enactment of the Higher Education Act of 1965 and our current outstanding loan portfolio

including direct and guaranteed loans was approximately $280 billion at the end of fiscal year 2002. Student loans are inherently

risky, largely due to the statutory design and purpose of the programs themselves, each year providing loans to millions of borrowers who may not be credit worthy. Though the vast majority of borrowers repay their loans, some borrowers default on their loans

and thus one of our challenges at FSA is to collect on these defaulted student loans.

The Department has undertaken a broad range of activities over

the past two decades to continue improving our debt collection efforts. The use of private collection agencies, Treasury offset and administrative wage garnishment, Federal salary offset, credit bureau

reporting, and the requirement of taxpayer identification numbers

have been in place at the Department of Education for many years.

We are pleased to report that since the passage of the Debt Col- lection Improvement Act, FSA has recovered over $8 billion in defaulted student loans which is an increase of nearly 38 percent

since September 2001 and includes $2.6 billion in consolidated and

rehabilitated loans. Before I focus on our successes with our private

collection agency contracts, I want to highlight a few of our accomplishments that conform to the major provisions of the Debt Collection Improvement Act.

Treasury offsets on student loan debts referred by the Department have totaled $5.4 billion since 1996. We began using administrative wage garnishment under Higher Education Act authority 8

years ago and working with Congress, we were granted the authority to receive important information on employment from the NaVerDate 11-MAY-2000 11:51 Oct 16, 2003 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 D:\DOCS\89771.TXT HGOVREF1 PsN: HGOVREF1
31

tional Directory of New Hires. This new authority has really been

effective allowing us to collect more than $500 million since our

first National Directory of New Hires match in June 2001.

The decision to contract for services by private collection agencies

has been one of our most successful management decisions. Today,

FSA is the largest debt collection outsourcer in the Federal Government. We have approximately $14 billion in defaulted student

loans currently under management with 20 contractors. Over the

past 7 years, private collection agencies have generated over $1.2

billion in collections, excluding consolidations and rehabilitated

loans.

FSA collection contracts rely on a contingent fee method of compensating collection agencies, meaning the collection agencies are

paid only for the results achieved. Our most recent contracts have

several performance-based evaluation measures, making the contracts models for performance-based contracting in the Federal

Government. The private collection agencies are evaluated and

rated according to the overall service they perform, as well as their

ability to collect defaulted student loan debt. The collection agencies that perform best across all these categories receive additional

incentives, both monetary rewards and new account placements.

The Department of Education has established ground rules for

healthy competition as well as the guidelines and requirements for

protecting the rights of defaulted student loan borrowers, including

the ability to immediately terminate collectors who violate the Fair

Debt Collection Practices Act. To help assure borrowers’ rights are

protected and that complaints are appropriately addressed, we

have an added safety net provided by the Student Aid Ombudsman

who reports directly to me. The use of private agencies has allowed

education to dramatically reduce costs. In fiscal year 1993, the contractors were paid roughly 33 cents for every dollar collected. After

new contracts were competed and awarded in fiscal year 1997, the

costs were reduced to 23 cents per dollar collected. Our costs are

now down to only 16 cents per dollar collected and are expected to

be reduced even further during our next competition and award

process which is scheduled for late in fiscal year 2004.

I believe the steps we have taken in compliance the Debt Collection Improvement Act have made a significant contribution to the

recovery of debt and in recognition of our success on May 11, 2001,

the Department of the Treasury granted the Department of Education a permanent waiver to allow it to service its own defaulted

student loans. I am very pleased to announce that fiscal year 2003

is proving to be another successful collection year for the Department of Education.

However, at FSA we are not resting on our debt collection accomplishments. We know that FSA’s default prevention activities are

equally important and arguably more so as collecting on loans that

have defaulted. Outreach efforts like our student loan repayment

symposium and national default prevention days where we share

best practices to reduce defaults, and our debt management partnership with the National Council of Higher Education Loan Programs demonstrate that we place a high value on default prevention. These and other efforts have helped us to reduce student loan

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cohort default rates to below 6 percent for each of the last 2 years,

the lowest rates ever.

As you know, one of the Department’s top priorities is to remove

the General Accounting Office high risk designation from the Federal student aid programs. We are almost there are we are confident we will get there. Our continuous improvements in default

management and prevention activities including our focus on debt

collection improvement are key indicators to our successful attainment of that goal.

I want to thank you for the opportunity to discuss the significant

progress the Department has made in improving debt collection.

We look forward to continued congressional support as we work to

make further improvements in this area.

I would be pleased to answer any questions you all may have.

[The prepared statement of Ms. Shaw follows:]

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Mr. PLATTS. Thank you, Ms. Shaw.

I do need to run over to vote, so we are going to stand in recess

until about 2:50 p.m., and we will continue then with Ms. Loonin’s

testimony.

Thank you.

[Recess.]

Mr. PLATTS. Ms. Loonin, if you would go forward with your testimony, that would be great.

Ms. LOONIN. Thank you for inviting the National Consumer Law

Center to testify today. The National Consumer Law Center is a

nonprofit organization specializing in consumer issues on behalf of

low income people. I am here today to help bring the consumer’s

perspective into this evaluation of the DCIA.

First, I want to be clear that we support and respect the Government’s right to collect its debts and understand the importance of

this, but the DCIA and other collection programs, although today’s

topic is the DCIA, should not be considered successful if measured

only by dollars collected. There are constitutional and statutory

limits to the Government’s debt collection powers and unfortunately in the rush to collect more and more, these limits are often

ignored or not treated seriously enough.

I would like to highlight just a few of the issues from my written

testimony and then take any questions. I am focusing also on the

Department of Education experience for a number of reasons,

mainly because they are the agency we have tracked the closest

and also because they have the longest track record and even before the DCIA was passed had implemented a number of the collection tools the DCIA provides.

First, with respect to private debt collectors, the experience of

contracting out to private debt collectors through the Department

of Education is not the unequivocal success story that is portrayed.

We applaud any efforts the Department is making or has made to

ensure that consumers are protected from collection abuses but it

hasn’t been enough. I am particularly interested in hearing more

about the termination of agencies that Ms. Shaw referred to of

those that have violated the Fair Debt Collection Practices Act.

Even though well intentioned debt collection agencies are usually

not equipped or informed to address consumer questions about the

complex student loan repayment, deferment, forbearance, cancellation options, there are a number of unique and easily misunderstood remedies involved with student loans. As a result, in many

cases, consumers are deprived of important options to which they

are entitled and in some cases might actually lead to repayment as

opposed to continued default.

As an example, particularly this year and last year, I received

calls, primarily from legal services advocates across the country

and most work on elder hotlines so their calls are going to be almost exclusively from low income elders. They have told me their

clients who have student loan debts, usually for very old debts,

have been contacted by private debt collectors who told them they

could collect or offset from their SSI payments. I can explain to

those few attorneys that get to me that this is wrong, that Department of Treasury regulations specifically exempt SSI payments but

it is only a handful that get to the legal services advocate and get

40

to me and who then get to sort of communicate that back. That is

an example of frankly wrong information we have heard in the last

couple of years.

