<DOC>
[108th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:89771.wais]
FEDERAL DEBT MANAGEMENT--ARE AGENCIES USING COLLECTION TOOLS
EFFECTIVELY?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT EFFICIENCY
AND FINANCIAL MANAGEMENT
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JUNE 17, 2003
__________
Serial No. 108-61
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
89-771 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800
Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001
COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER,
NATHAN DEAL, Georgia Maryland
CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of
TIM MURPHY, Pennsylvania Columbia
MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee
JOHN R. CARTER, Texas CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota ------
MARSHA BLACKBURN, Tennessee BERNARD SANDERS, Vermont
(Independent)
Peter Sirh, Staff Director
Melissa Wojciak, Deputy Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Philip M. Schiliro, Minority Staff Director
Subcommittee on Government Efficiency and Financial Management
TODD RUSSELL PLATTS, Pennsylvania, Chairman
MARSHA BLACKBURN, Tennessee EDOLPHUS TOWNS, New York
STEVEN C. LaTOURETTE, Ohio PAUL E. KANJORSKI, Pennsylvania
JOHN SULLIVAN, Oklahoma MAJOR R. OWENS, New York
CANDICE S. MILLER, Michigan CAROLYN B. MALONEY, New York
MICHAEL R. TURNER, Ohio
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Mike Hettinger, Staff Director
Larry Brady, Professional Staff Member
Amy Laudeman, Clerk
Mark Stephenson, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on June 17, 2003.................................... 1
Statement of:
Gregg, Richard L., Commissioner, Financial Management
Service, Department of Treasury; William H. Campbell,
Assistant Secretary for Management, Department of Veterans
Affairs; Theresa S. Shaw, Chief Operating Officer, Federal
Student Aid, Department of Education; and Deanne Loonin,
staff attorney, National Consumer Law Center............... 6
Letters, statements, etc., submitted for the record by:
Campbell, William H., Assistant Secretary for Management,
Department of Veterans Affairs, prepared statement of...... 22
Gregg, Richard L., Commissioner, Financial Management
Service, Department of Treasury, prepared statement of..... 9
Loonin, Deanne, staff attorney, National Consumer Law Center,
prepared statement of...................................... 42
Platts, Hon. Todd Russell, a Representative in Congress from
the State of Pennsylvania, prepared statement of........... 3
Shaw, Theresa S., Chief Operating Officer, Federal Student
Aid, Department of Education:
Followup questions and responses......................... 73
Prepared statement of.................................... 33
FEDERAL DEBT MANAGEMENT--ARE AGENCIES USING COLLECTION TOOLS
EFFECTIVELY?
----------
TUESDAY, JUNE 17, 2003
House of Representatives,
Subcommittee on Government Efficiency and Financial
Management,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:03 p.m., in
room 2154, Rayburn House Office Building, Hon. Todd R. Platts
(chairman of the subcommittee) presiding.
Present: Representatives Platts, Blackburn, Towns and
Maloney.
Staff present: Mike Hettinger, staff director; Dan Daly,
counsel; Larry Brady, Kara Galles, and Tabetha Mueller,
professional staff members; Amy Laudeman, clerk; and Mark
Stephenson, minority professional staff member.
Mr. Platts. A quorum being present, the Subcommittee on
Government Efficiency and Financial Management will come to
order.
We are going to try to get in a couple of brief statements
and get as many of your opening statements before we have a
series of three votes on the floor. We will see if we are able
to squeeze in most of the statements, break and then come back
to questions after those three votes.
A priority of this subcommittee is the responsibility to
ensure that Federal agencies are managing their finances
wisely. An important part of a solid, financial management
effort is the collection of debts owed to the Federal
Government. This subcommittee, under the leadership of former
chairman, Steve Horn, and my colleague and current member of
the subcommittee, Representative Carolyn Maloney, developed
legislation that was enacted as the Debt Collection Improvement
Act of 1996, a law that made sweeping reforms to the way the
Federal Government manages debt. Since that time, the
subcommittee has held numerous hearings focusing on
implementation of the act.
Today's hearing will look at the debt collection successes
and challenges at the Veterans Administration and the
Department of Education's Office of Federal Student Aid. We
will also hear from the Treasury Department's Financial
Management Service for a look at governmentwide progress in
implementing the Debt Collection Improvement Act and from a
consumer law advocate regarding debt collection efforts under
the act.
I am very pleased to note that both the Veterans
Administration and the Department of Education have done much
to improve debt collection efforts and our witnesses today will
testify that the departments are giving debt management a high
priority in their strategic planning and that such focus has
paid off for American taxpayers.
In terms of all Federal agencies, implementation of the
Debt Collection Improvement Act is also improving. Federal
agencies are now referring almost all of their eligible debts
to the Financial Management Service whose collection results
continue to improve each year. FMS has collected about $15
billion in delinquent debt through its Offset Program and more
than $100 million through its contracts with private collection
agencies. During fiscal year 2002 alone, collections by private
contractors amounted to $43 million. This represents a 6-
percent increase over fiscal year 2001.
While we have had many successes, at the same time more may
need to be done before the Debt Collection Improvement Act will
realize its full potential and we will examine some of these
issues and how we can go forward from here as well.
Today, the subcommittee is delighted to hear from Mr.
Richard Gregg, Commissioner of the Financial Management
Service, Department of Treasury; the Honorable William H.
Campbell, Assistant Secretary for Management and Chief
Financial Officer, Department of Veterans Affairs; Ms. Theresa
S. Shaw, Chief Operating Officer, Federal Student Aid,
Department of Education; and Ms. Deanne Loonin, staff attorney,
National Consumer Law Center in Boston, MA.
I want to thank each of your for being here today and I
certainly look forward to your testimonies to complement your
written statements you have provided.
[The prepared statement of Hon. Todd Russell Platts
follows:]
[GRAPHIC] [TIFF OMITTED] T9771.001
[GRAPHIC] [TIFF OMITTED] T9771.002
Mr. Platts. I will now yield to the ranking member, the
gentleman from New York, Mr. Towns, for the purpose of an
opening statement.
Mr. Towns. Thank you, Mr. Chairman.
Billions of dollars of non-tax debt are owed to the Federal
Government. In 1996, recognizing that our current collection
laws were inadequate, this subcommittee passed the Debt
Collection Improvement Act which established new tools and
expanded existing tools to improve collection practices.
I would like to commend the chairman for continuing the
subcommittee's active role in the area of Federal debt
collection. I should also mention the leadership and dedication
of my colleague from New York, Carolyn Maloney, who has also
been involved in this issue from day one.
As a result of efforts of many in this room today, the
Federal Government is beginning to realize the benefit of a
more centralized debt collection system. In the last few years,
the Federal Government's centralized debt collection activities
at the Financial Management Service have begun to work more
efficiently. Increased management attention by program agencies
and improved use of debt collection tools by the Department of
Treasury have resulted in advancement in Federal debt
collection.
Since enactment of the Debt Collection Improvement Act, $15
billion in delinquent, non-tax debt has been collected; $2.8
billion last year alone. There has been improvement in the
Government's collection efforts and I commend the Treasury and
the agencies for their work. However, there seems to be room
for improvement.
I want to thank the chairman for agreeing to our request
for a witness from the National Consumer Law Center for today.
As part of our oversight responsibility, this subcommittee is
meeting to discuss Federal agency implementation and compliance
with DCIA. It is my hope that as a result of this hearing, we
will be closer to meeting our goal of having an efficient,
effective and fair Federal debt collection system.
On that note, Mr. Chairman, I yield back my time and I am
anxious and eager to hear from the witnesses.
Mr. Platts. Thank you, Mr. Towns.
If I could ask each of our witnesses and anyone who will be
advising them as part of their testimony here today, to stand
and we will administer the oath before we get to your opening
statements.
[Witnesses affirmed.]
Mr. Platts. Thank you. The clerk will note that all
witnesses affirmed the oath.
I would like now to proceed directly to testimony. Mr.
Gregg, we will begin with you, followed by Mr. Campbell, Ms.
Shaw and finally, Ms. Loonin. The subcommittee appreciates the
substantive written testimonies each of you has provided and
respectfully ask that each of you keep your oral testimonies to
approximately 5 minutes. Given that we are going to try to get
all these in before we break and get into questions after our
floor votes, trying to watch that 5 minute clock would be very
helpful.
Mr. Gregg, we will begin with you.
STATEMENT OF RICHARD L. GREGG, COMMISSIONER, FINANCIAL
MANAGEMENT SERVICE, DEPARTMENT OF TREASURY; WILLIAM H.
CAMPBELL, ASSISTANT SECRETARY FOR MANAGEMENT, DEPARTMENT OF
VETERANS AFFAIRS; THERESA S. SHAW, CHIEF OPERATING OFFICER,
FEDERAL STUDENT AID, DEPARTMENT OF EDUCATION; AND DEANNE
LOONIN, STAFF ATTORNEY, NATIONAL CONSUMER LAW CENTER
Mr. Gregg. Mr. Chairman and members of the subcommittee,
thank you for inviting me to testify today to provide an update
on the Financial Management Service's implementation of the
Debt Collection Improvement Act. I would also like to
congratulate you, Chairman Platts, on your appointment as
chairman of the subcommittee.
This subcommittee's longstanding support has been central
to helping Treasury to implement a remarkably successful,
governmentwide debt collection program. This program has
focused management attention across government agencies in
making debt collection a priority, significantly increased the
collection of delinquent debt and greatly improved the
Government's ability to accurately report on outstanding
delinquent debt.
FMS collects various types of delinquent debt through two
major programs. I would like to briefly provide an overview of
them. First, the Treasury Offset Program compares the name and
taxpayer identification numbers of debtors with those of
recipients of Federal payments. If there is a match, the
payment is reduced or offset to satisfy the debt. Using this
same methodology, FMS also levies Federal payments to collect
delinquent Federal income taxes for the IRS.
