DEPARTMENT OF EDUCATION
While the current student financial aid system is effective in serving those students and in protecting the taxpayers' dollars, it needs to be improved. The various parts of the system delivering student aid are not well integrated, financial data from aid programs is only partially merged at the student level, and too many contractors use different operating systems in distributing the various types of federal aid. As a result, access to reliable student financial aid information is more cumbersome than it should be, and student aid is not delivered as efficiently as it could be.
The Department is committed to redesigning and modernizing the delivery system based on the latest information engineering and computer systems technologies. Today, I want to tell you about six major initiatives we are taking in that direction. The first is Project EASI, which stands for Easy Access for Students and Institutions. Perhaps our boldest improvement effort, Project EASI is a collaborative effort with the financial aid community to use advanced technology to integrate not only the Department's aid programs, but also to link up with schools, lenders, and other partners to provide comprehensive assistance to students. The second is an initiative attributable to Project EASI, namely the use of the World Wide Web to make the Free Application for Federal Student Aid (FAFSA) more widely accessible. The third is the use of advanced technology in our Direct Loan program to enhance the quality of service to students and schools. The fourth concerns our expanded use of the National Student Loan Data System (NSLDS) to strengthen the management of student aid information. The fifth is our strategy to foster systems integration with a new, more streamlined contracting effort. And the sixth initiative is what the Department is doing to encourage and help schools move from a paper-based delivery system to an electronic one.
Since July 1995, the Department has worked collaboratively with representatives of students, schools, lenders, guaranty agencies, secondary markets, and the Office of Management and Budget (OMB) to design a state-of-the-art, comprehensive, and integrated delivery system. Leadership on this initiative has been provided by the Project EASI Steering Committee chaired by Deputy Assistant Secretary Elizabeth Hicks. Under the direction of National Co-Chairs Anna Griswold, Assistant Vice Provost for Student Financial Aid, Pennsylvania State University, and Kay Jacks, Executive Director for Enrollment Services, Colorado State University, the Department has also established a special team comprised of consultants from the postsecondary education community and ED staff to help design the system.
Project EASI envisions the Department creating a student-centered delivery system with a single point of contact for information on student aid. Through Project EASI, students will be able to learn about and apply for aid, have their eligibility determined almost immediately, and ultimately have their aid--whether a Pell Grant; Direct, Perkins, or FFEL loan; work-study assistance; or institutional or state aid--delivered to the school of their choice. After leaving school, borrowers will be able to check on their loan balances 24 hours a day. Schools will be able to use EASI for enrollment tracking and reporting. And the Department will have access to a management information system that will span all federal programs and enable us to carry out program management, reporting, and oversight in a real-time environment.
The definition phase for Project EASI is nearly complete, and the Department has begun mapping out the requirements it needs to meet to successfully implement its part of the Project EASI vision. Referred to as EASI-ED, this phase will include all of Project EASI's major functions: information sharing, applying for aid, disbursing aid, enrollment tracking and reporting, and program management and oversight. EASI-ED encompasses all current Departmental responsibilities in the student aid programs, and includes software, operating environment, and support services in addition to our links with customers. We anticipate that technological improvements and innovations to the delivery system will need to be phased in to reduce risk of disruption and allow the financial aid community to develop the new parallel systems and processes it will need. In September, the Department expects to receive materials from the EASI core team, including functional requirements, a cost/benefit analysis, and high-level technical architecture requirements. These materials will provide the information required to understand and assess fully the impact of EASI-ED's implementation.
The breadth and direction of the Project EASI vision has raised some concerns. Some worry that we are moving too fast; others that Project EASI is not a reality today. However, as previously explained, we are moving forward with Project EASI in a measured way, while also ensuring that the seven million students now getting aid at 7,000 schools continue to get their aid. Changing from a "stovepipe" structure of 16 different federal systems using 12 different contractors to a comprehensive, integrated delivery system involving a true partnership between the federal government and our numerous public and private sector associates requires careful planning and deliberate implementation. We are committed to the Project EASI vision and to the modernization of the delivery system it encompasses.