I have had similar problems in the past with private debt collection agencies taking on the responsibility of explaining repayment

options or even trying to set reasonable and affordable repayment

options. Maybe the debt collection agent knew he was wrong,

maybe just mistaken. In either case, the result in that case is

frightening elders whose SSI benefits are specifically exempted and

who were specifically intended to be protected from offset.

I have mentioned more extensively in my written testimony and

won’t go into detail here, the problems with due process protections, but this is an area where we have particularly grave concerns. All of the programs we have talked about here under the

DCIA, the administrative wage garnishment, tax refund intercept,

administrative benefits offset, all have statutory due process protections written into the statute. The agencies are required to write

regulations which they have done. The problem in general is with

enforcement of those regulations and frankly whether they meet

the constitutional due process protections.

Again, the problem is that the consumer’s contact is often with

the private debt collection agent. To try to get a free hearing or set

up and organize that kind of hearing through a private debt collection agent who is trying to carry through what is an inherently

government function is where a lot of problems lie. Unfortunately,

in many cases, there ends up being nothing fair about what is supposed to be a fair hearing.

Particularly with those sorts of inherent government functions

like fair hearings, that would also include explaining and counseling student loan borrowers on the various repayment, cancellation,

deferment, forbearance options, those sorts of things we believe

should not be in the hands of private debt collectors who are not

trained or experienced to understand those.

The one other program I wanted to mention briefly today is specifically the Social Security benefits offsets. This really is probably

the most extraordinary part of the Debt Collection Improvement

Act or at least the most unprecedented part in the sense that it allows Federal agencies to offset from Federal benefits programs

such as Social Security which have traditionally been off limits to

the creditors whether private or government creditors. We understand the DCIA does specifically abrogate the Social Security antiassignment provisions but Congress placed some heightened protections in this case which we are afraid are not being followed

through.

In particular, the DCIA statute in administrative offset that sets

a 10-year limit for Federal benefits offsets, the Department of Education has taken the position that the 10-year limit does not apply

to student loan collections and in addition, as I mentioned before,

collections have threatened to take benefits considered to be exempt, SSI benefits. The other protection Congress specifically provided is the $9,000 that is exempt.

For all the other collection tools under the DCIA, the Department of Education has the luxury of no statute of limitations. We

understand that. We may not necessarily agree with it, but we unVerDate 11-MAY-2000 11:51 Oct 16, 2003 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 D:\DOCS\89771.TXT HGOVREF1 PsN: HGOVREF1
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derstand that is what there is but in this particular case, because

Social Security benefits have to do with the most vulnerable members of society, there is a 10-year limit and we believe that 10-year

limit should be respected.

We certainly support the Government’s right to collect, as I said

at the beginning, but not at the expense of important consumer

rights. We want to ensure that when this evaluation of the DCIA

occurs, we are not looking at only dollars, that the agencies also

be required to give information about how they comply with some

consumer protections such as due process requirements and not

just how they train people but for example, how many hearings are

offered, what are the results of those hearings, how many request

them, who are actually the judges in those hearings. This is the

kind of information we think if taken in complement with the information about the dollars collected, could show what could be a

truly successful program.

Thank you.

[The prepared statement of Ms. Loonin follows:]

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Mr. PLATTS. Thank you, Ms. Loonin, and thank you to each of

our witnesses today for your testimonies and your patience as we

had our interruption for the floor votes. I think we are in good

shape for at least an hour or maybe 2 hours before the next votes,

so we shouldn’t have any other interruptions of our hearing today.

We are going to move to questions. I believe Dan Osendorf is

going to join us at the table from the Department of Veterans Affairs, the Debt Management Center. Mr. Osendorf, I need to administer the oath to you as well.

[Witness sworn.]

Mr. PLATTS. Let the record reflect the witness answered in the

affirmative and we will proceed. We generally do about 5 minutes

each but at this point with just the ranking member and myself,

we will be pretty liberal in that requirement.

I am going to start with you, Mr. Gregg, with your 51⁄2 years at

FMS, your familiarity with the tremendous progress from the 1996

act to where we are today. If you could highlight what you think

would be the greatest key to the success of today versus the past,

the change that has occurred and more importantly, what is the

greatest challenge from doing even more in the future if it is what

we need to look at for the challenges we need to help from a legislative standpoint or internally?

Mr. GREGG. We have come a long way. When DCIA was passed,

we struggled for a number of years to get our own act together and

I think the agency struggled in a twofold way, one was to get the

systems in place to do what they had to do as we weren’t prepared,

and second and probably more importantly, was to get the commitment from fairly high in the organizations to change the way of

doing business. I think it is worth noting the examples of Education, VA, and Agriculture, of people making a difference to implement the program because agencies rightly so felt these were their

programs and the idea of turning them over to FMS at some levels

wasn’t the thing they wanted to do. So beyond the system problems, there was some purely predictable resistance.

I think in the last couple of years, we have seen that shift and

the agencies as you heard from both Education and VA are referring virtually all of their eligible debt and working with us to grow

the program.

Looking ahead, I would highlight the need for continued emphasis of the importance of this. One of the things that goes beyond

the numbers in what we have collected is the improvement in the

information that we are seeing and is being reported to Congress.

That has been kind of hidden but I think through this whole process, the focus on making sure the numbers are right and providing

better financial controls within the agency is still something we are

working for but have made great strides.

Looking ahead trying to make sure we pull this very complex

program together in a way that provides good information to the

agencies, provides the right kind of protection for the debtors and

doing that with systems and with management focus is the kind

of challenge I see, while at the same time agencies are struggling

with everything else on their plate. I think that is the balance we

all face, trying to do this on top of everything else we have to manage.

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Mr. PLATTS. I would like to recognize Mrs. Maloney who played

a critical role in the 1996 act who has joined us as well. We are

delighted to have you here with us today.

To followup, not necessarily wanting to put you on the spot but

to get as frank an answer as far as highlighting VA, Education and

Agriculture, what agencies or departments still have the farthest

to go in getting up to speed and having the leadership embrace this

effort as part of their comprehensive financial management effort?

Mr. GREGG. I would have had a fairly long list a couple of years

ago. The area we need to focus on I think, and this runs through

a number of agencies, is getting the administrative wage garnishment in place. If we do that in a handful of large agencies, we are

going to cover a good portion of the potential. The potential for centralized salary offset I think is also something that runs across the

gamut.

One of the most recent areas we have focused on is the nonTreasury disbursed payments. We have a ways to go yet with the

Department of Defense and the Postal Service and others who

make their own payments. That is something that we are working

with them on but we need to make sure for example, vendor payments are being offset. That is an area where we will keep pushing.

Mr. PLATTS. That was going to be one of my specific followups,

DOD and Postal Service. Could you tell us where you are today

and how close we are to getting a good process in place regarding

those non-Treasury disbursements?

