[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]






                     GOVERNMENT-RUN STUDENT LOANS:
                  ENSURING THE DIRECT LOAN PROGRAM IS
                 ACCOUNTABLE TO STUDENTS AND TAXPAYERS

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON HIGHER EDUCATION
                         AND WORKFORCE TRAINING

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE

                     U.S. House of Representatives

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, OCTOBER 25, 2011

                               __________

                           Serial No. 112-45

                               __________

  Printed for the use of the Committee on Education and the Workforce









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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN KLINE, Minnesota, Chairman

Thomas E. Petri, Wisconsin           George Miller, California,
Howard P. ``Buck'' McKeon,             Senior Democratic Member
    California                       Dale E. Kildee, Michigan
Judy Biggert, Illinois               Donald M. Payne, New Jersey
Todd Russell Platts, Pennsylvania    Robert E. Andrews, New Jersey
Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott, 
Virginia Foxx, North Carolina            Virginia
Bob Goodlatte, Virginia              Lynn C. Woolsey, California
Duncan Hunter, California            Ruben Hinojosa, Texas
David P. Roe, Tennessee              Carolyn McCarthy, New York
Glenn Thompson, Pennsylvania         John F. Tierney, Massachusetts
Tim Walberg, Michigan                Dennis J. Kucinich, Ohio
Scott DesJarlais, Tennessee          Rush D. Holt, New Jersey
Richard L. Hanna, New York           Susan A. Davis, California
Todd Rokita, Indiana                 Raul M. Grijalva, Arizona
Larry Bucshon, Indiana               Timothy H. Bishop, New York
Trey Gowdy, South Carolina           David Loebsack, Iowa
Lou Barletta, Pennsylvania           Mazie K. Hirono, Hawaii
Kristi L. Noem, South Dakota         Jason Altmire, Pennsylvania
Martha Roby, Alabama
Joseph J. Heck, Nevada
Dennis A. Ross, Florida
Mike Kelly, Pennsylvania

                      Barrett Karr, Staff Director
                 Jody Calemine, Minority Staff Director

        SUBCOMMITTEE ON HIGHER EDUCATION AND WORKFORCE TRAINING

               VIRGINIA FOXX, North Carolina, Chairwoman

John Kline, Minnesota                Ruben Hinojosa, Texas
Thomas E. Petri, Wisconsin             Ranking Minority Member
Howard P. ``Buck'' McKeon,           John F. Tierney, Massachusetts
    California                       Timothy H. Bishop, New York
Judy Biggert, Illinois               Robert E. Andrews, New Jersey
Todd Russell Platts, Pennsylvania    Susan A. Davis, California
David P. Roe, Tennessee              Raul M. Grijalva, Arizona
Glenn Thompson, Pennsylvania         David Loebsack, Iowa
Richard L. Hanna, New York           George Miller, California
Larry Bucshon, Indiana               Jason Altmire, Pennsylvania
Lou Barletta, Pennsylvania
Joseph J. Heck, Nevada















                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on October 25, 2011.................................     1

Statement of Members:
    Foxx, Hon. Virginia, Chairwoman, Subcommittee on Higher 
      Education and Workforce Training...........................     1
        Prepared statement of....................................     2
    Hinojosa, Hon. Ruben, ranking minority member, Subcommittee 
      on Higher Education and Workforce Training.................     3
        Prepared statement of....................................     4

Statement of Witnesses:
    Bandre, Mark, vice president for enrollment management and 
      student affairs, Baker University..........................    19
        Prepared statement of....................................    21
    Day, Ron, director of financial aid, Kennesaw State 
      University.................................................    11
        Prepared statement of....................................    12
    Hoover, Nancy, on behalf of the National Direct Student Loan 
      Coalition (NDSLC)..........................................    16
        Prepared statement of....................................    18
    Runcie, James W., Chief Operating Officer, Office of Federal 
      Student Aid, U.S. Department of Education..................     6
        Prepared statement of....................................     8

Additional Submissions:
    Andrews, Hon. Robert E., a Representative in Congress from 
      the State of New Jersey:
        Questions submitted for the record.......................    51
    Mrs. Foxx:
        Letter, dated Oct. 25, 2011, from the National Council of 
          Higher Education Loan Programs, Inc....................    48
        Questions submitted for the record.......................    49
    Ms. Hoover:
        Response to questions submitted for the record...........    52
    Loebsack, Hon. David, a Representative in Congress from the 
      State of Iowa:
        Question submitted for the record........................    51
    Mr. Runcie:
        Response to questions submitted for the record...........    55

 
                     GOVERNMENT-RUN STUDENT LOANS:
                  ENSURING THE DIRECT LOAN PROGRAM IS
                 ACCOUNTABLE TO STUDENTS AND TAXPAYERS

                              ----------                              


                       Tuesday, October 25, 2011

                     U.S. House of Representatives

        Subcommittee on Higher Education and Workforce Training

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 10:00 a.m., in 
room 2175, Rayburn, Hon. Virginia Foxx [chairwoman of the 
subcommittee] presiding.
    Present: Representatives Foxx, Kline, Petri, Biggert, 
Platts, Roe, Thompson, Bucshon, Hinojosa, Tierney, Altmire, 
Bishop, Andrews, Davis, Loebsack, and Miller.
    Staff Present: Jennifer Allen, Press Secretary; Katherine 
Bathgate, Press Assistant/New Media Coordinator; Casey Buboltz, 
Coalitions and Member Services Coordinator; Heather Couri, 
Deputy Director of Education and Human Services Policy; Daniela 
Garcia, Professional Staff Member; Amy Raaf Jones, Education 
Policy Counsel and Senior Advisor; Rosemary Lahasky, 
Professional Staff Member; Brian Melnyk, Legislative Assistant; 
Krisann Pearce, General Counsel; Mandy Schaumburg, Education 
and Human Services Oversight Counsel; Linda Stevens, Chief 
Clerk/Assistant to the General Counsel; Alissa Strawcutter, 
Deputy Clerk; Kate Ahlgren, Minority Investigative Counsel; 
Daniel Brown, Minority Junior Legislative Assistant; Jody 
Calemine, Minority Staff Director; John D'Elia, Minority Staff 
Assistant; Jessica Finkel, Minority Detailee--Education; Brian 
Levin, Minority New Media Press Assistant; Melissa Salmanowitz, 
Minority Communications Director for Education; and Michael 
Zola, Minority Senior Counsel.
    Chairwoman Foxx. A very strong quorum being present, the 
subcommittee will come to order. Good morning and welcome to 
today's subcommittee hearing. I would like to thank our 
witnesses for joining us today. We appreciate the opportunity 
to hear your perspective on the Department of Education's 
implementation of the Direct Loan Program.
    Nineteen months ago, the Democrat-controlled Congress 
approved a federal takeover of the student loan industry to 
help pay for the president's health care law. My Republican 
colleagues and I were rightly concerned this political tactic 
could have unintended consequences on the nation's students' 
higher education institutions and our economy. Any time the 
federal government assumes control over a private sector 
industry, there can be national complications.
    As the sole provider and guarantor of federal student 
loans, the Department of Education is now one of the largest 
banks in the nation. In fiscal year 2012, it is expected to 
originate $124 billion in student loans. This is an enormous 
responsibility for any company or organization, let alone the 
agency also tasked with administering all federal education 
programs.
    When the transition to the Direct Loan Program began, 
critics warned of a possible increase in student default loan 
rates. In today's economic climate with reports of loan default 
rates on the rise, this is something the committee should take 
seriously.
    Some are also concerned that growing default rates could be 
further exacerbated by the elimination of helpful services 
previously available through the now defunct Federal Family 
Education Loan Program. These services, such as debt 
counseling, default prevention programs, and financial aid 
personnel training help to ensure financial aid officers and 
students fully understood the loan terms and processes. Schools 
and students must now rely on the Department of Education to 
provide these services, which many complain are no longer being 
offered or effectively administered.
    The transition to the Direct Loan Program has also resulted 
in a decline in customer service for students and financial aid 
officers. Given the volume of students applying for loan 
assistance, it has become difficult to speak to a program 
administrator to ask questions or share concerns about the loan 
process. Although the Department of Education had lofty 
promises of strong customer service when this transition began, 
many schools have voiced concerns about increasing instances of 
problems and mistakes.
    For example, earlier this month the Direct Loan Web site 
crashed and users were able to see other students' personal and 
financial information. The implications of this kind of Web 
site malfunction are severe particularly when it affects 
millions of borrowers nationwide.
    Additionally, institutions have criticized the Department's 
handling of student loan data. Some schools report they no 
longer receive accurate or consistent information from the 
handful of government loan servicers which limits their ability 
to assist students with their loan options and terms.
    As members of the Subcommittee on Higher Education and 
Workforce Training, we have the responsibility to conduct 
proper oversight to ensure the Direct Loan Program is meeting 
the needs of higher education institutions, students, and 
taxpayers. The witnesses with us today will provide interesting 
insight into execution and accountability measures of the 
program. I look forward to a productive discussion on this 
important issue.
    I now would like to recognize my distinguished colleague, 
Rubin Hinojosa, for his opening remarks.
    [The statement of Mrs. Foxx follows:]

         Prepared Statement of Hon. Virginia Foxx, Chairwoman,
        Subcommittee on Higher Education and Workforce Training

    Good morning, and welcome to today's subcommittee hearing. I'd like 
to thank our witnesses for joining us today. We appreciate the 
opportunity to hear your perspective on the Department of Education's 
implementation of the Direct Loan Program.
    Nineteen months ago, the Democrat-controlled Congress approved a 
federal takeover of the student loan industry to help pay for the 
president's health care law. My Republican colleagues and I were 
rightly concerned this political tactic could have unintended 
consequences on the nation's students, higher education institutions, 
and our economy. Any time the federal government assumes control over a 
private sector industry, there can be national implications.
    As the sole provider and grantor of federal student loans, the 
Department of Education is now one of the largest banks in the nation. 
In fiscal year 2012, it is expected to originate $124 billion in 
student loans. This is an enormous responsibility for any company or 
organization, let alone the agency also tasked with administering all 
federal education programs.
    When the transition to the Direct Loan Program began, critics 
warned of a possible increase in student loan default rates. In today's 
economic climate, with reports of loan default rates on the rise, this 
is something the committee should take seriously.
    Some are also concerned that growing default rates could be further 
exacerbated by the elimination of helpful services previously available 
through the now defunct Federal Family Education Loan Program. These 
services, such as debt counseling, default prevention programs, and 
financial aid personnel training, helped ensure financial aid officers 
and students fully understood the loan terms and process. Schools and 
students must now rely on the Department of Education to provide these 
services, which many complain are no longer being offered or 
effectively administered.
    The transition to the Direct Loan Program has also resulted in a 
decline in customer service for students and financial aid officers. 
Given the volume of students applying for loan assistance, it has 
become difficult to speak to a program administrator to ask questions 
or share concerns about the loan process. Although the Department of 
Education had lofty promises of strong customer service when this 
transition began, many schools have voiced concerns about increasing 
instances of problems and mistakes.
    For example, earlier this month, the Direct Loan website crashed 
and users were able to see other students' personal and financial 
information. The implications of this kind of website malfunction are 
severe, particularly when it affects millions of borrowers nationwide.
    Additionally, institutions have criticized the department's 
handling of student loan data. Some schools report they no longer 
receive accurate or consistent information from the handful of 
government loan servicers, which limits their ability to assist 
students with their loan options and terms.
    As members of the Subcommittee on Higher Education and Workforce 
Training, we have a responsibility to conduct proper oversight to 
ensure the Direct Loan Program is meeting the needs of higher education 
institutions, students, and taxpayers. The witnesses with us today will 
provide interesting insight into execution and accountability measures 
of the program. I look forward to a productive discussion on this 
important issue.
    I now recognize my distinguished colleague, Ruben Hinojosa, for his 
opening remarks.
                                 ______
                                 
    Mr. Hinojosa. Thank you, Chairwoman Foxx.
    I also want to welcome and thank our distinguished 
witnesses for joining us today. It is a pleasure to see you, 
and we look forward to your presentations.
    Today's hearing will provide us with an update of the U.S. 
Department of Education's remarkably successful transition from 
the Federal Family Education Loan Program, better known as 
FFELP, to the Direct Loan Program. As ranking member of this 
subcommittee, I am pleased that about 6,000 schools are using 
the Direct Loan Program.
    Enacted as part of the Health Care and Education 
Reconciliation Act of 2010, the Student Aid and--SAFRA, which 
is the Student Aid and Fiscal Responsibility Act, took both 
steps to expand accessibility and affordability in higher 
education by ending the taxpayer subsidized federally 
guaranteed Federal Family Education Loan Program and replaced 
it with the William D. Ford Federal Direct Loan Program.
    SAFRA, a tremendous victory for students, families, and 
taxpayers, made Federal college loans more stable and efficient 
at no cost to the taxpayers, reinvested billions of dollars 
into student financial aid programs such as Pell Grant, and 
supported President Obama's college access and completion 
goals.
    On July 1, 2010, eligible students began borrowing directly 
from the Department of Education and no longer paid new 
subsidies to banks to make loans. Under the DL programs, 
student lending remains a federal program, and the Department 
of Education continues to work with the private sector and 
nonprofits to service student loans.
    In terms of oversight, while the Department of Education's 
Office of Inspector General has conducted several reviews of 
the transition to DL programs, I understand that none of these 
reviews have identified material issues associated with the 
transition. Instead, the reviews demonstrate that the 
Department has led a seamless and successful transition to the 
DL program. In fact, the first report found that the Office of 
Federal Student Aid took actions to monitor student loan market 
conditions and estimate the impact of the significant changes 
on DL origination and servicing demands. FSA also took actions 
to expand existing DL processing systems, awarded four 
contracts to assist in servicing potential log-in increase and 
appeared to have access to sufficient resources to assist 
schools with the ability to transition to the DL program and 
maintain FSA's compliance monitoring activities.
    The second report found that although there was a variance 
between the actual and the projected monthly activity in the 
DL's origination process, the level of risk in exceeding the DL 
origination capacity was low.
    The final report found that FSA took actions to ensure the 
effective processing of student loans as a result of the 100 
percent transition to the DL program.
    The OIG also concluded that the FSA had been providing 
appropriate technical assistance to help impacted schools 
successfully transition to the DL program.
    While I am encouraged by the OIG's findings, we must be 
vigilant in protecting the taxpayer investment in higher 
education programs. Today, I am eager to hear more about the 
transition from our panel of witnesses and about how the 
Department is ensuring accountability to students and 
taxpayers.
    With that, Madam Chair, I yield back.
    [The statement of Mr. Hinojosa follows:]

  Prepared Statement of Hon. Ruben Hinojosa, Ranking Minority Member, 
        Subcommittee on Higher Education and Workforce Training

    Thank you, Chairwoman Foxx. I want to welcome and thank our 
distinguished witnesses for joining us.
    Today's hearing will provide us with an update of the U.S. 
Department of Education's remarkably successful transition from the 
Federal Family Education Loan Program (FFELP) to the Direct Loan 
Program (DL). As Ranking Member of this Subcommittee, I am pleased that 
about 6,000 schools are using the Direct Loan Program.
    Enacted as part of the Health Care and Education Reconciliation Act 
of 2010, the Student Aid and Fiscal Responsibility Act (SAFRA), took 
bold steps to expand accessibility and affordability in higher 
education by ending the taxpayer-subsidized, federally guaranteed 
Federal Family Education Loan Program (FFELP) and replacing it with the 
William D. Ford Federal Direct Loan (DL) Program.
    SAFRA, a tremendous victory for students, families, and taxpayers, 
made federal college loans more stable and efficient at no cost to 
taxpayers, reinvested billions of dollars into student financial aid 
programs such as Pell Grants, and supported President Obama's college 
access and completion goals.
    In July 1, 2010, eligible students began borrowing directly from 
the Department of Education and no longer paid new subsides to banks to 
make loans.
    Under the DL Program, student lending remains a federal program and 
the Department of Education continues to work with the private sector 
and non-profits to service student loans.
    In terms of oversight, while the Department of Education's Office 
of Inspector General (OIG) has conducted several reviews of the 
transition to DL program, I understand that none of these reviews have 
identified material issues associated with the transition.
    Instead, the reviews demonstrate that the department has led a 
seamless and successful transition to the DL program.
    In fact, the first report found that the Office of Federal Student 
Aid (FSA) took actions to monitor student loan market conditions and 
estimate the impact of the significant changes on DL origination and 
servicing demands.
    FSA also took actions to expand existing DL processing systems; 
awarded four contracts to assist in servicing potential volume 
increase; and appeared to have access to sufficient resources to assist 
schools with the ability to transition to the DL program and maintain 
FSA's compliance monitoring activities.
    The second report found that although there was a variance between 
the actual and the projected monthly activity in the DL's origination 
process, the level of risk in exceeding the DL origination capacity was 
low.
    The final report found that FSA took actions to ensure the 
effective processing of student loans as a result of the 100 percent 
transition to the DL program. The OIG also concluded that the FSA had 
been providing appropriate technical assistance to help impacted 
schools successfully transition to the DL program.
    While I am encouraged by the OIG's findings, we must be vigilant in 
protecting the taxpayer investment in higher education programs.
    Today, I am eager to hear more about the transition from our panel 
of witnesses and about how the Department is ensuring accountability to 
students and taxpayers.
    Thank you.
                                 ______
                                 
    Chairwoman Foxx. Pursuant to Committee Rule 7(c), all 
subcommittee members will be permitted to submit written 
statements to be included in the permanent hearing record. 
Without objection, the hearing record will remain open for 14 
days to allow statements, questions for the record, and other 
extraneous material referenced during the hearing to be 
submitted in the official hearing record.
    It is now my pleasure to introduce our distinguished panel 
of witnesses.
    Mr. James Runcie was appointed as the Chief Operating 
Officer for the Office of Federal Student Aid on September 15, 
2011. Before joining the Department of Education, Mr. Runcie 
served as co-head of Equity Corporate Finance of UBS investment 
bank.
    Mr. Ron Day is the Director of Financial Aid at Kennesaw 
State University. Prior to Kennesaw State University, Mr. Day 
served in the same capacity at several other schools.
    Ms. Nancy Hoover has been Denison University's Director of 
Financial Aid for more than 17 years. She is the immediate past 
national chair of the National Direct Student Loan Coalition.
    Mr. Mark Bandre has served as Vice President for Enrollment 
Management and Student Affairs for Baker University since June 
2010 after having served in similar capacities at other 
schools.
    Before I recognize you to provide your testimony, let me 
briefly explain our lighting system. You will have 5 minutes to 
present your testimony. When you begin, the light in front of 
you will turn green. When 1 minute is left, the light will turn 
yellow. And when your time has expired, the light will turn 
red, at which point I would ask that you wrap up your remarks 
as best as you are able. After you have testified, members will 
each have 5 minutes to ask questions of the panel. And of 
course your submitted remarks will be made a part of the 
record.
    I would now like to recognize Mr. Runcie for 5 minutes.

