The Education Department got hit from all sides at a congressional hearing on Wednesday, with lawmakers, advocates, and investigators alike accusing the agency of everything from lax oversight to poor customer service.
Their target was the department’s Office of Federal Student Aid, or FSA, the semiautonomous division charged with awarding billions of dollars in student grants and loans, and overseeing the thousands of contractors and colleges that deliver and manage that money. With a loan portfolio of more than $1.2 trillion, FSA is, as the department’s inspector general noted on Wednesday, “one of the largest financial institutions in the country.”
During the two-and-a-half-hour hearing, held by two subcommittees of the U.S. House of Representatives, critics said the office had mismanaged the companies that service its student loans, mishandled taxpayer dollars, and failed to communicate effectively with colleges and borrowers. They called on Congress to step up its oversight of the agency.
The task of defending FSA fell to James W. Runcie, the office’s chief operating officer. He answered the complaints in an unruffled manner, acknowledging past mistakes while highlighting recent improvements.
This is hardly the first time the Office of Federal Student Aid has taken heat from lawmakers and investigators. In the mid 1990s, the Government Accountability Office put the office on its “high risk” list, citing its “longstanding management problems.” In an effort to improve the agency, Congress in 1998 converted FSA into a “performance-based organization,” giving it a nonpolitical chief operating officer and unusual flexibility in hiring and contracting.
The goal, Rep. Howard P. (Buck) McKeon said at the time, was to put student aid “in the hands of someone with real-world experience in financial services.”
“For the first time, the department’s student-financial-aid systems will be run like a business — adopting the best practices from the private sector and focusing on bottom-line results,” said Mr. McKeon, a California Republican who would later become the chair of the House education committee.
For a while, it seemed as if the strategy was working. In 2005 the GAO removed the office from its high-risk list.
But now that the Education Department issues and oversees all federal student loans, doubts about its ability to serve as both lender and oversight agency have grown. During Wednesday’s hearing, witnesses and lawmakers said the agency was backsliding. Their concerns varied, but the issues broke down into three key areas.
Oversight
When Congress abolished the bank-based student-loan program, in 2010, FSA had to hire new contractors to manage its growing loan portfolio. On Wednesday, Kathleen S. Tighe, the Education Department’s inspector general, said her office had found significant weaknesses in FSA’s oversight of those loan servicers and debt collectors.
The inspector general’s office has also uncovered gaps in FSA’s oversight of colleges, particularly in the area of compliance reviews, Ms. Tighe reported.
Another government investigator, Melissa Emrey-Arras of the Government Accountability Office, said she’d found flaws in FSA’s process for monitoring calls between servicers and students.
Ben Miller, senior director for postsecondary education at the Center for American Progress, said the agency had withheld data — such as long-term default rates — that would allow policy makers and the public to compare colleges and hold them accountable for student outcomes. He urged the agency to make “better use of its oversight tools to protect students from institutions that may take advantage of them.”
Communication
Witnesses also complained of gaps in FSA’s communications with students, servicers, and schools.
Ms. Emrey-Arras said the agency had provided inadequate guidance to loan servicers, leading to inconsistencies in how they treat borrowers.
Mr. Runcie said the inconsistencies stemmed from a decision to allow for-profit servicers to use their own “commercial processes” for managing loans — a move designed to get the servicers working quickly after the switch to 100-percent direct lending. He said FSA would move to “standardize processes” when it writes a new servicing contract, a process set to start next year.
Meanwhile, Justin S. Draeger, president of the National Association of Student Financial Aid Administrators, said conversations with the agency were often “one-sided,” with officials often making changes “without announcement or forewarning.” He said colleges were reluctant to complain “because FSA ultimately holds all the cards.”
“The perception is that you keep complaints to a minimum or risk a program review,” he said.
Safeguarding Money
Ms. Tighe, the inspector general, said her office’s audits show that the Office of Federal Student Aid “has not taken sufficient action to reduce improper payments” in the student-aid programs. She also took aim at the agency’s method of estimating whether grants and loans are being underpaid or overpaid, saying it overlooked some major causes of overpayments. According to the department’s estimate, improper payments of grants and loans totaled $1.8 billion.
Rep. Mark Meadows, the chairman of one of the subcommittees that held the hearing, accused the agency of changing its process for estimating improper payments to make its losses look smaller.
“It’s like students are taking the SAT and we don’t like the trends, so we change the methodology so the scores look a little better,” said Mr. Meadows, a Republican of North Carolina.
Rep. Virginia Foxx, another North Carolina Republican who is the chair of the other panel that held the hearing, said she was “extremely concerned about FSA’s ability to serve students, borrowers, and taxpayers well.”
“You have not lived up to that right that has been given to you” as a performance-based organization, she said as the hearing came to a close. “Before you ask for more money, you’d better show this Congress that you have made some progress in straightening up.”
Kelly Field is a senior reporter covering federal higher-education policy. Contact her at kelly.field@chronicle.com. Or follow her on Twitter @kfieldCHE.