Testimony on Institutional Oversight
Subcommittee on Human Resources and Intergovernmental Relations
U.S. House of Representatives Committee on Government Reform and Oversight
Mr. Chairman and Members of the Committee,
I am pleased to appear before you today to share with you the process by which institutions of postsecondary education become and remain eligible to participate in the student financial aid programs. I would also like to share the work we have done to ensure that these institutions are complying with administrative and fiscal requirements, as well as providing high-quality education and training to their students. Our goal -- one that I am sure you share -- is to provide deserving students access to high-quality postsecondary education while simultaneously ensuring the integrity of the federal student aid programs. It is a goal that embodies the President's long-standing conviction that the Federal Government has an obligation to ensure educational opportunity, but with that opportunity comes responsibility, including responsibility on the part of the institutions. Our commitment to ensure that students, who increasingly are from low and middle-income families, have access to a high-quality postsecondary education, depends, in large part, upon our management of these very important programs.
While we believe that the vast majority of the institutions that participate in our programs are operating in full compliance with our rules and regulations, there are some institutions that perform contrary to the program's goals and objectives. These are the institutions that we are especially concerned with in our monitoring and oversight efforts. We remain committed to enhancing the effectiveness of our oversight responsibilities and to reducing the incidence of high-risk institutions participating in the federal student financial aid programs authorized under Title IV of the Higher Education Act of 1965 (HEA). In my testimony today, I will explain the requirements that institutions must meet for eligibility in the student financial assistance programs. I will also discuss how our more focused and attentive oversight efforts, as well as our tougher standards, have removed many institutions from the programs and deterred other unqualified institutions from even applying for eligibility. Finally, I will share with you the work we have done, and the progress we have made, to adopt a fundamentally different, and we are convinced far better, approach to oversight that will build upon our accomplishments of the last few years.
Currently, approximately 7,000 postsecondary institutions participate in Title IV programs, and nearly $40 billion of financial aid will be provided to students through these programs this year. In order to participate in the Title IV programs, an institution must (1) be licensed or otherwise legally authorized by a State to provide postsecondary education or training; (2) be accredited by a nationally recognized accrediting agency; and (3) meet the Department's requirements for certification. [Flow charts outlining the existing oversight system are attached at the end of the testimony.] These three partners represent what is often referred to as the Program Integrity Triad. The Department of Education has worked with Congress to improve the eligibility and certification process, and our combined efforts have paid off handsomely. For example, the percentage of initial applications for certification that are denied has increased substantially, from 16.6 percent in 1990 to 30.5 percent in 1992 to nearly 40 percent in 1995, reflecting our tougher standards for certification. Furthermore, the sheer number of initial applications for certification has declined more than 50 percent since 1991.
To participate in Title IV programs, an institution must first be licensed or otherwise legally authorized by a State to provide postsecondary education or training. Currently, state licensure requirements vary widely across states. Some states have strict licensure requirements that address an institution's financial and administrative capability and its educational program. In other states, licensure consists of little more than acknowledgment that the institution is owned and operated by a duly-chartered corporation, and no scrutiny is exercised over the institution's ability to provide education. For eligibility purposes, the Department recognizes the state license regardless of the licensure requirements.
The 1992 Amendments to the Higher Education Act enhanced the role of the states in the oversight system through State Postsecondary Review Entities (SPREs). Initial efforts to implement these statutory provisions suggested that the SPRE program was developing as anticipated. However, creating the SPREs changed the relationship between institutions and their State and Federal governments so substantially that the overwhelmingly negative response from the postsecondary community created an environment that simply made it impossible to sustain the partnership we need to serve students well. The Department is now relying on the states to provide help in the areas in which they are most familiar with rather than burdening them with nontraditional tasks. We believe that institutions should be required to provide information about educational programs and student outcomes to prospective students in order to help them make more informed decisions about where to enroll. This would help to ensure that market forces work better to eliminate inadequate institutions and programs. The information provided by institutions could vary between degree and non-degree programs. State-run One-Stop Career Centers could act as honest brokers of information and be responsible for making this information available to prospective students as they do now with information on employment opportunities and career possibilities.