The second major program is Cross Servicing under which
Federal agencies refer delinquent debt to FMS for collection by
means of a variety of tools.
I am pleased to report that the Treasury debt collection
program is, in my view, fully mature. Moreover, it has
developed into an integral component of sound, effective
financial management at the Federal level. As a result of the
debt collection program, FMS has collected billions of dollars
of debt, much of which would not have been collected otherwise.
Since enactment of DCIA, FMS has collected about $17.6
billion in delinquent debt, sharply increasing collections
through numerous program enhancements and working with agencies
to overcome the obstacles for participation. For example, we
have worked hard to have agencies refer eligible debt in a
timely manner. For the Treasury Offset Program and cross
servicing, currently about 91 percent of the debt identified as
eligible has been referred. Every year since fiscal year 1999,
FMS has collected over $2.6 billion in delinquent debt. In
fiscal year 2002 alone, Treasury collected over $2.8 billion
including $1.47 billion in past due child support, $1.2 billion
in Federal non-tax debt, and $180 million in State and Federal
tax debts.
I would now like to give the subcommittee a progress report
on some of Treasury's well established collection initiatives
as well as some new efforts.
The offset of Social Security benefit payments continues
smoothly. For fiscal year 2002, FMS collected about $55 million
in Federal non-tax debts and we have collected over $36 million
thus far in 2003. I would also note that the administration
proposes to amend the DCIA to offset additional SSA payments to
improve collection of delinquent child support debt. The House
version of the Welfare Reform legislation includes a similar
provision and we are working with the Senate to also have a
provision in there. About $55 million over 5 years and $113
million over 10 years in child support collections are at
stake.
We have also made excellent progress in collecting tax
debt. For fiscal year 2002, about $60 million in delinquent
Federal income tax was collected, primarily as a result of the
Social Security benefit levy which accounts for $43 million of
the total. In fiscal year 2003, we have already collected $61
million including $50.5 million in Social Security levies.
State governments have also benefited from our debt
collection program. The FMS implemented the program to collect
delinquent State tax in 2000. In fiscal year 2002, $119 million
was collected and in 2003, we have already collected $136
million for the States. Currently, 30 or the 41 States that
collect income tax and the District of Columbia, are
participating.
FMS issued regulations providing guidance to agencies on
garnishing private sector wages to collect agency debt. FMS
views administrative wage garnishment as a powerful and
important collection tool within enormous potential. So that
agencies can take full advantage of FMS' centralized processes
and established safeguards, we continue to strongly encourage
them to use administrative wage garnishment through FMS. We
appreciate the subcommittee's support in this effort.
In the past 5 years, private collection agencies have
collected over $156 million. The present contract with five
private collection agencies went into effect October 1, 2001
and we have seen continued improvements. In fiscal year 2002,
PCAs collected $43 million and have already collected $45.6
million in 2003.
We have also been careful to make sure that compliance
reviews are performed onsite at each PCA on an annual basis to
assure, among other things, adherence to laws and regulations.
As a result, we have seen no substantiated cases of abusive
tactics under our contracts.
Looking ahead, we have several significant improvements
underway. In 2001, FMS began phasing in the program to collect
delinquent debts through offset of Federal salary payments, the
centralized process, and we have collected $1.9 million in
fiscal year 2002 and $1.1 million thus far in fiscal year 2003.
We have also been working with the Department of Education
on referral of student loan debts for collection through
centralized salary offset. In our view, this step would
complement Education's successful collection efforts through
their own PCAs. We believe their participation would greatly
boost the salary offset program and will continue to work with
them on this effort.
Another new element of our debt collection program is the
offset of non-Treasury disbursed payments under which debts in
the FMS debtor data base will be compared to non-Treasury
disbursed vendor payments. When there is a match, participating
disbursing agencies will offset the payment. Non-Treasury
disbursed vendor payments will also be levied to collect
Federal tax debt. The Department of Defense is already
participating in this initiative and we are working with the
Postal Service and USDA's Commodity Credit Corp. to take in
their vendor payments.
Ensuring that delinquent debtors are barred from obtaining
Federal loans is a high priority for FMS and the agencies. We
have developed a system we call debt check to allow lending
agencies to access information from the FMS delinquent debtor
data base so that government loans are not made to previously
identified delinquent debtors. This has already been
implemented in the Small Business Administration and we
continue to roll it out.
Another program, FED Debt, scheduled for implementation in
2005, is a web-based system that will replace the current cross
servicing computer system and enhance the effectiveness of that
program by providing increased flexibility, automating a number
of processes currently handled manually, and improving system
access for customers and service partners.
In summary, Treasury's debt program is one that is both
robust and effective and has consistently met or exceeded its
performance measures. Nonetheless, we continue to work to
enhance the program. In addition to maximizing our statutory
authority, we believe that the need for congressional oversight
is critical. We also believe that agencies and the Inspectors
General can enhance the program as well.
Be assured that the debt collection program will remain a
high priority for the Department of Treasury. I would be happy
to answer any questions you and other members of the
subcommittee may have.
[The prepared statement of Mr. Gregg follows:]
[GRAPHIC] [TIFF OMITTED] T9771.003
[GRAPHIC] [TIFF OMITTED] T9771.004
[GRAPHIC] [TIFF OMITTED] T9771.005
[GRAPHIC] [TIFF OMITTED] T9771.006
[GRAPHIC] [TIFF OMITTED] T9771.007
[GRAPHIC] [TIFF OMITTED] T9771.008
[GRAPHIC] [TIFF OMITTED] T9771.009
[GRAPHIC] [TIFF OMITTED] T9771.010
[GRAPHIC] [TIFF OMITTED] T9771.011
[GRAPHIC] [TIFF OMITTED] T9771.012
[GRAPHIC] [TIFF OMITTED] T9771.013
Mr. Platts. Thank you.
We will continue and see if we can get in at least two if
not all three statements before I have to run over to vote.
Mr. Campbell.
Mr. Campbell. Mr. Chairman and members of the subcommittee,
it is my pleasure to appear before you regarding the Department
of Veterans Affairs' implementation of the Debt Collection
Improvement Act [DCIA], of 1996. My staff has worked with all
VA elements as well as the Department of Treasury's Financial
Management Service to take the necessary steps to ensure our
full compliance with the law's requirements.
In our previous appearances before the subcommittee, we
testified about our progress in referring eligible debt to the
Treasury Offset Program [TOP], and for cross servicing. In
recent years, we have consistently referred well in excess of
90 percent of eligible debt to the TOP and cross servicing
programs. VA has made extensive efforts to reduce the creation
of debts and to collect those that have been established.
At the end of fiscal year 1996, the year in which the DCIA
was enacted, VA had $4.2 billion in total receivables with $2.4
billion delinquent. When we last testified before the
subcommittee in 2001, VA had $3.8 billion in total receivables
at the end of fiscal year 2000, with $1.4 billion delinquent.
As of March 31, 2003, VA had $3.5 billion in total receivables
with $1.2 billion delinquent. The trend continues to improve.
Of the $1.2 billion in delinquent debt at the end of the
second quarter of this fiscal year, $328 million was
attributable to the direct home loan mortgages held by VA; $312
million to compensation and pension overpayments; $106 million
to defaulted guaranteed home loans; $46 million to readjustment
benefit overpayments; and $318 million to charges for medical
care and services owed to VA's Medical Care Collection Fund
[MCCF].
The majority of the $318 million for medical care is
comprised of claims filed with third-party health insurers.
These claims are not referable to Treasury for cross servicing
or administrative offset because they are not sum-certain
amounts owed. The Veterans Health Administration has developed
a revenue improvement plan to improve the MCCF program. The
plan concentrates on improving patient intake, medical
documentation, medical coding, billing and collection of
accounts receivable.
At the end of the second quarter of fiscal year 2003, VA
had referred $284.4 million or 97 percent of the $292.6 million
in delinquent debt eligible for TOP. VA began participating
also in the Tax Refund Offset Program in 1985. The Department
collected $343 million from 1985 through 1999 when the Tax
Refund Offset Program became part of TOP. VA has collected $110
million from TOP over the last 3 calendar years and so far this
year, through May, TOP has collected $40 million for the
Department of Veterans Affairs.
In implementing the cross-servicing requirements of DCIA,
at the end of the second quarter of this fiscal year, VA
referred $171.4 million or 95 percent of the $180.6 million in
delinquent debt eligible for the cross-servicing program. The
eligible debt remaining at the end of the second quarter of
fiscal year 2003 is made up of debt from a few smaller benefit
programs and miscellaneous veterans health debt such as vendor
debt, employee debt and non-Federal sharing agreement debt. We
continue to work toward referring most of this remaining debt
for cross servicing throughout the fiscal year.
We have some other collection tools. Each year VA sells
approximately 15,000 to 25,000 properties that we acquire due
to foreclosure of our guaranteed loans. In fiscal year 2002, VA
sold a total of 16,000 properties for $967 million. VA has also
amended its regulations to comply with the revised Federal
Claims Collection Standards [FCCS] and they will be published
in the Federal Register soon. The amended regulations include a
new regulation to authorize VA's use of the administrative wage
garnishment as well as a regulation barring delinquent debtors
from obtaining certain benefits while a debt is outstanding.
We also have a debt management center in St. Paul, MN. VA
has had an automated collection system since 1975 and the Debt
Management Center has operated this system since its creation
in 1991. The Debt Management Center utilizes every collection
tool available to Federal agencies such as automated payment
processing and collection systems; benefits and salary offset;
credit bureau reporting; and private collection agency
referrals, compromises in litigation and writeoffs.
The DMC developed a fully automated set of procedures for
identifying and referring all eligible debts to the TOP and
cross-servicing programs. In addition, we run a Financial
Services Center in Austin, TX. The FSC reviews VA vendor
payments daily to systematically identify, prevent and recover
improper payments made to commercial vendors. In fiscal year
2002, the FSC recovered more than $2.2 million, a 44 percent
increase from the preceding year when they collected $1.6
million.