 STATEMENT OF JAMES W. RUNCIE, CHIEF OPERATING OFFICER, OFFICE 
      OF FEDERAL STUDENT AID, U.S. DEPARTMENT OF EDUCATION

    Mr. Runcie. Thank you, Chairwoman Foxx, Congressman 
Hinojosa, and other distinguished committee members, for the 
opportunity to testify before the committee.
    My name is Jim Runcie, and a little over a month ago I was 
appointed by Secretary of Education, Arne Duncan, to be the 
Chief Operating Officer of the Department's Federal Student Aid 
Office.
    Federal Student Aid, or FSA, is responsible for 
implementing and overseeing the federal student financial 
assistance programs. I am here today to discuss the transition 
from two major federal student loan programs to 100 percent 
direct lending. I also want to share with you the many new 
processes and programs that have been implemented by the 
Department to ensure appropriate stewardship of taxpayer funds 
and the continued integrity of the student aid programs.
    Let me begin by providing some context. As you know, the 
decline of the financial markets that began in 2007 directly 
affected student lending by severely restricting the 
availability of capital for private lenders to make federally 
supported student loans. This potentially could have left 
millions of students without the funds needed to finance their 
education. Many schools observing the economic and financial 
landscape at the time began the process of transitioning to the 
DL program. In fact, the number of schools entering the DL 
program increased by 52 percent in the 19 months prior to 
President Obama's proposal to originate all federal student 
loans through a single loan program.
    As the number of schools moving to the DL program 
increased, we took steps to make sure that FSA had the capacity 
to assume additional direct loan volumes. Beginning in 2008, we 
increased our standby loan origination capacity to ensure it 
could handle expected volumes. We also augmented our back-end 
servicing capacity with the award of loan servicing contracts 
to four private sector companies. The structure of these 
contracts ensures that borrowers will have access to better 
counseling to help manage their student loan obligations. 
Borrowers will also receive the highest quality service at the 
lowest possible cost to taxpayers.
    In the summer of 2009, FSA began reaching out to schools 
that were considering joining the DL program. In October, we 
implemented a comprehensive training plan designed to assist 
schools with the transition. I can report to the committee that 
every school wishing to originate a direct loan has been able 
to do so. Last year, the Department made $102 billion in direct 
loans to 11.5 million students and parent borrowers. This 
transition from a dual program structure increased the Direct 
Loan Program disbursements from $42.6 billion in the 2009-2010 
academic year to $102.2 billion the following year.
    With the number of schools participating in direct lending 
came the need to significantly increase our program's support 
efforts. We increased staff to provide oversight and compliance 
to ensure that taxpayer funds are being used as intended. In 
addition, we continued to enhance our processes to identify at-
risk schools. This will ensure the highest integrity in the 
student aid programs.
    We are also taking steps to improve accuracy of information 
provided by students and families through the Free Application 
for Student Federal Aid, or FASFA. This includes the new IRS 
data retrieval tool which provides greater accuracy of the 
financial information provided by applicants, and new 
regulations will help the Department and institutions better 
target the verification of student reported data.
    We augmented our risk management capacity within FSA to 
better identify and mitigate systemic, operational, and 
business vulnerabilities. Additionally, we are enhancing our 
security efforts with those organizations charged with 
compiling and storing student aid data. With the growth in 
federal student aids borrowing base, we are also increasing our 
customer outreach, default prevention, and risk management 
efforts.
    Last year, FSA established its customer experience office, 
which is charged with managing customer advocacy, financial 
literacy, and consumer protection. We also updated our student 
loan counseling for borrowers and provided incentives to our 
new private sector loan servicers to better counsel borrowers 
in an effort to reduce defaults.
    Ultimately, it is the student aid recipients and their 
families who are our customers, and we want to equip them with 
the best tools and resources to make informed financial 
decisions.
    In an effort to support the transition to and, more 
specifically, to enhance the financial literacy and 
deprevention services for student borrowers, the Secretary of 
Education invited sale program guarantee agencies to submit 
proposals for voluntary flexible agreements, or VFAs. VFAs use 
existing statutory authority to leverage private sector best 
practices to improve efficiencies and customer service at no 
additional cost to taxpayers. We look forward to working with 
the guarantee agencies as they continue to provide services to 
students and families.
    A summary of our progress to date would be incomplete 
without an acknowledgment of the student aid staff. I also want 
to recognize financial aid professionals at institutions 
participating in the DL program, including my colleagues on 
this panel, for their tremendous efforts in enabling this 
transition.
    Thank you for inviting me to testify, and I am happy to 
take questions.
    [The statement of Mr. Runcie follows:]

    Prepared Statement of James W. Runcie, Chief Operating Officer,
      Office of Federal Student Aid, U.S. Department of Education

    Thank you for the opportunity to testify before the Committee on 
the Department of Education's office of Federal Student Aid's progress 
in transitioning to the William D. Ford Federal Direct Loan Program 
(Direct Loan Program). I believe that this transition has been and 
continues to be a success, and I am pleased to appear before you today.
    A little over a month ago, Secretary of Education Arne Duncan 
appointed me as the Chief Operating Officer of Federal Student Aid. 
Prior to this appointment, I held the position of Deputy Chief 
Operating Officer of Federal Student Aid. By way of background, my 
prior experience includes over 20 years in management and financial 
services in the private industry. I was also a recipient of federal 
financial assistance over 20 years ago while attending Harvard 
University as a graduate student. I am honored to serve the very 
programs that helped me to complete my education. It is a privilege to 
be a part of an organization that supports student access to higher 
education and workforce training.
    Federal Student Aid is responsible for implementing and overseeing 
the federal student financial assistance programs, authorized under 
Title IV of the Higher Education Act of 1965 (HEA). These programs 
represent the largest source of student aid for postsecondary education 
in the United States. Last year, Federal Student Aid processed over 21 
million applications for federal student aid and delivered roughly $150 
billion in grant, work-study, and loan assistance to approximately 15 
million postsecondary students and their families. Today, our loan 
portfolio is valued at over $848 billion, with 36 million individual 
borrowers and 146 million loans.
    Federal Student Aid is not alone in these efforts; we are supported 
by our public-private partnerships. Federal Student Aid's workforce 
includes over 1200 employees supported by approximately 9,000 private 
sector contract employees. In fact, approximately 84 percent of Federal 
Student Aid's administrative budget goes to private-sector vendors. In 
addition, we are supported by, and work closely with several offices 
within the Department. As the numbers will tell, we efficiently manage 
a high volume of work with our federal staff in an effort to be good 
stewards of taxpayer money.
    Before I discuss the Department's process in transitioning FFEL 
Program lending to the Direct Loan Program, I would like to quickly 
highlight some of the other work Federal Student Aid is doing to 
support students as they pursue education and training beyond high 
school.
    First, we have greatly simplified the Free Application for Federal 
Student Aid (FAFSA) as part of our overall strategy to increase access 
to postsecondary education and meet President Obama's goal of having 
``the best educated, most competitive workforce in the world'' by 2020. 
Federal Student Aid redesigned our online application--FAFSA on the 
Web--with improved ``skip-logic'' and expanded the availability of the 
Internal Revenue Service Data Retrieval Tool. These improvements 
reduced the time for families to complete the application by 
approximately one third. FAFSA on the Web allows financial aid 
applicants and their parents to retrieve, directly from the Internal 
Revenue Service, certain income and other information they had reported 
on their federal income tax returns and to automatically transfer that 
information to their FAFSA. This not only makes it easier for families 
to complete the application, but it also increases the accuracy of the 
information used to determine a student's eligibility for federal 
student aid. Aid applicants are taking note of these changes. Last 
quarter, the FAFSA received a score of 90 from the American Customer 
Satisfaction Index, which is a national economic indicator of customer 
evaluations of the quality of products and services available to 
household consumers in the United States. The average government score 
is 75, and scores above 88 are considered ``outstanding.''
    Another improvement I would like to highlight is the smooth 
completion of the Federal Family Education Loan (FFEL) Loan Purchase 
Programs, which resulted from the authority given to the Secretary of 
Education in the Ensuring Continued Access to Student Loans Act of 2008 
(ECASLA). As you know, the decline in the financial markets that began 
in 2007 directly affected student lending by severely restricting the 
availability of capital for private lenders to make federally supported 
student loans. This crisis had the potential to leave millions of 
students without the funds needed for a postsecondary education. We 
have many of you on this Committee to thank for ensuring students had 
access to these funds.
    As a result of Congressional action, the Administration established 
the ECASLA Loan Purchase Programs. By authorizing the Department to 
purchase eligible federal student loans, the ECASLA Loan Purchase 
Programs provided FFEL lenders with the capital necessary to make 
Stafford and PLUS loans for the 2008--09 and 2009--10 academic years. 
The purchase of new loans under the ECASLA Program was completed on 
October 15, 2010 after the Department purchased almost $109 billion in 
FFEL Program loans representing approximately 85 percent of all FFEL 
loans disbursed during that period. In addition to these programs, the 
Department also guaranteed another $41 billion in FFEL Program loans 
financed by an asset-backed commercial paper conduit
    These are just a few of the many achievements Federal Student Aid 
has accomplished in the past few years, while continuing to provide 
record amounts of aid at lower incremental cost to more students than 
ever before. I am very proud to report these achievements to the 
Committee today.
    The primary reason I am here today is to discuss Federal Student 
Aid's efforts to ensure a smooth transition of the FFEL Program to 100 
percent Direct Lending. I also want to discuss the many processes and 
programs that have been implemented by the Department to ensure 
appropriate stewardship of taxpayer funds and the continued integrity 
of the student aid programs.
    On March 30, 2010, President Obama signed the Health Care and 
Education Reconciliation Act, P.L. 111-152. The provisions that 
prescribed the significant changes to the Title IV program are referred 
to as the SAFRA Act. The SAFRA Act ended new lending under the FFEL 
program beginning July 1, 2010. While the SAFRA Act ended new FFEL 
lending, it is important to note that 77 million FFEL Program loans 
totaling almost $490 billion and representing over 23 million borrowers 
still exist today.
    I am pleased to report that the transition to 100 percent Direct 
Lending was a success and the Department made $102.2 billion in Direct 
Loans to 11.5 million recipients during academic year 2010-2011. This 
transition from the FFEL Program to the Direct Loan Program resulted in 
a 140 percent year-over-year increase in Direct Loan Program 
disbursements in the 2010-11 academic year.
    Beginning in 2007, the decline in the credit markets compelled a 
number of schools to move to the Direct Loan Program and many FFEL 
lenders to advocate for federal assistance in securing loan principal 
for new originations. In fact, the number of schools entering the 
Direct Loan Program increased by 52 percent in the nineteen months 
prior to the February 2009 release of President Obama's 2010 budget 
proposal to originate all Stafford, PLUS and Consolidation loans via a 
single loan program. As the number of schools moving to the Direct Loan 
Program increased, we initiated steps to ensure Federal Student Aid had 
the capacity to assume additional Direct Loan volume. Beginning in 
2008, we increased the Direct Loan origination capacity of our Common 
Origination and Disbursement system. We accomplished this through a 
series of three upgrades that improved the system's infrastructure and 
increased call center and system operations support.
    In 2009, the volume of loans sold to the Department by FFEL lenders 
under the ECASLA loan programs quickly grew, while at the same time 
schools continued their migration to the Direct Loan Program. With 
front-end Direct Loan volumes increasing, we augmented our back-end 
servicing capacity with the award of four loan servicing contracts to 
our Title IV additional servicers (TIVAS): private sector companies--
Nelnet Servicing, LLC; Great Lakes Educational Loan Services, Inc; SLM 
Corporation (Sallie Mae); and the Pennsylvania Higher Education 
Assistance Agency. These contracts provided the Department with the 
capacity necessary to support the anticipated increase in the number of 
loans owned by the Department. The structure of these contracts ensures 
that borrowers will receive the highest quality of service at the 
lowest possible cost to the taxpayer. Today, the Department's federally 
held portfolio with the four servicers is more than $125 billion in 
Direct Loans and over $100 billion in outstanding principal and 
interest on FFEL loans purchased by the Department through the ECASLA 
programs.
    While Federal Student Aid's systems and processes were ready to 
support the increase in Direct Loan volume, many schools still required 
assistance in transitioning to the Direct Loan Program.
    In summer 2009, Federal Student Aid began offering assistance and 
guidance as schools contemplated joining the Direct Loan Program. We 
established the Direct Loan Task Force to provide dedicated technical 
assistance to schools transitioning into Direct Lending.
    In October 2009, the Department implemented a comprehensive 
training plan to assist schools transitioning to the Direct Loan 
Program. That same month, we launched our Direct Loan Webinar Training 
Series for domestic schools. This consisted of a suite of six different 
modules on multiple aspects of administering the Direct Loan Program. 
We established and published the Direct Loan Source, a monthly 
newsletter for schools considering a transition to the Direct Loan 
Program. In December 2009, we hosted over 5,300 financial aid 
professionals at our annual conference--providing detailed Direct Loan 
training. We offered Direct Loan training again at our 2010 annual 
conference, with over 5,700 attendees. We also conducted Regional 
Direct Loan Training Conferences in 15 cities across the Nation, 
serving almost 2,600 financial aid professionals. Additionally, our 
team traveled to 10 cities to offer training to foreign schools 
personnel.
    I can report to the Committee that all eligible institutions of 
higher education in the United States wishing to participate in the 
Direct Loan Program have successfully transitioned and are able to 
provide Direct Loans to students at their institutions. Today, 
approximately 5,800 domestic institutions are participating in the 
Direct Loan Program.
    The SAFRA Act also amended the HEA to provide eligibility for 
domestic students attending foreign institutions to borrow under the 
Direct Loan Program. Today, 400 foreign schools now participate in the 
Direct Loan Program. Every foreign school wishing to originate a Direct 
Loan has been able to do so.
    We are also taking additional steps to augment our loan servicing 
capacity. The Department is now implementing the SAFRA Act provision 
that providing mandatory funding for the Department to allow certain 
non-profit servicers to service Direct Loans. Final pricing was 
announced on April 19, 2011. To date, 15 entities representing 26 not-
for-profit servicers and 30 states have entered into memoranda of 
understanding with the Department, and one servicer has entered into a 
contract with the Department and already received its first allocation. 
We anticipate that other not-for-profit servicers will come on line 
over the next year.
    With the knowledge that most schools participating in the Direct 
Loan Program would have fewer than two years experience in 
administering the Direct Loan Program, we significantly increased our 
program support and compliance efforts. Our program support staff 
continues to assist with account reconciliation and technical support. 
We also increased staff to provide oversight and compliance in this 
area to ensure taxpayer funds are being used as intended. In addition, 
we are reviewing existing policies and procedures for identifying at-
risk schools and practices, further enhancing our ability to ensure 
integrity of the program.
    As already mentioned, Federal Student Aid is taking steps to 
improve the accuracy of information provided through the FAFSA. This 
includes the new IRS Data Retrieval Tool which ensures greater accuracy 
of financial information provided by applicants as well as the 
resulting aid eligibility determination. New regulations, effective 
July 1, 2012, help institutions better target the verification of 
student-reported data for student aid recipients. We are also 
developing targeted verification techniques leveraging enhanced skip 
logic functionality within future versions of the aid application.
    We also augmented our risk management capacity within Federal 
Student Aid to identify and mitigate systemic, operational and business 
vulnerabilities. Additionally, we are enhancing our security of student 
aid data to protect FSA systems and student data.
    With the growth in Federal Student Aid's borrower base, we are also 
increasing our customer outreach, default prevention and risk 
management efforts. Last year, Federal Student Aid established a Chief 
Customer Experience Officer, whose role is to manage the overall 
customer experience. This officer is responsible for, among other 
things, customer advocacy, financial literacy and consumer protection. 
We have also updated our financial counseling for new borrowers, and 
have provided incentives for our new loan servicers to reduce defaults. 
Ultimately, it is student aid recipients who are our customers, and we 
want to equip them with information to make informed financial 
decisions.
    Finally, with the growth in the number of federal student loans 
owned by the Department comes greater risk for a higher number of 
defaulted borrowers whose accounts must be serviced. Over the years, we 
have increased the number of debt collection vendors under contract to 
23, and are implementing a new default management system that features 
more flexibility and greater analytics to increase the effectiveness of 
our debt collection efforts.
    In an effort to support the continued transition from FFEL to 
Direct Loans, the Secretary invited FFEL Program guaranty agencies to 
submit proposals for Voluntary Flexible Agreements (VFAs) in late May). 
As authorized by the HEA, VFAs use existing authority to leverage 
private sector best practices to improve efficiencies and customer 
service in the administration of the Title IV programs, while reducing 
the cost to the American taxpayer. As of August 1, 2011, the Department 
received a total of 22 proposals, representing 24 guaranty agencies. 
The Department is currently reviewing these proposals. We look forward 
to working with the guaranty agencies to continue to provide services 
to students.
    A summary of our progress to date would be incomplete without an 
acknowledgment of the incredible efforts of the Federal Student Aid 
staff. The dedication, professionalism and absolute commitment of this 
team to ensuring students have the aid they need to achieve their 
educational pursuits is truly inspirational. I would also like to 
recognize financial aid administrators at institutions participating in 
the Direct Loan Program for their efforts in making the transition a 
success.
    Thank you for inviting me to testify on the Department's progress 
in the Direct Loan transition and for the opportunity to present the 
steps we are taking to ensure that eligible students and their families 
have access to Direct Loans they need, and taxpayers' investments are 
protected. On behalf of the dedicated staff of Federal Student Aid, I 
would like to reiterate our commitment to serving the Nation's students 
and their families. I am happy to take any questions you may have.
                                 ______
                                 
    Chairwoman Foxx. Thank you very much, Mr. Runcie.
    I now recognize Mr. Day for 5 minutes.

