Archived Information

Responses to Questions from Congressman Mica

Question 1: FDLP was envisioned as a student loan program that would save federal dollars. How much money is being saved annually and how is the Department tracking annual savings? Are the results being reviewed or audited? How do savings compare with earlier projections? If savings have not yet been achieved, what are the most recent projections regarding savings? Explain.

Answer: As you correctly note, the Direct Loan program was created in part as a less expensive alternative to the Federal Family Education Loan (FFEL) program. Perhaps the simplest way to compare costs for the two programs is through the use of subsidy rates, which represent Federal non-administrative costs for the life of a loan as a percentage of each dollar loaned. (For example, a subsidy rate of 10 percent would indicate that Federal costs — including interest subsidies, default costs, and other expenses — over the up-to- 25-year life of the loan would total $10 for each $100 loaned.)

Under both Administration and Congressional Budget Office (CBO) estimates, Direct Loan subsidy rates are substantially lower than those for FFEL. In the President's FY 2000 Budget, the average subsidy rate for Direct Loans originated in FY 1999 is 0.39 percent; the corresponding rate for FFEL loans is 13.32 percent, or 12.93 percentage points higher. In other words, the government pays almost $13 more in subsidy cost on every $100 loaned in the FFEL program than it does under Direct Loans. (Under CBO estimates, the Direct Loan advantage is even higher, at 14.78 percentage points.) These cost estimates, as well as their underlying assumptions, are reviewed and updated on an ongoing basis.

Direct Loans subsidy costs are lower than comparable FFEL costs for two simple reasons. While per loan costs in both programs — primarily associated with in-school interest subsidies and defaults — are basically the same, in Direct Loans these costs are offset by a significant revenue stream: repayments from Direct Loan borrowers. Under current interest rate assumptions, the difference between the government's cost of funds and the higher interest rate paid by borrowers results in revenues that almost totally offset — and in future years will actually exceed — Direct Loan subsidy costs. (In FY 1999, the borrower repayment rate is 7.46 percent while the government's borrowing rate for new loans is 6.03 percent, a difference of 1.43 percent.) Additionally, FFEL loan holders are provided a subsidy to recognize their requirements for profits above costs. (While the borrowers of new loans have a FY 1999 interest rate of 7.46 percent, FFEL lenders are guaranteed a return of 7.96 percent on these loan FY 1999.)

The Department estimates that the Direct Loan program, after accounting for subsidy and administrative costs, will save over $700 million on loans originated in FY 1999. If the approximately $10 billion in new direct loans were instead originated in the FFEL program, government subsidy costs would increase by over $1.3 billion on FY 1999 loans alone. This is substantially higher than the less than one billion annual cohort cost projected at the time the program was created. (The President's FY 2000 Budget assumes roughly $30 billion in new loan volume in FY 1999, of which Direct Loans accounts for approximately a third. If this $10 billion in loans were made under FFEL, the additional $13 per $100 in higher subsidy costs would increase overall federal student loan costs by $1.3 billion.) However, Direct Loans also has higher federal administrative cost than FFEL since the government is obligated to arrange for loan servicing. When this additional lifetime cost for $10 billion in new loan volume is calculated, total government savings are lower but still substantial at over $700 million.

The Federal Credit Reform Act of 1990 requires all direct government administrative costs to be recorded as an annual cash expenditures. However, for comparison purposes, the net present value of the lifetime administrative cost for a loan can be estimated. (These cost are shown per $100 dollars loaned.) As the following table shows, while the addition of these costs — using a methodology developed under congressional mandate in 1995-substantially increases the cost of Direct Loans, the program still costs substantially less than does FFEL

Total Federal Costs Over the Life of the Loan, Per $100 in Loans
Loans Made in Fiscal Year 1999
  FFEL Direct Loan
Federal Administrative Costs $ 1.94 $7.82
Subsidy Costs $13.32 $0.39
Total Federal Costs $15.26 $8.21

The Department is currently working to develop a more sophisticated methodology to compare the full costs of the two programs. The results of this analysis will be shared with Congress when it is completed later this summer. The recent report released by the Department's Inspector General, "Study of Cost Issues," outlined a cost allocation system for determining the administrative cost of Direct Loans. The report did not, however, calculate a lifetime administrative cost for a cohort of loans similar to that shown in the above table. (The IG report allocated the Department's annual expenses for FY 1996 and FY 1997 between the two loan programs. It did not attempt to allocate those cost between existing loan cohorts or to forecast future administrative cost for existing or new loan cohorts.)