In a 2001 fiscal year report, the General Accounting Office
recognized the FSC's efforts to recover excess expenditures as
a good example of effective government financial management. VA
has also fully centralized its permanent change of station
travel payment processing at the Financial Services Center.
This consolidation will greatly increase efficiency, reduce
improper payments and improve internal controls and
accountability over VA travel funds.
Mr. Chairman, this concludes my statement. I certainly
appreciate the opportunity to discuss the progress we have made
in implementing DCIA. We still have a way to go and will
continue to work hard. I would be pleased to answer any
questions the subcommittee may have.
[The prepared statement of Mr. Campbell follows:]
[GRAPHIC] [TIFF OMITTED] T9771.014
[GRAPHIC] [TIFF OMITTED] T9771.015
[GRAPHIC] [TIFF OMITTED] T9771.016
[GRAPHIC] [TIFF OMITTED] T9771.017
[GRAPHIC] [TIFF OMITTED] T9771.018
[GRAPHIC] [TIFF OMITTED] T9771.019
[GRAPHIC] [TIFF OMITTED] T9771.020
[GRAPHIC] [TIFF OMITTED] T9771.021
Mr. Platts. Thank you, Mr. Campbell.
We are going to try to get in one more. Ms. Shaw and Ms.
Loonin, we will save you for after the break.
Ms. Shaw. Mr. Chairman and members of the subcommittee, I
am pleased to be here today to discuss with you the
implementation of and compliance with the Debt Collection
Improvement Act of 1996 by the Department of Education with
special emphasis on my area of responsibility, the Office of
Federal Student Aid.
I especially would like to thank you, Chairman Platts, for
this opportunity and look forward to working with you and the
other members of the subcommittee as we continue to look for
ways to improve the Federal Government's debt collection tools.
I also must congratulate you, Chairman Platts, as it is my
understanding that you recently made your last payments on your
student loans. I am pleased that you were able to avail
yourself of these programs and to recognize firsthand their
importance.
Mr. Platts. I am waiting for verification of that in
writing so I can celebrate at that point.
Ms. Shaw. I am the Chief Operating Officer for Federal
Student Aid and FSA is the organizational unit within the
Department of Education with the operational responsibility for
the collection of defaulted student loans and to a great extent
the implementation of the Debt Collection Improvement Act.
For many years now, the Department of Education has been
the primary source of federally supported student loans.
Students have received over $500 billion in loans since the
enactment of the Higher Education Act of 1965 and our current
outstanding loan portfolio including direct and guaranteed
loans was approximately $280 billion at the end of fiscal year
2002. Student loans are inherently risky, largely due to the
statutory design and purpose of the programs themselves, each
year providing loans to millions of borrowers who may not be
credit worthy. Though the vast majority of borrowers repay
their loans, some borrowers default on their loans and thus one
of our challenges at FSA is to collect on these defaulted
student loans.
The Department has undertaken a broad range of activities
over the past two decades to continue improving our debt
collection efforts. The use of private collection agencies,
Treasury offset and administrative wage garnishment, Federal
salary offset, credit bureau reporting, and the requirement of
taxpayer identification numbers have been in place at the
Department of Education for many years.
We are pleased to report that since the passage of the Debt
Collection Improvement Act, FSA has recovered over $8 billion
in defaulted student loans which is an increase of nearly 38
percent since September 2001 and includes $2.6 billion in
consolidated and rehabilitated loans. Before I focus on our
successes with our private collection agency contracts, I want
to highlight a few of our accomplishments that conform to the
major provisions of the Debt Collection Improvement Act.
Treasury offsets on student loan debts referred by the
Department have totaled $5.4 billion since 1996. We began using
administrative wage garnishment under Higher Education Act
authority 8 years ago and working with Congress, we were
granted the authority to receive important information on
employment from the National Directory of New Hires. This new
authority has really been effective allowing us to collect more
than $500 million since our first National Directory of New
Hires match in June 2001.
The decision to contract for services by private collection
agencies has been one of our most successful management
decisions. Today, FSA is the largest debt collection outsourcer
in the Federal Government. We have approximately $14 billion in
defaulted student loans currently under management with 20
contractors. Over the past 7 years, private collection agencies
have generated over $1.2 billion in collections, excluding
consolidations and rehabilitated loans.
FSA collection contracts rely on a contingent fee method of
compensating collection agencies, meaning the collection
agencies are paid only for the results achieved. Our most
recent contracts have several performance-based evaluation
measures, making the contracts models for performance-based
contracting in the Federal Government. The private collection
agencies are evaluated and rated according to the overall
service they perform, as well as their ability to collect
defaulted student loan debt. The collection agencies that
perform best across all these categories receive additional
incentives, both monetary rewards and new account placements.
The Department of Education has established ground rules
for healthy competition as well as the guidelines and
requirements for protecting the rights of defaulted student
loan borrowers, including the ability to immediately terminate
collectors who violate the Fair Debt Collection Practices Act.
To help assure borrowers' rights are protected and that
complaints are appropriately addressed, we have an added safety
net provided by the Student Aid Ombudsman who reports directly
to me. The use of private agencies has allowed education to
dramatically reduce costs. In fiscal year 1993, the contractors
were paid roughly 33 cents for every dollar collected. After
new contracts were competed and awarded in fiscal year 1997,
the costs were reduced to 23 cents per dollar collected. Our
costs are now down to only 16 cents per dollar collected and
are expected to be reduced even further during our next
competition and award process which is scheduled for late in
fiscal year 2004.
I believe the steps we have taken in compliance the Debt
Collection Improvement Act have made a significant contribution
to the recovery of debt and in recognition of our success on
May 11, 2001, the Department of the Treasury granted the
Department of Education a permanent waiver to allow it to
service its own defaulted student loans. I am very pleased to
announce that fiscal year 2003 is proving to be another
successful collection year for the Department of Education.
However, at FSA we are not resting on our debt collection
accomplishments. We know that FSA's default prevention
activities are equally important and arguably more so as
collecting on loans that have defaulted. Outreach efforts like
our student loan repayment symposium and national default
prevention days where we share best practices to reduce
defaults, and our debt management partnership with the National
Council of Higher Education Loan Programs demonstrate that we
place a high value on default prevention. These and other
efforts have helped us to reduce student loan cohort default
rates to below 6 percent for each of the last 2 years, the
lowest rates ever.
As you know, one of the Department's top priorities is to
remove the General Accounting Office high risk designation from
the Federal student aid programs. We are almost there are we
are confident we will get there. Our continuous improvements in
default management and prevention activities including our
focus on debt collection improvement are key indicators to our
successful attainment of that goal.
I want to thank you for the opportunity to discuss the
significant progress the Department has made in improving debt
collection. We look forward to continued congressional support
as we work to make further improvements in this area.
I would be pleased to answer any questions you all may
have.
[The prepared statement of Ms. Shaw follows:]
[GRAPHIC] [TIFF OMITTED] T9771.022
[GRAPHIC] [TIFF OMITTED] T9771.023
[GRAPHIC] [TIFF OMITTED] T9771.024
[GRAPHIC] [TIFF OMITTED] T9771.025
[GRAPHIC] [TIFF OMITTED] T9771.026
[GRAPHIC] [TIFF OMITTED] T9771.027
Mr. Platts. Thank you, Ms. Shaw.
I do need to run over to vote, so we are going to stand in
recess until about 2:50 p.m., and we will continue then with
Ms. Loonin's testimony.
Thank you.
[Recess.]
Mr. Platts. Ms. Loonin, if you would go forward with your
testimony, that would be great.
Ms. Loonin. Thank you for inviting the National Consumer
Law Center to testify today. The National Consumer Law Center
is a nonprofit organization specializing in consumer issues on
behalf of low income people. I am here today to help bring the
consumer's perspective into this evaluation of the DCIA.
First, I want to be clear that we support and respect the
Government's right to collect its debts and understand the
importance of this, but the DCIA and other collection programs,
although today's topic is the DCIA, should not be considered
successful if measured only by dollars collected. There are
constitutional and statutory limits to the Government's debt
collection powers and unfortunately in the rush to collect more
and more, these limits are often ignored or not treated
seriously enough.
I would like to highlight just a few of the issues from my
written testimony and then take any questions. I am focusing
also on the Department of Education experience for a number of
reasons, mainly because they are the agency we have tracked the
closest and also because they have the longest track record and
even before the DCIA was passed had implemented a number of the
collection tools the DCIA provides.
First, with respect to private debt collectors, the
experience of contracting out to private debt collectors
through the Department of Education is not the unequivocal
success story that is portrayed. We applaud any efforts the
Department is making or has made to ensure that consumers are
protected from collection abuses but it hasn't been enough. I
am particularly interested in hearing more about the
termination of agencies that Ms. Shaw referred to of those that
have violated the Fair Debt Collection Practices Act.
Even though well intentioned debt collection agencies are
usually not equipped or informed to address consumer questions
about the complex student loan repayment, deferment,
forbearance, cancellation options, there are a number of unique
and easily misunderstood remedies involved with student loans.
As a result, in many cases, consumers are deprived of important
options to which they are entitled and in some cases might
actually lead to repayment as opposed to continued default.
As an example, particularly this year and last year, I
received calls, primarily from legal services advocates across
the country and most work on elder hotlines so their calls are
going to be almost exclusively from low income elders. They
have told me their clients who have student loan debts, usually
for very old debts, have been contacted by private debt
collectors who told them they could collect or offset from
their SSI payments. I can explain to those few attorneys that
get to me that this is wrong, that Department of Treasury
regulations specifically exempt SSI payments but it is only a
handful that get to the legal services advocate and get to me
and who then get to sort of communicate that back. That is an
example of frankly wrong information we have heard in the last
couple of years.