      STATEMENT OF RON H. DAY, DIRECTOR OF FINANCIAL AID,
                   KENNESAW STATE UNIVERSITY

    Mr. Day. Good morning, Madam Chair, and other distinguished 
committee members. I am Ron Day, Director of Financial Aid at 
Kennesaw State University in Kennesaw, Georgia. Thank you for 
the opportunity to testify about the successes and the 
challenges of the William D. Ford Federal Direct Loan Program.
    Today I will offer my perspectives on the transition 
process from FFEL and the current strengths and weaknesses from 
the now single federal loan program. As a current and former 
board member and now serving as incoming chairman to the 
National Association of Student Financial Aid administrators, I 
want the share some national perspectives as well.
    As an aid administrator for over 28 years, I have 
previously been associated with both private and public 
nonprofit schools that have participated in the FFEL program. 
FFELP allows students and parents the opportunity to selecting 
a lender of their choice from the private loan market. The 
FFELP lenders assisted us in our schools and students with the 
following--brochures and informational items, step-by-step 
processes for applying and repaying, budget calculators, budget 
advice, financial planning tools. One of the most helpful 
things was default management counseling and management tools 
that helped explain to students how to keep out of default, the 
consequences of default, and the basic how to and why to repay 
student loans. Their assistance was extremely valuable to our 
students.
    With the situation that occurred in 2008 with the financial 
markets, we have consulted and many of the private lenders 
decided to discontinue participation in the FFEL program. The 
community became very unrested. Financial aid administrators 
sought advice and direction but quickly realized that the 
change of transition would not be as easy as turning on a light 
switch.
    We were faced with staffing concerns, how to implement a 
transitional plan all within a relatively short time frame. We 
were concerned about internal systems and our need to 
reconfigure computer systems, yet we were compelled to begin 
the planning process. And after gathering information, reading 
materials, attending many workshops and seeking assistants from 
campus administrators, key staff members and discussing with 
units and divisions on my campus, I advised my administration 
that we would be transitioning to DL in January of 2010.
    The transition was not without bumps. We did need to 
reconfigure our systems and not just our computer systems. We 
had to formulate training and retraining activities and develop 
communications plans for students and parents on new processes 
and procedures. It was not an easy task for students. Being 
transferred from liaison to liaison on the department level, 
this required the daily need for conversations with area 
colleagues.
    Yet I can say that today I have not heard of any student 
that was denied access to a student loan. The current process 
is not perfect. I raise the following concerns:
    Reporting must improve within the process. This causes 
delay in disbursement of funds to students; better real time 
processes should be solved. Additional streamlining is needed. 
The FAFSA should and could double as a promissory note or at 
least link for ease of completion to the document. Previously a 
question was included on the FAFSA asking the student if they 
wished to receive a student loan. Against the advice of the 
financial aid community, it was removed. Default management 
tools and assistance tools should increase, and educational 
process for students is important to show how to prevent 
defaulting on student loans.
    Standardization must increase. Many of the previous FFELP 
winners are now servicers. They have been allowed to implement 
different policies and practices. There is no single 
publication that has been released that easily tells students 
about these differences.
    Finding their loans between multiple servicers. There is no 
single point of contact that should be available to students. 
Because of multiple servicers of the DL program, students are 
often uncertain about whether loans are being serviced. This 
should be corrected as soon as possible with a centralized 
phone system or Web site that easily sends students to their 
servicer.
    I do not see these challenges as insurmountable, and I feel 
confident that as we partner together we can see positive 
outcomes for students. I once more wish to express my gratitude 
for the opportunity to offer you a glimpse into our 
transitional process from FFELP to DL and to share some areas 
that we belive require some immediate and additional 
improvement. We, as aid administrators, see ourselves as 
partners with you, and with the Department in ensuring that 
nearly $150 billion in federal student aid is delivered 
efficiently, accurately, and successfully to needy students.
    The financial aid community is appreciative of you and your 
willingness to hear our needs, struggles, and successes. Thank 
you very much.
    [The statement of Mr. Day follows:]

       Prepared Statement of Ron Day, Director of Financial Aid,
                       Kennesaw State University

    Good Morning Madam Chair and other distinguished Committee Members. 
My name is Ron Day, Director of Financial Aid at Kennesaw State 
University in Kennesaw Georgia--a 4-year public university located in a 
suburb of metropolitan Atlanta. Thank you for the opportunity to 
testify about the successes and challenges of the William D. Ford 
Federal Direct Loan Program. Today I offer my perspectives on the 
transition process from the Federal Family Education Loan Program, or 
FFEL, and the current strengths and weaknesses of the now single 
federal loan program. As a current and former board member and now 
incoming chairman of the National Association of Student Financial Aid 
Administrators (NASFAA), I want to share some national perspectives as 
well.
FFEL Program
    As an aid administrator for over 28 years, I have previously been 
associated with both private and public non-profit schools that 
participated in the FFEL Program. FFEL allowed students and parents the 
opportunity of selecting a lender from the private loan market. The 
FFEL partners assisted my schools by offering the following to my 
students:
     Brochures and informational items that included:
     Basic explanation and eligibility criteria for student 
loans
     Descriptions of step-by-step application and repayment 
processes
     Budget advice and calculators that could be utilized for 
proper financial planning
     Information regarding rebates and other incentives to 
encourage on-time repayment.
     Default prevention, counseling, and management tools that 
included information on:
     How much should be borrowed
     How to track and manage loans
     How to repay student loans
     The consequences of defaulting
     Options to prevent student loan default
     Consolidation information and when that may or may not be 
a good option
     Information on the numerous repayment plan options and how 
differences in those plans would ultimately affect the total cost of 
their loans
    Their assistance was extremely valuable to our students and 
provided them useful resources that educated students on all aspects of 
a loan--from the application process through repayment. Inasmuch as 
schools are held responsible for the numbers of students that default 
on loans, these vital services complimented institutional efforts to 
keep students out of default.
DL Transition
    Schools had also previously received information on the current 
loan environment from various higher education associations. For 
example, on April 30, 2008, the American Association of Community 
Colleges wrote to members, ``As a safeguard against any potential 
disruption in loan capital due to private lenders no longer providing 
loans to your students, you may want to consider gaining initial 
approval to participate in the Department of Education's Direct Loan 
Program.'' The American Council of Education also expressed to its 
members ``there is a need to consider alternative financial options and 
whether the Direct Lending Program is a feasible way to navigate these 
uncharted waters.'' NASFAA issued similar guidance to schools in 2009, 
advising schools to at least make plans to convert into the Direct Loan 
Program given the uncertainty surrounding an ECASLA extension.
    It was a very difficult and confusing time for schools. Financial 
aid administrators sought advice and direction from as many sources as 
possible, but we knew it wouldn't be as easy as turning on a light 
switch. Once a school decided to transition from FFEL to Direct Loan, 
many other decisions and considerations came into play, such as:
     What staffing would be needed to implement the transition 
in a relatively short amount of time?
     What current initiatives would need to be forestalled in 
order to make the transition quickly and smoothly?
     What capital investments might be needed for training and 
system changes?
     Do we have the necessary staff to administer a new program 
effectively?
     What restructuring of staff and organizational 
arrangements should take place?
     How do we learn and adapt new processes to our computer 
systems?
     How long would it take for full implementation to occur?
Kennesaw State University Planning
    After weighing all of the pros and cons, the current and predicted 
future market conditions, and talking to many colleagues across the 
country, in the Fall 2009 we at Kennesaw State University began the 
planning process of determining whether to move to the Direct Loan 
Program.
    We developed a timeline to implement this transition, which 
included:
     Reviewing information available from various groups--
including current DL schools, local schools with the same computer 
system as KSU who had previously transitioned to DL, and transitional 
plans developed by schools of comparable size as KSU
     Selecting a ``Task Force'' of campus individuals from 
critical offices to explore the possibility of transitioning:
     Budget Office
     Bursar's Office
     Business Services
     Information Technology
     The Financial Aid Office
     Developing an informational meeting for key individuals to 
explain the differences in programs and seeking feedback regarding the 
possibility of moving to Direct Loans. These individuals included:
     Upper Administrators
     Budget and Planning
     Office of Financial Planning
     Internal Audit
     Attending and participating in webinars, workshops, and 
conferences from the higher education community and the U.S. Department 
of Education
     Reconvening the institutional Task Force in early January 
2010 for additional education in process changes
     Seeking assistance from other schools who had the same 
internal computer system to help with:
     Transitional information
     Manuals
     The timeline in making this transition
     Talking with IT professionals employed by the school (KSU)
     Reviewing steps needed to setup our system
    Although an avid supporter of FFEL, when the financial markets 
froze in 2008, when many local and area banks discontinued 
participation in 2009 and 2010, when remaining private lenders showed 
an uncertainty in their longevity of participating in FFEL, the 
decision became clear. Ultimately, I determined the Direct Loan Program 
was the best option for our students and our institution and advised my 
administration on January 28, 2010, that we would be making the move 
from FFEL to DL by the following summer. Our first disbursement was 
successfully made during the Summer 2010 semester.
What is Best for Students
    Kennesaw State University has always framed decisions from the 
perspective of what is ``best for students'' first and then what is 
``best for KSU.'' We felt Direct Loans to be good for students for the 
following reasons:
     Funding is obtained directly from the Federal Government, 
which were the surest form of undisrupted capital at that time.
     Federal Direct Loans are fully integrated into the Federal 
student aid delivery process through ED's common origination and 
disbursement (COD) system, the same system that delivers Pell Grant 
funding.
KSU Transition Process
    Although ultimately successful, our transition was not without 
bumps and challenges. Challenges included:
     Reconfiguring our computer system(s) to accommodate new 
processes
     Training and retraining of staff
     Counselors within the Financial Aid Office
     Processing staff within the Financial Aid Office
     External staff in KSU
     Bursar Office
     Business Services
     Developing a communication plan to assist students with 
new requirements:
     New Promissory Note for all previous and future borrowers
     New processes and location and revamping of websites, 
links, and forms
    With the assistance of workshops, colleagues, manuals, and the U. 
S. Department of Education, our students did not experience 
insurmountable struggles or roadblocks through the transition.
    As a board member of NASFAA, I heard from schools on an ongoing 
basis who were struggling to make the transition successfully. This was 
no easy task for schools to undertake in such a short amount of time 
and many schools were shifted from liaison to liaison at the U.S. 
Department of Education as ED increased their operational capacity to 
help schools transition and implement the program successfully. 
However, when it was all said and done, I am proud to say that I am not 
aware of any student who was denied access to student loans due to a 
school not successfully transitioning into the Direct Loan Program.
    Today, schools across the country are successfully operating in the 
Direct Loan Program. However, this program is not perfect. I raise the 
following issues that I believe require additional, immediate 
attention:
     Better and more accurate reporting. Quite often the data 
is not reported in a timely fashion from multiple servicers to our 
national, central database--The National Student Loan Data System 
(NSLDS). Delays in reporting data adds to the student confusion and 
could have negative ramifications for disbursement of funds. As an 
example:
     If an institution originates a student loan because a 
student indicated s/he would be attending that term and only finds out 
several weeks later that the student decided to attend another 
institution--the current institution must delay disbursement until the 
data is cancelled and resubmitted. This causes great harm to students. 
Other private, national student loan and attendance databases are 
successful in updating student information within a 24-48 hour 
turnaround. Improvements should be made or additional partnership 
struck with the private sector to ensure a more timely delivery of 
information.
     Additional streamlined services: With a single federal 
loan program, many of the processes that used to be in place during the 
FFEL program could be updated to make the entire student aid process 
easier for students. For example, until this last year, the Free 
Application for Federal Student Aid (FAFSA) would ask whether students 
were interested in taking federal loans. If they indicated yes, the 
FAFSA could easily double as a Master Promissory Note or link over to 
the federal MPN, which would streamline the entire process. Instead, 
and against the advice from NASFAA and other financial aid 
administrators, the Department has simply eliminated that question 
altogether from the FAFSA. The promise of a single federal loan program 
should result in innovative ways to streamline other federal student 
aid processes. I think much more can be done on this front.
     Additional college access and default prevention materials 
and assistance: The legislation that eliminated the FFEL program also 
allowed previous FFEL program student loan guarantors to offer college 
access and default prevention materials and services to schools and 
students. Unfortunately, there has been a bit of a lapse between the 
period when FFEL was eliminated and these new programs coming to 
fruition. Recently the Department announced it would allow guarantors 
to operate under new flexible arrangements to compensate them based on 
metrics like keeping students out of default or participating in other 
college access initiatives. However, the timeframe to get these 
programs up and running has some schools scrambling to fill in the 
gaps, all while a sour economy is leading to ever increasing student 
loan defaults. Schools and students need these services sooner rather 
than later.
     Increased standardization of loan servicing: Perhaps one 
of the most disconcerting parts of the Direct Loan Program has been the 
lack of standardization in loan servicing. Many of the former FFEL 
partners went from lending federal student loans to servicing them. 
These servicers are awarded student loan accounts based on several 
criteria and they are allowed to implement different policies and 
practices in the name of competition in hopes of receiving additional 
servicing contracts. However, to date no single publication has been 
released that easily tells schools and students about the different 
practices and policies of these servicers. Under the FFEL program, 
lenders and guaranty agencies came together to create a ``Common 
Manual'' that clearly outlined lender policies, procedures, and 
practices. It is disappointing that a similar effort has not been 
spearheaded by the Department, who oversees these contracts.
    In some instances, these differences in servicing practices have 
resulted in drastic increased expenses for students. For example, 
servicers have different practices for capitalizing interest after 
periods of deferment or forbearances. Those differences have resulted 
in different expenses for students, sometimes resulting in drastically 
higher costs. We were recently assured
    By the Department of Education that this issue is being 
standardized, yet other variances may still exist such as the type of 
documentation individual servicers will accept for deferments, 
forbearances, or income based repayment. We believe students should 
have standardization with a single federal loan program. And where 
there are differences between servicers, finding all of these practices 
in one location should be a requirement.
    With dozens of other servicers scheduled to come online in the 
coming months, we as a community are extremely concerned about how 
students are to keep up with the various processes and procedures.
    Finding Loans In Between Servicers: One of the outcomes of ECASLA 
and the switch to 100 percent Direct Lending has been the transition of 
loans from FFELP lenders to Direct Loan servicers. Because of multiple 
servicers of the Direct Loan Program, students are often uncertain 
about where their loans are being serviced. There have been scattered 
reports that some loans have gone ``off the grid'' entirely for 
multiple weeks, sometimes over a period of time when a borrower was 
expecting to make payments. This process must be smoother for students 
and they must be informed in an expeditious way the unique phone 
numbers and websites where they can obtain assistance. NSLDS is not 
updated in real-time, and that time lag can cause angst and possibly 
missed payments for students.
    I do not see these challenges as insurmountable and I feel 
confident that as we partner together we can see positive outcomes for 
students.
    I once more wish to express my sincere gratitude for the 
opportunity to offer you a glimpse into our transition process from 
FFEL to Direct Loan and to share some areas that we believe require 
some additional improvement. We as aid administrators see ourselves as 
partners with you and the Department in ensuring that the nearly $150 
billion in federal student aid is delivered efficiently, appropriately, 
and successfully to needy students around the country. The financial 
aid community is appreciative of you and your willingness to hear of 
our needs, struggles, and successes.
                                 ______
                                 
    Chairwoman Foxx. Thank you very much, Mr. Day.
    I now recognize Ms. Hoover for 5 minutes.