Mr. GREGG. We actually began offsetting some portion of Department of Defense vendor payments a number of months ago. I think

we are actually quite close to being there with the Postal Service.

That is something where we have made progress. I think we only

have one of a number of the Department of Defense facilities that

is participating now and we want to continue to make sure we have

all those.

Mr. PLATTS. One more for you, Mr. Gregg and I will recognize

the ranking member.

With your efforts governmentwide and the efforts going on, my

understanding is perhaps you would like to see more of the actual

tax debt. My understanding is most of the tax debt referred to you

by the IRS is very old which the IRS has pretty much given up on

as opposed to more current tax debt. Your assessment of how your

office would be able to maybe better address even the more recent

tax debt than the IRS, if you would like to share comments on

that?

Mr. GREGG. It was difficult to get the tax levy program in place.

It was difficult for a number of reasons. One of them was the letter

that has to go out before any tax levy occurs, when they are going

to refer it to us. That is a fairly manual process. Basically, we

stand ready to take on as much as they are prepared to give us.

They are aware of that and in some cases, I think it is a system

limitation more than the intent because I know the former Commissioner and the present Commissioner were very committed to

working with us in this program.

Mr. PLATTS. I appreciate in that case your efforts with IRS but

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ments to keep leading the charge of pushing the envelope with

these agencies. It really amazes me when, especially in the DOD

example, we are making payments to people that owe the Federal

Government money, yet we are paying them, that we are not correlating those two better. It sounds like we are heading in the right

direction with some of these larger ones like DOD to stop that

practice out of simple fairness to all American taxpayers who are

paying their fair share.

Before I recognize the ranking member, I would like to also recognize our vice chair, the gentlelady from Tennessee, Ms.

Blackburn. We appreciate your joining us.

I recognize the ranking member for the purpose of questions.

Mr. TOWNS. Thank you, Mr. Chairman.

I actually want to direct this question to you, Mr. Gregg, and

also to you, Ms. Shaw. You both testified that contracts which your

agencies have with private collection agencies are performancebased. First of all, I want to know what is a performance-based

contract?

Ms. SHAW. A performance-based contract really includes incentives for the contractor to perform against the requirements spelled

out in the contract and those contractors are only remunerated out

of that performance, a percentage of those collections are incented

to perform in not only meeting the objectives but to exceed the objectives laid out for them.

Mr. GREGG. We have a number of things in place. First of all,

it was a competitive process in which we selected the five private

collection agencies we have. In addition to that, we have incentives

for them based on quarterly reviews—by those reviews, depending

on which ones do the best, agencies may get a slightly larger referral than the previous quarter. That is the sort of thing that we

have built into our contract.

Mr. TOWNS. Do they include a measure of whether the private

collection agencies are respecting the legitimate rights and protections of the client?

Mr. GREGG. I wouldn’t necessarily classify that as a performance

measure per se in the terms of dollars and cents, but one of the

things we have done is to make sure, first of all, they understand

what the requirements are. We have done that through not only

extensive training at the time the contracts were awarded, but on

an ongoing basis, the reviews we do to make sure that they are following procedure.

We also have the opportunity to listen in on conversations to get

notes they take and we are a relatively small organization. The

most important thing is that myself and the people sitting behind

me consider this our business, not something we have handed off

to somebody else, and we don’t view that any differently than a

phone call that one of our employees makes. It is our responsibility

to make sure that people are treated right; yes, we try to collect

the debt, but it is our responsibility and that is a clear expectation

we have of the PCAs.

Mr. TOWNS. Are these new or old loans and would the amount

determine whether you would actually get an agency to collect?

Would it be a new loan or an old loan?

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Mr. GREGG. In our cases, it is more old than new. Basically, we

get a few that are within 90 days delinquent, but quite a bit of our

debt is 2, 3 and 4 years old.

Mr. TOWNS. Does the size of the loan have anything to do with

whether you give it to a collection agency or not?

Mr. GREGG. No, sir.

Mr. TOWNS. How about you, Ms. Shaw?

Ms. SHAW. No, in response to the last question. The size of the

loan is not the determinant for forwarding it to a collection agency.

I would like to respond to the question you had with respect to

treating consumers fairly. First and foremost, the Department

wants to ensure that all borrowers are treated fairly, even if they

are defaulted and throughout that collection process. We have a

number of things at the Department we do to help ensure that.

First of all, all of our collection agency contracts are monitored

and managed by Federal agency employees. As I noted before, we

have the ability to terminate collectors who violate the Fair Debt

Collection Practices Act.

Mr. TOWNS. When you say monitor, what do you really mean?

Ms. SHAW. We review on a regular basis, weekly, monthly, quarterly, the performance of the contractors, not only in terms of collecting the debt but actually how they do it. We have toll free 800

numbers that we provide for complaints to be lodged if there are

perceived inappropriate collection activities going on and we monitor that information. In fact, in fiscal year 2002, over 1.1 million

calls came into that 800 number; 99 percent of those calls were answered; the average hold time on those calls was 12.5 seconds. So

we do respond to the calls that come in to that 800 number.

We also have our Federal Student Aid ombudsman who reports

directly to me. We track the calls that come into the ombudsman

office that are on a variety of things but in particular, we look at

servicing complaints and collection practices complaints. Since

2000, of the total complaints in 2000, 20 percent of those complaints were about servicing concerns and/or collection practices

concerns. So far in 2003, through June 13, that number has been

reduced to 9 percent of calls and we are tracking pretty much for

that number to hold for the year. That demonstrates our focus and

our concern on ensuring that consumers are treated fairly and that

we respond when we do find out there is an issue.

Mr. TOWNS. If that is the case, would you terminate the contract

if you find out that they are using unscrupulous techniques to get

people to respond?

Ms. SHAW. I think our first level of activity would be to deal with

an individual collector through that contract agency and if there is

an individual collector that is not behaving appropriately and in

compliance with everything they need to comply with, that collector

we would certainly not want collecting on any of the Department

of Education loans.

If it is a broader issue, certainly the collection agency we would

not want the agency itself to be collecting loans for the Department

of Education.

Mr. TOWNS. Mr. Chairman, my time has expired. We will have

another round?

Mr. PLATTS. Yes. Thank you, Mr. Towns.

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I will recognize Members in the order of appearance, Mrs.

Maloney, recognized for the purpose of questions.

Mrs. MALONEY. Thank the chairman for having this oversight

hearing and ranking member Towns.

As the author of the Debt Collection Improvement Act of 1996,

I am greatly interested in the topic and this common sense bill that

centralized the Federal debt collection in the Department of Treasury and gave all Federal agencies the tools needed to collect billions of dollars of delinquent and non-tax debt.

The panelists today really pointed out that in many ways, it has improved collection. It has collected roughly $15 billion in delinquent debt and in fiscal year 2002, Treasury collected more than

$2.8 billion in delinquent debt, including $1.4 billion in past child

support which is very important and $1.2 billion in Federal nontax debt.