FAFSA on the Web has many benefits for students, institutions, and the Department. It is accessible 24 hours a day, seven days a week, in the privacy of a student's home or dorm room, or from a high school guidance office or local library. Students have said they find the targeted, on-line instructions helpful. The data they enter are more accurate since FAFSA on the Web has built-in, automatic edits that prompt the filer to resolve inconsistent or conflicting entries. FAFSA on the Web can also save the Department money because it makes applications less expensive to process. Ultimately, the electronic FAFSA will reduce the number of paper FAFSAs the Department prints and distributes, although we will continue to accept paper applications to ensure access for those without a computer.
The Department has taken a number of steps to ensure that, as we introduce FAFSA on the Web, the data sent on the Internet are safe and secure. First, we require that students use a browser that has more secure encryption than that used for data exchange by most financial institutions. Second, the student must print, sign, and mail a signature page to the processor before the application is valid. The Department believes that when the 1998-1999 Renewal FAFSA on the Web is released, students using it should have the option of obtaining a PIN (personal identification number) in lieu of a duplicative printed signature if they have not changed their permanent address in the last year. We believe that the PIN would add another layer of security for the electronic FAFSA application process since a unique PIN number will be assigned to each applicant. We hope that you will support our efforts in this direction.
The Department understands that our desire to ensure that student application data remain safe and secure when transmitted over the Web has caused certain difficulties in accessing the electronic FAFSA. The Department is exploring ways to make the FAFSA on the Web more user-friendly while still retaining necessary security safeguards. For example, applicants must first download a certain type of software that has sufficient data encryption features, which involves a number of steps. This process, coupled with the signature page requirement, has unfortunately discouraged some of our customers from submitting the FAFSA electronically. In addition, FAFSA on the Web is not yet accessible to those on a local area network. Staff are currently taking steps to increase access to FAFSA on the Web, including testing other browsers available on the market, improving the instructions for downloading software, and exploring the use of an electronic signature for FAFSA on the Web.
FAFSA is just one of many Web projects that the Department has implemented. Since March 1994, ED's main Web site (http://www.ed.gov) has served as a platform to communicate a wide range of information on the Department's programs to our customers. Plans are now underway for additional interactive applications including software distribution, capturing data at the source, and providing access to databases. ED was one of the first federal agencies to make a significant commitment to the Internet, and the ED Web site has consistently been rated among the best education and government sites.
Direct Loans account for one-third of the total new student volume of $27 billion in 1996-97. Starting with just over 100 institutions in 1994, we now have about 1,300 schools participating. The total cumulative volume of Direct Loans rose from $1.6 billion after the first academic year to an estimated $18 billion today, going to about 2.3 million borrowers. About 718,000 borrowers are now in repayment, holding loans with balances of about $5.6 billion. Total collections from all borrowers amount to approximately $1 billion. This tremendous growth is a tribute to the benefits direct lending has to offer. The growth is particularly impressive in light of the fact that the future of the program has been debated continuously, thereby dissuading some schools from joining the program.
The Department is committed to simplifying the application process and decreasing processing-cycle time for Direct Loans. Quality and accuracy of data transmissions are paramount in our set of performance standards. We intend to drive costs to the lowest common denominator without sacrificing quality of work and customer service. Our improvement efforts are resulting in greater customer loyalty, breakthroughs in product design, organizational responsiveness, and empowerment of customers and employees.
While we are proud of the Department's performance in implementing direct lending, we are continuing to improve our management of it. We have recently moved from our original contractor to separate, new contractors--one for loan origination and consolidation and another for servicing. Although we worked hard to make this transition seamless, it has not been problem free. The difficulties that we have experienced are regrettable, and we have addressed them. However, in spite of these difficulties our customers remain supportive of the Direct Loan program as it continues to provide exceptional value to students, schools, and the federal government. We are dedicated to making it the centerpiece of a reinvented student aid system that provides the finest service available anywhere.
NSLDS now plays a central role in delivering student aid. It is routinely used in prescreening applicants for federal aid to eliminate those who are ineligible. From January 1995 through the first half of 1996, NSLDS identified more than 125,000 applicants as prior defaulters who were applying for additional aid, helping to prevent as much as $310 million in future defaults and denying about $75 million in Pell Grants to ineligible students. For more than a year, NSLDS has been providing schools with electronic financial aid transcripts (FATs) to help their transfer students get federal aid. Schools can now use this in place of paper FATs, thus eliminating much administrative burden. Although many schools still request paper FATs because they do not yet have the technological capacity to exploit NSLDS fully, the system provided 45,000 electronic FATs for the month of April 1997 alone.