             STATEMENT OF NANCY HOOVER, DIRECTOR OF
               FINANCIAL AID, DENISON UNIVERSITY

    Ms. Hoover. Chairwoman Foxx, Senior Democratic Member 
Hinojosa, and members of the subcommittee. Thank you for the 
opportunity to be a witness for this important hearing on 
federal student loans.
    I am Nancy Hoover, the immediate past chair of the National 
Direct Student Loan Coalition, and I am the Financial Aid 
Director at Denison University in Granville, Ohio. Denison is a 
selective, independent, residential, undergraduate liberal arts 
college with an enrollment of about 2,200 students. Denison 
University implemented the Direct Loan Program as a year two 
school in 1995.
    Prior to my becoming the director at Denison in 1994, I had 
processed or administered the processing of loans in the FFEL 
program at three other private universities.
    I speak to you today on behalf of the National Direct 
Student Load Coalition, a grass-roots organization comprised of 
schools dedicated to the continuous improvement and 
strengthening of the Direct Loan Program. Its members are 
volunteers who are practicing financial aid professionals. The 
coalition would like to extend its thanks and congratulations 
to the staff at the Department of Education and especially at 
Federal Student Aid for the tremendously successful transition 
of all schools into the federal Direct Loan Program. Over the 
past several years, the coalition has played a significant role 
in the successful transition of schools into the Direct Loan 
Program by establishing a mentoring program of financial aid 
administrators who were working at direct loan schools.
    These financial aid professionals were willing to volunteer 
their time and expertise to help other schools making the 
transition. The mentors represented schools from every sector, 
from different enrollment sizes, and different software 
platforms used to process loans. The Coalition Mentoring 
Program assisted over a thousand schools at no cost to any of 
these schools.
    While some in the industry predicted that 100 percent 
transition to direct lending was an impossible task, the 
partnership of financial aid administrators and the Department 
of Education resulted in a very successful outcome and it built 
on the existing collegiality in our profession. To date, I do 
not recall there was a single instance in which students did 
not receive their Stafford loan funds during and after the 
transition.
    This transition of all schools to the federal Direct Loan 
Program could not have been more successful for students, 
schools, and taxpayers. Benefits to the students and families 
generate savings that support increases in the maximum Pell 
Grant. It simplifies the federal loan application process by 
embedding it in the application for federal aid. It assures the 
availability of capital for educational loans. It provides 
repayment options for borrowers that can prevent defaults.
    Accountability to students. Every disbursement record for 
student loans is recorded in the federal Common Origination 
Disbursement System to ensure accountability for the individual 
student's records.
    Benefits to school. With all the federal loans and the 
grants processed through one system, the Common Origination and 
Disbursement System, student aid processing and delivery is now 
focused on the student rather than each individual program.
    Schools that were already processing federal programs in 
the system did not have to buy additional software and hardware 
to make the transition. Some of the features of this system are 
its loan delivery system so that financial aid staff can have 
more time to counsel students and parents. The standard common 
format in the system enables quick programming. If Congress 
develops new programs, then the software vendors then can do 
the program quickly.
    The system provides accountability because funding for all 
programs is processed through one system, the Department of 
Education's Grant Management System. The system now contains 
information about the multiple servicers so that schools will 
know where their student loans have been assigned.
    In closing, the accountability that is inherent in the 
Direct Loan Program provides benefits to the taxpayers, 
requires reconciliation by the schools of the loan funds to the 
penny for each fiscal year, and ensures accountability of 
taxpayers' funds. The elimination of subsidies to private 
lenders saves taxpayers billions of dollars and helps support 
financial aid programs without additional costs.
    There are those who continue to argue that the transition 
of all schools to federal Direct Loan Program is just another 
government controlled program. It should be very clear that the 
FFEL program has already federal loan program since its 
beginning. The cost of both programs have always been borne by 
the taxpayers. Instead of the government paying dollars to 
lenders to make the loans, the government is spending some of 
these dollars on students to improve the aid programs and 
provide them access to college.
    Chairwoman Foxx, thank you again for the opportunity to 
appear before you and your committee today to provide the 
National Direct Student Loan Coalition's perspective on the 
successful transition by all schools to direct lending. I will 
be happy to respond to any questions you or the members of the 
subcommittee might have on.
    [The statement of Ms. Hoover follows:]

          Prepared Statement of Nancy Hoover, on Behalf of the
             National Direct Student Loan Coalition (NDSLC)

    Chairwoman Foxx, Senior Democratic Member Hinojosa and Members of 
the Subcommittee, thank you for the opportunity to be a witness for 
this important hearing on federal student loans.
    My name is Nancy Hoover and I am the immediate Past Chair of the 
National Direct Student Loan Coalition (NDSLDC). I am the Director of 
Financial Aid at Denison University in Granville, Ohio. Denison 
University is a selective, independent, residential, undergraduate 
liberal arts college with an enrollment of almost 2200 students. Prior 
to becoming the Director of Financial Aid at Denison in 1994, I was an 
aid administrator at two other nationally known private universities 
where I administered the loan processing in the Federal Family 
Education Loan Program. Denison University implemented the Federal 
Direct Loan Program as a Year Two school in 1995.
    I speak to you today on behalf of the National Direct Student Loan 
Coalition (NDSLC), a grass roots organization comprised of schools 
dedicated to the continuous improvement and strengthening of the Direct 
Loan Program. Its members are volunteers who are practicing financial 
aid professionals working in participating institutions.
    The Coalition would like to extend its thanks and congratulations 
to the staff at the Department of Education, and especially at Federal 
Student Aid for the tremendously successful transition of all schools 
into the Federal Direct Loan Program. The Department's staff was 
proactive in ideas for a successful transition and worked tirelessly to 
ensure schools could implement the new loan program with minimal 
interruption to their financial aid production.
    Over the past several years, the National Direct Student Loan 
Coalition has played a significant role in the successful transition of 
thousands of schools into the Federal Direct Loan Program by 
establishing a mentoring program of financial aid administrators who 
were working at direct loan schools. These financial aid professionals 
were willing to volunteer their time and expertise to help other 
schools that were making the transition to Direct Lending. The mentors 
represented schools from every sector with different enrollment sizes 
and different software platforms used to process loans. The number of 
mentors increased as a result of financial aid administrators having a 
good transition experience and subsequently volunteering to become 
mentors. The Coalition mentoring program assisted over 1,000 schools 
and at no cost to any of these schools and it built on existing 
collegiality in our profession.
    The Coalition also monitored several professional list serves for 
any discussions by schools about processing issues that were related to 
the transition to Direct Lending. The Coalition partnered with the 
staff members in the Office of Federal Student Aid to mentor any school 
that needed extra assistance. While some in our industry predicted that 
the 100% transition to Direct Lending was an impossible task, the 
partnership of financial aid administrators and the Department of 
Education resulted in a very successful outcome. To date, I do not 
recall that there was a single instance in which students did not 
receive their Stafford Loan funds during and after the transition. This 
transition of all schools to the Federal Direct Student Loan Program 
could not have been more successful for students, schools, or 
taxpayers.
    Benefits to Students and Families :
     Generates savings that support increases in the maximum 
Federal Pell Grant
     Simplifies the federal loan application process by 
imbedding it in the application for federal aid
     Assures the availability of capital for educational loans
     Provides repayment options for borrowers that can prevent 
defaults
    Accountability to students:
     Eliminates excessive and expensive lender marketing about 
``borrower benefits'' that are not included in the promissory note and 
thus not guaranteed
     Every disbursement record for student loans is recorded in 
the federal Common Origination and Disbursement System to ensure 
accountability for the individual student's records
    Benefits to Schools:
    With all federal loans and grants processed through one system, the 
Common Origination and Disbursement (COD) system, student aid 
processing and delivery is now focused on the student, rather than on 
each individual program. Schools that were already processing other 
federal grant programs in this system did not have to buy additional 
software and hardware to change their loan delivery system from FFEL to 
DL.
     The Common Origination and Disbursement system streamlines 
the loan delivery system so that financial aid staff has more time to 
counsel students and parents.
     The Direct Loan Program simplifies student loan 
administration processes and improves institutional efficiency and 
accountability.
     Monthly and annual reconciliation processes that require a 
school to account for funds to the penny minimize the possibility of 
fraud and abuse that became possible in the bank based system.
     The standardization of the common record format in the 
Common Origination and Disbursement system simplifies and enables quick 
programming that is required by software vendors to deliver funds for 
new programs that Congress develops.
     The Common Origination and Disbursement system provides 
accountability because funding for all programs is processed through 
one system--the Department of Education's Grant Management System (G5)
     The Common Origination and Disbursement system now 
contains information about the servicer to which students' loans have 
been assigned. This information is crucial now that the loans made by a 
school can be assigned to multiple servicers.
    In closing, the accountability that is inherent in the Direct Loan 
Program provides benefits to the taxpayers:
     Required reconciliation by schools of the loan funds to 
the penny for each fiscal year ensures accountability of taxpayers' 
funds.
     The elimination of subsidies to private lenders saves 
taxpayers billions of dollars and helps support financial aid programs 
without additional costs.
    There are those who continue to argue that the transition of all 
schools to the Federal Direct Loan Program is just another government 
controlled program. It should be very clear that the Federal Family 
Education Loan (FFEL) program has always been a federal loan program 
since its beginning. The costs of both programs have always been borne 
by the taxpayers. Instead of the government paying dollars to lenders 
to make the loans, the government is spending some of these dollars on 
students to improve the aid programs that provide them access to 
college.
    To summarize the experiences that I had as a mentor to over 100 
schools, I would like to give a quote from a colleague that I 
personally mentored when he had to transition to DL in July of 2009 
after two lenders called him and told him they would not be able to 
process his students' loans for that fall semester. His comments are 
similar to hundreds that the Coalition heard as we helped schools make 
the transition.
    ``Things are going well for us and Direct Loans. I had to make some 
changes to a FFELP loan the other day and decided I was glad we went 
Direct. I am saddened by my years of resistance to DL.''
    Chairwoman Foxx, thank you again for the opportunity to appear 
before you and your committee today to provide the National Direct 
Student Loan Coalition's perspective on the successful transition by 
all schools to Direct Lending. I would be happy to respond to any 
questions you or the Members of the Subcommittee might have.
                                 ______
                                 
    Chairwoman Foxx. Mr. Bandre, I would like to recognize you 
for 5 minutes.

  STATEMENT OF MARK A. BANDRE, VICE PRESIDENT FOR ENROLLMENT 
        MANAGEMENT AND STUDENT AFFAIRS, BAKER UNIVERSITY

    Mr. Bandre. Thank you, Madam Foxx, thank you for this 
opportunity. It is a real pleasure to be here. I represent 
Baker University in Baldwin City, Kansas. Baker has a student 
population of 3,700 split between several different multiple 
delivery options, which I will explain in a little bit.
    Having personally served at five private colleges and 
universities since 1989, I particularly value the chance to 
share information that has the potential to improve service to 
those pursuing higher education. Prior to my appointment at 
Baker in June 2010, I served as Director of Financial Aid at 
Hendrix College, in Conway, Arkansas, another small liberal 
arts college serving 1,400 students. Because I was serving at 
Hendrix when the direct loan mandate was signed into law, I am 
able to share experiences from both institutions, which I will 
do.
    First, I would like to talk about the Hendrix experience a 
little bit. Hendrix's student loan program had always been 
through the FFEL program that Ms. Hoover mentioned; however, 
the institution there welcomed the opportunity to add direct 
lending as a choice for students. Beginning with the fall 2009 
semester and prior to the mandate, Hendrix added direct loans 
as an option for all new borrowers. Interestingly, that first 
semester only four students chose direct lending out of 200 
potential borrowers.
    However, working with those students, the financial aid 
staff, the business office, and the registrar were able to 
learn how the direct lending process works. Hendrix uses 
software called PowerFAIDS, which is a product of the College 
Board. It was compatible with direct lending but there was a 
learning curve at the school for sure learning how to figure 
out the functions of direct lending within that software.
    In June 2010, when I arrived at Baker, Baker's financial 
aid and business office staffs had previously decided to delay 
their transition in direct loans until there was clear 
direction from Congress. Staff based this decision on 
experience with past financial aid, legislative, and regulatory 
changes that resulted in them putting forth a great deal of 
time and effort only to have the legislative regulatory 
decision changed by the time they were actually ready to 
implement.
    When it became clear the decision would stand, though, on 
direct lending, Baker rapidly moved forward, learned the 
systems, and with the software in place at Baker, which is 
known as CampusVue, they were efficient in enabling the 
transition.
    One reality faced by all colleges and universities is they 
were now extremely reliant on selected companies to provide the 
software necessary to process aid and conduct business. Of 
course, software providers also need time to implement changes. 
And at the time we needed help with direct loan process from 
the CampusVue folks, they were busy working on year-round 
federal Pell Grant regulations that you may recall came about 
at the same time. What wound up happening of course 2 short 
years later the year-round Pell Grant Program no longer exists. 
The end result though was for much of the 2010 spring and 
summer, a great deal of energy went into trying to make both 
programs work.
    Prior to the direct loan transition, Baker processed over 
$15 million annually in FFELP, Stafford, and PLUS loans for 
approximately 3,000 borrowers. Converting the Direct Loans for 
our traditional program in less than 6 months was an 
educational challenge for our new and current students in that 
we had to teach them about process in a short amount of time.
    We also, as I mentioned, have non-term programs with 
multiple class starts, different loan periods and disbursement 
dates, numerous schedule changes, and reviewing and making 
necessary adjustments by staff in order to accommodate new 
promissory, make sure notes compiled, et cetera, again an 
educational challenge.
    A list of things that Baker did to prepare for direct 
lending. Six staff members participated in four Direct Loan 
Webinars, three staff members participated in conference calls, 
8 hours per week over 11 weeks were spent developing procedural 
changes, consumer information. Much time was spent trying to 
get the learning curve up so we that would be ready to help 
students.
    The Department of Education did assign a financial aid 
office with a contact person who was to assist Baker with any 
process-related questions or concerns. We discovered though 
that these people hadn't had as much training as we might have 
preferred. We wound up instead of relying on the Department 
official, we relied on peers from other colleges that used the 
same software to be able to work through the process.
    Looking forward, there are several ways the Direct Loan 
Program could be improved. For example, borrowers use the 
studentloans.gov Web site to complete a promissory note and 
complete loan counseling. The Web site in our opinion needs to 
be more user friendly and clearly direct borrowers to each 
require task. We see too many students who unknowingly complete 
either a promissory note or entrance counseling but not both 
even though they need both to complete the Stafford loan. The 
system needs to require both promissory note and counseling 
once the students commences the sequence.
    I am happy to report we experienced no disruption in loan 
availability to our students either during or after the 
transition. The Direct Loan Program is working. However, it is 
also correct to report that Baker financial aid staff now spend 
more time trying to help students track down, understand the 
details of their loans than was previously the case. We are now 
doing most of the work that customer service representatives 
used to do at the banks and guarantee agencies.
    Despite the lack of competition that I feel drives 
innovation, we hope the Department of Education continues to 
seek ways to improve service to students. I thank you for 
holding this hearing and for the opportunity to participate.
    [The statement of Mr. Bandre follows:]

         Prepared Statement of Mark Bandre, Vice President for
      Enrollment Management and Student Affairs, Baker University

    Good morning Madam Chair and other distinguished Committee members. 
I first want to thank you for the opportunity to present testimony 
before this Committee. My name is Mark Bandre and I am Vice President 
for Enrollment Management and Student Affairs at Baker University--a 
private not-for-profit institution serving 3700 students in Baldwin 
City, Kansas. This morning I offer you the perspective of the 
transition to Direct Loans from a small institution. I will also 
address some areas of concern that remain. Having served at five 
private colleges and universities since 1989, I particularly value the 
chance to share information that has the potential to improve service 
to those pursuing higher education.
Prior to Direct Loan Mandate
    Prior to my appointment at Baker University in June 2010, I served 
as Director of Financial aid at Hendrix College, another small school 
in Conway, Arkansas. Because I was still serving at Hendrix when the 
Direct Loan mandate was signed into law, I am able to share experiences 
from both institutions.
    First, I would like to address my experience at Hendrix. Hendrix's 
student loan volume had always been through the Federal Family 
Education Loan, or FFEL, program; however the institution welcomed the 
opportunity to add the Direct Loan Program as a choice for students. 
Beginning with the Fall 2009 semester, and prior to the mandate, 
Hendrix added Direct Loans as a student lending option for all new 
borrowers. Interestingly, only four students out of over 200 new 
borrowers that semester chose Direct Loans. Through working with those 
students, the financial aid, business office, and registrar staff at 
Hendrix were able to learn how the Direct Loan process worked. The 
software used at Hendrix at the time (PowerFAIDS, a product offered by 
the College Board) was not particularly compatible with administering 
Direct Loans so there were numerous learning curves, even for a small 
number of students.
    In June 2010, I accepted the position at Baker University. Prior to 
my arrival, Baker's financial aid and business offices had agreed to 
delay their transition to Direct Loans until there was clear direction 
from Congress. Staff based this decision on experience with past 
financial aid legislative and regulatory changes that resulted in a 
great deal of time and effort in order to comply, only to have the 
decision reversed shortly after implementation. When it became clear 
the decision would stand, Baker rapidly moved forward and learned the 
Direct Loan process in order to ensure timely service to students. The 
software in place at Baker, known as CampusVue, was efficient in 
enabling the transition.
The Transition and Implementation Process
    Although Hendrix and Baker began the Direct Loan transition process 
at different times, both schools experienced similar challenges related 
to service from the Department of Education and respective software 
providers. For example, colleges and universities are extremely reliant 
on selected companies to provide the software necessary to process aid 
and conduct business. Of course, software providers also need time to 
implement changes mandated by legislation or regulation and at the time 
we needed help with Direct Loan transitions most software providers 
were busily working out how to manage the new year-round Federal Pell 
Grant regulations--a provision of the Pell program that, two short 
years later, no longer exists. As a result, for much of the 2010 spring 
and summer a great deal of energy went into trying to make both 
programs work. I would like to share with you more detail on how this 
process unfolded at Baker.
    Prior to the Direct Loan transition Baker processed over 
$15,000,000 annually in FFELP Stafford and PLUS loans for approximately 
3,000 students. Converting to Direct Loans for our traditional programs 
in less than six months was an educational challenge for our new and 
current students in that we had to teach them about the new process in 
a short amount of time. On the other hand, our non-term programs have 
multiple class starts, different loan periods and disbursement dates, 
and numerous schedule changes, all of which led to significant manual 
review and necessary adjustments by financial aid staff in order to 
accommodate new promissory notes, make sure disbursement dates 
complied, etc. Because new student cohorts start each month, and some 
students' enrollment periods went past September 30, we were literally 
doing twice the work, by processing both a FFEL and a Direct Loan for a 
period of time that in the past was covered by just a single FFEL loan.
    This effort did require significant investment. From the 
administrative side, I'd like to offer the following estimates related 
to the Direct Loan transition:
     Six staff members participating in four Direct Loan 
webinars
     Three staff members participating in four conference 
Direct Loan set-up calls
     Approximately 8 hours per week were spent over 11 weeks 
developing procedural changes and consumer information
     Getting the office set up with Department's Direct Loan 
component of Common Origination and Disbursement or COD process
     Developing and distributing student and parent application 
process instructions to both new and current students and parents
     Updating catalog copy and web sites
     One staff member attended a Direct Loan conference in St. 
Louis
     Two staff members attended state conference for sessions 
on Pell and Direct Loan changes
     Working with IT on testing our system and the 
communication flow with COD
     Pending work--re-awarding hundreds of students in the non-
term programs with Direct Loans to complete their academic year 
funding.
    The Department of Education assigned the financial aid office with 
a contact person who was to assist Baker with any process-related 
questions or concerns. After working with the contact person through 
early phases of the transition, we soon realized it was not feasible to 
wait for the contact person to provide answers to our questions. 
Instead, Baker contacted its software provider to inquire about schools 
that had already completed the testing and transition process. 
Thankfully, such a school existed, and their financial aid staff 
cooperated with us in order to solve a number of problems. While we 
believe the Department had good intentions by assigning a specific 
contact person, their availability was limited based on the number of 
schools transitioning; there is no doubt that working with colleagues 
at other schools is what enabled Baker to complete the transition 
successfully.
    While I left Hendrix before full implementation to Direct Loans, 
former colleagues shared with me that throughout the 2010-2011 academic 
year, they encountered numerous problems with software and inability to 
get files through to COD. They attribute portions of this to issues on 
the PowerFAIDS software end while others stemmed from inability to 
obtain helpful answers from their assigned Department contact. It seems 
the frustrations centered on problems with accumulating and sending 
needed files. In the current 2011-2012 award year, my Hendrix 
colleagues believe Department officials are much more knowledgeable 
about the process.
Suggested Improvements
    Obstacles do remain and there are several ways that the Direct Loan 
Program could be improved. For example, borrowers use a Direct Loan web 
site, studentloans.gov to complete a promissory note and complete loan 
counseling. The web site needs to be more user-friendly and clearly 
direct borrowers to each required task. We see too many students who 
unknowingly complete either a promissory note or entrance counseling, 
but not necessarily both even though both are required before they can 
receive a Federal Stafford Loan. The system needs to require both 
promissory note and counseling once a student commences the sequence.
    I am happy to report we experienced no disruption in loan 
availability to our students either during or after the transition. The 
Direct Loan Program is working. However, it is also correct to report 
that Baker financial aid staff now spends more time trying to help 
students track down and understand the details of their loans than was 
previously the case. We are now doing most of the work that customer 
service representatives used to do at the banks and guaranty agencies. 
It is my observation that under the FFEL program, lenders and 
guarantors would help borrowers even when the loans had been 
transitioned to another lender or servicer. We're finding an increasing 
number of borrowers with loans mixed between the two programs coming 
back to us to help them track down loan records. It would be helpful if 
all servicers were able to provide comprehensive information on a 
student's loan so students would not need to call multiple agencies to 
try and track down important loan information.
    Despite the lack of competition that often drives innovation, we 
hope the Department of Education continues to seek out ways to improve 
service to students. Thank you for holding this hearing and for the 
opportunity to participate.
                                 ______
                                 