There are always ways to do a better job and my question is, is

there anything that needs to be modernized in the bill, that needs

to be brought up to date, do we need more consideration for time

for student loans? I just open it up for the panelists to discuss the

bill, discuss the changes in debt collection procedures, if they are

working or if there are ways you think it should be improved?

Mr. GREGG. One suggestion we have and we have worked with

the administration and legislation has been proposed, is to include

the opportunity to offset Social Security payments for delinquent

child support. I think that is something that at least we think

would be an improvement to the program.

Mrs. MALONEY. Do you see that it is widespread? That people are

getting Social Security checks, yet not taking any effort to help

their children?

Mr. GREGG. The estimate we have is that, it is not huge numbers

but we think we could probably collect at least $50 million over a

5-year period if that was added. That may be conservative but we

have done some tests and we think it is probably at least that.

Mr. CAMPBELL. Congresswoman Maloney, the Department of Veterans Affairs doesn’t see at this time any structural changes that

need to be made in the act. Most of the things we need to do are

internal.

Ms. SHAW. I would have to say the same thing. At this time, we

don’t see any imperative structural changes. We are getting ready

at the Department of Education to implement administrative wage

garnishment to take the maximum of 15 percent as opposed to 10

percent under the Higher Education Act. We are on track to have

those changes implemented by October 2003.

While it is clear that we can move from the 10 percent to the 15

percent, we anticipate perhaps some legal challenges to that. If

there are any clarifying words that might be added that could be

helpful as we anticipate those legal challenges perhaps manifesting

as we move forward.

Ms. LOONIN. In general, most of the things I have talked about

are regulatory or enforcement issues, but one thing in the statute

with the Social Security exemption is it is set at $9,000 and is not

indexed to the cost of living. We believe that is a big concern. We

think there should be some provision in the statute to increase that

based on cost of living.

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Mrs. MALONEY. Thank you. I have no further questions.

Mr. PLATTS. We will come back to Ms. Blackburn when she returns.

Mr. Gregg, if you could touch on an issue. When I look at the

numbers between the cross servicing versus the Treasury offset

and the success and the overwhelming majority of the money is

from the offset versus cross servicing. In Ms. Shaw’s testimony she

looks at the past 7 years where through private collection agencies

about $1.2 billion in overdue student loans was collected versus

about $5.4 billion when we use Treasury offset.

The GAO in assessing the success of the effort has raised the

issue whether the cross servicing approach has a cost benefit to the

taxpayer. If you could address that? My understanding is there was

a request for review of cross servicing and is that ongoing? If so,

what results if any are available at this point?

Mr. GREGG. We have a little different perspective than GAO provided. Normally we pay pretty close attention. We kind of disagreed with them philosophically on what we understood they

wanted us to do. One part of that cross servicing examination as

I understood it was to look at how long we should keep debts before

we referred them to PCAs, the private collection agencies. Our

view, and I think the intent of this subcommittee at the time the

legislation was passed, was to turn them over to the PCAs quickly

and that is what we do. We keep them for 30 days and if we get

collection, fine; if we don’t, we turn them over to those who are

really expert in the field for collection. That was one of the differences we had.

I am concerned that if we tried to say let us keep these debts

for ourselves and turn these over to the private collection agencies,

over time that could undermine our ability to really have good competition because we might be accused, and probably rightly so, of

cherry picking the debt. There is a bit of a fundamental philosophical difference.

We have not and we don’t have underway a review of that. I

think it is very cost effective. It is one thing to look at the numbers

and the numbers have grown tremendously over the years. We

went from $1.2 million collected in fiscal year 1997 and we will collect over $120 million this year in cross servicing. For that part of

the program, I don’t think we spend more than $10 million in administrative costs for a $120 million return. Even that doesn’t fully

capture the value of getting those debts in and helping the agencies

make sure that the debts are in order, and the process of the private collection agencies determining that certain debt is not collectible. These factors show up on the collection side but it helps continue to improve the agency’s recordkeeping and decisionmaking on

whether or not to write-off the debt. So there is a lot of value that

is greater than even fairly significant growth which is now $120

million.

Mr. PLATTS. Ms. Shaw, I think your testimony was that in your

use of private collection agencies, that cost is down to about 16 percent or will be this year.

Ms. SHAW. Sixteen cents per dollar collected.

Mr. PLATTS. Correct. Am I stating correctly that is kind of your

total cost for dollar collected is about 16 cents for every dollar?

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Ms. SHAW. Yes.

Mr. PLATTS. Mr. Gregg, would you find that would be fairly accurate across the Government as to where we are getting to in the

efficiency of using PCAs?

Mr. GREGG. I think we are following Education and they have a

greater volume, so they may get an advantage. We are paying 23

percent to the PCAs and whether we can improve on that, I don’t

know. Especially when the program started and I think it is still

the case, we have a lot of debt that is very old and a lot that is

referred to us and we send on to PCAs which is not collectible, so

there is a cost to having that mix of debt in your data base.

Mr. PLATTS. I assume there is a minimum requirement of what

a PCA has to do to try to collect it when you give them a whole

slew of debt to go after, that they can’t just cherry pick within

what you give them, that they have to make a certain minimum

effort on each debt that they are afforded so they are really going

after everything?

Mr. GREGG. Yes, and I think the incentives we have built in like

Education has, really makes it to their advantage to try to collect.

I think sometimes they get surprised. I know some debts that were

very sizable that were quite old and you look at it and say there

is no way that is going to be collected, but in fact they were. So

you never quite know, just because of the composition or the size

whether or not you are really going to be able to collect it.

Mr. PLATTS. This might go to both you and Ms. Shaw, Mr. Gregg,

in reference to one of the concerns about excessive fees being

charged to the debtor. I assume the collection agency was not allowed to impose any fees beyond what they are getting from the

Department or whatever agency. Is that correct?

Ms. SHAW. For the Department of Education, that is correct. Actually, the Department sets the fees and it is limited the promissory note and those amounts allowable under the Higher Education

Act. We set the fees and they cannot tack on anything else.

I would also like to add we have built into our contracts disincentives for the contractors to cherry pick loans in reference to your

last statement. We have achieved the 16 cents per dollar collected

through very, very vigorous competition among those competing for

the contracts to do collections for us. We are looking forward to

even reducing the collection costs in the next competition that is

coming up in fiscal year 2004.

Mr. PLATTS. In your contracts with the PCAs, I would think if

it is clear you set the fees, where there would be instances of violations of that, is there strict enforcement or is it still discretionary?

What, if any, consequences are imposed on the PCA for trying to

charge additional fees to the debtor?

Ms. SHAW. The contracts we have with the collection agencies do

not allow for them to collect anything other than what we set forth.

We do monitor for that and if there are fees in addition, they are

not getting them.

Mr. PLATTS. My question is, if an agency was engaged in inappropriate conduct as referenced by Ms. Loonin, is there something

in your contract that spells out a financial penalty or some specific

recourse to have that financial disincentive from them even thinking about that practice?