I have had similar problems in the past with private debt
collection agencies taking on the responsibility of explaining
repayment options or even trying to set reasonable and
affordable repayment options. Maybe the debt collection agent
knew he was wrong, maybe just mistaken. In either case, the
result in that case is frightening elders whose SSI benefits
are specifically exempted and who were specifically intended to
be protected from offset.
I have mentioned more extensively in my written testimony
and won't go into detail here, the problems with due process
protections, but this is an area where we have particularly
grave concerns. All of the programs we have talked about here
under the DCIA, the administrative wage garnishment, tax refund
intercept, administrative benefits offset, all have statutory
due process protections written into the statute. The agencies
are required to write regulations which they have done. The
problem in general is with enforcement of those regulations and
frankly whether they meet the constitutional due process
protections.
Again, the problem is that the consumer's contact is often
with the private debt collection agent. To try to get a free
hearing or set up and organize that kind of hearing through a
private debt collection agent who is trying to carry through
what is an inherently government function is where a lot of
problems lie. Unfortunately, in many cases, there ends up being
nothing fair about what is supposed to be a fair hearing.
Particularly with those sorts of inherent government
functions like fair hearings, that would also include
explaining and counseling student loan borrowers on the various
repayment, cancellation, deferment, forbearance options, those
sorts of things we believe should not be in the hands of
private debt collectors who are not trained or experienced to
understand those.
The one other program I wanted to mention briefly today is
specifically the Social Security benefits offsets. This really
is probably the most extraordinary part of the Debt Collection
Improvement Act or at least the most unprecedented part in the
sense that it allows Federal agencies to offset from Federal
benefits programs such as Social Security which have
traditionally been off limits to the creditors whether private
or government creditors. We understand the DCIA does
specifically abrogate the Social Security anti-assignment
provisions but Congress placed some heightened protections in
this case which we are afraid are not being followed through.
In particular, the DCIA statute in administrative offset
that sets a 10-year limit for Federal benefits offsets, the
Department of Education has taken the position that the 10-year
limit does not apply to student loan collections and in
addition, as I mentioned before, collections have threatened to
take benefits considered to be exempt, SSI benefits. The other
protection Congress specifically provided is the $9,000 that is
exempt.
For all the other collection tools under the DCIA, the
Department of Education has the luxury of no statute of
limitations. We understand that. We may not necessarily agree
with it, but we understand that is what there is but in this
particular case, because Social Security benefits have to do
with the most vulnerable members of society, there is a 10-year
limit and we believe that 10-year limit should be respected.
We certainly support the Government's right to collect, as
I said at the beginning, but not at the expense of important
consumer rights. We want to ensure that when this evaluation of
the DCIA occurs, we are not looking at only dollars, that the
agencies also be required to give information about how they
comply with some consumer protections such as due process
requirements and not just how they train people but for
example, how many hearings are offered, what are the results of
those hearings, how many request them, who are actually the
judges in those hearings. This is the kind of information we
think if taken in complement with the information about the
dollars collected, could show what could be a truly successful
program.
Thank you.
[The prepared statement of Ms. Loonin follows:]
[GRAPHIC] [TIFF OMITTED] T9771.028
[GRAPHIC] [TIFF OMITTED] T9771.029
[GRAPHIC] [TIFF OMITTED] T9771.030
[GRAPHIC] [TIFF OMITTED] T9771.031
[GRAPHIC] [TIFF OMITTED] T9771.032
[GRAPHIC] [TIFF OMITTED] T9771.033
[GRAPHIC] [TIFF OMITTED] T9771.034
[GRAPHIC] [TIFF OMITTED] T9771.035
[GRAPHIC] [TIFF OMITTED] T9771.036
[GRAPHIC] [TIFF OMITTED] T9771.037
[GRAPHIC] [TIFF OMITTED] T9771.038
Mr. Platts. Thank you, Ms. Loonin, and thank you to each of
our witnesses today for your testimonies and your patience as
we had our interruption for the floor votes. I think we are in
good shape for at least an hour or maybe 2 hours before the
next votes, so we shouldn't have any other interruptions of our
hearing today.
We are going to move to questions. I believe Dan Osendorf
is going to join us at the table from the Department of
Veterans Affairs, the Debt Management Center. Mr. Osendorf, I
need to administer the oath to you as well.
[Witness sworn.]
Mr. Platts. Let the record reflect the witness answered in
the affirmative and we will proceed. We generally do about 5
minutes each but at this point with just the ranking member and
myself, we will be pretty liberal in that requirement.
I am going to start with you, Mr. Gregg, with your 5\1/2\
years at FMS, your familiarity with the tremendous progress
from the 1996 act to where we are today. If you could highlight
what you think would be the greatest key to the success of
today versus the past, the change that has occurred and more
importantly, what is the greatest challenge from doing even
more in the future if it is what we need to look at for the
challenges we need to help from a legislative standpoint or
internally?
Mr. Gregg. We have come a long way. When DCIA was passed,
we struggled for a number of years to get our own act together
and I think the agency struggled in a twofold way, one was to
get the systems in place to do what they had to do as we
weren't prepared, and second and probably more importantly, was
to get the commitment from fairly high in the organizations to
change the way of doing business. I think it is worth noting
the examples of Education, VA, and Agriculture, of people
making a difference to implement the program because agencies
rightly so felt these were their programs and the idea of
turning them over to FMS at some levels wasn't the thing they
wanted to do. So beyond the system problems, there was some
purely predictable resistance.
I think in the last couple of years, we have seen that
shift and the agencies as you heard from both Education and VA
are referring virtually all of their eligible debt and working
with us to grow the program.
Looking ahead, I would highlight the need for continued
emphasis of the importance of this. One of the things that goes
beyond the numbers in what we have collected is the improvement
in the information that we are seeing and is being reported to
Congress. That has been kind of hidden but I think through this
whole process, the focus on making sure the numbers are right
and providing better financial controls within the agency is
still something we are working for but have made great strides.
Looking ahead trying to make sure we pull this very complex
program together in a way that provides good information to the
agencies, provides the right kind of protection for the debtors
and doing that with systems and with management focus is the
kind of challenge I see, while at the same time agencies are
struggling with everything else on their plate. I think that is
the balance we all face, trying to do this on top of everything
else we have to manage.
Mr. Platts. I would like to recognize Mrs. Maloney who
played a critical role in the 1996 act who has joined us as
well. We are delighted to have you here with us today.
To followup, not necessarily wanting to put you on the spot
but to get as frank an answer as far as highlighting VA,
Education and Agriculture, what agencies or departments still
have the farthest to go in getting up to speed and having the
leadership embrace this effort as part of their comprehensive
financial management effort?
Mr. Gregg. I would have had a fairly long list a couple of
years ago. The area we need to focus on I think, and this runs
through a number of agencies, is getting the administrative
wage garnishment in place. If we do that in a handful of large
agencies, we are going to cover a good portion of the
potential. The potential for centralized salary offset I think
is also something that runs across the gamut.
One of the most recent areas we have focused on is the non-
Treasury disbursed payments. We have a ways to go yet with the
Department of Defense and the Postal Service and others who
make their own payments. That is something that we are working
with them on but we need to make sure for example, vendor
payments are being offset. That is an area where we will keep
pushing.
Mr. Platts. That was going to be one of my specific
followups, DOD and Postal Service. Could you tell us where you
are today and how close we are to getting a good process in
place regarding those non-Treasury disbursements?
Mr. Gregg. We actually began offsetting some portion of
Department of Defense vendor payments a number of months ago. I
think we are actually quite close to being there with the
Postal Service. That is something where we have made progress.
I think we only have one of a number of the Department of
Defense facilities that is participating now and we want to
continue to make sure we have all those.
Mr. Platts. One more for you, Mr. Gregg and I will
recognize the ranking member.
With your efforts governmentwide and the efforts going on,
my understanding is perhaps you would like to see more of the
actual tax debt. My understanding is most of the tax debt
referred to you by the IRS is very old which the IRS has pretty
much given up on as opposed to more current tax debt. Your
assessment of how your office would be able to maybe better
address even the more recent tax debt than the IRS, if you
would like to share comments on that?
Mr. Gregg. It was difficult to get the tax levy program in
place. It was difficult for a number of reasons. One of them
was the letter that has to go out before any tax levy occurs,
when they are going to refer it to us. That is a fairly manual
process. Basically, we stand ready to take on as much as they
are prepared to give us. They are aware of that and in some
cases, I think it is a system limitation more than the intent
because I know the former Commissioner and the present
Commissioner were very committed to working with us in this
program.
Mr. Platts. I appreciate in that case your efforts with IRS
but with DOD and with other agencies on the non-Treasury
disbursements to keep leading the charge of pushing the
envelope with these agencies. It really amazes me when,
especially in the DOD example, we are making payments to people
that owe the Federal Government money, yet we are paying them,
that we are not correlating those two better. It sounds like we
are heading in the right direction with some of these larger
ones like DOD to stop that practice out of simple fairness to
all American taxpayers who are paying their fair share.
Before I recognize the ranking member, I would like to also
recognize our vice chair, the gentlelady from Tennessee, Ms.
Blackburn. We appreciate your joining us.
I recognize the ranking member for the purpose of
questions.
Mr. Towns. Thank you, Mr. Chairman.
I actually want to direct this question to you, Mr. Gregg,
and also to you, Ms. Shaw. You both testified that contracts
which your agencies have with private collection agencies are
performance-based. First of all, I want to know what is a
performance-based contract?
Ms. Shaw. A performance-based contract really includes
incentives for the contractor to perform against the
requirements spelled out in the contract and those contractors
are only remunerated out of that performance, a percentage of
those collections are incented to perform in not only meeting
the objectives but to exceed the objectives laid out for them.
Mr. Gregg. We have a number of things in place. First of
all, it was a competitive process in which we selected the five
private collection agencies we have. In addition to that, we
have incentives for them based on quarterly reviews--by those
reviews, depending on which ones do the best, agencies may get
a slightly larger referral than the previous quarter. That is
the sort of thing that we have built into our contract.
