ERIC ED372678: Managing the Federal Direct Student Loan Program. Hearing before the Human Resources and Intergovernmental Relations Subcommittee of the Committee on Government Operations. House of Representatives, One Hundred Third Congress, First Session

158 Pages·1994·2.3 MB·English

by  ERIC

DOCUMENT RESUME
HE 027 562
ED 372 678
Managing the Federal Direct Student Loan Program.
TITLE
Hearing before the Human Resources and
Intergovernmental Relations Subcommittee of the
Committee on Government Operations. House of
Representatives, One Hundred Third Congress, First
Session (June 10, 1993).
Congress of the U. S., Washington, D. C. House
INSTITUTION
Committee on Government Operations.
ISBN-0-16-044439-X
REPORT NO:
94
PUB DATE
158p.
NOTE
U.S. Government Printing Office, Superintendent of
AVAILABLE FROM
Documents, Congressional Sales Office, Washington, DC
20402.
Legal/Legislative/Regulatory Materlals (090)
PUB TYPE
MF01/PC07 Plus Postage.
EDRS PRICE
Educational Finance; *Federal Programs; Hearings;
DESCRIPTORS
Higher Education; Policy Formation; Program Design;
*Program Implemntation; Student Financial Aid;
*Student Loan Programs
Congress 103rd; Department of Education; *Direct
IDENTIFIERS
Lending
ABSTRACT
The House Subcommittee on Human Resources and
in
Intergovernmental Relations met to hear testimony from leaders
direct
government and higher education on managing the federal
Education's
student loan program. Focus was on the Department of
Guaranteed
plans to correct existing management problems of the
responsibilities of
Student Loan Program and implement the additional
from
managing a direct lending loan program. Statements are included
Representative;
the following: Robert E. Andrews, New Jersey
Stephanie Bloomingdale, U.S. Students Association; Thomas A. Butts,
Association of State
for the American Council on Education, American
Community
Colleges and Universities, American Association of
Business
Colleges, National Association of College and University
Officers, and National Association of State Universities and Land
Accounting
Grant Colleges; Clarence C. Crawford, :U.S. General
William F.
Office; Orcilia Zuniga Forbes, University of New Mexico;
Goodling, Representative from Pennsylvania; Madeline Kunin, U.S.
Representative from
Department of Education; Thomas E. Petri,
Wisconsir; Anne Sturtevant, Emory University (Tennessee); .and
Edolphus Towns, Representative from New York.
(JB)
Reproductions supplied by EDRS are the best that can be made
from the original document.
*
***********************************************************************
LOAN
DIRECT S
FED
AGING
PROG
HEARING
BEFORE THE
INTERGOVERNMENTAL
HUMAN RESOURCES AND
RELATIONS SUBCOMMITTEE
OF THE
COMMITTEE ON
GOVERNMENT OPERATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
JUNE 10, 1993
Operations
Printed for the use of the Committee on Government
U S DEPARTMENT OF EDUCATION
(Wye of f dximona. Research and lerprorcerent
EDMfATIONAL RESOURCES INFORMATION
CENTER tERICI
This document has been reproduced as
received from the person or organilation
originating it
0 Minor changes have been made to
improve reproduction quality
Points of view or opinions staled in th.s
document do not necessarily represent
official OERI position or policy
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1994
19-703 CC
For sak oy the U.S. Government Printing Office
Washington, DC 20402
Superintendent of Documents, Congressional Sales Office,
ISBN 0-16-044439X2
s,
COMMITTEE ON GOVERNMENT OPERATIONS
JOHN CONYERS, JR., Michigan, Chairman
CARDISS COLLINS, Illinois
WILLIAM F. CLINGER, JR., Pennsylvania
GLENN ENGLISH, Oklahoma
AL MCCANDLESS, California
HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois
MIKE SYNAR, Oklahoma
JON L. KYL, Arizona
STEPHEN L. NEAL, North Carolina
CHRISTOPHER SHAYS, Connecticut
TOM LANTOS, California
STEVEN SCHIFF, New Mexico
MAJOR R. OWENS, New York
C. CtIRISTOPHER COX, California
EDOLPHUS TOWNS, New York
CRAIG THOMAS, Wyoming
JOHN M. SPRATT, JR., South Carolina
ILEANA ROS-LEHTINEN, Florida
GARY A. CONDIT, California
RONALD K. MACHTLEY, Rhode Island
COLLIN C. PETERSON, Minnesota
DICK ZIMMER, New Jersey
-
KAREN L. THURMAN, Florida
WILLIAM H. ZELIFF, JR., New Hampshire
BOBBY L. RUSH, Illinois
JOHN M. McHUGH, New York
CAROLYN B. MALONEY, New York
STEPHEN HORN, California
THOMAS M. BARRETT, Wisconsin
DEBORAH PRYCE, Ohio
DONALD M. PAYNE, New Jersey
JOHN L. MICA, Florida
FLOYD H. FLAKE, New York
JAMES A. HAYES, Louisiana
BERNARD SANDERS, Vermont
CRAIG A. WASHINGTON, Texas
(Independent)
BARBARA-ROSE COLLINS, Michigan
CORRINE BROWN, Florida
MARJORIE MARGOLIES-MEZVINSKY,
Pennsylvania
LYNN C. WOOLSEY, California
JULIAN EPSTEIN, Staff Director
MATTHEW R FLETCHER, Minority Staff Director
HUMAN RESOURCES AND INTERGOVERNMEWAL
RELATIONS SUBCOMMITTEE
EDOLPHUS TOWNS, New York, Chairman
HENRY A. WAXMAN, California
STEVEN SCHIFF, New Mexico
THOMAS M. I3ARRETT, Wisconsin
STEPHEN HORN, California
DONALD M. PAYNE, New Jersey
JOHN L. MICA, Florida
CRAIG A. WASHINGTON, Texas
BERNARD SANDERS, Vermont (Ind.)
