Transcript: Sen. Tammy Baldwin’s Q&A w/ Federal Student Aid COO James Runcie on strengthening the federal student loan program for borrowers

Partial transcript of Sen. Tammy Baldwin’s (D-Wisconsin) Q&A with 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:

Sen. Tammy Baldwin (D-Wisconsin):
…As you’ve reminded us in your testimony about the history. In 2008, we were to cut out the middle-man in our student loans by making the transition from the Federal Family Education Loan program to direct lending. I was a member of the House of Representatives at the time of that vote and was proud to support the change that resulted in cutting out over $60 billion of waste. I think it was an important step, but certainly work remains as we’ve just heard.

Recently, in a meeting with student financial aid administrators from my state – Wisconsin – they shared an odd quirk of the student loan origination fee that for many reasons seems like it should be a relic from the days of the Federal Family Education Loan program. The fee is usually paid from the loan amount, resulting in a slightly reduced loan for the student. But additionally, it places a burden on financial aid administrators who have to explain why there is this fee in the first place. And it feeds in that perception that government is making a lot of money off of these loans.

So now the federal government is in the business of direct lending, is this fee still necessary? And can the Department of Education and the loan servicers function properly without this fee?

James W. Runcie, Chief Operating Officer, Federal Student Aid, Department of Education:
Yeah, no, the fee is a part of the structure that we have – and you’re right – that is taken out of the loan amount that is distributed to the student. In terms of what that would mean from a structure perspective, I don’t believe that it would have – I mean we could still operate and we could still conduct the loan program without that.

In terms of other considerations – statutory and otherwise – I can’t speak to that. But you’re right, there is that fee, and it results – it’s a very small fee on a per borrower basis but when you aggregate it together, it’s a meaningful amount.

Sen. Tammy Baldwin (D-Wisconsin):
I appreciated hearing in your testimony that the Department of Education has worked with loan servicers to streamline the process for those needing to discharge their loans due to total and permanent disability. I understand that discharging loans due to total and permanent disability still remains cumbersome for many. I’ve been working for some time on a student borrower’s bill of rights bill, and it includes a right to discharge a loan due to total and permanent disability as well as avoid the current tax penalty that those who are able to discharge face.

I want to know if there are further steps that the Department of Education can take to make the process of loan discharge in the event of total disability or death easier for students and families, and are there currently any incentives in place for the servicers to expeditiously serve those students and families or could you create some?

James W. Runcie, Chief Operating Officer, Federal Student Aid, Department of Education:
That’s clearly a major concern and a big issue that we’ve been focused on. We have streamlined the process. Before we have many servicers; now we have one servicer so there’s ability to have sort of quality control around that experience. We now use the SSA [Social Security Administration] and the Veteran’s determination for disability, so the vagueness around what total and permanent disability is – that’s been addressed.

And so, you know, I think we’ve improved the process but there’s probably still work to be done, and it sounds like the issue around the tax at the end – the forgiveness – that’s something that has been discussed a lot, and I know that people are looking at that. We can operationalize that pretty easily if that comes to fruition. But we have made some significant improvements, and we’re looking for additional ideas in terms of how we can further improve the total and permanent disability process.

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