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Statement by
Marshall S. Smith
Acting Deputy Secretary
Before the House Appropriations Subcommittee
on Labor, Health & Human Services and Education
on
Department of Education
Management Improvements and Year 2000 Compliance
Mr. Chairman and Members of the Committee:
Thank you for this opportunity to share with the Subcommittee some of our progress in improving management at the Department of Education, as well as some of the key challenges we face over the coming year, including implementation of the Government Performance and Results Act (GPRA), the Year 2000 problem, student aid system modernization, and improving our financial management systems and statements. Our success in meeting these challenges will depend in part on support from this Subcommittee.
We are now moving aggressively to implement the Strategic Plan in all parts of the agency. This effort includes communicating the Plan to all managers and staff, using performance data to monitor progress toward Plan objectives, and holding managers and staff accountable by linking bonuses and ratings to achievement of Plan goals.
The Department's first-ever Annual Performance Plan, which was delivered to Congress in February, included strategies and performance goals for the 22 objectives of the Strategic Plan, as well as individual program performance plans covering all Department programs. The program performance plans also were integrated into our Congressional budget justifications. With the submission of the Performance Plan -- which aligns our activities and our data systems in support of the goals, strategies, and indicators in the Strategic Plan -- all of the GPRA elements are in place to help drive management changes throughout the Department of Education.
The Department was among the first Federal agencies to begin addressing the Year 2000 problem. We fell behind during the assessment process, in part because we discovered that two major systems previously believed to be Year 2000 compliant actually were not compliant. This discovery increased our assessment workload, both by adding to the number of systems requiring assessment and by highlighting the necessity of a more thorough approach to assessment. It also taught us to assume nothing when dealing with the Year 2000 problem, which is one reason we are taking the extra step of verifying every mission-critical system, even our new systems that were designed and built to be Year 2000 compliant.
To get back on track, the Department has developed a comprehensive Year 2000 Project Management Plan that includes clearly defined organizational roles and responsibilities, reporting and monitoring processes, and budget plans for the five-phase strategy recommended by the General Accounting Office: awareness, assessment, renovation, validation, and implementation. We have completed the awareness and initial assessment phases and are moving rapidly through the renovation and validation phases.
The awareness phase included the creation of a high-level Year 2000 Steering Committee, which I chair, and which includes the Chief Financial and Chief Information Officer, the Year 2000 Project Director, Principal Office Coordinators, and contractor support from the outside management consulting firm Booz-Allen & Hamilton. In addition, we regularly seek the advice of the Inspector General on key elements of our Year 2000 strategy, including the development of a sufficiently independent validation process.
The assessment phase involved an agency-wide inventory -- utilizing methodology developed by Booz-Allen & Hamilton -- that identified 14 mission-critical systems potentially affected by the Year 2000 problem.
We have established a careful and systematic schedule for the renovation and validation phases of the project, and have contracts in place to support this work. Approximately 25 percent of the renovation work and 15 percent of the validation work has been completed for the 14 mission-critical systems. We expect to complete the vast majority of the renovation work ahead of the September 1998 OMB milestone.
The Department has hired experienced contractors to perform the critical independent validation and verification tasks for our mission-critical systems. Our schedule calls for completion of validation and implementation by March 1999, thus allowing at least nine months to ensure that all renovated systems are running smoothly prior to January 1, 2000.
In addition, the Department is developing contingency plans for all 14 mission-critical systems, as a precaution against system failures that may occur despite the best efforts of the Department and its contractors. Draft plans will be completed by the end of May detailing alternative systems and their requirements. We anticipate that some of these contingency systems may require the temporary waiver of regulatory or statutory requirements to ensure continued flow of financial assistance to States, schools, and students. If so, we will ask Congress for the authority to grant such waivers. Congress has given the Secretary similar authority during natural disasters.