Ex OFFICIO
JOHN CONYERS, JR., Michigan
WILLIAM F. CLINGER, JR., Pennsylvania
RONALD A. STROMAN,'Staff Director
ALLVGRA A. PACHECO, Professional Staff Member
MAR1INE M. DICRocE, Clerk
MARTHA MORGAN, Minority Professional Staff
3
CONTENTS
Page
Hearing held on June 10, 1993
1
Statement of:
Andrews, Hon. Robert E., a Representative in Congress from the State
27
of New Jersey
131
Bloomingdale, Stephanie, on behalf of U.S. Students Association
Butts, Thomas A., associate vice president of government relations, Uni-
versity a Michigan, on behalf of the American Council on Education,
American Association of State Colleges and Universities, American As-
sociation of Community Colleges, National Association of College and
University Business Officers, and National Association of State Univer-
99
sities and Land Grant Colleges
Crawford, Clarence C., Associate Director, Education and Employment
hsues, U.S. General Accounting Office, accompanied by Gloria Jarmon,
Assistant Director, Account and Financial Management Division, and
36
'Wayne Upshawl Assistant Director, Human Resources Division
Forbes, Orcilia Zuniga, Ph.D., vice president for student affairs, Univer-
127
sity of New Mexico
#.1oodling, Hon. William F., a Representative in Congress from the State
5
of Pennsylvania
Kunin, Madeleine, Deputy Secretary of Education, U.S. Department of
Education, accompanied by Maureen McLaughlin, Acting Assistant Sec-
retary, Office of Postsecondary Education, and Thomas P. Skelly, Direc-
57
tor of Budget Systems
Petri, Hon. 'Thomas E., a Representative in Congress from the State
29
of Wisconsin
86
Sturtevant, Anne, director of financial aid, Emory University
Towns, Hon. Edolphus, a Representative in Congress fnim the State
of New York, and chairman, Human Resources and Intergovernmental
Relations Subcommittee: Opening statement
1
Letters, statements, etc., submitted for the record by:
Bloomingdale, Stephanie, on behalf of U.S. Students Association: Pre-
134
pared statement
Butts, Thomas A., associate vice president of government relations, Uni-
versity of Michigan, on behalf of the American Council on Education,
American Association of State Colleges and Universities, American As-
sociation of Community Colleges, National Association of College and
University Business Officers, and National Association of State Univer-
101
sities and Land Grant Colleges: Prepared statement
Crawford, Clarence C., Associate Director Education and Employment
39
Issues, U.S. General Accounting Office: Piepared statement
Forbes, Orcilia Zdniga Ph.D., vice president for student affairs, Univer-
129
sity of New Mexico: Pre_pared statement
Goodling, Hon. William F. a Representative in Congress from the State
10
of Pennsylvania: Prepared statement
Horn, Hon. Stephen, a Representative in Congress from the State of
California: Statement and analysis from the Association of Governing
78
Boards of Universities and Colleges
Kunin, Madeleine, Deputy Secretary of Education, U.S. Department of
61
Education: Prepared statement
Sturtevant, Anne, director of financial aid, Emory University: Prepared
88
statement
IV
Par
Letters, statements, etc., submitted for the record byContinued
State
Towns, Hon. Edolphus, a Representative in Congreu from the
Intergovernmental
of New York, and chairman, Human Resources and
Relations Subcommittee:
Letter dated May 26, 1993, from Congressional Budget Office, re-
60
garding cost savings
3
Opening statement
APPENDIX
141
Material submitted for the hearing record
5;
IMMO
STUDENT
FEDERAL DIRECT
MANAGING THE
LOAN PROGRAM
1993
THURSDAY, JUNE 10,
HOUSE OF REPRESENTATIVES,
HUMAN RESOURCES AND
SUBCOMMITTEE
INTERGOVERNMENTAL RELATIONS
OPERATIONS,
ON GOVERNMENT
OF THE COMMITTEE
Washington, DC.
