Ed Dept. in the Hot Seat

Lawmakers, government watchdogs question whether the Office of Federal Student Aid is up to the task of running the nation’s $1.2 trillion student loan system.

November 19, 2015

WASHINGTON -- A top Education Department official was on the defensive Wednesday, responding to a wide range of criticisms from congressional lawmakers and government watchdogs about the department’s management of the federal student aid system.

James Runcie, chief operating officer of the Office of Federal Student Aid, which disburses student loans and grants and oversees colleges' participation in those programs, testified at a congressional hearing that focused largely on his office’s failings.

The Republican leadership of two House subcommittees -- one focused on higher education and one on government oversight -- convened a joint hearing Wednesday to discuss the office's management and leadership, which they said was lacking on numerous counts.

Representative Virginia Foxx, the top Republican on the higher education subcommittee of the House Education and Workforce Committee, said that FSA is “rife with inefficiencies that have led to a lack of communication with students, institutions and loan servicers; improper payments; inaccurate reporting of data; failure to ensure borrowers are aware of the repayment options available to them; mismanagement of contractors and vendors; and poor customer service.”

Loan Servicing Problems

A study released Wednesday by the Government Accountability Office criticized the Education Department for not doing a good job of overseeing the companies it hires to collect and manage the student loan payments of tens of millions of federal borrowers. The problem, the GAO said, is that department officials have not provided consistent instructions to its loan servicers.

"Servicers treat borrowers differently," said Melissa Emrey-Arras, who directs GAO's education team. "You could have the same borrower, with the same financial circumstances, and they might get completely different advice depending on which servicer they contact." Federal student loan borrowers do not have a choice in which servicer the department assigns to manage their loans.

Runcie explained that there are “variations” and “inconsistences” among how the government’s student loan servicers operate because the Education Department allows each servicing company to use its own practices.

In the rush to prepare for a flood of new direct federal student loans after the Obama administration successfully ended the bank-based lending program in 2010, the Education Department largely deferred to its loan servicers for how they should manage borrowers’ loans, he said.

“In order for us to quickly ramp up, we had to leverage their commercial practices,” he said. As the department negotiates new contracts for loan servicing, starting in January, Runcie said, the department will standardize common practices among the loan servicers.

But the current loan servicer contracts end in 2019, meaning that there will be a “transition period” for making those changes, Runcie said.

“There is a lot of blame being foisted upon the servicers,” Foxx said. “That’s not where the problem is -- the problem is with the leadership of the FSA.”

Rollout of Gainful Employment

Justin Draeger, president of the National Association of Student Financial Aid Administrators, criticized what he said were the department’s lack of effective communication with financial aid officers and its excessive delays in closing federal audits of colleges.

Some of those audits, he testified on Wednesday, drag on for months or even years, providing uncertainty for colleges about whether they will be found out of compliance with any of the department’s complex rules governing student aid.

Inside Higher Ed reported in 2013 that the Education Department’s audits at two institutions -- Yale University and the University of Colorado at Boulder -- were outstanding for more than a decade before the department finally took action and imposed fines against the institutions.

Runcie dismissed those concerns. “This anecdotal information about our performance is just not accurate,” he said.

He said the average processing time for the department to finish an audit of a college is 249 days, a 72 percent decrease from 2011.

In addition, Draeger said, the department’s recent implementation of its gainful employment rule was particularly challenging, calling it a “time-consuming debacle” for financial aid offices.

Although colleges repeatedly sought guidance from the Office of Federal Student Aid on how they should report data to the department, it was only after the deadline passed that the department began to provide effective guidance and tools to help colleges properly submit accurate data.

In the meantime, Draeger said, the department sent several rounds of letters threatening to find colleges out of compliance with federal rules, which could ultimately result in their removal from federal aid programs.

Draeger said the gainful employment issue was reflective of a larger problem in how the Office of Federal Student Aid works with college financial aid offices.

Colleges over all gave the feds lower marks this year on its "ease of doing business" survey, which is one of the department's own internal metrics. The lower scores fell below the department’s own target rate this year, according to its annual report released last week.

Even though it failed that benchmark, the department wrote in the report that the lower rate of satisfaction among colleges was "an indication of FSA's outreach and support efforts."

Draeger said the episode pointed to the problem with the department's self-assessment of its performance.

"Even when the department fails, they deem it a success," he said.

Error Rates Criticized

Republican lawmakers also criticized the Education Department’s decision last year to change its methodology for estimating how much it improperly paid out in Pell Grants and student loans after its initial methodology revealed large jumps in the rate of erroneous payments.

A report from the department's Office of Inspector General this year was highly critical of the department for retroactively seeking permission from the White House’s Office of Management and Budget to recalculate its improper payment rate using a revised methodology that produced estimates that showed fewer improper payments.

Representative Mark Meadows of North Carolina, a Republican, said he was “troubled” the department would “change the goalpost” when it didn’t like the numbers.

Runcie responded: “The methodology we use has been approved by OMB.”

Data Security of Student Loan Information

Both Democrats and Republicans also raised concerns about how the Education Department protects the personal information, including Social Security numbers, contained in one of its large student loan databases.

Katherine Tighe, the department’s inspector general, said her investigators were having a difficult time obtaining from the department’s contractor and subcontractor information they need to assess the data security of the large computer system the Education Department uses to track loan disbursements.

She said it was concerning that the department “has a contractor operating a major system and has absolutely no visibility into the data security of that system.”


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