WASHINGTON, D.C. | October 25, 2011
Good morning, and welcome to today’s subcommittee hearing. I’d like to thank our witnesses for joining us today. We appreciate the opportunity to hear your perspective on the Department of Education’s implementation of the Direct Loan program.
Nineteen months ago, the Democrat-controlled Congress approved a federal takeover of the student loan industry to help pay for the president’s health care law. My Republican colleagues and I were rightly concerned this political tactic could have unintended consequences on the nation’s students, higher education institutions, and our economy. Any time the federal government assumes control over a private sector industry, there can be national implications.
As the sole provider and grantor of federal student loans, the Department of Education is now one of the largest banks in the nation. In fiscal year 2012, it is expected to originate $124 billion in student loans. This is an enormous responsibility for any company or organization, let alone the agency also tasked with administering all federal education programs.
When the transition to the Direct Loan program began, critics warned of a possible increase in student loan default rates. In today’s economic climate, with reports of loan default rates on the rise, this is something the committee should take seriously.
Some are also concerned that growing default rates could be further exacerbated by the elimination of helpful services previously available through the now defunct Federal Family Education Loan program. These services, such as debt counseling, default prevention programs, and financial aid personnel training, helped ensure financial aid officers and students fully understood the loan terms and process. Schools and students must now rely on the Department of Education to provide these services, which many complain are no longer being offered or effectively administered.
The transition to the Direct Loan program has also resulted in a decline in customer service for students and financial aid officers. Given the volume of students applying for loan assistance, it has become difficult to speak to a program administrator to ask questions or share concerns about the loan process. Although the Department of Education had lofty promises of strong customer service when this transition began, many schools have voiced concerns about increasing instances of problems and mistakes.
For example, earlier this month, the Direct Loan website crashed and users were able to see other students’ personal and financial information. The implications of this kind of website malfunction are severe, particularly when it affects millions of borrowers nationwide.
Additionally, institutions have criticized the department’s handling of student loan data. Some schools report they no longer receive accurate or consistent information from the handful of government loan servicers, which limits their ability to assist students with their loan options and terms.
As members of the Subcommittee on Higher Education and Workforce Training, we have a responsibility to conduct proper oversight to ensure the Direct Loan program is meeting the needs of higher education institutions, students, and taxpayers. The witnesses with us today will provide interesting insight into execution and accountability measures of the program. I look forward to a productive discussion on this important issue.
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