10:30 a.m., in room
pursuant to notice, at
The subcommittee met,
Edolphus Towns (chair-
Office Building, Hon.
2247, Rayburn House
subcommittee) presiding.
man of the
M. Payne,
Edolphus Towns, Donald
Present: Representatives
and Bernard Sanders.
Horn, John L. Mica,
Steven Schiff, Stephen
director; Allegra A.
A. Stroman, staff
Also present: Ronald
and
M. DiCroce, clerk;
staff member; Martine
Pacheco, professional
Committee on Govern-
professional staff,
Martha Morgan, minority
ment Operations.
OF CHAIRMAN TOWNS
OPENING STATEMENT
Human
*overnment Operations,
Committee on
Mr. TOWNS. The
Subcommittee will con-
Intergovernmental Relations
Resources and
vene.
the Honorable
witnesses this morning, are
Our first panel of
Rep-
State of New Jersey,
Democrat, from the
Robert E. Andrews,
and
of Pennsylvania,
from the great State
resentative Goodling,
Wisconsin.
Representative Petri, from
Congressman Goodling.
begin with you,
I would like to
second. I want to go
Chairman, one quick
Mr. SCHIFF. Mr.
other commitments.
because they have
straight to the Members
much
that I appreciate very
1 minute to say
I just want to take
that is sen-
that it is on a subject
this hearing. I think
this change. But I
you heming
administration is advocating
sitive because the
scruti-nizes all proposals
that Congress closely
think it is important
is a Democrat or
whether the President
from the administrEtion,
I
Republican.
of the opposite party,
myself, as a member
And speaking for
President's
automatically the
should oppose
don't think that I
stand on this.
Members an
is give other
I would like to do
Mr. TOWNS. What
statements as well.
opportunity for opening
think this
Mr. Horn.
to say that I
Chairman, I would like
Mr. HORN. Mr.
of a loan pro-
think the suggestion
of legislation. I
Internal
is a crucial piece
be collected by the
possibility that it would
gram and the
(1)
2
Revenue Service is about
three decades overdue
if we are going to
meet the needs of
many people, not just 17 to 22
year olds but indi-
viduals on a lifetime
basis who could acciuire
new skills from edu-
cation--public and private.
I think we need to be
supportive of this
approach.
Mr. TOWNS. Mr. Mica.
Mr. MICA. Mr. Chairman,
I am open and receptive
to this type
of hearing. But I might
tell you that
my district is next to Fantasy
World in klorida, and I
have a difficult time
believing that the Fed-
eral Government
can undertake any kind of
a program like this
better than the_private
sector. Thank you.
Mr. TOWNS. Thank
you very much.
Let me apologize for
starting late. We have
to vote around here
and at the time when
we were supposed to start,
a vote was called.
Before we go right to
our witnesses, let me
say that today the
subcommittee is examining
the Department of
Education's plan to
implement the Presidenes
direct student loan
proposal which
passed the House
as part of the Budget Reconciliation
Act and is
currently pending approval
in the Senate.
I applaud the administration
for its attempt to bring
under con-
trol one of the most
badly managed
programs in the Federal Gov-
ernmentstudent lending.
Numerous reports have
documented
widespread fraud, waste,
abuse, and pervasive
patterns of mis-
management in the existing
Guaranteed Student Loan
Program.
In Dlecember 1992, the
Guaranteed Student Loan
Program was
identified by the GAO
as 1 of 17 high-risk
programs, especially vul-
nerable te waste, fraud,
abuse, and mismanagement.
GAO has also
made it clear that the
existing loan
program and the Department's
mismanagement of it have
contributed to $2.7 billion
in loan de-
faults last year. This
year, more than half of the Federal
cost of
running the student loan
1
program will be spent repaying
defaulted
loans.
These extraordinarily high
default rates mean that
most of the
Federal Government's
funding for student loans
is not going to ben-
efit students. This has
operated to the detriment
of the education,
training, and skill of
our students, and ultimately,
to America's
productivity.
This morning
we will begin to carefully review
the Department's
plans to correct these
existing management problems
and how it
will implement the
additional responsibilities
of managing a direct
lending loan
program.
As GAO has pointed
out, the inventory of known
problems in the
Department's administration
of guaranteed student
loans raises
questions about its ability
to adequately manage
a direct lending
program.
A.s I indicated,
we have with us this morning
Congressman Bill
Goodling from the 19th
Congressional District in
Pennsylvania.