    Chairwoman Foxx. Thank you very much, Mr. Bandre.
    I would like to now recognize Mr. Petri for 5 minutes to 
ask questions.
    Mr. Petri. Thank you very much, Madam Chairwoman.
    I thank the panel. And Ms. Hoover, I would like to thank 
you and your members for donating voluntary time to help other 
schools mentoring or advising on your members' experience with 
the Direct Loan Program so that they could transition 
successfully to it.
    I wanted to give Mr. Runcie an opportunity to respond to 
some of the comments of the other witnesses, particularly about 
enhancing the information and effectiveness of the Department's 
Web sites for students and for schools. We are moving into a 
new world and government tends to lag on that but I expect you 
are hard at work attempting to upgrade that and make that a 
more powerful and effective tool.
    And secondly, if you could at all comment, you mentioned 
that you are coordinating or collaborating to some extent with 
the IRS on data. And in other countries that have direct loan 
programs, they have gone further. And I know in Australia, I 
think New Zealand and Britain, so that students have the option 
of having a flexible income contingent repayment through their 
IRS system. So it works very effectively. Years ago some of us 
worked on that in Congress and we were told by the IRS they had 
a mess on their hands at managing the move from sort of paper 
and manual processing to a computer IRS. And that is now 
largely completed although I am sure there are problems. So 
this might be an opportunity to take another look. I know there 
are other contingent programs out there, but this would be 
pretty seamless once it was set up from the point of view of 
the student would avoid default and collection costs and yet 
ensure repayment when people were earning money. So there are a 
lot of advantages. And if other countries have done it, we have 
something we can look at as an experiment.
    I wonder if you could comment on any of those points.
    Mr. Runcie. In terms of the customer service aspect of our 
Web sites, we hire a customer, a chief customer experience 
officer, who is really focused on looking at, making sure we 
optimize our Web sites so that we provide the optimal service 
to students and also to institutions that rely on these Web 
sites. I do acknowledge the comments that were made. And some 
of those criticisms were very constructive. We will look at 
ways to make it easier for folks to navigate through our Web 
sites.
    We are also looking at consolidating potentially some of 
our Web sites. We have a good number of Web sites and the 
ability to consolidate those Web sites could be a way that we 
would potentially make it easier for students and institutions 
to leverage the information we have on those Web sites.
    In terms of our work with the IRS, it has been tremendous 
in terms of the ability to reduce the time to fill out the 
application as well as to eliminate inaccuracies. And that has 
improved our improper payment rate. I think it reduced about 40 
basis points which equated to about potentially $146 million of 
lower improper payments.
    In terms of working with the IRS to find additional ways to 
leverage that institution and what we do, we are very open to 
it. I have not had discussions about that level of engagement. 
But again, it sounds like it is a potential way to make it more 
efficient and more customer friendly. So we would be open to 
looking at that, and thanks for that input.
    Mr. Petri. I have another question. We have been working in 
this committee and others with the for-profit institutions and 
their relationship to the program. One complaint they make is 
the amount that students can borrow exceeds commission in many 
cases and is an incentive for students to over borrow and buy 
cars and things like that. Do you have any idea if that is a 
major problem or if there are things that could be done to 
tighten up on what the funds can be used so that it is more 
closely related to education and kids don't unintentionally dig 
themselves too deep a hole?
    Mr. Runcie. What we do is we oversee statutory, I mean 
there are certain legislative and regulated uses of the funds. 
And I think we have a pretty substantial group of folks in our 
program compliance area that monitor that aspect of the 
funding. But I think some of the things that could potentially 
impact that would be more policy related, and we are more 
operational and we implement whatever the regulations and 
whatever the laws are. So I don't know that we would have an 
impact on the uses of those funds.
    Chairwoman Foxx. Thank you, Mr. Petri. I thank you, Mr. 
Runcie.
    I would now like to recognize Ranking Member Mr. Hinojosa, 
for 5 minutes.
    Mr. Hinojosa. Thank you.
    Mr. Runcie, first of all, thank you for being here. And I 
would like to thank you and all of the hardworking staff in the 
Federal Student Aid Office for your professionalism and your 
commitment to ensuring a smooth transition to the Direct Loan 
Program so that students can receive the assistance they need 
to pursue their educational goals.
    My first question to you refers to the testimony. You state 
that you are pleased to report that the transition to 100 
percent direct lending was a success. Can you tell us how you 
have measured success?
    Mr. Runcie. I think the ultimate measure of success really 
has to do with making sure that all students who are eligible 
to receive federal aid through Direct Loan Programs, they were 
able to do so. I think some of my colleagues on the panel have 
mentioned that no student who was seeking direct loans were not 
able to--they were all able to receive those funds. I think 
that is the ultimate measure.
    I think in terms of working with the institutions, we put 
together significant resources, had contracts with vendors, put 
up Web sites. We did a lot of things in terms of providing 
resources so that the transition could be as seamless as 
possible.
    Clearly when you look at the scope of trying to make sure 
that 5 to 6000 schools are all DL ready and all of these 
schools have different levels of capability, different systems, 
it is not a trivial exercise. But I think given the 
circumstances, the ability to migrate all of those schools 
over, and I also want to recognize the fact that other 
organizations and Ms. Hoover also got into the discussion about 
how they were able to work with schools as well, but I think 
the totality of that effort and the collaborative effort that 
we went through delivered all of the schools over to the DL 
program that wanted to provide those funds and those loans to 
students.
    Mr. Hinojosa. Mr. Runcie, we have heard the testimony that 
the Department and its transition partners provided valuable 
technical assistance and guidance to facilitate a successful 
move. Can you describe the steps the Department has taken to 
assist the schools?
    Mr. Runcie. To assist the schools? Well, initially as I 
said, we put a number of resources in place, including a point 
of contact for all schools, and the point of contact typically 
was the point of contact for the Pell program, and we leveraged 
the system that was used for Pell so that it was a bit easier 
for schools to migrate since most schools that used the Pell 
had some expertise related to that. Of course the addition of 
leveraging or using the promissory note, that added some 
complications but at least we had a base to work from.
    In addition to that, we had Web sites, we had training 
conferences throughout the year. We had the big FSA conference 
that roughly 2000 institutions and 6000 participants from 
financial aid community attended. And there we had discussions 
as well as training on the transition.
    We also had vendors that were on standby so that we could 
provide on-site support as well as folks at FSA that were 
willing to provide on site support. We also have remote 
support. So we had a large basket of assets and resources that 
were there for schools and we were pretty proactive in terms of 
trying to make sure that people were trying to realize that we 
had resources available to them.
    Mr. Hinojosa. The number that attended are amazing. They 
are high. It looks like you are going to have a lot of success. 
Can you tell us the steps that the Department has or is taking 
to ensure that the security of its loan systems and can you 
also tell us the steps that the Department has or is taking to 
aid those student borrowers against default?
    Mr. Runcie. In terms of the security, our systems are all--
they go through vigorous technology review. That is required 
for all federal systems, so we comply with those standards. And 
our partners and their systems that we leverage, they have to 
be FISMA compliant. So we have to meet that standard. We also 
have quite a few security, technology security officers. We 
also have Privacy Act folks that are associated with the 
security process.
    So I think we can always sort of the augment the system. 
This year, for instance, we are adding two-factor 
authentication which is now the need for a token. So in 
addition to passwords and identification, you need a token. So 
it is another level of security that we are providing both 
internally and rolling out to the schools.
    In terms of default prevention, we are leveraging the 
servicers we have contracts with for private sector servicers 
for the Direct Loan Program. A part of how they are allocated 
and how they compete relates to how well they handle defaults. 
So there is a customer satisfaction component and there is a 
default prevention component so they look at the default rate. 
So the way they run their business models I am sure you know 
would necessitate that they provide as many resources around 
preventing defaults as possible because ultimately it is going 
to impact their revenue and profitability.
    Mr. Hinojosa. Thank you. My time has expired. But I 
appreciate that you answered all of my questions.
    Chairwoman Foxx. Thank you both.
    I would now like to recognize Mrs. Biggert from Illinois 
for 5 minutes.
    Mrs. Biggert. Thank you, Madam Chairman, and thank you all 
for being here.
    My first question would be for Mr. Runcie. In your 
testimony you talk about the Secretary inviting the FFEL 
program guarantee agencies to submit proposals for voluntary 
flexible agreements. Could you talk a little bit about that and 
I know that you say here that it has the existing authority to 
leverage private sector best practices to improve efficiencies 
in customer service in the administration of the title IV 
programs while reducing the cost to American taxpayers? I know 
they are not doing it for free but I am wondering how it works 
and how it lowers costs.
    Mr. Runcie. Thank you. The voluntary flexible agreement, 
and they were used before, not as extensively as we are looking 
to use them now, but one of the requirements for a voluntary 
flexible agreement is that it would be that it at least cost 
neutral. So the idea of cost neutrality means that there would 
be additional cost to taxpayers.
    We are looking at that structure because given that there 
is no more new origination, we wanted to recognize and 
acknowledge the level of expertise and service that these 
guarantee agencies have. They have a fair bit of expertise in 
default prevention, debt management, financial literacy and 
outreach, and they have the infrastructure that spreads across 
the country. So we wanted to look at ways to leverage that 
expertise and collaborate with them in the vehicle that we have 
is the voluntary flexible agreement.
    Some of the outcomes that we are looking to achieve is we 
are looking to have a level of performance-based metrics if we 
could. We are looking to potentially eliminate perceived 
conflicts of interest between default prevention and the 
collections piece because conceptually they may be at odds in 
terms of how folks might be incentivised.
    We are looking at risk management. We want to make sure 
that their systems have the level of security in terms of PII 
that systems that are contracted with the federal government 
have because these are agreements with the guarantee agencies 
not contracts so potentially there could be a different level 
of security.
    Mrs. Biggert. I am glad you are looking at financial 
literacy. I know Mr. Hinojosa and I have looked for a long time 
on the issue of financial literacy. What does cost neutral 
mean.
    Mr. Runcie. Sort of hypothetically, if we were to spend a 
billion dollars over 10 years in terms of payments and fees to 
the guarantee agencies, if we change the way they provide 
services and they change their business models, we would pay no 
more than that billion dollars that we would have paid 
otherwise, and so it is cost neutral in terms of not costing us 
any more money outlays to those guarantee agencies.
    Mrs. Biggert. In other words, this is an ongoing programs 
so there is moneys that has available for that?
    Mr. Runcie. I am sorry?
    Mrs. Biggert. I said it is an ongoing money program so 
there is already money that has already been allocated?
    Mr. Runcie. Yes. Because even though the FFEL origination 
has stopped there is still a portfolio of 450, it is well in 
excess of $400 billion that is still out there that needs to be 
monitored and there is a wind-down process. So these guarantee 
agencies would be around for X-amount of years anyway in terms 
of managing the existing portfolio.
    Mrs. Biggert. Mr. Day, you talked about some delays in 
information reporting that has caused some confusion to 
students about where to pay or when to pay their loans. And you 
talk about other private national student loan and attendance 
databases that are successful in updating student information 
within a 24--48-hour turnaround. What specific improvements 
would you recommend to help the Direct Loan Program achieve a 
similar data processing capacity?
    Mr. Day. Thank you very much. What is happening, and this 
may get a little bit technical so bear with me just a moment. 
We have a system that originates student loans from our campus 
up through what is called Common Origination Disbursements, 
COD. They communicate with the national database, which is 
NSLDS, where all of the student loans reside.
    Quite often what we are finding is that students may indeed 
say they are coming to my school but in essence will go to 
another. I will have to cancel it on my side and then report it 
to COD, and they have to report it to NSLDS. It is not done in 
a very timely fashion. What happens is we may have students 
that come to my school that I may have to pro-rate their 
eligibility. What we are finding is some of the other 
situations that we have such as the national clearinghouse 
where we report attendance records are unable to do those 
things in a timely fashion. So with all of that automation, I 
would hope this would improve.
    Chairwoman Foxx. I would now like to recognize Mr. Bishop 
from New York.
    Mr. Bishop. Thank you very much, Madam Chair, and thank you 
to our panel for your testimony.
    I have to say I found your testimony quite gratifying for 
those of us who worked hard to see to it that we would make the 
transition, that we would make the public policy decision to 
move to 100 percent direct lending. Your testimony taken in the 
aggregate validates the wisdom of that decision. Because what 
you have all said in one form or another is that not a single 
student was disrupted, that their access to student financial 
aid programs remained unencumbered and not disrupted.
    And I hope you would all agree that when we evaluate 
financial aid programs, and there are several different vantage 
points that we can use to evaluate them, that the extent to 
which students are serviced and not inconvenienced has to be 
far and away the most important measure. Do you all agree with 
that?
    So by that measure, is it fair for me to conclude that you 
would all agree that this transition has been a success?
    [Witnesses answer in the affirmative.]
    Mr. Bishop. Thank you.
    Let me go to a couple of things.
    Mr. Day and Mr. Bandre, you both spoke about some issues 
having to do with computer platforms and processing and so on. 
Would you both agree that those issues that you raise--and I 
don't mean to minimize them--they both fall into the heading of 
growing pains; is that fair to say?
    Mr. Bandre. I think it is fair to say. In the Department's 
defense, they didn't get a whole lot of lead-in time either. So 
I mentioned that the assigned representative we had at the 
Department wasn't always able to answer our questions so we 
relied on peers instead.
    It is fair to say that person, whoever he or she was, 
didn't have enough time to really get trained. So I agree.
    Mr. Bishop. Mr. Day?
    Mr. Day. Yes, sir. I agree with that as well. The systems 
we had are quite often canned systems. We had them configured 
one way and they had to be reconfigured another. That was an 
internal issue that we had to face in our State. In Georgia, 
for example, most of our public schools have the same system so 
we sought assistance from them.
    Mr. Bishop. Thank you very much for that.
    You are all much younger than me, but I was a financial aid 
director in the first year of the basic educational opportunity 
grant program, and we had our share of growing pains. But I 
think we would all agree that a financial aid program that 
didn't have the Pell Grant would be one that would be 
significantly deficient in terms of our ability to help 
students. So we worked through them, and I am confident that 
the current generation of enrollment management professionals 
will work through them.
    Ms. Hoover, one of the things that we heard as we were 
debating this issue is we heard some Armageddon-ish type of 
projections of the staffing burden that would be imposed on 
enrollment service offices, specifically financial aid offices, 
and the extent to which colleges and universities would have to 
materially staff up in order to accommodate this transition.
    In your experience with the schools that you work with, or 
Mr. Day, in your experience--you are now the President of 
NASFA, is that right? Incoming. Have any of those projections 
come true? Have there been massive increases in enrollment 
services staff so as to accommodate this transition?
    Ms. Hoover. I have not heard of any increased staff issues. 
And as I indicated, our coalition worked with over a thousand 
schools. My loan processor, who is now my associate director, I 
want to make sure if he is watching, that he knows he has been 
promoted, helped. And he and I personally mentored over a 
hundred schools. We never heard that issue that they had to 
increase staff. In fact, it became so streamlined that in times 
they were able to have this current staff do other 
responsibilities and actually gain some staff time in essence. 
But I have not heard that. But again, that is the experience 
from a thousand schools.
    Mr. Bishop. Okay, thank you. Mr. Day?
    Ms. Dixon. From a personal perspective, we did increase 
staff. We did not increase staff for reasons that we later 
found were necessary. The processing end that we thought would 
indeed be there was much more streamlined than we had 
anticipated. However, I will say this, we have now had to 
remove some of those staff from the loan processing and move 
them over into the area of default managers, for example. We 
did take on that responsibility because we feel it necessary 
that the FFELP lenders had done previously.
    Mr. Bishop. Thank you al very much. My time is about to 
expire. I want to thank you, Mr. Runcie, for presiding over the 
Department's efforts to make this transition as seamless as it 
obviously was. Thank you all very much for your testimony.
    Chairwoman Foxx. I would now like to recognize Dr. Roe from 
Tennessee.
    Dr. Roe. Thank you all for being here today. It has been a 
great panel.
    Before I came to Congress, I served as a foundation board 
president where I went to college at Austin Peay, and one of 
our things was to raise money for students, and it is the 
greatest investment that I ever made in my life was my college 
education. No doubt about it. I went out to dinner last night, 
it was more than a quarter of college when I went. It was $65 a 
quarter to go to college. Unbelievable. That shows how ancient 
I am.
    But it is becoming, as Mr. Hinojosa and Mrs. Biggert have 
pointed out, much more difficult for young people to afford to 
go to college now. It is just astronomical. And I hear stories 
all the time. And one of the things I am concerned about is the 
financial literacy part is making sure students understand if I 
graduate from college and get a $35,000 or $40,000 a year job, 
if I can find that job, I can't pay off a $200,000 loan. I had 
a parent that came to me the other day. It was a young doctor 
who had a 200 and something thousand dollar loan that he had to 
start paying back while he was a resident, and it took up 
almost a third of his liveable income.
    So we are creating problems in this country.
    And I guess the question I have is how much can a student 
borrow through this program? Mr. Runcie, I guess you are the 
person I should ask that to.
    Mr. Runcie. The Pell Grant is $5,500, and there is a limit 
in terms of subsidized piece and unsubsidized loans. It could 
be a substantial amount.
    Mr. Roe. How much is that? If a student comes into college, 
Denison or Baker University, how much could I go on the--could 
I borrow? And I want to make sure because, as an 18- or 19- or 
20-year old, tomorrow is a long time. It is hard to--I have to 
pay this money back. I know how much trouble I have gone 
through to raise money for scholarships that you don't have to 
pay back; these loans have to be paid back. So how much can you 
go into debt for through this program.
    Mr. Bandre. The answer to your question results in a fairly 
complicated answer. I hate to say it depends, but it does, on 
the students choices. Does the student stop at a bachelor's 
degree? And if so, the second question is, does that student 
have parents that are of good credit and willing to assist? If 
a student borrows the basic amount each year, they can borrow 
$3,500 as a freshman, $4,200 as a sophomore and then $5,500 
each their junior senior year. That is pretty common. There are 
a lot of students out there who borrow those, so $21,000 is one 
way to answer your question.
    Let's say, though, that that student's parents don't have 
good credit and they are denied credit for a parent loan that 
Mr. Runcie mentioned, that adds to it. So there are other 
variables that impact each individual choice. And you mentioned 
your doctoral student, certainly those who pursue graduate 
degrees of some sort add to their total.
    Mr. Roe. How many students--what percent of students are on 
the FFEL program and the Direct Student Loan Program when this 
transitioned, before 2008 and before we could see it happening; 
how many chose one, and why did they chose one versus the 
other? Just out of curiosity. I don't know.
    Mr. Day. Primarily that was because of the way the school 
was configured. Most of the FFEL lenders--is the choice of the 
schools to decide to stay with the FFEL lenders with a private 
market. You had a choice; you could choose to be DL or are 
FFEL, but most of the schools that were FFEL just basically 
felt that the service they were receiving was better on that 
side then going the DL route.
    Mr. Roe. So it was just a choice that the university made?
    Mr. Day. That is right.
    Mr. Roe. What interest rates are the students charged? On 
the direct program, what interest rate are they charged on 
their loans?
    Mr. Runcie. 6.8.
    Mr. Roe. 6.8? Whew. It couldn't be a little lower? Because 
interest rates now are at historic lows.
    Mr. Runcie. Yes, that it is a statutory rate.
    Mr. Roe. Did we do that? If we did do that, we need to look 
at that again.
    And I guess the last thing, again, through financial 
literacy, I want to be really sure that we are doing that.
    And congratulations, Mr. Runcie, on making this transition. 
I know you have worked a lot of long hours, and thank you for 
doing that.
    Students really don't care where the money comes from; they 
just want the money to go to school. I know I would. I could 
care less where I get the money. But I would like to be able to 
pay it back, and it seems like 6.8 percent is a pretty steep 
interest rate. I think that is something we could look at.
    Mr. Runcie. Yeah, there are--we have income-based 
repayment, and we need to sort of get that message out. There 
are public service loan forgiveness programs. There are certain 
options that can be leveraged, but I think you are right in 
terms of the financial literacy piece, making sure people 