Finally, the Department is actively reaching out to its many data exchange partners -- including 6,000 postsecondary institutions, 15,000 local educational agencies, and State education agencies -- to raise their awareness of Year 2000 issues. For example, in January of this year I joined the Executive Director of the Council of Chief State School Officers in sending a Dear Colleague Letter to the Chief and Deputy Chief State School Officers in all 50 States, the District of Columbia, and the territories. The Department also has developed a brochure on the Year 2000 problem, established a Year 2000 web site, and opened Year 2000 mailboxes to answer questions.
We now have a complete inventory of data exchanges, the most critical of which involve the Education Department Central Administrative Processing System (EDCAPS) and the student financial aid programs. Most EDCAPS data exchanges, including those with other Federal agencies, are already Year 2000 compliant; those that are not will be repaired within the OMB milestones.
In the student financial aid area, we sent out technical specifications regarding Year 2000 to all higher education institutions in November 1997, and will provide Year 2000 compliant student financial assistance software to all postsecondary institutions by January 1999. In addition, Department training sessions for student financial aid offices -- which will reach up to 6,000 participants this year -- now include a Year 2000 module. Department officials also will discuss Year 2000 compliance at 39 regional and national conferences of the National Association of Student Financial Aid Administrators, which includes representatives from about 3,300 postsecondary institutions.
I would like to add, Mr. Chairman, that the Members of this Subcommittee, along with your colleagues in the House and Senate, can help with our Year 2000 outreach efforts by raising the issue whenever you visit school districts and postsecondary institutions back home. We know from anecdotal stories that many districts and institutions are at risk of major disruption when January 1, 2000 arrives. It is critical to raise awareness of the Year 2000 problem across the Nation, and Members of Congress can do much to help in that effort.
Much work remains, but I believe the Department has established an achievable set of steps for addressing the Year 2000 problem. I hope the Subcommittee will support us by approving the $4 million increase in Program Administration funds -- beyond the increase required for pay raises and other built-in costs -- needed to ensure that all Department systems are Year 2000 compliant.
The student aid programs are complex -- involving 6,000 postsecondary institutions, 4,800 lenders, 36 guaranty agencies, and millions of students -- and prone to abuse. For example, the default rate on Federally guaranteed student loans reached a high of 22.4 percent for loans entering repayment in 1990, with net default costs peaking at $2.8 billion in 1991. Since then, we have cut the cohort default rate by more than half, down to 10.4 percent in 1995. And by more than doubling collections on defaulted loans from $700 million in 1991 to $1.7 billion in 1997, the Department reduced net default costs to $1.2 billion.
Improved data systems and strengthened gatekeeping have also helped reduce fraud in the student aid programs. For example, since the National Student Loan Data System (NSLDS) came on-line in 1994, it has prevented the award of almost $1 billion in loans to ineligible borrowers.
And since 1995, the Department has removed over 1,400 schools from all student aid programs while banning an additional 300 from participation in the student loan programs. Reasons for removal included high default rates and a strong recertification requirement.
In addition to cutting fraud and abuse in the student loan programs, the Department has worked hard to streamline the delivery of student aid and improve customer service. For example, the Direct Loan program now processes over 98 percent of loan origination records within the first 12 hours after it receives them from schools.
The Department has embarked on a two-year effort to consolidate all of its student aid data processing into one data center under a GSA government-wide contract. The recently completed relocation of NSLDS to the new site in Meriden, Connecticut is expected to save more than $30 million over five years, helping to achieve the dramatic savings required by the Balanced Budget Act of 1997.
The Department also has expanded the processing of the Free Application for Federal Student Aid (FAFSA) via the Internet. FAFSA on the Web -- a free, secure Web site that allows students to submit their financial aid data over the Internet -- is a faster, easier, and cheaper way for the student to file and the Department to process aid applications. Only two-tenths of one percent of FAFSAs received via the Web have to be returned to the applicant because of incorrect or incomplete information -- compared with 12 percent of paper FAFSAs -- because automatic prompts remind applicants to resolve inconsistent or conflicting entries. Electronic applications are up 50 percent this year.