In addition to being licensed, an institution seeking initial eligibility for Title IV programs must be accredited by an accrediting agency that is recognized by the Secretary. Accrediting agencies are private, nongovernmental, peer review organizations that evaluate educational quality, with emphasis on the curriculum, the qualifications of the faculty, student outcomes, support services, and the ability of the institution to carry out its mission. While accreditation has been a requirement for institutional eligibility since the inception of these programs, the 1992 Amendments significantly strengthened the requirements that accrediting agencies must meet in order to be recognized. The 1992 Amendments specified 12 areas in which agencies must develop standards and operating procedures with respect to reviews of institutions by accrediting agencies. The Amendments included the requirement that agencies must have standards for educational outcomes, including, as appropriate, completion and job placement rates, and performance on licensing examinations. Institutions that fail to meet their accrediting agency standards risk losing their accreditation and, as a result, their eligibility to participate in Title IV programs.
The Department is responsible for evaluating the compliance of accrediting agencies with the requirements of the 1992 Amendments. The Department evaluates written materials, conducts site visits of agencies, observes institutional site visits conducted by accrediting agency evaluators, and conducts agency file reviews to evaluate and monitor agency compliance with the requirements for recognition.
The 1992 Amendments also substantially enhanced the role of, and renamed, the National Advisory Committee on Institutional Quality and Integrity, which is comprised principally of presidents and vice presidents of postsecondary education institutions. This outstanding group of individuals performs a valuable service for the Federal Government by giving their time and advising the Secretary on matters regarding the eligibility and certification of institutions for Title IV programs. One of their principal roles is to review staff reports concerning accrediting agencies and to make recommendations to the Secretary concerning the recognition of accrediting agencies, including recommendations to withdraw, modify, and/or place conditions on recognition.
The Department, with the assistance of the National Advisory Committee, is continuing to work with accrediting agencies to strengthen their oversight in statutorily mandated areas, in accordance with the 1992 Amendments. Prior to the 1992 Amendments, there were concerns that the agencies were not ensuring that the institutions they accredit were fulfilling their responsibility to provide a high-quality education to their students. The Department shared similar concerns. Since then, we have engaged the agencies and stressed the importance of their role with regard to ensuring educational quality. The agencies have responded by working to develop meaningful standards, consistent with the law, to assess educational programs. Although some concerns remain regarding the agencies' ability and willingness to enforce performance measure standards, we have witnessed a substantial change in behavior on the part of the accrediting agencies.
An institution must also apply to the Department for certification that it meets certain standards of financial responsibility and administrative capability. To meet these standards, an institution must, at least, demonstrate that it meets its financial obligations, provides the administrative resources necessary to comply with Title IV requirements, has audited financial statements that indicate sufficient financial health, employs an adequate number of capable staff to administer Title IV programs, maintains records as required by the Department, and implements a sound system of internal controls.
If an institution seeking initial eligibility meets the standards of financial responsibility and administrative capability, the Department grants provisional certification to the institution. The 1992 Amendments required the Department to give a no more than probationary approval, called provisional certification, to institutions of questionable capability to ensure that those institutions demonstrated that they were capable of effectively administering the Title IV programs. After the first full award year, each new institution must apply for full certification, at which time the Department determines, based on a thorough review of the institution's performance during its first year of participation, whether to grant full certification, continue provisional certification, or refuse to permit further participation under any terms. In addition, the Department considers any review that may have been conducted by either the Department or a student loan guaranty agency. All institutions placed on provisional certification are subject to a system of expedited administrative review, which enables us to remove schools from participation quickly, should problems arise.
Institutions fully certified to participate in Title IV programs must also follow certain procedures to continue their participation. Institutions must remain licensed and accredited at all times during their participation. In addition, all institutions, as required by the 1992 Amendments, must be recertified every four years to ensure that they continue to meet the standards of financial responsibility and administrative capability. When an institution applies for recertification, the Department may: recertify the institution for the full four-year period; provisionally certify the institution if it meets most of the requirements but has some deficiencies; or deny recertification, at which point the institution's Program Participation Agreement (PPA) expires and the institution loses the ability to participate in Title IV programs. The Department may place an institution on provisional certification if the institution is experiencing problems that are significant enough to warrant further monitoring. Again, when an institution is placed on provisional certification, the Department can remove the institution from participation much more quickly than it can remove a fully certified institution.
