The Importance of a Strong Federal Student Aid Office

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    On Wednesday, November 18, Ben Miller testified before a joint hearing of the U.S. House of Representatives Committee on Oversight and Government Reform Subcommittee on Government Operations and the U.S. House of Representatives Education and the Workforce Committee Subcommittee on Higher Education and Workforce Training. An adapted version of his oral testimony is below. His written testimony can be found here.

    This month marks the 50th anniversary of the Higher Education Act—landmark legislation that has made the country stronger by helping millions of low- and middle-income Americans access and afford college.

    Today, however, the growing price of college threatens to undermine the goals of the Higher Education Act. State disinvestment keeps driving public tuition higher. No longer can part-time work cover tuition bills. Also, family incomes have stagnated. As a result, federal student loans are now the norm for people in college. Today, more than 41 million Americans owe a collective $1.2 trillion in federal student loans. Among bachelor’s degree graduates, 70 percent borrow for college.

    Under current law, the Office of Federal Student Aid, or FSA, cannot fix the underlying conditions that lead students to borrow. But a strong, effective, and efficient FSA is still important for students. It can help them apply for aid easily, quickly disburse funds to them, guide them through the repayment process, and protect them from bad actors lurking throughout the system.

    In the past several years, FSA has done a lot to meet these goals. It has made applying for aid simpler and faster by using skip logic on questions and allowing for the easy importation of tax data. Next fall, it will implement a policy change, known as “priorprior year, that helps families apply for aid sooner and better plan for college costs. This idea has bipartisan, bicameral support. FSA has also created repayment options that allow borrowers to make affordable payments based on their incomes.

    Perhaps the greatest sign of FSA’s recent successes was the 2010 transition following legislation that required all federal loans be issued by the U.S. Department of Education. FSA worked with thousands of institutions to make this change in just three months, and students saw no interruption in the flow of aid dollars. This change also saved taxpayers money because the federal government no longer had to pay expensive subsidies and guarantees to lenders in exchange for an undifferentiated product whose terms were set by Congress.

    These are all important developments that have helped government benefits work better for the students who receive them. And they show the importance of having an agency structure with clear goals for efficiency and effectiveness.

    Still, there are places where FSA can be strengthened, possibly through changes to its structure.

    For one, FSA and Congress must determine how to better use oversight tools and accountability metrics to protect students from institutions that take advantage of them. The announcement on November 18 that 85,000 more students who attended Corinthian Colleges may be eligible to have their debts forgiven—as well as the nearly $100 million settlement announced on November 16 between the federal government and the Education Management Corporation, or EDMC—shows the importance of early action in weeding out bad actors. The federal government alleged that EDMC improperly compensated recruiters, leading to an operation in which the company sought anyone with “a pulse and a Pell.” Yet the company still received billions of dollars in federal aid over the past several years.

    Second, FSA should demand that its contractors better serve students. Today, it contracts with four companies to service the majority of federal student loans and is required to work with several others due to a congressional earmark. In the mid-2000s, the U.S. Department of Education’s Office of Inspector General found that three of the four main servicers and several of the earmarked servicers had improperly billed the federal government millions of dollars for inflated loan subsidies. One of them also recently settled a claim by the U.S. Department of Justice for overcharging service members. These are servicers whose prior behavior suggests the need for significant scrutiny to protect students and taxpayers. Fortunately, FSA can address these challenges through changes to their contracts.

    Finally, the public and policymakers need additional performance data about institutions, servicers, and the federal student loan portfolio. In particular, more information about loan delinquency by institution, outcomes for borrowers in forbearance, and what happens to borrowers before they default would help guide policy changes that would better serve students. A greater use of data for risk analysis could also lead to new pricing structures for servicers and collectors that reward them for helping the most vulnerable borrowers.

    But strengthening FSA cannot be the only strategy for addressing affordability. We must act to address the underlying structural problems that drive up prices and debt. We must tackle state disinvestment and encourage colleges to innovate and spend sensibly. Doing so is the best way to ensure that the Higher Education Act continues to meet its goals for the next 50 years.

    Ben Miller is the Senior Director for Postsecondary Education at the Center for American Progress.