The Education Department paid out more than $6 billion in improper payments in fiscal 2016, and that number is likely to rise next year thanks to proposed budget cuts and the suspension of a data retrieval tool used to help populate student loan applications.

Education overseers testified during a May 25 joint House subcommittee hearing that the proposed $2 billion or so in cuts to federal financial aid discretionary appropriations will pose hurdles to monitoring the loans.

“One of our management challenges historically has been oversight and management of the various entities that the department has to oversee and manage; whether it’s contractors or grantees,” said Kathleen Tighe, inspector general for the Education Department.  “I think that it’s going to be a challenge for the department if resources are cut in those areas, to maintain a level of sufficient monitoring and oversight that is needed.”

Tighe said in her testimony that the improper payments estimates for the William D. Ford Federal Direct Loan program went from $1.28 billion in fiscal 2015, to $3.86 billion in 2016. For the Federal Pell Grant program, the improper payments went from $562 million to $2.21 billion.

Jay Hurt, chief financial officer for the Office of Federal Student Aid, told congressional members that the department had yet to analyze this year’s budget and its impact on operations, but said the Internal Revenue Service’s and Education’s data retrieval tool — offline until October 1 — was no longer a win-win for the department and schools.

“The portion of improper payments that the DRT was actually helping us to avoid for that period of time — until Oct. 1, for 2017-18 — unfortunately, the improper payments will increase,” Hurt said.

The tool was suspended in late March after the discovery of 100,000 tax accounts possibly jeopardized thanks to the “convenience app” that populates a student’s loan application with tax data.

A slap in the face

The DRT suspension is just one of the issues plaguing the beleaguered Education component. Hurt, in fact, was a last-minute substitute for former FSA chief operating officer James Runcie, who abruptly resigned the night before he was scheduled to testify at the hearing — an absence not lost on members.

“Under statute, he was responsible to Congress for the operations of FSA, and we had questions,” said Rep. Mark Meadows (R-NC). “It’s also a slap in the face to the millions of taxpayers who provided this gentleman with over $430,000 in bonuses since 2010. With an investment like that, they deserve better.”

“You said earlier zero mistakes is unrealistic,” Rep. Virginia Foxx (R-N.C.) said when addressing Hurt. “I think we should strive for zero mistakes. You’re not dealing with your own money, you’re dealing with somebody else’s money, and I want people in the department to remember that every day.

Lawmakers on both sides of the aisle said what taxpayers deserve is an agency that is in compliance with reporting requirements, and protects customers from bad actors.

Rep. Gerry Connolly (D-Va.) pointed out that Tighe’s office has reported several times that Education is non-compliant with the Improper Payments Information Act of 2002, the Improper Payments Elimination and Recovery Act of 2010, and the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERA) — and that’s not even the biggest problem, he said.

The Education Department contracts with student loan companies to manage the roughly $125 billion in student loans, he said.

“Last September, the OIG issued a report finding that multiple student loan companies — which were supposed to be helping students — were actually accessing and changing student log-on information as part of predatory schemes to access their accounts, change their regular mail and email addresses, and even intercept correspondence,” Connolly said. “That sounds like stealing to me.”

Asked why FSA doesn’t just cut those bad actors loose, Hurt said they are often third-party providers, and not the agency’s loan servicing companies.

“They can be unscrupulous actors, and we are collaborating with our IG colleagues to identify bad actors in those scenarios and take actions and put in controls to avoid that from happening,” Hurt said.

Tighe backed up Hurt’s statements on the third-party providers, but nevertheless, these people need to be dealt with, she said.

“We did our report and we made two recommendations because we’d like to be able to prosecute some of these people,” Tighe said. “One of those things was a very simple fix of changing the log-in banner on the website, and we made that recommendation a while ago now. I’m happy to say I think FSA just implemented it last week, and that’s a good thing.”

Missing the target

When it comes to compliance with the various laws that govern improper payments, Hurt said for the past three years FSA has been non-compliant with IPERA because the agency missed its targets, in part because it changed its methodology for addressing inspector general findings.

“Over the years we have taken the recommendations from the IG and modified the methodology,” Hurt said. “That’s one of the reasons why the rate differs from the actual target. The way the IPERA works, we cannot go back and modify the target when the methodology changes. So as we become more inclusive of our estimates, our estimates include looking for more risks in the estimates, and they grow, the targets don’t grow; therefore when we miss the targets [and] by definition we are non-compliant. That’s one reason we’ve been non-compliant. The other is just the nature of the estimate. We base it on existing work and monitoring work within the Federal Student Aid [office]. Most of our work is targeted to high-risk areas, and it’s not randomly selected. We do that because we want to end improper payments, we want to find opportunities to fix.”

Meadows directed Hurt to submit a plan of action within 45 days, for completing the inspector general’s recommendations. He also instructed Tighe’s office to prioritize their outstanding recommendations to help avoid “a drop of a baton” following an administration change and progress toward meeting those recommendations.

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