The Department focused its initial recertification efforts on the institutions that have previously posed concerns to the Department. Nearly 60 percent of the first 1,500 institutions that underwent recertification were selected because they met criteria that identify potentially at-risk institutions. Institutions that met these criteria include institutions that were subject to an on-site review by either the Department or a guaranty agency in the past year or did not meet the financial standards based upon an initial screening of their financial statements. Among the institutions selected for recertification last year, more than 20 percent were provisionally certified and another 10 percent were rejected altogether. In all, 531 institutions (which includes both new institutions and currently eligible institutions) are provisionally certified.
Monitoring and program reviews are other essential tools of oversight that we use to ensure accountability and compliance with the rules and regulations of the programs. Through the use of management controls, databases, legislation, and intensive reviews of at-risk institutions, we have spent considerable time and effort to substantially improve monitoring and oversight.
The Department's monitoring of institutions was assisted by the 1992 Amendments, which mandate the annual and timely submission of financial and compliance audits by all institutions. Previously, institutions submitted financial audits only after the Department detected a problem with their ability to meet the financial requirements. Annual compliance audits serve as an important tool in reviewing high-risk institutions' performance before serious problems arise. For example, findings in an institution's compliance audit may lead us to conduct a program review, in which one of the Department's 10 regional offices conducts an on-site review of an institution's participation in the student financial assistance programs. If a program review or other process check reveals noncompliance with specific program participation requirements, or potential for significant dollar impact that is adverse to the government or harmful to students, the Department initiates corrective action to ensure that the school properly uses and accounts for Federal funds; to do so, the Department may require the institution to be paid under the reimbursement payment method, and may pursue an administrative enforcement action, including termination of the institution's participation, and, if fraud is suspected, refer the case to the Office of the Inspector General for investigation.
The Department performed nearly 900 program reviews in 1995, a 50 percent increase from 1994. We have hired additional program reviewers and significantly increased the formal training we provide to them through our new Training Academy. The Department has also implemented other measures to better target high-risk institutions for program reviews, reduce the time it takes to finalize a review, and assess only meaningful liabilities. By taking advantage of technological advances, we have refined automated techniques used to evaluate school status and provide warning signals to identify high priority candidates for review; we have supplied staff with state-of-the-art portable computers and enabled them to access Pell Grant payment information to support review activities; and we have made important improvements in the practice of statistical sampling so that our reviewers can make more sophisticated, scientifically designed assessments of the loss of Federal funds caused by institutional errors or abuse.
The Department also monitors student aid applications to prevent ineligible students, and students who provide false information, from receiving Federal funds. A number of database matches are performed for each student aid application, and many have recently been enhanced or introduced to strengthen our oversight in this area. First, each applicant's name and date of birth is now matched with the Social Security Administration's master file to verify the applicant's Social Security number. Prior to September, 1994, we checked merely to determine whether the Social Security number the applicant reported was within the valid range of all numbers issued by the Social Security Administration.
Second, since January, 1995, every applicant's name and Social Security number is checked against the Department's National Student Loan Data System (NSLDS) to determine whether the student is in default on a student loan, or has received an overpayment on a grant and therefore owes a refund, before he or she can receive additional aid. This new data system provides more timely, accurate, and comprehensive loan-level information than was previously available through the database of loans held by the Department and the annual status reports filed with the Department by the guaranty agencies. NSLDS is also used to verify the enrollment status of student borrowers, verify that student borrowers have not exceeded statutory loan limits, and is critical in ensuring that the Federal Government does not overpay lenders for interest benefits arising from federally guaranteed loans. To date, NSLDS has identified approximately 125,000 prior defaulters among students applying for additional financial aid, preventing as much as $310 million in future defaults and denying about $75 million in Pell Grants to these ineligible students.
Third, the Department verifies the eligibility status of applicants who claim to be eligible non-citizens by matching their alien registration number ("A" number) with the Immigration and Naturalization Service. We have also implemented, beginning in January, 1996, a recommendation from our Office of the Inspector General to expand the Social Security number match to include citizenship status in order to prescreen all applicants for citizenship status rather than only those who provide an alien registration number. Finally, the Department has recently begun systematically to identify students with scheduled Pell Grants in excess of the amount allowed by law. Such excesses can occur when students transfer schools. This check will help ensure that no such student will receive an overpayment.