In addition, NSLDS is being utilized to send Student Status Confirmation Reports (SSCRs) to schools to ensure that aid recipients are properly enrolled. Previously, schools had to send these reports in paper format to every guaranty agency used by one of their students. This new process of electronically confirming student enrollment is also saving schools a lot of work.
The quality of the data in NSLDS has been a matter of legitimate concern. The data in NSLDS come primarily from guaranty agencies (or their servicers). The guaranty agencies, in turn, receive data from banks and other lenders (or their servicers). When the Department started calculating guaranteed loan cohort default rates for individual schools, many errors were identified in the FFEL loan data provided by agencies and banks. Under Secretary Riley's leadership, my office has worked with the Office of the Chief Financial Officer and the Office of the Chief Information Officer to take vigorous steps to address those problems, and we have made progress. For example, just since January, the cumulative error rate on data submitted by guaranty agencies has declined from about 15 percent to less than 4 percent. This is still too high, and we will continue working with our data suppliers to help them improve. The Department is also collaborating with the postsecondary community to develop common data definitions and standards. We are currently piloting the use of what is referred to as electronic data interchange (EDI) standards which we expect to stabilize data requirements, improve data integrity, and reduce costs in the student aid delivery system.
Additionally, we are planning to consolidate all of our data processing into one central data center. NSLDS will pioneer this transition in the fall. We are also exploring new approaches to consolidating software development and maintenance to determine if doing so would enable us to both reduce our unit costs and integrate our systems. We would also expect to improve the quality of our products through more vigorous competition among vendors. We informally shared this plan with the General Accounting Office (GAO) and were encouraged by its feedback.
Starting January 1, 1998, schools will be required to use an information network by which institutional and financial aid data will be electronically transmitted and received between the Department and institutions. Schools will also be required to receive student application data electronically rather than from paper reports submitted by students. By July 1, 1998, schools must be able to access electronically the latest information from the Department about administering aid and submit applications electronically for program participation or recertification. Those requirements were set only after consultation with the financial aid community.
Some in the postsecondary education community have, however, advocated new organizational forms to modernize student aid without changing federal policies. One recently proposed model is a mutual benefit corporation (MBC), which typically is a non-governmental corporation, operating under a charter and bylaws approved by an appropriate federal agency, that is set up to help run an industry. The best known example is probably the Securities Industry Automation Corporation, a private firm that administers the data exchange system on which securities trades are made for the New York Stock Exchange and the American Stock Exchange. Another proposed model is a performance-based organization (PBO) within a federal agency under the policy supervision of the Secretary and the President. Both organizations are given substantial freedom from some of the more complex federal laws governing executive branch operations to facilitate innovation and improve performance.
We are reviewing these and other modifications that have been proposed for delivering student aid, and will be communicating with the Committee regarding the types of legislative changes needed to provide even more efficient and effective program management. However, we must be careful not to put the cart before the horse in trying to improve the delivery system. The first step should be to forge a broad consensus on what we want an improved delivery system to look like---which is what we are currently doing with Project EASI and other initiatives. Once we have shared objectives on what a state-of-the-art delivery system should do, we can then address the question of the best type of organization to create and run that system. Policy and practice can't be separated, and we need to ensure that our organizational structures reflect our objectives.
I also want to note that the issue of accountability for the use of federal funds in the student aid system remains central. The federal government provides about 75 percent of available student assistance. Any system set up to deliver student aid must be able to account for how federal funds were spent. Because the student aid system involves a partnership among the federal government, state governments, schools, banks, and other entities, ensuring adequate accountability remains a challenge because of the diversity in the way the partners operate. Our partners in this system include about 7,000 postsecondary schools as well as approximately 6,000 other entities such as lenders, guaranty agencies, and loan servicers.
To meet current and emerging student aid delivery system needs effectively, we are continually looking for ways that will enhance our data processing systems. This means aggressively introducing improvements to the existing system components; structuring performance-based procurements to coordinate with objectives for implementation of the redesigned system as a whole; strengthening our ability to capitalize on emerging technologies; and instituting management control processes to oversee systems design and maintenance. Through our experiences in implementing the Direct Loan program, NSLDS, and Project EASI, we believe we will realize these Department-wide systems goals.
I know my testimony has ranged over a variety of topics, and that many of you will have questions to ask me. I would be happy to try to answer them. Thank you.