Transcript: Federal Student Aid COO James Runcie’s testimony on strengthening the federal student loan program for borrowers

Partial transcript of testimony of James W. Runcie, Chief Operating Officer of the Department of Education’s Federal Student Aid, on strengthening the federal student loan program for borrowers. The Senate Health, Education, Labor & Pensions Committee hearing was held on March 27, 2014:

Chairman Harkin, Ranking Member Alexander, and distinguished members of the committee, thank you for the opportunity to discuss the federal student loan programs.

FSA is responsible for administering and overseeing the federal student financial assistance programs. These programs represent the largest source of student aid in the United States.

Last year, FSA processed more than 21 million applications. We also delivered more than $137 billion in aid to 14 million borrowers.

Today, our loan portfolio is valuated at more than $1 trillion with roughly 40 million recipients.

FSA does not work alone in these efforts. Our workforce of over 1,300 employees is supported by over 10,000 private sector employees working for more than 150 private companies with employees in 35 states.

As you are aware, until recently there were two primary federal student loan programs – the FFEL [Federal Family Education Loan] Program and the DL [Direct Loan] Program.

In 2007, the DL program’s share of annual federal student disbursements peaked at approximately 20% of total annual student loan volume. At that time, the decline in the financial markets affected student lending by restricting the availability of capital for private lenders.

Many schools began moving from the FFEL to the DL program. In addition, ECASLA [Ensuring Continued Access to Student Loans of 2008] authorized the Department to purchase FFEL loans and assume responsibility for servicing these loans.

In 2010, the SAFRA Act [Student Aid and Fiscal Responsibility Act] ended the origination of new loans of the FFEL program. FSA successfully implemented the transition to full direct lending, and since that time every eligible student and parent who applied for loan was able to receive one.

Let me just repeat that every eligible student and parent who applied for loans was able to receive one. I stress that point because since moving to 100% direct lending, FSA has disbursed over $350 billion in loans.

In 2013 alone, we disbursed over $100 billion in direct loans to over 10 million borrowers. That’s an increase of almost 700% in five years.

Today, FSA contracts with 11 additional servicers. The competitive structure of the contract was designed by FSA to ensure that borrowers receive the highest quality service and the lowest possible costs to the taxpayer. To accomplish this, the Department analyzes customer satisfaction scores and default prevention statistics. In addition, the pricing schedule provides greater compensation for every borrower in a current repayment status.

We continue to supplement the work of our servicers by providing innovative repayment options, tools, and resources to help borrowers manage their financial obligations.

For example, we have launched a financial awareness counseling tool. This is an interactive online counseling tool that provides students with information about managing their student loan debt. Since inception, nearly 1 million students use this tool.

Since 2012, we have created new tools. We introduced the pay-as-you-earn repayment plan, which helps DL borrowers limit their debt by limiting monthly payments to 10% of income. Today, over 22% of all DL funds in active repayment status are in income-driven repayment plans.

We launched our repayment estimator, which allows borrowers to view and compare repayment plans. In the past four months alone, over 1 million borrowers have accessed the tool to research repayment options.

We’ve also updated our entrance and exit counseling for borrowers. Within the exit counseling module, the borrowers are provided with information on repayment plan eligibility and estimated repayment amounts. To date, over 1.6 million borrowers have utilized the tool.

We worked with our loan servicers to enhance loan counseling for military members to increase awareness of benefits such as public service loan forgiveness. We also mandated all servicers to proactively identify and contact the pool of military service members to ensure they’re aware of the benefits they’re entitled to under SCRA. In November of 2013, the Department conducted a targeted outreach campaign to over 3 million borrowers informing them of different repayment options. Almost 150,000 applications for income-driven plans have been filled as a result of the outreach campaign.

The Department launched an innovative public-private partnership with the Department of Treasury and Intuit to raise awareness about income-driven plans to the 18 million users of Turbo Tax Online.

Separately, Treasury and Education have also included a message on the back of envelopes containing this year’s tax refund checks to raise awareness of federal student loan repayment options. Approximately 25 million of these envelopes will be mailed to tax filers in the 2014 tax season.

Finally, earlier this year, we launched a new online direct consolidation loan application. This application makes it easier for borrowers to consolidate their loans. These borrowers can choose to upload their income information directly from the IRS, and in over a few months, over 100,000 borrowers have used this system to apply for loan consolidation.

We continue to do all we can to ensure borrowers have the best possible customer experience and that we are being good stewards of taxpayer money. I appreciate the opportunity to discuss the federal student loan programs and welcome any questions you may have for me.

Thank you.


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