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Subcommittee Examines Transition to Government-Run Student Lending

Department Official Refuses to Answer Questions about President’s Rumored Plan to Change Student Loan Repayment Options

The Subcommittee on Higher Education and Workforce Training, chaired by Rep. Virginia Foxx (R-NC), today held an oversight hearing to examine the Department of Education’s implementation of the Direct Loan Program.

Last year, the Democrat-led Congress approved a federal takeover of the student loan industry. As a result, the Federal Family Education Loan program, which has leveraged hundreds of billions of dollars in private sector capital since 1965 to help Americans pay for college, was replaced with 100 percent Direct Lending, in which the government originates and oversees every single federal higher education loan in the country.

“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,” Chairwoman Foxx stated. “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.”

During the hearing, subcommittee members learned of the challenges institutions encountered as they transition to the government-run Direct Loan program, including complaints of poor customer service, concerns about insufficient student data, and an overall decline in important programs to assist loan holders and administrators with debt counseling and default prevention.

House Committee on Education and the Workforce Chairman John Kline (R-MN) expressed concerns about the department’s ability to maintain a high standard of customer service, and asked U.S. Department of Education Office of Federal Student Aid Chief Operating Officer James Runcie about a recent security breach on the Direct Loan website that exposed thousands of students’ personal and financial information:



 “Users who logged on saw account information of others that had logged on… The impact of students potentially [affected] was as much as 5,000.”

Acknowledging reports of an upcoming presidential announcement regarding student loan repayment plans, Rep. Foxx said, “There’s a report in the Wall Street Journal that the president is about to announce a major change in the program that we have not yet acted on in the Congress.” In the exchange below, she asks Mr. Runcie to explain the department’s authority to implement this administrative action:


“I can’t answer that question.”

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