understand that it is an investment, and there needs it be a 
return component that is commiserate with the investment that 
they are making. So we have a lot of efforts around that in 
terms of making sure people understand at the point of decision 
what their needs might be.
    Mr. Roe. I yield back.
    One last thing, Mr. Day, I don't wish you any bad ill, but 
I hope East Tennessee State beats Kennesaw State.
    Mr. Hinojosa. Would the gentleman yield for 30 seconds?
    Mr. Roe. Yes, I will.
    Mr. Hinojosa. I like that last question that you asked on 
the 6.8 percent being pretty steep, but we need to remember 
that before this, 10 percent interest rate and 12 percent 
interest rate was common in some of the bank loans and some of 
the Sallie Mae loans. So this looks pretty attractive to most 
parents, like myself, that have two girls going to college.
    Mr. Roe. I yield back.
    Chairwoman Foxx. I want to recognize Mr. Andrews for 5 
minutes.
    Mr. Andrews. Thank you, Madam Chairwoman.
    I thank the panel.
    I would say to my friend from Tennessee that I would 
support a bill that says the interest rate on direct loans 
should be calculated as follows: Take the cost of the 
government acquiring the money, add to that the cost of 
administering the program, both on campus and the Department of 
Education, put in reserve for loan default, and make the 
interest rate that, which is what we proposed in 1991, as 
setting a rate that would be considerably lower than 6.8 
percent. If he would be happy to cosponsor that, I would 
welcome his help. I would yield to him.
    Okay. Let me ask the panelists some questions. My 
understanding is that the consensus on the panel from Mr. 
Bandre, Ms. Hoover, and Mr. Day is that no student went without 
a loan during this transition period because of the transition; 
is that correct? And although there were bumps in the road 
that--in the case of Mr. Bandre and Mr. Day, that are actually 
running programs on campus.
    Ms. Hoover, are you as well?
    Ms. Hoover. I am a Direct Loan school, yes.
    Mr. Andrews. So, all three of you, there have been bumps in 
the road, but the program is working pretty well on your 
campuses.
    And the third thing that I heard is that I heard some very 
constructive suggestions that I am sure Mr. Runcie and his 
colleagues will take any account. I think a quicker turn around 
time is essential. I think that students need the money to do a 
lot of things at the beginning of the semester, and waiting is 
a problem. I think that certainly the Web site problems that 
the chairwoman pointed out need to be addressed at the 
Department.
    I think there are a number of other things, but would 
anybody, particularly the three campus witnesses, would anybody 
here characterize the Direct Loan Program as a disaster?
    No.
    Would anybody characterize it as a very flawed law?
    No, I wouldn't either.
    Would anybody here support the repeal of the Direct Loan 
Program, any of the three campus-based witnesses?
    No, okay.
    I think we have reached a point of consensus here that is 
commendable. I think the program absolutely could use 
improvement.
    And Mr. Runcie, again, I would hope that you would take to 
heart the very constructive suggestions you have heard from the 
campus-based witnesses here today to try to see what we can do 
about it.
    Mr. Runcie, the final thing I would ask you, and I will ask 
it for the record--I have written to the Secretary, and you 
have been kind enough to respond. I have some concerns about 
the consolidation loans, the statutory authority and the 
consolidation loans that I have some concern has been exceeded 
by some loans that had been originated. I am going to send you 
some follow-up questions on the record for that.
    I will just close by saying this, that the source of the 
question about the program being a disaster was a Wall Street 
Journal editorial that claims the program should be done away 
with. And the source of the very flawed law comment was the 
chairwoman, who, in January of this year, called the program a 
very flawed law. I think she has made some very constructive 
suggestions about how it could be improved, and I would work 
with her.
    But I would disagree; I would join you in asserting the 
fact that the program is not very flawed and should not be 
repealed.
    I yield back.
    Chairwoman Foxx. Thank you very much, Mr. Andrews.
    Mr. Andrews has raised the issue of a follow up from us to 
members of the panel for additional questions that may not get 
asked during this hearing. And so we will be, all of us have 
that opportunity. And I think you could probably expect that 
from various members of the committee.
    I would now like to recognize Mr. Thompson from 
Pennsylvania for 5 minutes.
    Mr. Thompson. I thank the chairwoman. Thanks to the panel 
for your service to education and your expertise.
    With the direct lending bill, you know, it is seems to me 
that when it comes to access of loans, that I assume our 
somewhat status quo, it sounds like consensus is that young 
folks pursuing education have access the loans. I would argue 
that they had access to loans before, so I want to dig a little 
deeper than just that one metric.
    I happen to think this is a flawed bill, based on three 
premises. At a time when our economy is struggling with the 
weight of the cost of government, it grew government. It cost 
private sector jobs. Those two are not compatible.
    And frankly, I think it failed to address a primary issue 
that my good friend, the physician from Tennessee, raised and 
adequately, I believe, but I want to explore that more with my 
questions in terms of financial literacy.
    Mr Runcie, thanks for your leadership with the role you 
stepped into. In your testimony, you talked about increasing 
staff to provide the oversight and compliance. How many staff 
do we have now in terms of with this direct lending; what has 
been the growth in terms of number of positions to administer?
    Mr. Runcie. Yeah, we have--our staff's mid 1,200s right 
now. And we have increased from a little over a 1,000 over a 2-
year period.
    Having said that, the numbers are still lower than what 
they have been at points historically, but I think more 
importantly, in terms of the DL program, a lot of that is 
outsourced. So 84 percent of our budget goes to private 
contractors. And so, in addition to the folks that we use for 
DL, there's another 9,000 contractor folks that we use to 
operate. And a portion of that, a significant portion, relates 
to the servicing level.
    So the ratio is about 1 to 7, 1 to 8, our employee base to 
the contractor, so I think that has probably expanded maybe 
more so than our own internal hiring.
    In addition, the contracts that we put in place with the 
servicers, they require for all those jobs to be domestic. And 
so there were a number of jobs that were overseas that came 
back into the U.S. because of the way the contracts were 
structured.
    Mr. Thompson. Do you have--is there--I am not sure you 
should know this, but do we know how many private sector jobs 
were actually were eliminated as a result of this direct 
lending program over the past--course of the past year where we 
have increased the government ones?
    Mr. Runcie. I don't know. I really sort of was speaking how 
we have grown some of the numbers. But in terms of the 
elimination, I don't have that information.
    What I can say is that we are also standing up not-for-
profit servicers, and those servicers were servicing FFEL loans 
before. We are now moving them over to service Direct Loans, so 
I would imagine that that would have a positive impact in terms 
of the job counts.
    Mr. Thompson. You had, also in your testimony, talked 
about--let me find it here in my notes, basically equip with 
the best tools and resources, so I want to move into the 
financial literacy part of my question. Last week I had a visit 
to a large university. I am blessed with a number of 
universities I have, one that was direct lending, and many 
small ones have had to make that transition. This one has been 
a direct lending university for some time. And when I raised 
the question of financial literacy, there was like there is no 
direction to--there is no importance, it doesn't seem, that 
comes from this direct lending program to address that.
    Students there are graduating with an average debt of 31--
over $31,000. I think the national average, from what I 
understand, is slightly less than that. And to me, that is what 
we should have been focusing on when we looked at this bill. 
And it doesn't seem like we have done that.
    Some of my colleagues have raised other issues about just 
financial literacy and making good decisions. You are accruing 
long-term debt when you are investing, and do we--how have we 
done with financial literacy in terms of how much can we 
borrowed? Is it a good return on investment? Right down to the 
kids are going to school for this first year, and there is an 
attrition rate, but when they drop out of school after a year, 
they drop out with these loans and, frankly, grants they have 
to pay back; all have to do with what I call financial 
literacy. And I managed to run out of my time. So if you can 
provide that, any thoughts on that in terms of response to that 
in writing, that would be fine.
    Mr. Runcie. Absolutely, absolutely. Thank you, Congressman.
    Chairwoman Foxx. Thank you.
    I now recognize Ms. Davis from California.
    Mrs. Davis. Thank you, Madam Chair.
    And thank you to all of you for being here. One of the 
areas that I wanted to focus on for a minute are the default 
rates. And it is my understanding that I think, despite the 
fact that people felt that they would go up, in fact, the 
default rates are going down; at least that is my 
understanding.
    Is that correct, in your view, Mr. Runcie?
    Mr. Runcie. Well, the default rates, the overall default 
rates have risen. And they have risen--there are a number of 
factors that are associated with the rise. A lot of it has to 
do with the economy. It has to do with graduation rates, job 
placement. And that was the--I think folks had expected that 
there would be some rise, given the current the given economy.
    In terms of the increase, maybe it was potentially lower 
than expected. So it may be that that is a part of the 
discussion. But you know, the efforts that we have around 
dealing with those cohort default rates relate a little bit to 
some of the servicing that we talked about before. We have 
servicers that have performance-based contracts, so they are 
incentivized to do whatever they can in terms of financial 
literacy and default prevention to lower those rates.
    Mrs. Davis. Okay. I guess perhaps it is compared to what? 
Because at least what I understood was that they had gone down 
compared to what the FFEL rates had been, but like you say, 
perhaps there are some other situations going on.
    Mr. Runcie. Absolutely. No, if you look at the overall FFEL 
rate default rate versus Direct Loan default rate, the Direct 
Loan default rate is lower across all school types and all 
categories. So the Direct Loan--and I don't know sort of 
underlying reason for that, but I will say as a matter of fact 
that the DL rates, default rates have been lower.
    Mrs. Davis. I have seen numbers of 9.5 percent under FFEL 
and 5.6 percent under DL.
    Mr. Runcie. Yes, I think--yes, if that is what you are 
speaking to in terms of DL rates being lower. Yes, that is 
right.
    Mrs. Davis. Great. Thank you.
    Mr. Day, you had mentioned that some of your employers 
actually had gone over to become default managers so they were 
able to assist students. I wondered specifically what you found 
was the most helpful to students. We have talked a little bit 
here about the interest rates being even lower. And again, this 
is--we know they were quite a bit higher, and there have been 
proposals in the past to make them even lower than they are 
today. Is there--do you have any information that would 
suggest, had they been lower, that there are fewer students 
that were perhaps defaulting? What has really been the 
experience of your default managers as relates to students? 
Because I think what we are looking for here is, how does this 
benefit our students? Does it make it easier for them to access 
it? Do they have as much information as they need to really act 
responsibly, which is what we hope that they can do?
    Mr. Day. Let me answer it this way, I think the more you 
can offer the students as far as assistance in literature or 
assistance in Web sites or in training initiatives or any form 
or fashion whatsoever to assist them in staying out of a 
default situation, whether it be literature that you offer them 
up front, Web sites or whatever the case may be, is vitally 
important. I have not been able to research your particular 
question to know exactly how to answer it. However, I will say 
that I do appreciate every effort that can be made to assist 
the students; it must be the students first.
    Mrs. Davis. Yes.
    And I don't know, Ms. Hoover, do you have some thoughts as 
well, perhaps giving Mr. Runcie a little more ammunition here 
in terms of, what is it that really would make a difference for 
them so that they don't default?
    Ms. Hoover. Thank you for the opportunity to answer.
    As indicated, Denison has been a Direct Loan Program since 
1995. And when I came to Denison, I noticed the default rate 
was somewhat higher, and it has been substantially lower since 
we were in the Direct Loan Program.
    Now I am fortunate that I am at a small school, but we are 
a very expensive school. And I took a personal passion in 
believing that if these students are paying this price for my 
education, they need to come out of here with some absolutely 
incredible information.
    So we actually print a personal portfolio for every senior 
of every loan they borrow. And we have personal interviews with 
them. We go through and show them every repayment option, what 
they would have. And we explain to them, if you earn this and 
so, this is what you have to earn for your indebtedness.
    And I am extremely happy to say that my default rate has 
been either 1 or less than 1 percent for the last 4 years. And 
I believe it just comes from taking the materials the 
Department has and just working internally. Again, I am a small 
school, but I take it passionately, and I believe that it is 
important, because when they pay what they pay for my school, 
that is just part of the return for the investment.
    Mrs. Davis. Thank you very much.
    Mr. Hinojosa. Could you yield me 30 seconds?
    Chairwoman Foxx. The gentlewoman's time is up.
    I would now like to recognize the chairman of the 
committee, Mr. Kline.
    Mr. Kline. Thank you, Madam Chairwoman.
    I thank the panel for your testimony and for answering the 
questions. I understand that the gist of your testimony for 
everyone is that the transition has gone relatively smoothly, 
that the students' loans are being provided and serviced, and 
for that, I am very glad.
    We still have a difference of opinion on this panel and 
elsewhere as to whether or not the law was a good law, whether 
it is flawed or not flawed. My friend and colleague, Mr. Roe 
from Tennessee, was talking about the loan rate, and as 
everybody at the table knows and we up here know, 6.8 percent, 
the federal government is borrowing at something less than 1 
percent and loaning at 6.8 percent, you create a pretty good 
slush fund for the government, over $60 billion when we passed 
it. And immediately, of course, $10 billion of that was taken 
to pay for the health care law, Obamacare. So it is a slush 
fund. I think it was a mistake to do it. Having said that, I am 
glad to see that the transition seems to be going pretty well.
    However, Mr. Runcie, we have heard some problems regarding 
the security of borrowers' private information. This has been 
touched a little bit on. You said there are a good number of 
Web sites and so on. But last week, the Direct Loan Web site 
crashed, as I understand it, according to my note here, and 
personal financial information was revealed to other borrowers. 
And there have been some complaints that Social Security 
numbers have been divulged in the address line to official 
correspondence due to an error with the initial booking and 
disbursement of student loans. Can you take a minute or two 
here and talk about what the Department is doing to address 
those concerns?
    Mr. Runcie. Yes, yes, you know, last week or the week 
before, we had an issue; we have, obviously, very large-scale 
systems. And we were in the process of doing a transition of 
11.5 million borrowers. During that transition, we experienced 
what I would call sub-par response times. So, as a part of that 
process, there was a configuration change to improve the 
performance time. So, because of that configuration change, 
there was a 6- to 7-minute span where users who logged on saw 
account information of others that had logged on but not their 
own.
    So the site did not crash; we took the site down for those 
security reasons. Within 48 hours, the site was back up. We 
immediately notified all the impacted--potentially impacted 
users and offered credit monitoring. And so we responded as 
quickly as we could.
    Mr. Kline. You mentioned--I am getting my numbers confused 
here, you said something about 11 million, 11.5 million; how 
many students were impacted?
    Mr. Runcie. Oh, yeah, that was the pool--the impact of 
students potentially was as much as 5,000.
    Mr. Kline. Go ahead, I am sorry.
    Mr. Runcie. And we immediately notified folks. I think the 
first day or two, we received 25 responses from the 5,000 that 
we contacted. But having said that, we still sent mailings out 
to everyone to make sure that they understood that credit 
monitoring was available. We corrected problem. The system is 
back up. That has been addressed.
    But in terms of the overall security architecture, that is 
something that, you know, we are very concerned about. We 
invest meaningful sums of money. But when we have this scale of 
system, when we are doing transitions, sometimes glitches 
occur, and we look to respond and try to fix those and 
remediate those as quickly as we can.
    Mr. Kline. Do you have any idea what that goodly sum of 
money might be?
    Mr. Runcie. I am sorry?
    Mr. Kline. You said you are spending a goodly sum of money 
in this effort. Are we--billion----
    Mr. Runcie. I am sorry?
    Mr. Kline. How much?
    Mr. Runcie. Well, it is embedded in some of our 
contractors, because our contractors also provide a level of 
security. We have security initiatives that range, you know, 
sort of $2.5 million up to $10 million, if you sort of took out 
some of that money. But it probably pales in comparison to 
maybe what is offered by other private sector institutions. But 
we have a limited budget, but I think we are pretty efficient 
in terms of how we use those dollars.
    Mr. Kline. Okay, as long as we are protecting those 
students.
    Madam Chair, I yield back. Thank you.
    Chairwoman Foxx. Thank you, Mr. Chairman.
    I would now like to recognize Mr. Altmire from 
Pennsylvania.
    Mr. Altmire. Thank you, Madam Chair.
    Mr. Runcie, as you well know, the Department's OIG recently 
identified an increasing number of cases involving large, 
loosely affiliated groups of individuals who conspired to 
defraud Title IV programs through distance education program. 
Mr. Miller and Mr. Hinojosa then urged Secretary Duncan to take 
swift action to address this fraud, and many members of this 
committee were pleased to see the Department issue a ``dear 
colleague'' letter last week urging colleges, universities to 
take immediate steps to detect and prevent fraud. I was hoping 
that you could, for the record, inform the committee of the 
specific steps FSA is taking or plans to take to detect and 
defeat fraud, waste, and abuse in the Title IV programs.
    Mr. Runcie. Yeah, that is right. Thank you. We took it very 
seriously. We have been cooperating with the OIG to work with 
them on this distance fraud issue.
    There are a number of recommendations that were made, none 
of them surprising, a lot of those that we had considered, and 
we are in the process of trying to figure out which ones we can 
actually address.
    But immediately we sent out the ``Dear Colleague'' letter 
to promote awareness and to identify some of the issues around 
distance fraud. Our conference, which is coming up in another 
month or so, will have 6,000 financial aid professionals and 
represent about 2,000 schools.
    We are going to have training sessions and incorporate that 
as a part of the financial aid conference. So we feel that we 
could provide the institutions with the tools to combat that 
through the training process.
    In addition, we have established an intra-department task 
force to address all the recommendations and also come up with 
new suggestions in terms of how we can address this issue. We 
are looking at technical, technology. We are looking at systems 
and other processes that we could use potentially to address 
this issue. In addition, we are going to look at the regulatory 
and legislative process to see if that is something that can 
help address the situation.
    Mr. Hinojosa. Congressman Altmire, could you yield any 30 
seconds?
    Mr. Altmire. Certainly.
    Mr. Hinojosa. I want to say that I am one of the cosigners 
of this letter that expressed our concerns of waste and fraud, 
dated September 28th. And one of the big concerns I had was the 
example that was given to us when OIG found that gangs of 
criminals were completing the paperwork and enrolling straw 
students in online programs and then logging into the classes 
online for the first 30 days in order to obtain the balance of 
the Title IV funds not used for institutional charges. And 
there is no doubt in my mind that this is something that shows 
that our side of the aisle is very concerned about this 
taxpayer money and that it not be wasted by examples as I just 
gave you.
    With that, I yield back.
    Mr. Kline. Would the gentleman yield?
    I thank the gentleman.
    As I understand it, the reporting of this fraud came from 
the schools; is that correct?
    Mr. Runcie. That is correct.
    Mr. Kline. Thank you, I yield back.
    Mr. Altmire. Thank you.
    Mr. Runcie, also, while the federal government is exempt 
from the Fair Debt Collection Practices Act, private collection 
agencies are not. And with 23 private collection agencies, 
there is a lot of potential for abuse for defaulted borrowers. 
For example, one PSA could receive a letter from the borrower 
asking them to stop contacting them, but nothing stops the 
Department from then assigning the borrower to a new private 
collection agency, and then the borrower would have to exert 
their rights a second time. And just on this issue, I was 
wondering what is the Department doing to monitor and prevent 
abusive practices by the private collection agencies?
    Mr. Runcie. Well, we have an oversight group that deals 
with that. And that is their role. I mean, they follow sort of 
the regulations, and that has just been brought to my 
attention. I will make sure that when I go back, we will see if 
there is an issue around that. But I don't have an answer for 
you at this time.
    Mr. Altmire. Thank you. And lastly, just a statement for 
you to consider, Mr. Runcie, as my time expires, this committee 
previously, in a previous Congress, made sure that veterans 
under veterans disability determinations did not have to 
reapply if they are determined by the VA to be 100 percent 
disabled for the purpose of waiving student loan obligation; 
they didn't have to go through that process again for the 
Department medical review. There is a similar situation which 
has not been corrected with the Social Security disability and 
the ability of 100 percent disabled folks to have their loans 
waived. Is that something the Department has reviewed?
    Mr. Runcie. Oh, yes, absolutely. We are looking at 
streamlining the process and making it consistent so people 
don't have to go through multiple applications and multiple 
processes to get that determination.
    So we are looking to address that shortly.
    Mr. Altmire. Thank you.
    Chairwoman Foxx. Thank you, Mr. Altmire.
    I would now like to recognize Mr. Bucshon for 5 minutes.
    Mr. Bucshon. Thank you, Madam Chairwoman.
    I want to focus a little bit on default rates. I am 
interested in that, because I have--my wife and I had a 
tremendous amount of student loans, and we paid them all back, 
so we weren't one of the people who defaulted.
    I am interested in the data that is being used to say that 
one program is better than the other. And I was a health care 