For 1999, we plan to build on these accomplishments by giving top priority to modernization of our student aid delivery systems through the continued implementation of Project EASI and the activities of the Student Financial Assistance Modernization Board.
Project EASI (Easy Access for Students and Institutions) brings together government, business, student, and education leaders to develop plans for integrating student aid delivery and improving customer access to information and postsecondary student financial aid opportunities. EASI is aimed at creating a student-centered delivery system with a single point of contact for applying for student aid, determining eligibility, obtaining funds, and repaying loans.
After extended consultation with our student aid partners -- institutions, States, lenders, guaranty agencies, secondary markets, and others -- we have begun planning the internal changes required to implement Project EASI. This effort, known as Project EASI-ED, includes developing standards for the processes, data, software, and hardware needed to improve student aid delivery. Such standards should increase the efficiency and decrease the cost of delivering aid for the Department and its partners. At the same time, the EASI-ED architecture will be flexible enough to support a variety of options for performing business functions, including outsourcing and the use of off-the-shelf software packages. We are developing a detailed implementation schedule and expect to begin design work next fall.
In addition to Project EASI, the Department last fall initiated a Student Financial Assistance Modernization Board to assist Secretary Riley in ensuring effective management of the Federal student aid programs. The Modernization Board is composed of senior Federal officials from across the government, who draw upon broad-based public and private-sector expertise in managing and modernizing large data and delivery systems, Federal procurement and contracting, and information technology.
The Modernization Board advises the Secretary on such issues as changing contracting practices to improve access to high-quality private-sector services, short- and long-term planning for the modernization of the Department's information technology systems, simplifying program administration, and developing plans based on best industry practices for improving customer service and reducing costs.
In addition, the Department is working to improve student aid delivery through an Action Plan developed in consultation with members of the Modernization Board, including the Office of Management and Budget and the Vice President's National Partnership for Reinventing Government (NPRG). The Student Financial Assistance programs have been designated a "high impact" area by the NPRG. Action Plan goals include modernizing student aid delivery, strengthening partnerships and increasing customer satisfaction through new technologies, and ensuring accountability for federal funds.
The Action Plan is expected to guide such improvements as increasing the number of students submitting aid applications electronically, cutting in half -- to just four days -- the time required to determine the eligibility of students applying electronically, development of a multi-year promissory note for student loans, providing comprehensive access to student aid information -- including individual data such as FAFSA application status -- over the Department's web site, and strengthening institutional oversight by resolving 95 percent of audits within 7 months of receipt.
One part of EDCAPS that should bring noticeable improvements for Department customers is the implementation of the Grants Administration and Payments System (GAPS) in May. GAPS will offer streamlined procedures and reduced paperwork for drawing down funds and reporting expenditures, while providing accurate and timely financial information to all users, including community partners and Congress. For example, the new system will provide more accurate and up-to-date information on outlay patterns -- an issue that Members of this Subcommittee have raised several times in recent years.
In addition to improvements to our financial systems, we are close to resolving the issues that have prevented the issuance of a clean opinion on the Department's audited financial statements. The stumbling block in previous years has been the absence of a reasonable methodology and system for estimating the potential loss which could be incurred on loans made and guaranteed by the Department. For fiscal year 1997, we have worked extensively with auditors in explaining and documenting the methodology used for estimating loan losses. The time and effort required have delayed the completion of the audited financial statements, but greatly increased the likelihood of obtaining an unqualified (clean) opinion for the year ended September 30, 1997.
The Department's Strategic Plan calls for an agency that delivers fast and accurate customer service, prompt dissemination of high-quality information and products, improved accountability for the Federal investment in education, and maximum benefit from the utilization of information technology. The activities I have described today, together with your support for the Department's 1999 budget request for management, will help make this vision a reality for the year 2000 and beyond.
I will be happy to take any questions you may have.
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