Mr. Towns. Do they include a measure of whether the private
collection agencies are respecting the legitimate rights and
protections of the client?
Mr. Gregg. I wouldn't necessarily classify that as a
performance measure per se in the terms of dollars and cents,
but one of the things we have done is to make sure, first of
all, they understand what the requirements are. We have done
that through not only extensive training at the time the
contracts were awarded, but on an ongoing basis, the reviews we
do to make sure that they are following procedure.
We also have the opportunity to listen in on conversations
to get notes they take and we are a relatively small
organization. The most important thing is that myself and the
people sitting behind me consider this our business, not
something we have handed off to somebody else, and we don't
view that any differently than a phone call that one of our
employees makes. It is our responsibility to make sure that
people are treated right; yes, we try to collect the debt, but
it is our responsibility and that is a clear expectation we
have of the PCAs.
Mr. Towns. Are these new or old loans and would the amount
determine whether you would actually get an agency to collect?
Would it be a new loan or an old loan?
Mr. Gregg. In our cases, it is more old than new.
Basically, we get a few that are within 90 days delinquent, but
quite a bit of our debt is 2, 3 and 4 years old.
Mr. Towns. Does the size of the loan have anything to do
with whether you give it to a collection agency or not?
Mr. Gregg. No, sir.
Mr. Towns. How about you, Ms. Shaw?
Ms. Shaw. No, in response to the last question. The size of
the loan is not the determinant for forwarding it to a
collection agency.
I would like to respond to the question you had with
respect to treating consumers fairly. First and foremost, the
Department wants to ensure that all borrowers are treated
fairly, even if they are defaulted and throughout that
collection process. We have a number of things at the
Department we do to help ensure that.
First of all, all of our collection agency contracts are
monitored and managed by Federal agency employees. As I noted
before, we have the ability to terminate collectors who violate
the Fair Debt Collection Practices Act.
Mr. Towns. When you say monitor, what do you really mean?
Ms. Shaw. We review on a regular basis, weekly, monthly,
quarterly, the performance of the contractors, not only in
terms of collecting the debt but actually how they do it. We
have toll free 800 numbers that we provide for complaints to be
lodged if there are perceived inappropriate collection
activities going on and we monitor that information. In fact,
in fiscal year 2002, over 1.1 million calls came into that 800
number; 99 percent of those calls were answered; the average
hold time on those calls was 12.5 seconds. So we do respond to
the calls that come in to that 800 number.
We also have our Federal Student Aid ombudsman who reports
directly to me. We track the calls that come into the ombudsman
office that are on a variety of things but in particular, we
look at servicing complaints and collection practices
complaints. Since 2000, of the total complaints in 2000, 20
percent of those complaints were about servicing concerns and/
or collection practices concerns. So far in 2003, through June
13, that number has been reduced to 9 percent of calls and we
are tracking pretty much for that number to hold for the year.
That demonstrates our focus and our concern on ensuring that
consumers are treated fairly and that we respond when we do
find out there is an issue.
Mr. Towns. If that is the case, would you terminate the
contract if you find out that they are using unscrupulous
techniques to get people to respond?
Ms. Shaw. I think our first level of activity would be to
deal with an individual collector through that contract agency
and if there is an individual collector that is not behaving
appropriately and in compliance with everything they need to
comply with, that collector we would certainly not want
collecting on any of the Department of Education loans.
If it is a broader issue, certainly the collection agency
we would not want the agency itself to be collecting loans for
the Department of Education.
Mr. Towns. Mr. Chairman, my time has expired. We will have
another round?
Mr. Platts. Yes. Thank you, Mr. Towns.
I will recognize Members in the order of appearance, Mrs.
Maloney, recognized for the purpose of questions.
Mrs. Maloney. Thank the chairman for having this oversight
hearing and ranking member Towns.
As the author of the Debt Collection Improvement Act of
1996, I am greatly interested in the topic and this common
sense bill that centralized the Federal debt collection in the
Department of Treasury and gave all Federal agencies the tools
needed to collect billions of dollars of delinquent and non-tax
debt.
The panelists today really pointed out that in many ways,
it has improved collection. It has collected roughly $15
billion in delinquent debt and in fiscal year 2002, Treasury
collected more than $2.8 billion in delinquent debt, including
$1.4 billion in past child support which is very important and
$1.2 billion in Federal non-tax debt.
There are always ways to do a better job and my question
is, is there anything that needs to be modernized in the bill,
that needs to be brought up to date, do we need more
consideration for time for student loans? I just open it up for
the panelists to discuss the bill, discuss the changes in debt
collection procedures, if they are working or if there are ways
you think it should be improved?
Mr. Gregg. One suggestion we have and we have worked with
the administration and legislation has been proposed, is to
include the opportunity to offset Social Security payments for
delinquent child support. I think that is something that at
least we think would be an improvement to the program.
Mrs. Maloney. Do you see that it is widespread? That people
are getting Social Security checks, yet not taking any effort
to help their children?
Mr. Gregg. The estimate we have is that, it is not huge
numbers but we think we could probably collect at least $50
million over a 5-year period if that was added. That may be
conservative but we have done some tests and we think it is
probably at least that.
Mr. Campbell. Congresswoman Maloney, the Department of
Veterans Affairs doesn't see at this time any structural
changes that need to be made in the act. Most of the things we
need to do are internal.
Ms. Shaw. I would have to say the same thing. At this time,
we don't see any imperative structural changes. We are getting
ready at the Department of Education to implement
administrative wage garnishment to take the maximum of 15
percent as opposed to 10 percent under the Higher Education
Act. We are on track to have those changes implemented by
October 2003.
While it is clear that we can move from the 10 percent to
the 15 percent, we anticipate perhaps some legal challenges to
that. If there are any clarifying words that might be added
that could be helpful as we anticipate those legal challenges
perhaps manifesting as we move forward.
Ms. Loonin. In general, most of the things I have talked
about are regulatory or enforcement issues, but one thing in
the statute with the Social Security exemption is it is set at
$9,000 and is not indexed to the cost of living. We believe
that is a big concern. We think there should be some provision
in the statute to increase that based on cost of living.
Mrs. Maloney. Thank you. I have no further questions.
Mr. Platts. We will come back to Ms. Blackburn when she
returns.
Mr. Gregg, if you could touch on an issue. When I look at
the numbers between the cross servicing versus the Treasury
offset and the success and the overwhelming majority of the
money is from the offset versus cross servicing. In Ms. Shaw's
testimony she looks at the past 7 years where through private
collection agencies about $1.2 billion in overdue student loans
was collected versus about $5.4 billion when we use Treasury
offset.
The GAO in assessing the success of the effort has raised
the issue whether the cross servicing approach has a cost
benefit to the taxpayer. If you could address that? My
understanding is there was a request for review of cross
servicing and is that ongoing? If so, what results if any are
available at this point?
Mr. Gregg. We have a little different perspective than GAO
provided. Normally we pay pretty close attention. We kind of
disagreed with them philosophically on what we understood they
wanted us to do. One part of that cross servicing examination
as I understood it was to look at how long we should keep debts
before we referred them to PCAs, the private collection
agencies. Our view, and I think the intent of this subcommittee
at the time the legislation was passed, was to turn them over
to the PCAs quickly and that is what we do. We keep them for 30
days and if we get collection, fine; if we don't, we turn them
over to those who are really expert in the field for
collection. That was one of the differences we had.
I am concerned that if we tried to say let us keep these
debts for ourselves and turn these over to the private
collection agencies, over time that could undermine our ability
to really have good competition because we might be accused,
and probably rightly so, of cherry picking the debt. There is a
bit of a fundamental philosophical difference.
We have not and we don't have underway a review of that. I
think it is very cost effective. It is one thing to look at the
numbers and the numbers have grown tremendously over the years.
We went from $1.2 million collected in fiscal year 1997 and we
will collect over $120 million this year in cross servicing.
For that part of the program, I don't think we spend more than
$10 million in administrative costs for a $120 million return.
Even that doesn't fully capture the value of getting those
debts in and helping the agencies make sure that the debts are
in order, and the process of the private collection agencies
determining that certain debt is not collectible. These factors
show up on the collection side but it helps continue to improve
the agency's recordkeeping and decisionmaking on whether or not
to write-off the debt. So there is a lot of value that is
greater than even fairly significant growth which is now $120
million.
Mr. Platts. Ms. Shaw, I think your testimony was that in
your use of private collection agencies, that cost is down to
about 16 percent or will be this year.
Ms. Shaw. Sixteen cents per dollar collected.
Mr. Platts. Correct. Am I stating correctly that is kind of
your total cost for dollar collected is about 16 cents for
every dollar?
Ms. Shaw. Yes.
Mr. Platts. Mr. Gregg, would you find that would be fairly
accurate across the Government as to where we are getting to in
the efficiency of using PCAs?
Mr. Gregg. I think we are following Education and they have
a greater volume, so they may get an advantage. We are paying
23 percent to the PCAs and whether we can improve on that, I
don't know. Especially when the program started and I think it
is still the case, we have a lot of debt that is very old and a
lot that is referred to us and we send on to PCAs which is not
collectible, so there is a cost to having that mix of debt in
your data base.
Mr. Platts. I assume there is a minimum requirement of what
a PCA has to do to try to collect it when you give them a whole
slew of debt to go after, that they can't just cherry pick
within what you give them, that they have to make a certain
minimum effort on each debt that they are afforded so they are
really going after everything?
Mr. Gregg. Yes, and I think the incentives we have built in
like Education has, really makes it to their advantage to try
to collect. I think sometimes they get surprised. I know some
debts that were very sizable that were quite old and you look
at it and say there is no way that is going to be collected,
but in fact they were. So you never quite know, just because of
the composition or the size whether or not you are really going
to be able to collect it.
Mr. Platts. This might go to both you and Ms. Shaw, Mr.