The IG also estimated the current Direct Loan servicing system (that is, all cost excluding those related to default management and school oversight) is more expensive than comparable systems in the FFEL program. For a mixture of loans at different maturities, the IG estimated large FFEL loan holders have an average cash cost as low as $13 per loan versus the Department's average cost of $17 per loan. While the Department may not fully agree with this technical estimate, it accepts that the current servicing contract configuration may not produce the desired service levels at the best price. The PBO Modernization Blueprint directly addresses this issue with the goal that, upon completion, the Department's operations will be as efficient and cost effective as the best private sector systems. As shown above, even with the less than optional servicing system currently in place, the financing advantage of direct loans more than offsets the higher administrative cost. As the Blueprint is implemented, these net savings may increase.

As the Department continues its analysis, it will continue to share the results and methodology with all interested parties, including CBO, the General Accounting Office, the Congressional Research Service, and representatives of the student, school, lending, and guaranty agency communities, as well as the Department's independent auditors. Each of these entities has provided valuable comments on past estimates that have been incorporated into subsequent studies.

Question 2: Macro International and Coopers & Lybrand were contracted to perform a five-year study of the costs associated with FDLP. Why was the report cancelled? Is another cost study of FDLP planned? Explain.

Answer: Macro International and Coopers & Lybrand's analysis of Direct Loan program costs was one component of a broader 5-year evaluation contract awarded by the Department in FY 1994. Under the evaluation's cost component, the contractors collected and analyzed administrative cost data for the initial years of the program. They also developed a cost allocation system that has proven valuable in allocating contract costs between the FFEL and Direct Loan programs. Their findings and methodology were shared with the Department's Inspector General, and served as the basis for estimating Direct Loan administrative cost in the report, "Study of Cost Issues." (In this study, the estimated FFEL administrative costs are estimated from a Treasury analysis of a small number of very large student loan servicers.)

The Department has consistently recognized the need for an accurate, ongoing analysis of the relative costs of both Federal student loan programs. Accordingly, data from the Macro/Coopers analysis has been incorporated into the development of a more sophisticated methodology comparing the overall cost — including both administrative and subsidy expenses — ;of Direct Loans and FFEL. Preliminary results of this analysis, which reflect input from the Inspector General, the Department's independent auditor, and other outside groups, will be provided to Congress later this summer. In addition, the new performance-based Office of Student Financial Assistance Programs is in the process of establishing an updated financial management system — consistent with recommendations from Macro and the Inspector General — under which real-time, program-specific costs accounting data will be available to help program managers and policymakers make well-informed decisions.

Given this commitment to moving forward with internal efforts to develop accurate cost information, as well as competing demands for funding to support other important modernization activities, the final year of the cost component of the evaluation was discontinued in FY 1998. Further, it was determined that the work previously done by Macro provided a strong cost allocation methodology and that little substantive benefit could be achieved without first improving the Office of Student Financial Aid Programs' financial reporting systems. Those improvements are now underway.

Question 3: Please provide in detail the annual administrative costs of FDLP, projecting until the year 2004. Include the annual volume and costs of origination, servicing, and debt collection. Please breakdown by in-school (or in-grace period) borrowers, in-repayment borrowers, delinquent borrowers and defaults. How has volume affected contractor costs and have additional costs been incurred? What are the projected costs of the program (incorporating projected loan volume, delinquency and default rates)? Identify annual rates of increase in overhead costs as compared to student aid awards. Explain.

Answer: The Department of Education, through the new performance-based Office of Student Financial Assistance Programs, is in the early stages of a comprehensive redesign of its student aid delivery systems. The following cost estimates do not reflect the impact of this redesign effort, which is expected to reduce unit costs and streamline program operations. Current projected costs for Direct Loan origination and servicing activities for FY 1999-2004 are shown in the following table, along with corresponding estimates for the volume and number of loans originated and the number of borrowers in servicing.

Direct Loan Administrative Costs - FY 1999-2004
(In millions unless otherwise noted)

  1999 2000 2001 2002 2003 2004 % Change
Origination Costs $33.0 $32.6 $34.0 $35.9 $37.7 $39.6 20.0%
No. of Loans Originated 2.9 2.9 3.0 3.1 3.3 3.4 17.2%
Volume Originated (in billions) $10.1 $10.6 $11.4 $11.8 $12.6 $13.4 32.7%
Servicing Costs $132.9 $207.0 $267.7 $275.2 $280.0 $351.3 164.3%
Borrowers in Servicing
    In-School 2.7 2.7 2.8 2.9 3.0 3.2 18.5%
    In-Repayment 2.4 3.4 4.4 5.3 6.4 7.5 212.5%

As the chart shows, increases in origination costs track very closely with corresponding increases in the number of loans originated. Originations costs are projected to rise by 20.0 percent over FY 1999-2004, while the number of loans originated is expected to grow by 17.2 percent over the same period.