Congressman Goodling is
a ranking Republican member
on the
Committee on Education and
Labor and has been
very active in
these kinds of issues. He
is a ranking member
on the Subcommit-
tee on Elementary, Secondary
and Vocational Education.
Congress-
man Goodling is also a member of
the Foreign Affairs
Committee.
We welcome you to the
subcommittee. You
may proceed.
[The opening statement
of Mr. Towns follows:]
7
Imp
3
OPENING STATEMENT OF CHAIRMAN EDOLPHUS TOWNS
DIRECT STUDENT LOAN PROGRAM
JUNE 10, 1993
examine the Department of
will
Today this
subcommittee
direct
Education's management planning to implement the President's
Budget
student loan proposal, which passed the House as part of the
Reconciliation Act, and is currently pending approval in the Senate.
under control
I applaud the Administration for its attempt to bring
in the Federal government,
one of the most badly managed programs
widespread fraud,
student lending. Numerous reports have documented
in the
waste and abuse and pervasive patterns of mismanagement
existing Guaranteed Student Loan Program.
Program was
In December of 1992, the Guaranteed Student Loan
especially
identified by the GAO as one of 17 "high risk" programs,
GAO has also
vulnerable to waste, fraud, abuse and mismanagement.
the Department's
made it clear that the existing loan program and
defaults last
mismanagement have contributed to $2.7 billion in loan
8
4
year. This year more than half of the Federal cost of running the student
loan program will be spent repaying defaulted loans.
These extraordinarily high default rates mean that most of the
Federal government's funding for student loans is not going to benefiting
students. This has operated to the detriment of the education, training
and skill of our students, and ultimately to America's productivity.
This morning we will hegin to carefully review the Department's
plans to correct these existing management problems, and how it will
implement the additional responsibilities of managing a direct lending
loan program.
As GAO has pointed out, the inventory of known
problems in the Department's administration of guaranteed student loans
raises questions about its ability to adequately manage a direct lending
program.
5
STATEMENT OF HON. WILLIAM F. GOODLING, A REPRESENTA-
CONGRESS FROM THE STATE OF PENNSYLVANIA
TIVE
Thank you, Mr. Chairman.
Mr.
GOODLING.
time
I, too, am pleased that you are having this hearing. Every
this in reconciliation, we live to re-
we make policy decisions like
legislate in reconciliation,
gret what we have done. Whenever you
you can get into serious trouble.
I have observed and been a part of this program for 19 years.
subcommit-
After careful consideration in our committee, both the
reauthorization of the
tee and the full committee, last year in the
softly
higher education program, we indicated that we better step
throWing
and by a pilot direct lending program before we end up
prudent
the baby out with the bath water. I think that was very
and continues to be the direction we should go.
Unfortunately, in reconciliation we have reversed this direction.
testi-
It is with some reluctance that I testify, 1-)ecause, of course, in
be-
fying on this subject you have to get into some negative issues
Department's inability to manage
cause you have to discuss the
lot of dedicated
their programs up to this point. We have an awful
the
people in the Department. Nevertheless, we do have to look at
good. And I
reports that we have received. The reports are not
the
don't have to tell you, that we all hear criticism on the floor of
Govern-
House almost daily about any program that the Federal
be a disaster.
ment has tried to run and they have turned out to
others
You have many educational institutions, students, and
the
knowledgeable about student loans that are concerned that if
properly, stu-
Department fails to administer a direct loan program
Last
dents, their parents, and educational institutions will be hurt.
Office directly addressed the issue of
year the General Accounting
noted, "the in-
the Department's administrative capabilities. They
administration of
ventory of known problems in the Department's
ade-
guaranteed student loans raises questions about its ability to
quately manage a direct lending program."
The GAO raised questions about whether the Department is ade-
and
quately managing its existing multibillion dollar program
adequately
noted that, one, the Department lacked controls to
dollar student assistance pro-
manage the existing multibillion
from these programs could
grams, and, two, problems erupting
eventually overwhelm any potential reform measures.
the pro-
To show you the magnitude, let me tell you about one of
the Pennsylvania Higher
grams that is known as a model program,
the
Education Assistance Agency [PHEAA]. Just to show you what
magnitude of this program is that we are talking about, last year
4
PHEAA handled approximately 519,000 applications. They paran-
GSL
teed $1.7 billion in GSL volume. They serviced 6.9 billion in
activi-
volume. They had an administrative budget for GSL-related
they served
ties of $66.9 million. They employed 1,697 people. And
Pennsylvania and West Virginia.
a7 the designated guarantor for
that
And I think everyone that I heve ever talked to would say
about
they are a rather ideal model, and o one has any complaints
show you
the way they have run the program. But I just want to
the magnitude. This is one higher educational assistance agency
of people
guaranteeing a certain number of loans, and the number
they employ, the cost involved, et cetera.
1 0