Gregg, in reference to one of the concerns about excessive fees
being charged to the debtor. I assume the collection agency was
not allowed to impose any fees beyond what they are getting
from the Department or whatever agency. Is that correct?
Ms. Shaw. For the Department of Education, that is correct.
Actually, the Department sets the fees and it is limited the
promissory note and those amounts allowable under the Higher
Education Act. We set the fees and they cannot tack on anything
else.
I would also like to add we have built into our contracts
disincentives for the contractors to cherry pick loans in
reference to your last statement. We have achieved the 16 cents
per dollar collected through very, very vigorous competition
among those competing for the contracts to do collections for
us. We are looking forward to even reducing the collection
costs in the next competition that is coming up in fiscal year
2004.
Mr. Platts. In your contracts with the PCAs, I would think
if it is clear you set the fees, where there would be instances
of violations of that, is there strict enforcement or is it
still discretionary? What, if any, consequences are imposed on
the PCA for trying to charge additional fees to the debtor?
Ms. Shaw. The contracts we have with the collection
agencies do not allow for them to collect anything other than
what we set forth. We do monitor for that and if there are fees
in addition, they are not getting them.
Mr. Platts. My question is, if an agency was engaged in
inappropriate conduct as referenced by Ms. Loonin, is there
something in your contract that spells out a financial penalty
or some specific recourse to have that financial disincentive
from them even thinking about that practice?
Ms. Shaw. With respect to penalties, I will have to check
on that and report back to the subcommittee in writing, if you
don't mind.
Mr. Platts. If you could, that would be great.
Mr. Towns, did you have further questions?
Mr. Towns. Thank you, Mr. Chairman.
Ms. Loonin, you mentioned several times that borrowers may
sometimes have legitimate defenses to collection procedures.
What are some of those legitimate defenses?
Ms. Loonin. Again, I am confined to the student loan
context because that is what I know the best. For student loans
in particular, there are a number of cancellation programs,
there is a total and permanent disability cancellation, there
are a number of cancellation programs tied to some of the
abuses, particularly vocational schools that primarily happened
in the past, there is a closed school cancellation, false
certification cancellation, and unpaid refund cancellation. I
mention those because they are defenses in the sense that they
are the most extreme in the sense that if someone is qualified
for it, then the debt or loan obligation is completely
canceled. Any moneys collected voluntarily or involuntarily are
supposed to be returned and the person is reeligible, except
for the disability context, for student assistance again.
Mr. Towns. You also testified that debt older than 10 years
is not permitted to be offset against Federal benefits such as
Social Security. Wouldn't that logically exempt almost all
student loan debt? Ms. Shaw and Mr. Gregg, are your agencies
complying with this requirement?
Mr Gregg. I am sorry, I missed that question.
Mr. Towns. Ms. Loonin testified that debt older than 10
years is not permitted to be offset against Federal benefits
such as Social Security. Wouldn't that logically exempt almost
all student loan debt?
Ms. Shaw. It has been the Department's position that there
is no statute of limitation on the collection of student loan
debt. In direct response to your question, repayment of student
loans does often extend beyond that 10 years, in particular
with respect to loans that have been consolidated that had
longer repayment terms and loans that have been granted
extended repayment terms. So yes, if a loan was extended in
repayment terms beyond 10 years and there was not a statute of
limitations, those loans would be automatically exempted just
by their term alone.
Mr. Towns. I am going to hear Mr. Gregg and come back to
you because I think this is interesting.
Mr. Gregg. There has been a recent lawsuit and I think
there is an appeal pending. Our view is that the 10-years would
not apply and it is fairly complicated. I think there are three
statutes involved but if in fact there needs to be
clarification, then perhaps I could amend my earlier statement
and add one more to say that assuming that is the intent to
allow us to offset student loan debts referred to us for offset
that are older than 10 years and perhaps that ought to be
clarified.
Mr. Towns. Ms. Loonin.
Ms. Loonin. A couple of things. This issue is I think
confined to the Department of Education because I believe they
are the only agency where the statute of limitations has been
eliminated. My understanding is that other agencies would
comply with the 10-year limit because they don't have the same
provision the Higher Education Act has that eliminated the
statute of limitations.
It is a statutory construction argument essentially. It is
that the antiassignment provisions of the Social Security Act
back in the 1930's specifically say if you are going to
abrogate this protection, this antiassignment protection, you
have to explicitly refer to it.
The Debt Collection Improvement Act does explicitly refer
to it and it also sets a 10-year limit. The elimination of the
statute of limitations in the Higher Education Act does not
explicitly refer to the antiassignment provisions of the Social
Security Act. In the court decision that agreed with us on
this, in that case it is the 10-year limit and the Debt
Collection Improvement Act that governs.
As far as whether this means a lot of loans wouldn't be
able to be collected, it is true this is just for Federal
benefits offsets, it is the only program where there would be
this 10-year limit. There would be some student loans that
couldn't be collected, there also would be some that could if
someone became disabled, for example and has SSDI within the
10-year period of repayment and doesn't qualify for disability
discharge or doesn't know about it, they could continue to try
to collect against those people.
Once the 10-years is up, then the Department wouldn't be
able to use the benefits offsets but if there was anything
else, any other collection tool available to them they thought
they could use to collect from this person, they could because
there is no statute of limitations for all the other ones. I
think that is just Congress' recognition of the heightened
protection they wanted to give to Federal benefits recipients.
Mr. Towns. Mr. Gregg, you testified that HHS and Education
had recently published regulations that will allow them to
participate in the administrative wage garnishment. How many
agencies currently allow FMS to garnish wages to collect the
debts? Of the close to 8 billion referred to FMS for cross
servicing, how much as been collected using this tool? What
protections are in place to protect low income individuals from
perhaps overzealous collection? For example, would the wages of
a single mother of two whose income is below the poverty level
be garnished?
Mr. Gregg. I think there is only a handful of agencies
right now that have fully implemented the administrative
garnishment under FMS procedures. That continues to grow but
that has taken longer than we would have liked. I think so far
we have collected only $300,000.
There are protections, and this is true whether it is
administrative wage garnishment or any other debt. All of the
creditor agencies have a responsibility to look at special
cases and many of them have cases where they don't refer debts
to us because of hardship. That is their responsibility and
they do that.
For administrative wage garnishment, one of the processes
in place is that if someone requests a hearing, they have to
have a hearing and processes are set up to hear whether or not
the debt is legitimate and there are hardship cases as well. I
think built into all these processes are a lot of protections.
I think that is true whether it is administrative wage
garnishment or any of the other offset programs.
In your example, if they came into the agency and would
have been granted a hardship, I don't know, but that is
something that certainly all agencies have and I know they take
that seriously.
Mr. Towns. Thank you, Mr. Chairman.
Mr. Platts. Ms. Blackburn.
Ms. Blackburn. Thank you, Mr. Chairman. Thank you to all of
you for being here. I feel like I have been up and down and in
and out of this hearing but I appreciated the fact most of you
submitted your testimony in advance and gave us a chance to
prepare for this. Those of us tremendously interested in the
efficiencies of government and in proper reforms of government
are definitely interested in what you do and what you have to
say.
Mr. Campbell and Mr. Osendorf, I wanted to congratulate you
on moving your debt collections from 75 percent to 97 percent.
I think that is something that is noteworthy and deserves to be
pointed out.
Ms. Loonin, if I could being with you. Going to your
testimony and talking about the student loan debt collections
which it always amazes me that these can go on for decades
without payment. I have read through and I apologize that I
arrived late and did not hear all your testimony.
Would you talk a bit about the deceptive, unfair and
illegal conduct that you reference on page 5 in the testimony
and the complexity of the student loan payment as you see it or
the program in collecting the debt and people not understanding
who they pay this to. Are you referencing the program that
handled by the banks, by the consumer banks or are you
referencing student loans that are handled by the Department?
Where do you find the greatest confusion and misunderstanding?
Ms. Loonin. It occurs in both programs, with private debt
collectors as well as some cases where it could be the
guarantee agency doing the collecting or even the department.
To be honest, I haven't done a comparison study of these so it
would be more anecdotal I suppose.
The abuses seem to be greater not with the direct loan
program but with the FFEL, the program where the banks are
guaranteeing loans in other words, but I haven't done any sort
of comparison study of that.
Ms. Blackburn. I would be interested in knowing that if at
some point you had someone who could place some energy on that.
I think as we look at loan programs in other agencies, knowing
that and the insight you could provide there would be helpful
indeed. I think as we look at reforms, having the opportunity
to look at lessons learned serves us well.
Ms. Loonin. We can certainly try to track that with all the
advocates we work with as well and put something together.
Ms. Blackburn. That would be great.
Also if you would speak a bit about the allowance, the DCIA
allowing Federal agencies to offset certain Federal benefits in
regard to Social Security?
Ms. Loonin. Is there anything specific?
Ms. Blackburn. Talk with me a bit about in your testimony
you reference that being an extraordinary power. Of course it
is and the fairness issue there, do you think that is a good
precedent, do you think that is the right thing to do,
attaching the Social Security payments or not, or how do you
see that playing out long term?
Ms. Loonin. I think it seems to me it is here to stay and
if anything, it is probably getting broader in terms of what
can be taken from Social Security. My personal opinion on that
is probably that in some cases that might be acceptable. My
problem really is focusing on the lowest income people and the
most vulnerable people. Perhaps for Social Security retirement
recipients who are getting higher benefits or higher payments,
there might be some role for the program there but my concern
is there has been sort of a steady erosion of what used to be
pretty much an absolute principle that Social Security benefits
could not be offset by private or public creditors.
Ms. Blackburn. Mr. Chairman, may I ask another question?
Ms. Shaw, the Department of Education has more than $20
billion in debts more than 180 days over due and I think $556
million listed as currently not collectible. My question for
you is why has the Department been negligent in following the
requirements of DCIA for debt referrals that are 180 days past
due?