Servicing costs are projected to increase at a substantially slower rate than the rate of borrowers in servicing or those entering repayment status over FY 1999-2004. While there are only minor additional costs once a borrower enters repayment if expected payments are received in an accurate and timely manner, borrowers in alternative statuses (e.g., delinquent or defaulted) have substantially higher servicing cost. Over FY 1999-2004, total servicing costs are estimated to increase only 164 percent, while the number of borrowers in servicing, in school and in repayment, are estimated to increase by more than 210 percent. This lower growth rate has several causes, a primary one being the "account servicing structure" in direct loans that allows all a borrower's loans to be managed as a single account rather than as separate pieces.

Projected Direct Loan program (that is, non-administrative) costs and subsidy rates are shown in the following table. Cost estimates, as mandated by the Credit Reform Act of 1990, are calculated as the net present value of all future costs for loans originated in a year. Negative figures indicate years in which borrower repayments would outweigh interest benefits and default costs for a cohort of loans. These cost projections are extremely sensitive to changes in the interest rates; reduced savings in FY 2003 and 2004 can be attributed to a reduced government interest arbitrage.

Direct Loan Program Costs - FY 1999-2004
(In millions)

  1999 2000 2001 2002 2003 2004
Direct Loan Program Costs $69.9 -$929.2 -$1,053.3 -$1,185.8 -$756.3 -$351.5
Direct Loan Subsidy Rates 0.39% -5.69% -6.05% -6.39% -3.82% -1.67%

Growth in Federal student loan administrative costs over the past five years and into the future are a direct reflection of an enormous increase in the Department's responsibilities and workload. As noted above, these increased costs have been offset many times over by subsidy savings related to the Direct Loan program.

In 1992, federal student loan administrative activities were largely limited to maintaining systems to pay interest benefits and other subsidies to FFEL lenders and guaranty agencies and overseeing the work of a number of private debt collection contractors. With the advent of the Direct Loan program in 1994, however, the Federal role in student lending fundamentally changed. By 1996, the Department was the nation's largest individual provider of student loans; originating almost seven times more loan volume than Citibank, the largest FFEL lender. By the end of FY 2000, the Department will manage a loan portfolio of nearly $60 billion, an over 7,000 percent increase over the 1994 level, and a responsibility that did not even exist in 1992. By comparison, Sallie Mae, the largest FFEL loan holder manages a portfolio of approximately $40 billion and Citibank, the second largest holder of FFEL loans, manages a portfolio of less than $9 billion.

Managing a loan program of this size is unquestionably an expensive proposition, whether for Citibank, Sallie Mae, or the Department of Education. For FY 2000, the Department's administrative spending from the mandatory administrative appropriation in the Higher Education Act (commonly referred to as Section 458 funding for both the guaranteed and direct loan program) will equal less than 1 percent of the Direct Loan portfolio. These costs will become even more competitive as the Department's system modernization plan is implemented over the next few years.

In addition to establishing the Direct Loan program, the Department of Education has also made substantial investments in new and upgraded systems since 1992 to improve customer service and financial accountability for all student aid programs. The National Student Loan Data System (NSLDS), for example, which has prevented the award of over $1 billion in grants and loans to ineligible borrowers since 1994 , did not even exist in 1992. In large part as a result of these investments, the Department can point to accomplishments, such as receiving its first unqualified audit opinion in 1998, and more than doubling default collections from 1992 to 1998.

The Department collects on defaulted student loans through three primary sources: collections made by guaranty agencies (guaranty agency collection retention), collections of Department held loans by private collection agencies (contract collection costs) , and income tax refund offsets performed by the IRS. The annual federal cost of the first two are shown in the table below; the IRS charges the department a relatively minor fee for performing the offset. These collection costs are charged to borrowers and are added to the outstanding balance.

($ millions) FY 1997 FY 1998 FY 1999 FY 2000
Cash Expenditure:
Guaranty Agency collection retention 214.4 288.7 312.4 181.1
Contract Collection Cost 92.9 104.7 61.0 62.5
Cash Receipt:
Annual Net Cash Collections 1,653.7 1,801.8 2,106.5 2,243.7

Question 4: Explain the experience of the Income Contingency Repayment Program (ICR), including any analysis that has been performed to date or is planned in the future. What are the criteria for including loans in this program?