provider, a surgeon, before, and I know every patient is 
different. And in that respect, every university is different, 
based on the size of the university, the scope, the location. 
And I would argue that discussing overall default rates is 
something that is not that helpful to me, honestly, without 
getting down into the weeds, and in that vein, although the low 
default rate at Denison is very commendable in the Direct Loan 
Program, your university is completely different than Indiana 
University. You are in a unique situation.
    I would be more interested, honestly, in the data that is 
to come in the future years, because the data that I am going 
to be interested in is what is going to happen at schools that 
have the FFEL students, specifically within their university, 
and then what the default rates were and what they will be in 
the future. Are we--I guess, Mr. Runcie, are we going to have 
the ability to track individual universities and give more 
specific in-the-weeds type data? Because I think it is a 
confounding thing to quote from one university and then compare 
their results with the Direct Loan Program to another 
university that had both or one more than the other and say 
that one program is better than the other.
    Mr. Runcie. Yeah, no, I agree. I mean, they are all very 
different, the characteristics and composition of the student 
population, core structure; everything is different, so you are 
absolutely right. The large numbers mask the individual 
identities and characteristics of the institutions. So the 
ability to dig into the details, you know, we have a pretty 
substantial database that has a lot of information. So I think 
there is a possibility that we can look at that data and 
provide more actionable information in terms of making 
decisions about default rates and making comparisons. But what 
we have are those aggregate numbers. We also have them by 
school types. So we do break it down a little bit but not to 
the point where I think you can look at one school and 
potentially have a control group and make a good comparison.
    Mr. Bucshon. I just wanted to point out that I consider 
that comparing apples to oranges. And to make an argument based 
on one school type that a program, whatever that is--and I am 
not arguing that the Direct Loan Program or the other are 
better than the other. The fact of the matter is we don't know, 
because it may take us years or maybe decades to know what the 
difference will be between what we are doing now and what we 
have been doing in the past. Would you agree with that?
    Mr. Runcie. Well, I mean, the data we have, it is sort of 
statistical information. What we can look at, though, is we can 
look at, you know, FFEL for public 4-year, and we can look at 
DL for public 4-year. And the statisticians might tell you that 
any number above 100 or some number would be statistically 
meaningful. So from a statistical standpoint, I think there is 
a body of information that says that you could compare the two, 
and there is some meaningful difference, but again, that is not 
comparing individual schools and students before and after, 
which is what I think is----
    Mr. Bucshon. Another confounding factor, of course, would 
be graduation rates at different institutions. As everyone 
knows, students who don't graduate have a much higher incidence 
of default. I know universities like Ms. Hoover's are excellent 
in that area.
    But, for example, University of Illinois, where I went, I 
know the graduation rate of all starting freshman, at least in 
1980, was about 65 percent of the students. So whether they 
went on to other universities or didn't finish their education 
is very important.
    So the point I just wanted to bring up with this is there 
are many, many confounding factors, and I really believe that 
it would be helpful to Congress going forward to assess these 
type programs, to not discuss just apples and oranges, but give 
us data that is in the weeds. Otherwise, you really can't make 
a fair comparison. So with--I yield back. Thank you.
    Chairwoman Foxx. Thank you, Dr. Bucshon.
    It is, again, helpful to have different members of the 
committee bring up their different perspectives. It is very 
useful.
    Mr. Tierney, you are recognized for 5 minutes.
    Mr. Tierney. Thank you.
    And thank all the witnesses. You have added some good 
perspective and information to us today.
    One thing I am hearing is the program is working well. And 
one thing that I know is we saved over $60 billion by taking 
away guarantees in subsidies to private lenders who had then 
relatively high interest rates. As Mr. Hinojosa pointed out, 
some of the interest rates were up as high as 12 percent.
    Mr. Bucshon. Would the gentleman yield?
    Mr. Tierney. Who is asking?
    Mr. Bucshon. Bucshon. Did we save the $60 billion and use 
that is as deficit reduction, or did we spend it elsewhere?
    Mr. Tierney. It is wonderful you ask. It is a good segue. 
We took $10 billion of that, and we paid it down on the debt. 
With the balance of it, we were able to increase the Pell 
Grants, which had fallen from about three quarters of the cost 
of a public higher education down to a third. So we were able 
to raise the Pell Grant amounts on that, which helped not only 
more students get that but higher up on the income scale to 
some lower middle-class families.
    We were able to cut interest rates on the subsidized loans 
significantly, in half in some instances. And I have heard some 
talk about interest rates here being an issue on that. So the 
resistance we got at that time was tremendous. It is nice to 
hear two of my colleagues over here complain about the interest 
rate now, because we would certainly like to work to get that 
down.
    We put some money, invested some money into community 
colleges, so that they were able to further do their work, 
improve their facilities, and help people to get trained for 
jobs on that.
    And we had the income-based repayment system, which we were 
able to do out of that and which I think is probably one of the 
most under-heralded positive factors that have come out of it.
    And Mr. Runcie, tell us just what the income-based 
repayment system is, because I think a lot of families don't 
know it, and they should.
    Mr. Runcie. Thank you, Congressman.
    Yes, that is something we have talked about as a way to 
manage the debt and also decrease the default rates. There is a 
universe of people that could use that, and of that universe, 
we don't think the take-up rates are what they could 
potentially could be. So as those take-up rates go up 
substantially, we would see a positive impact on the default 
rate, because it is just another tool that allows students and 
borrowers to be able to manage their debt based upon what their 
income levels are.
    In addition to that, there is a public service loan 
forgiveness program, which is another tool I think we have to 
get the word out, because that is something that, again, is 
another way to manage debt and also to make sure that there is 
some return on your investment and you don't fall into default 
and delinquency. Those are two things that we know we have to 
make sure that we market, publicize, get the word out, and put 
it up on our Web sites.
    Mr. Tierney. And campuses as well have a role in that. I am 
sure our three other witnesses acknowledge that the campuses 
have a role in making sure students are aware of that.
    Let me speak briefly to the interest rate situation, Mr. 
Kline made a mention that we are getting our money at 1 percent 
and then turning around and getting 6.8 percent from students. 
The fact of the matter is I think we get it at about 2.5 
percent for a 10-year loan, if I am not mistaken. Would that be 
fair to say, Mr. Runcie? Somewhere in that ballpark?
    Mr. Runcie. Yes, in that ball park.
    Mr. Tierney. The difference in that cost of managing the 
loan.
    Mr. Runcie. Yes, the cost of managing the loan would be in 
that difference.
    Mr. Tierney. And if there are any balances, that would go 
back to issuing further loans or more loans?
    Mr. Runcie. Yes.
    Mr. Tierney. So Mr. Andrews had a suggestion that we 
calculate the interest rate on some of the cost of the money, 
plus the cost of administering it, plus a little bit for 
reserve, and then establishing that rate. Do you find that 
objectionable?
    Mr. Runcie. It is not objectionable to me. I know that 
others make that decision.
    Mr. Tierney. I can tell you who it has been objectionable 
to, and there is a whole host of people over to my left over 
here. We have had that fight going on and on. But I was very 
happy to here Mr. Kline raise it as an issue and Dr. Roe, 
because hopefully now we can work with them to try and lower 
that interest rate even further on students. It does make a 
difference.
    I think we have covered all the ground. I don't want to get 
into an area of raising the same issues over again. But I have 
an unrelated thing, so we can sort of get off of that and take 
you off the hot seat.
    I have had graduates come in and tell me about their 
private loans, which are substantial and the interest rates are 
significantly high. They find it a burden, and they have 
trouble consolidating those loans. And they feel if they did 
consolidate those loans at a lower interest rate, they would 
not only be able to carry out their lives better on that, but 
they would have more money to spend, which would help the 
economy on that. It is difficult for the Department to do 
anything about that; it is private loans on that. But I was 
wondering if our other three witnesses had any thoughts. You 
must see some of your students come back with those issues, and 
if you had any thoughts on how we might provide some assistance 
to that cohort.
    Ms. Hoover.
    Ms. Hoover. Thank you, Mr. Tierney.
    One of the things that helped my students is when the 
ECASLA was passed and the extra 2,000 unsubsidized loan for all 
undergraduate students, I have seen a substantial decrease in 
my private loan volume. Also, the fact that the parents now 
have the ability to get a deferment for parent loan 
substantially also reduced my private loans.
    And I was very grateful to you and to Members of Congress 
for those benefits that have helped my students.
    If we could do something like that, I think that would help 
reduce the private loans further, if we could increase.
    I know there are other viewpoints that don't want to 
increase the loan indebted--loan amounts for students--again, I 
am coming from a private school perspective, high costs, and I 
understand we all have different perspectives, but for my 
students and my parents, that was very helpful, thank you.
    Mr. Tierney. Thank you, I yield back.
    Chairwoman Foxx. Thank you very much.
    Mr. Platts is recognized for 5 minutes.
    Mr. Platts. Thank you, Madam Chair. First, I want to thank 
you for hosting this hearing, very important topic and for all 
our witnesses. I don't want to be repetitive, apologize for 
coming in late from another commitment, but I do want to 
express my support and the importance of ensuring the long-term 
strength of this program.
    I paid off my last student loans from undergrad and law 
school as a Member of Congress and understand the very 
important resource that we provide.
    I have always looked at our nation as being the land of 
opportunity. And one of the keys to being the land of 
opportunity is access to a great education, whether that be K 
to 12 or higher education. And to me, that is what this loan 
program is about, is allowing every student out there to have 
that opportunity to advance themselves through higher 
education.
    I am one who did support the transfer to the direct program 
here on committee, and when it was voted, individually, I did 
not support its inclusion in the health care reconciliation 
language.
    I think it is a way of ensuring that the assistance is 
available, but ensuring that any, if we want to say, profit or 
excess funds that are generated by it are put back into 
investing in the students, which I think is what we are doing 
now, rather than into private hands to go elsewhere, that if 
there are excess funds, that they are reinvested.
    So the suggestion that we try to tighten up the program and 
what the interest rate is paid I think is a wise one and an 
important one to make sure we are given the best value for what 
is being charged.
    And I do think it is also important to recognize that the 
interest rates, my wife and I, ours ranged from 7 to 9 percent 
when we were repaying our loans. We want to drive that rate 
down as much as possible but also recognize that without that 
program, these individuals would not get loans because they are 
young citizens without a credit history, a track record. And 
the private sector would not lend in this way without a 
government role and, in this case now, a direct role. So it is 
critical for us to be involved and make sure this program is 
successful in the long term.
    And to each of you, your testimonies I think add a great 
knowledge base to each of us committee members as we seek to do 
just that, ensure its long-term success and solvency while we 
are making sure we give the students the best opportunity 
possible. So I certainly look forward to working with my 
colleagues on both side of the aisle to take your knowledge as 
we go forward and, maybe specifically on the interest issue, 
try to get an even better opportunity out there for students.
    With that, Madam Chair, I yield back.
    Chairwoman Foxx. Thank you, Mr. Platts.
    I yield myself now 5 minutes. You may not know of my 
background, but I was the director of a Upward Bound Special 
Services Program for several years at Appalachian State 
University. But it has been a while since I have work in the 
student financial aid area, but I do know a little bit about 
that area.
    I also worked my way through college. I spent 7 years 
getting my undergraduate degree and didn't borrow a dime of 
money. I spent 8 years working on my doctorate, working full 
time. So I have a background in this area and some experiences.
    I would like to say, one quick question, ask one quick 
question to Mr. Runcie. It seems to me that with the income-
based interest rates and public service loan forgiveness, there 
is very little reason for anyone to ever default on these 
loans. Would you agree would that?
    Mr. Runcie. I don't know all the factors involved, but I 
think that those are two mitigating factors.
    Chairwoman Foxx. Thank you very much.
    There is also--I have some interest in the fact that we 
hear these horror stories of people borrowing $80,000 a year. I 
mean, I have talked to students who have told me that, and yet 
you have a limit on the amount that people can borrow, so I 
find it kind of interesting that we can hear these stories that 
people have borrowed so much money when I know, again from my 
own experiences and others, that it isn't necessary to do that.
    I would like to ask you a really important question, Mr. 
Runcie. We know that the president's budget proposal included a 
loan conversion plan and possibly some other changes in the 
loan programs that would dramatically increase the amount of 
direct loans on the federal government's books. And we have 
heard today--there is a report in the Wall Street Journal--that 
the president is about to announce a major change in the 
program that we have not yet acted on in the Congress. And I am 
wondering if the Department is moving forward with this 
proposal through executive fiat, and then, if this is the case, 
what specific authority does the Department have for this 
administrative action that we read in the press is about to be 
announced?
    Mr. Runcie. I can't answer that question. I mean, I think 
that question is more sort of OGC, and it is about what our 
legislative authorities are and what the regulatory framework 
is. And I can't--but what I will say is that whatever we are 
told to do in terms of implementation and execution, we will 
make sure that we optimize and we do what is in the best 
interest of students and borrowers.
    Chairwoman Foxx. Let me switch gears just a minute and ask 
a different kind of question. As you know, because of the new 
gainful employment regulation, some institutions of higher 
education are being judged on whether their graduates are 
paying down the principal on their loans. What steps is the 
Department taking to ensure that its servicers work to keep 
student loan borrowers in actual repayment and not simply be 
directed to deferment or forbearance?
    Mr. Runcie. I believe the structure of the contracts of the 
servicers speak to that. I think that there is incentive to 
keep them in repayment; they get paid depending on the status 
of the loans. So there are some statuses that result in less 
payment. I think it is geared toward keeping them in repayment. 
So the servicers are provided servicing for RDL loans. Their 
contracts are structured in such a way that I think they are 
incentivized to keep folks in repayment.
    Chairwoman Foxx. Thank you.
    I would like to ask a question of Mr. Day and Mr. Bandre. 
You both talked about how institutions are spending a lot of 
time providing services to students and borrowers that used to 
be done by lenders and guarantee agencies. Have there been 
implications to these changes?
    Mr. Day, you talked a little bit about needing to do 
counseling and financial planning management. Would you talk a 
little bit more about that in terms of the services that you 
are having to provide?
    Mr. Day. Yes. The financial aid office has to provide 
services in a wide variety of activities, particularly in 
assisting students with all type things. Not having the 
assistance from the FFEL lenders that previously provided 
default management, for example, work the loans, if you will, 
to try to keep kids out of default. We have felt the need. I am 
not familiar that much with the default management on the DL 
side at this time because we are so relatively new in the 
system. But I felt the need to go ahead and implement a process 
and put it in place, just to ensure that our students are 
educated on the process. So I felt that need. I applaud that 
need. I think our staff has done an exceptional job with that.
    Mr. Bandre. Yes, ma'am, the biggest thing that we have 
found in that area, as Mr. Day alluded, is ability for our 
staff to learn things that the banks and guarantee agencies 
provided. And I will cite one example from my experience in 
Arkansas, since default prevention has been a key topic amongst 
your colleagues. The Student Loan Guarantee Foundation of 
Arkansas with Hugh Hendrix College has and does work quite 
closely, had a default prevention measure that they informed 
the school when the student was in danger of going into long-
term default or short-term default. They would send a list of 
students. The colleagues there and I worked together to write a 
letter, which they sent us a copy of the letter when it was a 
student at risk. We forwarded that right on to the student. So 
it was a way for the guarantee foundation and the college to 
work together to help students out of default.
    I know Mr. Runcie and his colleagues are working on ways 
for that to happen. But as Mr. Day alluded, I don't know how 
those will take place, not having been in the Direct Loan 
Program all that terribly long.
    I also just wonder, going back to default rates, what is 
going to happen when our graduates--because our freshmen now 
are the first group truly having Direct Loans, it is going to 
be a while before we know, as Mr. Bucshon alluded, how long it 
will take for those to truly hit the books.
    Chairwoman Foxx. Thank you very much.
    I would like to, again, thank our distinguished panel of 
witnesses for taking the time to testify before the 
subcommittee today. And I thank all of the members of the 
subcommittee who were here.
    Mr. Hinojosa, do you have any closing remarks?
    Mr. Hinojosa. Thank you.
    Yes, I do. In closing, I want to share with you that, from 
2007, 2008, 2009, and 2010, I served as the chair on the 
Subcommittee on Higher Education, and I had many college 
presidents from throughout the country, West Coast and East 
Cost, and chancellors of college systems come to visit in me my 
office and share with me their concerns about affordable and 
accessibility of higher education because of the rising costs 
of higher ed.
    And I am glad to say that much of what was discussed on 
both sides of the aisle here have been solutions to increase 
the numbers of students who are now able to afford it. I saw a 
study done by the Pew Hispanic Center, a study that they did 
for 2009 to 2010--I am sorry, 2009 and to the next year 2010, 
and their results indicated that they found an increase of 24 
percent of Hispanics being able to access higher education, 
which is extremely important to us, because it is a group, a 
population, that is growing so very fast in the United States.
    So I am pleased that in the materials they gave us, we have 
this chart that talked a lot about the comparison of all types 
of student loans together, and then they break them out, one 
being the federal Direct Student Loan Program versus the 
Federal Family Education Loan Program. And without a doubt, 
from 2006 through 2010, the default rates for the blue on this 
thing is the family--Federal Family Education Loan Program, 
that is the highest, at 9.5 percent. You compare that with the 
Direct Loan the same year of 2010--I am sorry, 2009, and you 
see 5.6 percent. So I think we are dining the right things. We 
are on the right road to address what the chancellor said, 
accessibility and affordability.
    So, thank you, Madam Chair, for having this hearing.
    And I thank all of you for joining us today.
    And I commend the Department of Education for their 
leadership in making a seamless and successful nationwide 
transition to the Direct Student Loan Program. This program 
clearly expands what I said, accessibility and affordability in 
higher ed, for millions of students throughout the country. As 
we strive to achieve President Obama's pledge to lead the world 
in proportion of college graduates by the year 2020, we must 
ensure that eligible students have access to the Direct Loan 
Program.
    And with that, I yield back.
    Chairwoman Foxx. Thank you, Mr. Hinojosa.
    Again, I would like to thank the members of the panel for 
being here today.
    I will say that I am a big proponent of access to higher 
education, and my own experience, again, tells me that we have 
tremendous access to higher education in this country. Never 
before have we had as much as we have today. There is no excuse 
for anyone who wants to get a degree past high school not to 
get one. It is available out there, in community colleges and 
distance learning and on campus programs and small campuses and 
large campuses. It is everywhere. There is no lack of choice in 
this country.
    At the same time, there are many questions being raised 
about whether or not people need to be getting higher education 
in order to be able to get a job. Skills are really what 
students need, not just degrees, but they need skills in order 
to get degrees. And I have great concern over the number of 
people who are going to school and taking on huge loans because 
they lack financial literacy.
    And I will always be concerned about our government taking 
on a function that the private sector has always been able to 
do and do well. I think the federal government should be very 
limited in its work. I think the Founders were right when they 
delineated the responsibilities of the federal government. So I 
believe that we should draw back on what we do instead of 
expand what we do in the federal government.
    However, I commend the Department of Education for what it 
has done.
    I commend all of you for the work do you and for your 
commitment to individual students. Again, having been close to 
your work when I was in university and college work, I 
understand what you do, and I understand the importance to 
those individuals.
    And I think, as Dr. Bucshon brought out earlier, we need to 
look at this from many different perspectives in terms of the 
data that we collect. And I know, again, from having been a 
college president and having students come in and talk to me 
about how their lives have been changed by being in a college 
or university, that we do make huge differences in the lives of 
people. I want to thank you for what you do.
    And I want to pledge to you that our committee looks for 
ways that the federal government can provide the most effective 
and the most efficient services to our students. So thank you 
very much for being here with us today.
    And the meeting is adjourned.
    [Additional submission of Mrs. Foxx follows:]
    