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Ms. SHAW. With respect to penalties, I will have to check on that

and report back to the subcommittee in writing, if you don’t mind.

Mr. PLATTS. If you could, that would be great.

Mr. Towns, did you have further questions?

Mr. TOWNS. Thank you, Mr. Chairman.

Ms. Loonin, you mentioned several times that borrowers may

sometimes have legitimate defenses to collection procedures. What

are some of those legitimate defenses?

Ms. LOONIN. Again, I am confined to the student loan context because that is what I know the best. For student loans in particular,

there are a number of cancellation programs, there is a total and

permanent disability cancellation, there are a number of cancellation programs tied to some of the abuses, particularly vocational

schools that primarily happened in the past, there is a closed

school cancellation, false certification cancellation, and unpaid refund cancellation. I mention those because they are defenses in the

sense that they are the most extreme in the sense that if someone

is qualified for it, then the debt or loan obligation is completely

canceled. Any moneys collected voluntarily or involuntarily are

supposed to be returned and the person is reeligible, except for the

disability context, for student assistance again.

Mr. TOWNS. You also testified that debt older than 10 years is

not permitted to be offset against Federal benefits such as Social

Security. Wouldn’t that logically exempt almost all student loan

debt? Ms. Shaw and Mr. Gregg, are your agencies complying with

this requirement?

Mr GREGG. I am sorry, I missed that question.

Mr. TOWNS. Ms. Loonin testified that debt older than 10 years

is not permitted to be offset against Federal benefits such as Social

Security. Wouldn’t that logically exempt almost all student loan

debt?

Ms. SHAW. It has been the Department’s position that there is no

statute of limitation on the collection of student loan debt. In direct

response to your question, repayment of student loans does often

extend beyond that 10 years, in particular with respect to loans

that have been consolidated that had longer repayment terms and

loans that have been granted extended repayment terms. So yes,

if a loan was extended in repayment terms beyond 10 years and

there was not a statute of limitations, those loans would be automatically exempted just by their term alone.

Mr. TOWNS. I am going to hear Mr. Gregg and come back to you

because I think this is interesting.

Mr. GREGG. There has been a recent lawsuit and I think there

is an appeal pending. Our view is that the 10-years would not

apply and it is fairly complicated. I think there are three statutes

involved but if in fact there needs to be clarification, then perhaps

I could amend my earlier statement and add one more to say that

assuming that is the intent to allow us to offset student loan debts

referred to us for offset that are older than 10 years and perhaps

that ought to be clarified.

Mr. TOWNS. Ms. Loonin.

Ms. LOONIN. A couple of things. This issue is I think confined to

the Department of Education because I believe they are the only

agency where the statute of limitations has been eliminated. My

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understanding is that other agencies would comply with the 10-

year limit because they don’t have the same provision the Higher

Education Act has that eliminated the statute of limitations.

It is a statutory construction argument essentially. It is that the

antiassignment provisions of the Social Security Act back in the

1930’s specifically say if you are going to abrogate this protection,

this antiassignment protection, you have to explicitly refer to it.

The Debt Collection Improvement Act does explicitly refer to it

and it also sets a 10-year limit. The elimination of the statute of

limitations in the Higher Education Act does not explicitly refer to

the antiassignment provisions of the Social Security Act. In the

court decision that agreed with us on this, in that case it is the 10-

year limit and the Debt Collection Improvement Act that governs.

As far as whether this means a lot of loans wouldn’t be able to

be collected, it is true this is just for Federal benefits offsets, it is

the only program where there would be this 10-year limit. There

would be some student loans that couldn’t be collected, there also

would be some that could if someone became disabled, for example

and has SSDI within the 10-year period of repayment and doesn’t

qualify for disability discharge or doesn’t know about it, they could

continue to try to collect against those people.

Once the 10-years is up, then the Department wouldn’t be able

to use the benefits offsets but if there was anything else, any other

collection tool available to them they thought they could use to collect from this person, they could because there is no statute of limitations for all the other ones. I think that is just Congress’ recognition of the heightened protection they wanted to give to Federal

benefits recipients.

Mr. TOWNS. Mr. Gregg, you testified that HHS and Education

had recently published regulations that will allow them to participate in the administrative wage garnishment. How many agencies

currently allow FMS to garnish wages to collect the debts? Of the

close to 8 billion referred to FMS for cross servicing, how much as

been collected using this tool? What protections are in place to protect low income individuals from perhaps overzealous collection?

For example, would the wages of a single mother of two whose income is below the poverty level be garnished?

Mr. GREGG. I think there is only a handful of agencies right now

that have fully implemented the administrative garnishment under

FMS procedures. That continues to grow but that has taken longer

than we would have liked. I think so far we have collected only

$300,000.

There are protections, and this is true whether it is administrative wage garnishment or any other debt. All of the creditor agencies have a responsibility to look at special cases and many of them

have cases where they don’t refer debts to us because of hardship.

That is their responsibility and they do that.

For administrative wage garnishment, one of the processes in

place is that if someone requests a hearing, they have to have a

hearing and processes are set up to hear whether or not the debt

is legitimate and there are hardship cases as well. I think built

into all these processes are a lot of protections. I think that is true

whether it is administrative wage garnishment or any of the other

offset programs.

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In your example, if they came into the agency and would have

been granted a hardship, I don’t know, but that is something that

certainly all agencies have and I know they take that seriously.

Mr. TOWNS. Thank you, Mr. Chairman.

Mr. PLATTS. Ms. Blackburn.

Ms. BLACKBURN. Thank you, Mr. Chairman. Thank you to all of

you for being here. I feel like I have been up and down and in and

out of this hearing but I appreciated the fact most of you submitted

your testimony in advance and gave us a chance to prepare for

this. Those of us tremendously interested in the efficiencies of government and in proper reforms of government are definitely interested in what you do and what you have to say.

Mr. Campbell and Mr. Osendorf, I wanted to congratulate you on

moving your debt collections from 75 percent to 97 percent. I think

that is something that is noteworthy and deserves to be pointed

out.

Ms. Loonin, if I could being with you. Going to your testimony

and talking about the student loan debt collections which it always

amazes me that these can go on for decades without payment. I

have read through and I apologize that I arrived late and did not

hear all your testimony.

Would you talk a bit about the deceptive, unfair and illegal conduct that you reference on page 5 in the testimony and the complexity of the student loan payment as you see it or the program

in collecting the debt and people not understanding who they pay

this to. Are you referencing the program that handled by the

banks, by the consumer banks or are you referencing student loans

that are handled by the Department? Where do you find the greatest confusion and misunderstanding?

Ms. LOONIN. It occurs in both programs, with private debt collectors as well as some cases where it could be the guarantee agency

doing the collecting or even the department. To be honest, I haven’t

done a comparison study of these so it would be more anecdotal I

suppose.

The abuses seem to be greater not with the direct loan program

but with the FFEL, the program where the banks are guaranteeing

loans in other words, but I haven’t done any sort of comparison

study of that.