We are also building on the accomplishments of the Direct Loan program to use technological advances to consolidate our student aid data systems and processes. For example, we are redesigning the Department's financial and management information systems to ensure that data from accounting, grants, contracts, payments, and other; systems such as the student aid application system are integrated into one financial management system. Additionally, we are working with a diverse group of government, business, and education leaders to reengineer the postsecondary student aid delivery system through the creation of Project EASI (Easy Access for Students and Institutions). Project EASI will integrate the various systems components into a single, student-centered system. All of these measures will help us reduce our costs through the elimination of redundant and obsolete systems, reduce fraud and system vulnerability, and facilitate program flexibility and change as we expand our capability to quickly utilize new technologies. They will also help institutions avoid noncompliance with our rules and regulations.
When audit reviews, program reviews, or other monitoring devices indicate that an institution is failing to comply with requirements of Title IV programs, or that a school is otherwise determined to be at-risk, the Department can limit, suspend, or terminate an institution's participation agreement. In 1994, 191 termination actions were imposed by the Department, the most ever for a single year.
The default reduction initiative has also proven to be a very effective tool in enabling the Department to end an institution's eligibility for one or more of the student aid programs when the institution's student loan cohort default rate exceeds certain statutory and regulatory default rate criteria. The cohort default rate is defined as the percentage of borrowers whose loans entered repayment in a given fiscal year who defaulted in that year or the subsequent year. Because the statutory threshold has dropped from 35 percent to 25 percent over a four-year period, the number of institutions removed from participation has increased considerably in the past few years. More than 600 institutions have been made ineligible to participate in the Federal Family Education Loan (FFEL) program since the default reduction exclusion authority was enacted in 1990.
The national cohort default rate declined from 22.4 percent in the 1990 cohort to 11.6 percent in the 1993 cohort. The Department's reinsurance payments have declined more than 30 percent, from $3.5 billion in 1991 to $2.4 billion in 1995, despite a 50 percent increase in the volume of loans in repayment during the same period.
Through these measures, and our overall commitment to stronger oversight, more than 300 institutions have been removed from participation in all Title IV programs since this Administration came into office in January, 1993. This is more than twice the number removed from eligibility in the previous seven years combined.
Finally, I want to share with you today a very different approach to monitoring and oversight that will best utilize our available resources. Our approach includes regulatory relief for institutions where appropriate, statutory relief, with your help, where necessary, and improvement of administrative processes wherever possible. At the same time, we are increasing our oversight of institutions that have experienced problems in managing our programs and that pose significant risks to Federal funds.
This initiative builds upon the actions already taken by the Department to simplify regulations and administrative processes and to ensure the integrity of the programs and promote accountability. The Department has alleviated some unnecessary burdens for all institutions through the recent issuance of new regulations and by streamlining the recertification application that each institution is required to submit. Our latest initiative would allow us to move further in this direction and reduce administrative burden where the program's requirements do not improve accountability, protect the Federal fiscal interest, or serve the students. We believe that there are a number of institutions that should not have to be regulated as stringently as other institutions because of their past successful performance in managing the Title IV programs.
We are focusing on further improving our oversight of institutions that require closer monitoring through the development of a risk-analysis model that will allow us to target oversight resources on institutions with poor performance records. The Department will also re-align staff with oversight responsibilities along case management lines, whereby a team of employees is responsible for all oversight activities for an assigned group of institutions. We believe that this approach will enable us to manage the program more effectively and efficiently and to be more sensitive to our customers' concerns. In this regard, we have consulted extensively with both the leadership of individual institutions and the associations representing all sectors of higher education to develop a more-responsive relationship.
Mr. Chairman, I have explained the policies and processes involved in institutional eligibility for Title IV programs. Although the requirements for eligibility may, at times, seem daunting, we recognize and take seriously our responsibility to maintain the integrity of the student financial aid programs. We also believe that we have made significant improvements in the existing oversight system, both by reducing the unnecessary administrative burdens and by better monitoring institutions that pose risks to Federal funds. Our hard work in implementing the regulations arising from the 1992 Amendments and in improving the management of these programs is consistent with the President's belief in providing opportunity with responsibility. In all, our efforts have allowed us to provide more financial aid to students than ever before, while ensuring that the institutions that participate in the Title IV programs are operating within the boundaries of financial and administrative responsibility.
I would be happy to answer your questions at this time.
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