    
    
                                ------                                

    [Questions submitted for the record and their responses 
follow:]

                                             U.S. Congress,
                                 Washington, DC, November 10, 2011.
Mr. James Runcie, Chief Operating Officer,
Office of Federal Student Aid, U.S. Department of Education, 830 1st 
        Street NE, Washington, DC 20202.
    Dear Mr. Runcie: Thank you for testifying at the Subcommittee on 
Higher Education and Workforce Training hearing entitled, ``Government-
Run Student Loans: Ensuring the Direct Loan Program is Accountable to 
Students and Taxpayers,'' on October 25, 2011. I appreciate your 
participation.
    Congressional oversight is critical to ensuring taxpayer dollars 
are being spent appropriately. To that end, committee members request 
your response to the enclosed questions. Please provide written 
responses no later than December 1, 2011 for inclusion in the official 
hearing record. Responses should be sent to Amy Jones or Mandy 
Schaumburg of the committee staff who may be contacted at (202) 225-
6558. After receiving your responses, committee members will review the 
answers and pose any additional questions they may have.
    Thank you again for your contribution to the work of the committee.
            Sincerely,
                                 Virginia Foxx, Chairwoman,
           Subcommittee on Higher Education and Workforce Training.
                    chairwoman virginia foxx (r-nc)
    1. The FSA strategic plan states that you are in the process of 
establishing a position of Chief Customer Experience Officer (CCEO) to 
be the ``internal champion'' of customers at FSA. At what level are you 
establishing the CCEO? Will they have staff? How will the CCEO have a 
different role than the FSA Ombudsman?
    2. I have heard from institutions of higher education that they 
have a much higher default rate on their put loans than on their non-
put loans. Have you analyzed the data to determine whether the default 
rate on put loans is higher than on regular loans? How have you 
analyzed that data? What notice has been distributed to students to 
inform them that their loans have been sold to the Department of 
Education?
    3. Has the Department taken any proactive steps to warn college 
students about the interest rate increase that will be happening next 
year as a way to better prepare these students and, hopefully, prevent 
over-borrowing? What else is the Department doing to help prevent over-
borrowing?
    4. I understand that FSA has recently shut down the ability of 
lenders and servicers to view the loans of any borrower, except those 
that they service, on the National Student Loan Data System (NSLDS). 
This is preventing lenders from helping married borrowers that apply 
for income-based repayment (IBR) unless both borrowers use that lender 
or servicer. Why is the Department preventing a lender or servicer 
(including its own direct loan servicers) from helping borrowers and 
implementing the Department's own regulations?
    5. We heard during the hearing that the quality of the Department's 
customer service has slowly been deteriorating. Since that time, we 
have also received a number of complaints that the website and customer 
service line has been experiencing severe disruptions making it 
impossible for borrowers to view their payment information. How are you 
ensuring that borrowers are receiving the same level of customer 
service touted by many in the FFEL program? Did the Department develop 
a comprehensive plan to ensure high levels of customer service are 
maintained? If so, can you give us some details on that plan and how it 
was implemented?
    6. What type of outreach does the Department undertake to inform 
students about their obligations of repaying their loans, particularly 
during the post-graduation grace period when borrowers often need to be 
reminded that they are about to enter into repayment?
    7. Can you describe how the Department funds all the functions 
(originations, servicing, collections, personnel costs, other 
contracts, or administrative expenses) of the Direct Loan Program? 
Please detail from what accounts (student aid administration 
appropriation, mandatory servicing account, off-budget financing 
account, etc) each of these items is funded.
    8. What types of regular interaction does the Department have with 
the four main servicers? How do you oversee the current servicing 
contracts and how is FSA planning to oversee compliance with the 
addition of new nonprofit servicer contracts? Furthermore, how do you 
ensure that the products coming out of each servicer are consistent? 
Could you articulate which products are consistent across all servicers 
and what products are different?
    9. Now that the Department of Education is one of the largest banks 
in the country, what is your office doing to combat any fraud and abuse 
that may occur within the federal student aid programs?
    10. Earlier this year, the Department launched its Voluntary 
Flexible Agreement initiative, which you have stated is a way to 
preserve the services provided by the nation's guaranty agencies. Under 
the initiative, guaranty agencies are encouraged to propose new and 
innovative means of providing services to schools and students. Yet the 
Department has signaled that guaranty agencies will not be able to 
provide services to Direct Loan borrowers. At a time when defaults are 
on the rise, why would the Department prohibit guaranty agencies from 
providing cost effective supplementary services to Direct Loan 
borrowers?
    11. Under the Voluntary Flexible Agreement initiative announced by 
the Department in May, guaranty agencies have been informed that they 
need to give up their efforts to help already defaulted borrowers in 
order to be able to help borrowers who are struggling to meet their 
obligations. Is this true?
    12. The Higher Education Opportunity Act established a new set of 
requirements for how institutions of higher education must interact 
with student loan lenders. It appears that at least one aspect of these 
changes has resulted in an unintended consequence with negative impacts 
on students and families. There are a number of entities, including 
those state-chartered non-profit agencies, which provided advisory 
services to students and families on campus. Even though the HEOA 
specifically allowed advisory services to continue, a majority of 
campuses will not allow lenders on their campuses out of fear for being 
criticized or penalized by the Department. Can you confirm that the 
HEOA does permit institutions of higher education to allow entities, 
such as the state-chartered, non-profit lenders, on campus for the 
limited purpose of providing advisory services to students and 
families?
                  representative robert andrews (d-nj)
    1. Describe: How the Department (and the Department's 
subcontractor) independently and empirically verify (i.e., other than a 
verbal or written statement made by prospective Direct Consolidation 
Loan applicant) that the prospective Direct Consolidation Loan 
applicant that intends to pay off a FFELP Consolidation Loan qualifies 
for such Direct Consolidation Loan pursuant to the Act.
    2. Describe: The additional costs to the Federal government, 
including loan forgiveness costs and foregone interest, resulting from 
illegally made Direct Consolidation Loans paying off FFELP 
Consolidation Loans.
    3. In a letter to Congressman Andrews on September 19th, James 
Runcie, COO of the Department Education wrote that the Direct Loan 
Program does not have to verify whether or not a borrow who already has 
a consolidation loan qualifies for a Direct Loan consolidation by 
meeting on the three criteria in the law. Is the DOE mean then it does 
not have to enforce the law and ignore the specific conditions Congress 
put into the law regarding whether or not a borrower qualifies for a 
certain loan?
                                 ______
                                 
                                             U.S. Congress,
                                 Washington, DC, November 10, 2011.
Ms. Nancy Hoover, Director of Financial Aid,
Denison University, 100 President's Drive, Granville, Ohio 42023.
    Dear Ms. Hoover: Thank you for testifying at the Subcommittee on 
Higher Education and Workforce Training hearing entitled, ``Government-
Run Student Loans: Ensuring the Direct Loan Program is Accountable to 
Students and Taxpayers,'' on October 25, 2011. I appreciate your 
participation.
    Congressional oversight is critical to ensuring taxpayer dollars 
are being spent appropriately. To that end, committee members request 
your response to the enclosed questions. Please provide written 
responses no later than December 1, 2011 for inclusion in the official 
hearing record. Responses should be sent to Amy Jones or Mandy 
Schaumburg of the committee staff who may be contacted at (202) 225-
6558. After receiving your responses, committee members will review the 
answers and pose any additional questions they may have.
    Thank you again for your contribution to the work of the committee.
            Sincerely,
                                 Virginia Foxx, Chairwoman,
           Subcommittee on Higher Education and Workforce Training.
                  representative dave loebsack (d-ia)
    1. I know that ending FFELP freed up $68 billion in funding for 
college affordability and deficit reduction. Partly due to the 
transition to direct lending, the Pell Grant Program has been expanded 
significantly in recent years, increasing the maximum award to $5,550 
from $4,050 and increasing the number of Pell grant recipients from 5.2 
million to 9.4 million in the last 5 years. Nationally, two thirds of 
students at 2-year colleges and one third of students at 4-year 
colleges receive Pell grants. Especially in the current economic 
downturn, grant aid is essential for making college affordable for many 
students.
    Could you tell me a little bit about the need for federal financial 
aid, especially Pell grants, and how the transition to direct lending 
has benefitted low-income students at yours and other colleges that are 
members of the National Direct Student Loan Coalition?
                                 ______
                                 
                  

    [Whereupon, at 11:56 a.m., the subcommittee was adjourned.]