Ms. BLACKBURN. I would be interested in knowing that if at some

point you had someone who could place some energy on that. I

think as we look at loan programs in other agencies, knowing that

and the insight you could provide there would be helpful indeed.

I think as we look at reforms, having the opportunity to look at lessons learned serves us well.

Ms. LOONIN. We can certainly try to track that with all the advocates we work with as well and put something together.

Ms. BLACKBURN. That would be great.

Also if you would speak a bit about the allowance, the DCIA allowing Federal agencies to offset certain Federal benefits in regard

to Social Security?

Ms. LOONIN. Is there anything specific?

Ms. BLACKBURN. Talk with me a bit about in your testimony you

reference that being an extraordinary power. Of course it is and

the fairness issue there, do you think that is a good precedent, do

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you think that is the right thing to do, attaching the Social Security payments or not, or how do you see that playing out long term?

Ms. LOONIN. I think it seems to me it is here to stay and if anything, it is probably getting broader in terms of what can be taken

from Social Security. My personal opinion on that is probably that

in some cases that might be acceptable. My problem really is focusing on the lowest income people and the most vulnerable people.

Perhaps for Social Security retirement recipients who are getting

higher benefits or higher payments, there might be some role for

the program there but my concern is there has been sort of a

steady erosion of what used to be pretty much an absolute principle

that Social Security benefits could not be offset by private or public

creditors.

Ms. BLACKBURN. Mr. Chairman, may I ask another question?

Ms. Shaw, the Department of Education has more than $20 billion in debts more than 180 days over due and I think $556 million

listed as currently not collectible. My question for you is why has

the Department been negligent in following the requirements of

DCIA for debt referrals that are 180 days past due?

Ms. SHAW. I am sorry, I missed the middle part of the question.

Ms. BLACKBURN. Why have you been negligent in following the

requirements of DCIA for debt referrals more than 180 days past

due and why would you consider the $556 million to be not collectible?

Ms. SHAW. If you don’t mind, I would like to get a detailed written response to that question and forward it to the subcommittee.

Ms. BLACKBURN. That would be fine if you would like to do that.

When we look at these numbers and we see there is that amount

of money considered to be not collectible, it is important for us to

ask those questions because the taxpayers ask us.

Ms. SHAW. Absolutely. I understand the nature of the question

and the reason for the question. I just want to be as accurate and

precise in my response as I possibly can.

Ms. BLACKBURN. Include this in your response. If you are using

private collection agencies and the fee they are pulling to collect

those debts, if you would list those for us, and also if you are using

wage garnishment to collect those debts.

Ms. SHAW. I will include all that in the written response.

Ms. BLACKBURN. Thank you, Mr. Chairman.

Mr. PLATTS. Ms. Loonin, in your testimony in looking at the issue

of if we are being fair, if you can give us more detailed examples

as opposed to the kind of anecdotal understanding of what has happened. The more detail you can provide, we certainly welcome that

and share it with the Department of Education or whoever so they

can do a good job of having oversight over their private collection

agencies if abuses are occurring.

One you reference specifically and I asked about earlier and I

found the cite, about charging collection fees that exceed what is

allowed by the contract, you have a footnote cite to a specific case,

Padilla v. Payco General American Credits, a 2001 Federal court

case. Could you give a little background on what happened there,

what was the court’s decision?

Ms. LOONIN. This is like a law school question.

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Mr. PLATTS. What I am trying to do is find out exactly was there

a finding by the court that there was excessive payment made?

Was that the court’s decision? It seems to be what you are saying

here. If that is the case, I want to ask Education either today or

in followup what consequences occurred because of that.

Ms. LOONIN. I need to take another look at that decision. It is

not a final decision. I believe it was at an earlier preliminary

phase, either a motion to dismiss or an earlier phase of litigation.

This was raised in the context of a Fair Debt Collection Practices

Act violation. That was the issue. I apologize, I can’t recall exactly

off the top of my head but I have the case here.

Mr. PLATTS. If you could followup in writing to the subcommittee

on the specifics and if there was a finding by the Southern District

of New York that there was a violation of law because I would like

to followup with the Department, if that is the case, what happened in response to that collection agency for violating Federal

law.

I would also maybe caution that the way it reads here is there

was a violation. I am assuming that is correct.

Ms. LOONIN. I apologize. I can’t recall exactly but I will definitely

get back on that. There have been some other cases specifically related to collection fee issues that I could provide as well. One in

particular was a settlement agreement that was not a final decision but where the Department did acknowledge there were fees

being charged above the rate in the promissory notes and did move

for a long time to correct the problem after the lawsuit, so it wasn’t

an actual final decision. I can provide some of that information as

well.

Mr. PLATTS. That would be great and we would be glad to followup with the Department on those examples. My point is anecdotal

references are helpful in the sense of raising awareness this may

be going on, but we really can’t provide an oversight role if we

don’t have specifics, so I would welcome those. As one as referenced

after 12 years having made my last student loan payment, my wife

beat me to the punch about a year and a half ago with her last

graduate school payment, as one who took on the responsibility and

fulfilled mine, I want others to do the same in fairness to everyone.

In doing that, we want to make sure we are doing it in a fair and

responsible way.

That goes to maybe a broader question as far as the safeguards

in place. Where we use private collection agencies, is there some

verbatim language we give the PCAs that they must include, like

you referenced the 800 number, and I assume that is included in

something that a PCA sends out that they give to the debtor that

includes an 800 number? Is there language that the Department of

Education or FMS that you approve saying in every statement you

send out to collect or in every phone conversation you must read

to say you have certain rights and protections and if you believe

they are being violated, is that type language required to be included?

Ms. SHAW. The Department of Education reviews all correspondence our collection agencies send out on our behalf. We make sure

it is complete, accurate and clear with respect to the language used

and the rights borrowers may have.

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Mr. PLATTS. That 800 number is included in there? There is an

ease of accessing the system if they believe their rights have been

violated?

Ms. SHAW. If not on every single communication, on several of

the communications depending on the timing of the communication

and so on.

Mr. GREGG. It is similar. When we get the debts for cross servicing, we send out the first letter and provide information to the

debtor on their rights and what would be the next steps. They have

our 1–800 number in that letter when it goes out. We get a lot of

calls. I think we got 2.8 million last year in our Birmingham Debt

Collection Center. Most of the calls are inquiring am I going to be

offset this year? People know they have the debt, it is communicated to them and I guess the ones who get no, you are not, are

happy and the others are not. A large percentage of our calls are

those kind.

Mr. PLATTS. Do you keep something similar, Ms. Shaw? You referenced in your call center, 12.5 seconds on hold was the average

per call?

Ms. SHAW. Yes.

Mr. PLATTS. That is a remarkable standard, 12.5 seconds, in the

sense of the volume of calls you are handling. Is it something similar as far as the efficiency of your system?

Mr. GREGG. We have a very sophisticated call center that tracks

all that. We are very close to that if we are not at 12.5. During the

tax payment season, we bring in people that we have hired for a

period of time because we get peak volumes. We bring them in and

they are trained so they come back year after year. It is a very sophisticated system.

