Federal Student Aid Office Calls Failure A Success -- And Hands Out Big Bonuses

House Republicans blasted the "performance-based" office for lousy work.
Rep. Virginia Fox (R-N.C.) speaks to the media following the House Republican Conference meeting in the Capitol on Wednesday,
Rep. Virginia Fox (R-N.C.) speaks to the media following the House Republican Conference meeting in the Capitol on Wednesday, Nov. 28, 2012. (Photo By Bill Clark/CQ Roll Call)

In 1998, the Republican-led Congress and President Bill Clinton's Democratic administration decided to give the U.S. Department of Education's financial aid office more freedom to run the student loan program in exchange for it committing to measurable goals.

It may have been a huge mistake.

That's the takeaway from a congressional hearing Wednesday that featured blistering criticism from government watchdogs, House Republicans and higher education experts directed at the Office of Federal Student Aid and its chief, James Runcie, for what they described as sloppy oversight of loan contractors and for-profit colleges, inconsistent and poor communication to schools, and an agency culture that chafes at criticism and oversight and seemingly rewards failure.

Late payments on student loans have risen in recent years despite generous repayment options, lower joblessness, higher wages and an improving U.S. economy. Federal regulators have found evidence that some of the Federal Student Aid office's loan contractors have misled borrowers. State attorneys general and the federal Consumer Financial Protection Bureau have sued FSA-overseen schools for allegedly swindling students, conduct that FSA missed or ignored for years.

"It is clear that FSA can not administer this program," said Rep. Virginia Foxx (R-N.C.). She told Runcie: "You are harming the people you are supposed to be helping, and that has to stop."

Meanwhile, FSA senior officials continue to give themselves rich salaries and bonuses as the agency in its own reckoning continues to exceed its performance goals. The top bonus last year was $75,000, a 96 percent increase from three years earlier

More than 100 of FSA's roughly 1,300 employees in the 2014 fiscal year had salaries above $150,000, according to an online database maintained by the Asbury Park Press. The typical FSA employee is paid more than $100,000 a year, about 33 percent more than the typical federal employee, according to separate data from the U.S. Office of Personnel Management.

"I am concerned about the culture being fostered at FSA," said Rep. Mark Meadows (R-N.C.). Justin Draeger, president of the National Association of Student Financial Aid Administrators, said the agency needs "cultural changes." Outgoing Education Secretary Arne Duncan appointed Runcie to lead FSA.

FSA was the federal government's first "performance-based organization," a concept championed by former Vice President Al Gore as a way to bring private sector expertise and management practices into government. The office was given wide latitude in contracting and personnel practices so long as it set quantifiable goals and committed to improving on them every year.

Congress designated the office as a performance-based organization to improve its customer service, reduce costs, and increase accountability. The move was a rebuke to the Education Department's management of the student loan program.

The problem, experts say, is that FSA largely sets its own goals and defines success without considering the views of others.

Take how it judges progress toward reducing distress among student debtors. Last year, in its annual report to Congress, FSA said 8.1 percent of borrowers were at least 90 days late on their student loans. This year, it was 9.8 percent. But FSA changed how it calculated the delinquency metric, and revised up the 2014 figure to 9.9 percent, allowing it to claim success this year. FSA said the new metric was a "better measure."

"The problem with self-assessment is even when the department fails they deem it a success," Draeger said.

Former senior Education Department officials have complained about an inability to get basic information out of FSA. Current officials at various federal agencies have said that they have had difficulty getting data on the performance of federal student loans. FSA doesn't make public the number of borrowers who annually default on federal student loans. 

"I'm extremely concerned about FSA's ability to serve students, borrowers and taxpayers well," Foxx said. In remarks directed at Runcie, Foxx added: "You have been given the high honor, in my opinion, of being a performance-based organization and you have not lived up to that."

Americans with federal student loans who have complained about various issues to the FSA office tasked with advocating for them would probably concur. Debtors gave the Federal Student Aid Ombudsman, an office Congress created to assist borrowers, abysmal ratings in a customer satisfaction survey in the last fiscal year, according to the agency's annual report.

Borrowers gave the ombudsman group a score of 41 out of 100 on the American Customer Satisfaction Index, a widely used gauge that measures customers' satisfaction.

FSA encourages its loan contractors to maintain scores in the low 80s. The national average across all economic sectors is 76.

The ombudsman group explained away its atrocious customer satisfaction score in its annual report to Congress by arguing that the survey data suggests that borrowers are rating the ombudsman not on the quality of service, but on the outcome of their case.

The ombudsman tried to present a better picture of its horrendous customer satisfaction score by removing its zero ratings from borrowers. That only raised its score to 63. All of FSA’s loan contractors received higher ratings from borrowers this past year.

Before Congress on Wednesday, Runcie defended his organization by citing data showing that the agency has reduced waste, cut costs, and reduced the time needed to complete the Free Application for Federal Student Aid, or FAFSA.

Congressional Democrats praised the agency for ensuring that students have their loans and grants in time for the start of classes. They also noted that FSA has had to contend with a significant transformation of the federal student loan program from a bank-based system to one in which the government makes all new loans. And more students are taking out more loans and grants from the department, perhaps straining resources.

Ben Miller, a former Education Department official who now is senior director for postsecondary education at the Center for American Progress, told Congress on Wednesday that FSA had done good work on loan delivery and easing the FAFSA-filing process for students. But he criticized the agency for poor oversight of for-profit colleges and loan contractors whose past performance requires "significant scrutiny." 

Oversight in higher education overall appears to be minimal. Meadows, the North Carolina Republican, acknowledged that Congress itself has failed to hold FSA accountable. The head of FSA has testified before Congress just three times since 2010, he said. "We created this thing and then walked away," Meadows said.