Ms. Shaw. I am sorry, I missed the middle part of the
question.
Ms. Blackburn. Why have you been negligent in following the
requirements of DCIA for debt referrals more than 180 days past
due and why would you consider the $556 million to be not
collectible?
Ms. Shaw. If you don't mind, I would like to get a detailed
written response to that question and forward it to the
subcommittee.
Ms. Blackburn. That would be fine if you would like to do
that. When we look at these numbers and we see there is that
amount of money considered to be not collectible, it is
important for us to ask those questions because the taxpayers
ask us.
Ms. Shaw. Absolutely. I understand the nature of the
question and the reason for the question. I just want to be as
accurate and precise in my response as I possibly can.
Ms. Blackburn. Include this in your response. If you are
using private collection agencies and the fee they are pulling
to collect those debts, if you would list those for us, and
also if you are using wage garnishment to collect those debts.
Ms. Shaw. I will include all that in the written response.
Ms. Blackburn. Thank you, Mr. Chairman.
Mr. Platts. Ms. Loonin, in your testimony in looking at the
issue of if we are being fair, if you can give us more detailed
examples as opposed to the kind of anecdotal understanding of
what has happened. The more detail you can provide, we
certainly welcome that and share it with the Department of
Education or whoever so they can do a good job of having
oversight over their private collection agencies if abuses are
occurring.
One you reference specifically and I asked about earlier
and I found the cite, about charging collection fees that
exceed what is allowed by the contract, you have a footnote
cite to a specific case, Padilla v. Payco General American
Credits, a 2001 Federal court case. Could you give a little
background on what happened there, what was the court's
decision?
Ms. Loonin. This is like a law school question.
Mr. Platts. What I am trying to do is find out exactly was
there a finding by the court that there was excessive payment
made? Was that the court's decision? It seems to be what you
are saying here. If that is the case, I want to ask Education
either today or in followup what consequences occurred because
of that.
Ms. Loonin. I need to take another look at that decision.
It is not a final decision. I believe it was at an earlier
preliminary phase, either a motion to dismiss or an earlier
phase of litigation. This was raised in the context of a Fair
Debt Collection Practices Act violation. That was the issue. I
apologize, I can't recall exactly off the top of my head but I
have the case here.
Mr. Platts. If you could followup in writing to the
subcommittee on the specifics and if there was a finding by the
Southern District of New York that there was a violation of law
because I would like to followup with the Department, if that
is the case, what happened in response to that collection
agency for violating Federal law.
I would also maybe caution that the way it reads here is
there was a violation. I am assuming that is correct.
Ms. Loonin. I apologize. I can't recall exactly but I will
definitely get back on that. There have been some other cases
specifically related to collection fee issues that I could
provide as well. One in particular was a settlement agreement
that was not a final decision but where the Department did
acknowledge there were fees being charged above the rate in the
promissory notes and did move for a long time to correct the
problem after the lawsuit, so it wasn't an actual final
decision. I can provide some of that information as well.
Mr. Platts. That would be great and we would be glad to
followup with the Department on those examples. My point is
anecdotal references are helpful in the sense of raising
awareness this may be going on, but we really can't provide an
oversight role if we don't have specifics, so I would welcome
those. As one as referenced after 12 years having made my last
student loan payment, my wife beat me to the punch about a year
and a half ago with her last graduate school payment, as one
who took on the responsibility and fulfilled mine, I want
others to do the same in fairness to everyone. In doing that,
we want to make sure we are doing it in a fair and responsible
way.
That goes to maybe a broader question as far as the
safeguards in place. Where we use private collection agencies,
is there some verbatim language we give the PCAs that they must
include, like you referenced the 800 number, and I assume that
is included in something that a PCA sends out that they give to
the debtor that includes an 800 number? Is there language that
the Department of Education or FMS that you approve saying in
every statement you send out to collect or in every phone
conversation you must read to say you have certain rights and
protections and if you believe they are being violated, is that
type language required to be included?
Ms. Shaw. The Department of Education reviews all
correspondence our collection agencies send out on our behalf.
We make sure it is complete, accurate and clear with respect to
the language used and the rights borrowers may have.
Mr. Platts. That 800 number is included in there? There is
an ease of accessing the system if they believe their rights
have been violated?
Ms. Shaw. If not on every single communication, on several
of the communications depending on the timing of the
communication and so on.
Mr. Gregg. It is similar. When we get the debts for cross
servicing, we send out the first letter and provide information
to the debtor on their rights and what would be the next steps.
They have our 1-800 number in that letter when it goes out. We
get a lot of calls. I think we got 2.8 million last year in our
Birmingham Debt Collection Center. Most of the calls are
inquiring am I going to be offset this year? People know they
have the debt, it is communicated to them and I guess the ones
who get no, you are not, are happy and the others are not. A
large percentage of our calls are those kind.
Mr. Platts. Do you keep something similar, Ms. Shaw? You
referenced in your call center, 12.5 seconds on hold was the
average per call?
Ms. Shaw. Yes.
Mr. Platts. That is a remarkable standard, 12.5 seconds, in
the sense of the volume of calls you are handling. Is it
something similar as far as the efficiency of your system?
Mr. Gregg. We have a very sophisticated call center that
tracks all that. We are very close to that if we are not at
12.5. During the tax payment season, we bring in people that we
have hired for a period of time because we get peak volumes. We
bring them in and they are trained so they come back year after
year. It is a very sophisticated system.
Mr. Platts. Mr. Gregg, a different area as far as your
office's efforts with the Federal salary offset and while the
wage garnishment is for non-Federal employees, internally we do
it differently. Could you give me an overview of what
percentage we use in your best estimate of agencies,
departments are on board and participating in that program
today?
Mr. Gregg. We have most of the centralized paying agencies
now participating. I think all of them except for GSA, which is
going to be coming in by the end of this year. VA is currently
not participating but they are going to be serviced by the
Department of Interior under the consolidated payroll
processing, and that is fine. There is no reason for them to
switch and then get out of that business. So most of our
payroll agencies are now participating. We have to continue to
get the debts referred to them from all the other agencies.
Mr. Platts. That is only a small number of agencies, paying
agencies, right?
Mr. Gregg. I think there are five.
Mr. Platts. Right. There is a large number that are not. Of
those that are not, it is the same instance if somebody is
getting paid by the Federal taxpayer for their work but owe the
Federal Government money, it seems like a pretty
straightforward transaction to say, we need you to pay up.
Mr. Gregg. I think I need to get back to you with a formal
answer on that. For example, I think Education is still working
on a consolidation. It is kind of complex because some of them
do the offsets internally, but we are looking for a more
efficient process through the consolidated salary offset, so I
can provide you a more coherent, written answer.
Mr. Platts. If you could give us kind of a detailed
breakout of what agencies are because if we are going to
private sector employees for wage garnishment, yet we are not
doing it to our own employees, we are not setting a very good
example ourselves.
I want to expand on that a bit more with Education as well
but Ms. Blackburn I believe you need to run off for a committee
and had a question?
Ms. Blackburn. That is correct. I need to run down the
hall. If it is OK, I just have one more question.
Secretary Campbell, I wanted to direct this to you. Knowing
that you all had seen an improvement in your debt collection
practices, I wanted to see if you could very quickly highlight
three steps you feel made a big difference and what your
recommendation would be to the other agencies that are looking
to make these improvements if you were to say this, this and
this were the lessons learned and the process that should be
followed?
Mr. Campbell. Centralization because that helps to develop
a skilled work force and the skilled work force is the key.
Automation because you have to have the systems. One of the
regrettable things for 3\1/2\ years, we were unable to help our
friends at FMS because our systems wouldn't talk to theirs. It
took a tremendous amount of effort. As I said, it would be
centralization so that you get a skilled work force that is
used to doing debt collection, the skilled work force itself,
the care and feeding of that work force and the automation that
goes with it. Because of the vast number of transactions, you
couldn't possibly do this in a manual or semi-manual method.
Ms. Blackburn. Mr. Osendorf, do you have anything you would
add to that?
Mr. Osendorf. To make it three, I would say centralization,
automation, standardization. Once you get it all in one place
and you automate it, everybody is treated the same from the
debt collection standpoint, everybody gets the same notices,
everybody is treated exactly the same through the process.
Ms. Blackburn. Thank you. It reminds me of the old thing
that simple usually works but doing the simple thing is
generally hard.
Thank you very much.
Mr. Platts. I am going to pick up on the Federal salary
offset. Mr. Campbell, you wanted to add something on that?
Mr. Campbell. Yes, sir. I don't mean to say anything
against what Commissioner Gregg said but I think he was in
error about what VA does. We have been offsetting our own
employees' salary since 1987. Under the Consolidated E-Payroll
Project we will be going to the Defense Finance and Accounting
Service and not Interior.
Mr. Platts. Ms. Shaw, how about Department of Education
employees' current status?
Ms. Shaw. We also have been offsetting for years and
Commissioner Gregg made reference to the process for
consolidation and actually the Department of Education looks
forward to working with Commissioner Gregg's team to make that
happen. We are right in the middle of a major competition for
common services for borrowers that kind of brings together our
direct loan servicing, the origination of direct loans,
consolidation loans and part of our collection process, and
again, we are right in the middle of that competition, so as
soon as that competition is over and the contracts are awarded,
which we hope will be by the end of this fiscal year, we will
begin to work to move toward that centralized process.
Mr. Platts. As far as setting that example, today if
somebody works at the Department of Education who is in default
of a student loan say in the Student Loan Office, their salary
would be offset by the Department of Education?
Ms. Shaw. Yes, sir.
Mr. Platts. I want to make sure we are leading by example.
I recognize Mr. Towns.
Mr. Towns. Thank you, Mr. Chairman.
Ms. Shaw, in fiscal year 2001, a new program was started to
help recruit and retain Federal workers by paying their student
loans. Under the program, workers can receive up to $6,000 per
year if they commit to 3 years of agency service. According to
a recent article in the Government Executive Magazine, the new
program hasn't been used too much and the Department of
Education has yet to use it at all. Why haven't you been able
to implement it in your department?