Mr. PLATTS. Mr. Gregg, a different area as far as your office’s efforts with the Federal salary offset and while the wage garnishment is for non-Federal employees, internally we do it differently.

Could you give me an overview of what percentage we use in your

best estimate of agencies, departments are on board and participating in that program today?

Mr. GREGG. We have most of the centralized paying agencies now

participating. I think all of them except for GSA, which is going to

be coming in by the end of this year. VA is currently not participating but they are going to be serviced by the Department of Interior

under the consolidated payroll processing, and that is fine. There

is no reason for them to switch and then get out of that business.

So most of our payroll agencies are now participating. We have to

continue to get the debts referred to them from all the other agencies.

Mr. PLATTS. That is only a small number of agencies, paying

agencies, right?

Mr. GREGG. I think there are five.

Mr. PLATTS. Right. There is a large number that are not. Of

those that are not, it is the same instance if somebody is getting

paid by the Federal taxpayer for their work but owe the Federal

Government money, it seems like a pretty straightforward transaction to say, we need you to pay up.

Mr. GREGG. I think I need to get back to you with a formal answer on that. For example, I think Education is still working on

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a consolidation. It is kind of complex because some of them do the

offsets internally, but we are looking for a more efficient process

through the consolidated salary offset, so I can provide you a more

coherent, written answer.

Mr. PLATTS. If you could give us kind of a detailed breakout of

what agencies are because if we are going to private sector employees for wage garnishment, yet we are not doing it to our own employees, we are not setting a very good example ourselves.

I want to expand on that a bit more with Education as well but

Ms. Blackburn I believe you need to run off for a committee and

had a question?

Ms. BLACKBURN. That is correct. I need to run down the hall. If

it is OK, I just have one more question.

Secretary Campbell, I wanted to direct this to you. Knowing that

you all had seen an improvement in your debt collection practices,

I wanted to see if you could very quickly highlight three steps you

feel made a big difference and what your recommendation would be

to the other agencies that are looking to make these improvements

if you were to say this, this and this were the lessons learned and

the process that should be followed?

Mr. CAMPBELL. Centralization because that helps to develop a

skilled work force and the skilled work force is the key. Automation

because you have to have the systems. One of the regrettable

things for 31⁄2 years, we were unable to help our friends at FMS

because our systems wouldn’t talk to theirs. It took a tremendous

amount of effort. As I said, it would be centralization so that you

get a skilled work force that is used to doing debt collection, the

skilled work force itself, the care and feeding of that work force and

the automation that goes with it. Because of the vast number of

transactions, you couldn’t possibly do this in a manual or semimanual method.

Ms. BLACKBURN. Mr. Osendorf, do you have anything you would

add to that?

Mr. OSENDORF. To make it three, I would say centralization, automation, standardization. Once you get it all in one place and you

automate it, everybody is treated the same from the debt collection

standpoint, everybody gets the same notices, everybody is treated

exactly the same through the process.

Ms. BLACKBURN. Thank you. It reminds me of the old thing that

simple usually works but doing the simple thing is generally hard.

Thank you very much.

Mr. PLATTS. I am going to pick up on the Federal salary offset.

Mr. Campbell, you wanted to add something on that?

Mr. CAMPBELL. Yes, sir. I don’t mean to say anything against

what Commissioner Gregg said but I think he was in error about

what VA does. We have been offsetting our own employees’ salary

since 1987. Under the Consolidated E-Payroll Project we will be

going to the Defense Finance and Accounting Service and not Interior.

Mr. PLATTS. Ms. Shaw, how about Department of Education employees’ current status?

Ms. SHAW. We also have been offsetting for years and Commissioner Gregg made reference to the process for consolidation and

actually the Department of Education looks forward to working

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with Commissioner Gregg’s team to make that happen. We are

right in the middle of a major competition for common services for

borrowers that kind of brings together our direct loan servicing, the

origination of direct loans, consolidation loans and part of our collection process, and again, we are right in the middle of that competition, so as soon as that competition is over and the contracts

are awarded, which we hope will be by the end of this fiscal year,

we will begin to work to move toward that centralized process.

Mr. PLATTS. As far as setting that example, today if somebody

works at the Department of Education who is in default of a student loan say in the Student Loan Office, their salary would be offset by the Department of Education?

Ms. SHAW. Yes, sir.

Mr. PLATTS. I want to make sure we are leading by example.

I recognize Mr. Towns.

Mr. TOWNS. Thank you, Mr. Chairman.

Ms. Shaw, in fiscal year 2001, a new program was started to help

recruit and retain Federal workers by paying their student loans.

Under the program, workers can receive up to $6,000 per year if

they commit to 3 years of agency service. According to a recent article in the Government Executive Magazine, the new program

hasn’t been used too much and the Department of Education has

yet to use it at all. Why haven’t you been able to implement it in

your department?

Ms. SHAW. As the new Chief Operating Officer at Federal Student Aid, this issue was recently brought to my attention. I intend

to investigate that and try to understand if there are barriers, how

do we remove them. I have a few folks on my staff as a matter of

fact who are interested in availing themselves of that program. I

would like to make that happen for them if there are no barriers

at the Department of Education.

I don’t have an answer to the question for you today as to whether there are barriers or it just hasn’t made its way to the top of

anybody’s list to actually implement and operationalize but it is on

my list to do and I would be happy to provide a written response

to you.

Mr. TOWNS. Thank you. I look forward to it.

Mr. GREGG. Congressman Towns, if I might interject, I think

that is really a great program. We have been using it at FMS for

about a year now. I think as we try to compete for new employees

with the private sector, I think it is a great tool. One of the barriers is that you have to find the money because it was passed, so

the tradeoff is you may not hire four people but only three and provide some student loan aid but that is something that is kind of

the nature of the beast and we recognize that. It is a great program

and I think provides a great opportunity for us to compete better

with the private sector.

Mr. TOWNS. Mr. Campbell, you mentioned the vendee program.

What is that?

Mr. CAMPBELL. The Vendee Loan Program, we have numerous

VA mortgage loans. When the mortgageholder defaults, we end up

taking back the property, we then sell these vendee loans to the

market. Three times a year we go to New York and sell these vendee loans. The Secretary of Transportation back in January of this

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year decided that we would no longer have that program, so the delinquencies from the Vendee Loan Program should disappear in the

very near future.

Mr. TOWNS. Mr. Campbell, in October 2001, the Vietnam Veterans of America submitted testimony to this subcommittee regarding what seemed to be abusive practices by the VA in collecting

debts from veterans. Basically, they said the VA often attempted

to collect debts related to co-payments for medical care from veterans while the veterans were simultaneously making claims through

the Veterans Benefit Administration for a service-connected illness,

a process which can take a long time, in fact years in some instances. Are you aware of this problem and what are you doing to

address it?