Ms. Shaw. As the new Chief Operating Officer at Federal
Student Aid, this issue was recently brought to my attention. I
intend to investigate that and try to understand if there are
barriers, how do we remove them. I have a few folks on my staff
as a matter of fact who are interested in availing themselves
of that program. I would like to make that happen for them if
there are no barriers at the Department of Education.
I don't have an answer to the question for you today as to
whether there are barriers or it just hasn't made its way to
the top of anybody's list to actually implement and
operationalize but it is on my list to do and I would be happy
to provide a written response to you.
Mr. Towns. Thank you. I look forward to it.
Mr. Gregg. Congressman Towns, if I might interject, I think
that is really a great program. We have been using it at FMS
for about a year now. I think as we try to compete for new
employees with the private sector, I think it is a great tool.
One of the barriers is that you have to find the money because
it was passed, so the tradeoff is you may not hire four people
but only three and provide some student loan aid but that is
something that is kind of the nature of the beast and we
recognize that. It is a great program and I think provides a
great opportunity for us to compete better with the private
sector.
Mr. Towns. Mr. Campbell, you mentioned the vendee program.
What is that?
Mr. Campbell. The Vendee Loan Program, we have numerous VA
mortgage loans. When the mortgageholder defaults, we end up
taking back the property, we then sell these vendee loans to
the market. Three times a year we go to New York and sell these
vendee loans. The Secretary of Transportation back in January
of this year decided that we would no longer have that program,
so the delinquencies from the Vendee Loan Program should
disappear in the very near future.
Mr. Towns. Mr. Campbell, in October 2001, the Vietnam
Veterans of America submitted testimony to this subcommittee
regarding what seemed to be abusive practices by the VA in
collecting debts from veterans. Basically, they said the VA
often attempted to collect debts related to co-payments for
medical care from veterans while the veterans were
simultaneously making claims through the Veterans Benefit
Administration for a service-connected illness, a process which
can take a long time, in fact years in some instances. Are you
aware of this problem and what are you doing to address it?
Mr. Campbell. No, sir, I was not aware of the problem until
you just mentioned it and I will look into it. Unfortunately,
medical co-payments, first party payments, are generally
collected individually at each medical center. We have over 160
medical centers, so this is the first it has been brought to my
attention. As soon as I get back, I will talk to Dr. Roswell,
the Under Secretary for Health, to see if this is a pervasive
problem.
Mr. Towns. Thank you. You will get back to us with the
information?
Mr. Campbell. Yes, sir.
Mr. Towns. On that note, I yield back, Mr. Chairman.
Mr. Platts. Thank you, Mr. Towns.
I want to look at the issue of use of information
technology. A number of you mentioned the best way to address
bad debt is to make sure we are not making bad loans in the
first instance and those who had that bad track record. I know
there is a greater effort, and Mr. Gregg, you referenced the
debt check system you are putting in place and having more
information available to other agencies.
One of the administrative challenges appears to be is when
an agency refers to FMS for collection in the Treasury Offset
Program, that is only going to stay there 10 years because of
the statutory 10-year limit with the exception of student loans
in your system. So somebody maybe looking for a loan 12 years
from now, that may not show up because you are not able to
collect it. First, is that an accurate understanding on my part
and if so, is there an effort to try to somehow in the Treasury
Offset Program to have the debt still be there, even though it
can't be collected, it still would be a bar from future debt
being taken by that debtor?
Mr. Gregg. Our view is that we ought to have the debt check
program contain the debts that we are actively working. We run
into some risk if we go beyond that. First of all, we don't
have that rolled out all the way so I am a bit reluctant to go
beyond that. Plus, there are some other sources of information.
Agencies have the opportunity to check with credit bureaus and
the opportunity to check with the HUD system, the CAIVRS
system, so I think the combination of the debt check, there
will be a lot of debts in there, and the CAIVRS and the Credit
Bureau reporting will provide a lot of information to those
lending agencies.
With the debt check program, right now we only have SBA
there and it is kind of one at a time but our next enhancement
will allow agencies to come in with a bulk file, however many
they want to check and run that against our program which will
be much more efficient.
Mr. Platts. Realizing you are still in the early stages of
this debt check system, that in the long term you look at
somehow still identifying debts that have been referred to you
and basically you own even though you no longer will go after
them because of statutory limitation they are still identified
as being debts not fulfilled, not collected, so that long term,
not necessarily in these current years, but 15 years from now
if that system is still in place, rather than having to
recreate a new system where after 10 years you are done with
them, so then they go to somebody else, start over and have to
create new systems, it seems you could maintain them. It means
your data base continues to grow.
Mr. Gregg. That is something we can take a look at. We
struggled so much in the early years of this program, I have
been pretty reluctant and we have had a lot going on. It is one
of those things where I hate to turn someone loose on that with
so many other things that are more immediate. There could be a
way we could do that where we could separate the active debts
we are working from those that are no longer active. We can
take a look at that some time in the future.
Mr. Platts. Ms. Shaw, as far as student barred from getting
loans, they are not defaulted on any past loans. That is the
law but it does happen that some students slip through. Could
you give us your best guess of why that happens, what is the
shortfall in our system of checks and balances that someone in
default isn't being made eligible for a new loan?
Ms. Shaw. Certainly the Department uses best efforts to
make sure that people don't slip through but we do have the
National Student Loan Data System and in that system is a
repository of all defaulted student loan borrowers. During the
application process for a student, that system that processes
Federal student aid applications communicates and does data
checks against this National Student Loan Data System to see if
there are any prior defaulted loans and if there are, that
applicant may not receive Federal aid until that default is
cleared up.
Perhaps people can slip through due to timing of reporting
to that National Student Loan Data System by guarantee agencies
and the timing of when they report to the system, sort of a
crossing in the night kind of effect. If an application comes
in the day before the defaulted data is reported, it might as
you say sneak through. It will get caught later but we
absolutely try to prevent that.
Mr. Platts. The current law as far as someone applying for
a student loan does not bar an applicant from a student loan if
they have a SBA loan they are in default of or other Federal
loans other than student loans? That doesn't currently bar them
from a student loan, correct?
Ms. Shaw. I believe that to be true. Yes, that is correct.
Mr. Platts. Is there a position in the Department whether
there should be consideration given that if you are looking to
borrow money from the Federal taxpayers for a student loan that
you are in good stead in the Federal Government in any other
area as well?
Ms. Shaw. I am not aware of a current position by the
Department but I can go back and check and see if there is one
and report back to the subcommittee. If there is not a current
position, perhaps I can put it on the radar scope.
Mr. Platts. I appreciate that. It is a balance because
education is something we want to encourage all to pursue and
sometimes people are down and out on their luck and education
is a chance to get back on their feet but in trying to promote
personal responsibility, if you owe the taxpayers money and yet
you want to turn to them for financial assistance, in some way
identifying there is some outstanding liabilities that need to
be taken care of, maybe it is something we need to look at so
we don't just look at student loan defaults but others as well.
Mr. Gregg, using technology and as you get to Debt Check
and things and it addresses how we contact debtors, is there an
effort to consolidate if there is more than one debt owned,
type of debt by single individual that we are trying to
consolidate so that we are not contracting to two or three
different PCAs so that individual debtor is being contacted in
various manners, different parties as opposed to by one?
Mr. Gregg. That is fairly complicated and it is one of the
features we will have in our Fed Debt Program that is going to
be implemented in 2005 because that has been raised; it is not
something we can do with our current system but it is being
built into the system that we are in the process of building
right now.
Mr. Platts. I appreciate your patience. I think we covered
all the areas I had hoped to and with the other Members as
well. I would appreciate those who are going to followup to do
so and expand on the information.
I want to thank all of you for being here today and
offering your testimony. Clearly when you look at the numbers,
we have made tremendous strides and Ms. McCarthy's efforts and
my predecessor, Chairman Horn, in their efforts with the 1996
act have paid great dividends for American taxpayers. We want
to be conscious of the consumer protection issues raised. It
sounds like we are doing our best with our notice to consumers
of their rights and protections they are entitled to. Where
there is a failing in that area, I am glad to inquire of
whatever department it is to see what repercussions then flow
to the culpable party and we hold someone who is violating
Federal law in whatever sense accountable.
We have had an informative meeting and I look forward to
working with Mr. Towns and the whole committee to continue to
oversee the advance in the debt collection area on behalf of
American taxpayers as we try to find a way to do right by
citizens whether it be a new prescription drug benefit,
education funding or whatever it may be, ensuring those who owe
dollars to the Federal Government and thus to the taxpayers are
fulfilling their obligations allows us to do more for those in
need and those we are seeking to assist.
I appreciate each of your for your efforts within the
government and outside the government making sure the
government is acting in a responsible fashion as well.
The record will remain open for 2 weeks for additional
information to be submitted and this meeting stands adjourned.
[Whereupon, at 4:17 p.m., the subcommittee was adjourned,
to reconvene at the call of the Chair.]
[Additional information submitted for the hearing record
follows:]
[GRAPHIC] [TIFF OMITTED] T9771.039
[GRAPHIC] [TIFF OMITTED] T9771.040
[GRAPHIC] [TIFF OMITTED] T9771.041
[GRAPHIC] [TIFF OMITTED] T9771.042
[GRAPHIC] [TIFF OMITTED] T9771.043
[GRAPHIC] [TIFF OMITTED] T9771.044
[GRAPHIC] [TIFF OMITTED] T9771.045
[GRAPHIC] [TIFF OMITTED] T9771.046
[GRAPHIC] [TIFF OMITTED] T9771.047
[GRAPHIC] [TIFF OMITTED] T9771.048
[GRAPHIC] [TIFF OMITTED] T9771.049
[GRAPHIC] [TIFF OMITTED] T9771.050