Mr. CAMPBELL. No, sir, I was not aware of the problem until you

just mentioned it and I will look into it. Unfortunately, medical copayments, first party payments, are generally collected individually

at each medical center. We have over 160 medical centers, so this

is the first it has been brought to my attention. As soon as I get

back, I will talk to Dr. Roswell, the Under Secretary for Health, to

see if this is a pervasive problem.

Mr. TOWNS. Thank you. You will get back to us with the information?

Mr. CAMPBELL. Yes, sir.

Mr. TOWNS. On that note, I yield back, Mr. Chairman.

Mr. PLATTS. Thank you, Mr. Towns.

I want to look at the issue of use of information technology. A

number of you mentioned the best way to address bad debt is to

make sure we are not making bad loans in the first instance and

those who had that bad track record. I know there is a greater effort, and Mr. Gregg, you referenced the debt check system you are

putting in place and having more information available to other

agencies.

One of the administrative challenges appears to be is when an

agency refers to FMS for collection in the Treasury Offset Program,

that is only going to stay there 10 years because of the statutory

10-year limit with the exception of student loans in your system.

So somebody maybe looking for a loan 12 years from now, that may

not show up because you are not able to collect it. First, is that an

accurate understanding on my part and if so, is there an effort to

try to somehow in the Treasury Offset Program to have the debt

still be there, even though it can’t be collected, it still would be a

bar from future debt being taken by that debtor?

Mr. GREGG. Our view is that we ought to have the debt check

program contain the debts that we are actively working. We run

into some risk if we go beyond that. First of all, we don’t have that

rolled out all the way so I am a bit reluctant to go beyond that.

Plus, there are some other sources of information. Agencies have

the opportunity to check with credit bureaus and the opportunity

to check with the HUD system, the CAIVRS system, so I think the

combination of the debt check, there will be a lot of debts in there,

and the CAIVRS and the Credit Bureau reporting will provide a lot

of information to those lending agencies.

With the debt check program, right now we only have SBA there

and it is kind of one at a time but our next enhancement will allow

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agencies to come in with a bulk file, however many they want to

check and run that against our program which will be much more

efficient.

Mr. PLATTS. Realizing you are still in the early stages of this

debt check system, that in the long term you look at somehow still

identifying debts that have been referred to you and basically you

own even though you no longer will go after them because of statutory limitation they are still identified as being debts not fulfilled,

not collected, so that long term, not necessarily in these current

years, but 15 years from now if that system is still in place, rather

than having to recreate a new system where after 10 years you are

done with them, so then they go to somebody else, start over and

have to create new systems, it seems you could maintain them. It

means your data base continues to grow.

Mr. GREGG. That is something we can take a look at. We struggled so much in the early years of this program, I have been pretty

reluctant and we have had a lot going on. It is one of those things

where I hate to turn someone loose on that with so many other

things that are more immediate. There could be a way we could do

that where we could separate the active debts we are working from

those that are no longer active. We can take a look at that some

time in the future.

Mr. PLATTS. Ms. Shaw, as far as student barred from getting

loans, they are not defaulted on any past loans. That is the law but

it does happen that some students slip through. Could you give us

your best guess of why that happens, what is the shortfall in our

system of checks and balances that someone in default isn’t being

made eligible for a new loan?

Ms. SHAW. Certainly the Department uses best efforts to make

sure that people don’t slip through but we do have the National

Student Loan Data System and in that system is a repository of

all defaulted student loan borrowers. During the application process for a student, that system that processes Federal student aid

applications communicates and does data checks against this National Student Loan Data System to see if there are any prior defaulted loans and if there are, that applicant may not receive Federal aid until that default is cleared up.

Perhaps people can slip through due to timing of reporting to

that National Student Loan Data System by guarantee agencies

and the timing of when they report to the system, sort of a crossing

in the night kind of effect. If an application comes in the day before

the defaulted data is reported, it might as you say sneak through.

It will get caught later but we absolutely try to prevent that.

Mr. PLATTS. The current law as far as someone applying for a

student loan does not bar an applicant from a student loan if they

have a SBA loan they are in default of or other Federal loans other

than student loans? That doesn’t currently bar them from a student loan, correct?

Ms. SHAW. I believe that to be true. Yes, that is correct.

Mr. PLATTS. Is there a position in the Department whether there

should be consideration given that if you are looking to borrow

money from the Federal taxpayers for a student loan that you are

in good stead in the Federal Government in any other area as well?

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Ms. SHAW. I am not aware of a current position by the Department but I can go back and check and see if there is one and report

back to the subcommittee. If there is not a current position, perhaps I can put it on the radar scope.

Mr. PLATTS. I appreciate that. It is a balance because education

is something we want to encourage all to pursue and sometimes

people are down and out on their luck and education is a chance

to get back on their feet but in trying to promote personal responsibility, if you owe the taxpayers money and yet you want to turn

to them for financial assistance, in some way identifying there is

some outstanding liabilities that need to be taken care of, maybe

it is something we need to look at so we don’t just look at student

loan defaults but others as well.

Mr. Gregg, using technology and as you get to Debt Check and

things and it addresses how we contact debtors, is there an effort

to consolidate if there is more than one debt owned, type of debt

by single individual that we are trying to consolidate so that we

are not contracting to two or three different PCAs so that individual debtor is being contacted in various manners, different parties

as opposed to by one?

Mr. GREGG. That is fairly complicated and it is one of the features we will have in our Fed Debt Program that is going to be implemented in 2005 because that has been raised; it is not something we can do with our current system but it is being built into

the system that we are in the process of building right now.

Mr. PLATTS. I appreciate your patience. I think we covered all

the areas I had hoped to and with the other Members as well. I

would appreciate those who are going to followup to do so and expand on the information.

I want to thank all of you for being here today and offering your

testimony. Clearly when you look at the numbers, we have made

tremendous strides and Ms. McCarthy’s efforts and my predecessor, Chairman Horn, in their efforts with the 1996 act have paid

great dividends for American taxpayers. We want to be conscious

of the consumer protection issues raised. It sounds like we are

doing our best with our notice to consumers of their rights and protections they are entitled to. Where there is a failing in that area,

I am glad to inquire of whatever department it is to see what repercussions then flow to the culpable party and we hold someone

who is violating Federal law in whatever sense accountable.

We have had an informative meeting and I look forward to working with Mr. Towns and the whole committee to continue to oversee the advance in the debt collection area on behalf of American

taxpayers as we try to find a way to do right by citizens whether

it be a new prescription drug benefit, education funding or whatever it may be, ensuring those who owe dollars to the Federal Government and thus to the taxpayers are fulfilling their obligations

allows us to do more for those in need and those we are seeking

to assist.

I appreciate each of your for your efforts within the government

and outside the government making sure the government is acting

in a responsible fashion as well.

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The record will remain open for 2 weeks for additional information to be submitted and this meeting stands adjourned.

[Whereupon, at 4:17 p.m., the subcommittee was adjourned, to

reconvene at the call of the Chair.]

[Additional information submitted for the hearing record follows:]

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