Income contingent repayment (ICR) is available to all borrowers in the Federal Direct Loan program. As of March 31, 1999, 87,000 borrowers with loans of nearly $1.9 billion were paying under the ICR option, or 9 percent of total volume in repayment.

For non-consolidated borrowers, only one percent has chosen the ICR option. However, ICR is much more popular for borrowers with consolidated loans: 27 percent or over $1.7 billion in loans. Of these consolidators, 95 percent were in regular repayment and only 5 percent were prior defaulters consolidating to benefit from the flexibility available under ICR. This is reflected in an average loan balance of $25,500 for regular consolidators in ICR versus a loan balance of $6,200 for prior defaulters. (For non-consolidated borrowers taking ICR the average loan balance is $13,500, significantly higher than the average of all borrowers.)

The percentage of dollars paying under ICR more than 180 days late is 11 percent, slightly lower than the rate for non-ICR borrowers at 12 percent. This level of ICR delinquency is higher than expected when the program was introduced. Attachment A includes a set of thirty tables regularly developed by the Office of Student Financial Assistance Programs on borrowers in repayment by loan, school, and repayment types.

To date there have been independent studies of the ICR option by the Department's Inspector General (June, 1988) and by the GAO (August, 1997). Both reports conclude that the ICR program was too new to develop any final recommendations and that the Department should continue and improve its reporting on this repayment option. The Department agrees with these recommendations; the attached repayment tables are developed in part to provide this information.

Question 5: What has been the number and amount (by month) of applications for loan consolidation? What have been the costs, including overhead and promotion (distinguish between FFEL and direct loan consolidation costs)? What was the average loan balance? What problems have been experienced in the loan consolidation program and what reforms have been instituted? Are the reforms working? Explain.

Answer: The following table shows the number of Direct Consolidation Loan applications by month for the past twelve months.

June July August September October November December
10,327 11,601 14,800 17,139 19,811 28,928 36,773


January February March April May
109,610 18,922 19,626 17,929 14,699

Direct administrative costs associated with originating Direct Consolidation Loans have risen from $9.6 million in FY 1997 to $12.9 million in FY 1998 and an estimated $21.8 million in FY 1999. These costs are tied directly to the volume of loans consolidated. The dramatic increase in costs for FY 1999 reflects the effect of statutory language enacted in July, 1998 which ended the reduced interest rate provided to borrowers who consolidated prior to February 1, 1999. As a result of this change in the interest rate formula , the weekly volume of Direct Consolidation Loans increased by as much as tenfold over normal levels before the change went into effect. (Although administrative cost for Direct Consolidation loans is increasing, they are more than offset by the negative subsidy associated with these loans — -7.72 for loans consolidated in FY 2000.) The Department does not currently account for Consolidation Loan servicing separately from servicing costs associated with other loans. Since, however, underlying Direct Loans were already serviced under a single borrower account, there would be no additional servicing costs associated with those loans.

The Department does not conduct promotional activities for its programs; however, approximately $80,000 was spent in FY 1999 to develop and distribute program information materials describing the impact of the interest rate changes. The Department incurs no direct administrative costs associated with FFEL Consolidation Loans. Information on the availability of FFEL Consolidation Loans is provided in several Department publications, including the Student Guide, which is available to all loan applicants.

The average balance for Direct Consolidation Loans in FY 1999 is $20,189; the comparable average for FFEL consolidations is $16,216.

In September, 1997, the Department stopped processing new Direct Consolidation Loan applications to address a number of problems, most of which involved delays in gathering and verifying borrower and loan holder information and processing payments. In the wake of these problems, the Department and its contractor, Electronic Data Systems (EDS), thoroughly redesigned the consolidation process before accepting more applications in December. Improvements include periodic screening reviews at various points in the process to ensure that all necessary information has been collected; streamlined procedures for quickly obtaining missing information; more effective tracking of payments to loan holders; and simpler, more user-friendly application procedures. As a result of these highly successful reforms, the Department is consistently processing applications in less than the target-turnaround time of 60 days, even during a recent four-month period in which almost 200,000 applications were received from borrowers seeking to take advantage of the lower interest rates.

Question 6: What deficiencies have been identified in the past with the National Student Loan Data System (NSLDS)? Have they been corrected? Is the data accurate? What are the advantages of NSLDS and why does your Department rely on it? How and why should others use it?

Answer: In just over four years, as of March 1999, NSLDS has built its repository of school, guaranty agency, servicer, and lender data to contain: 40 million students, 110 million loans, 22 million Pell grants, and provide service to 18,000 active on-line users. To manage this repository, one of the largest in the world, in 1998 NSLDS was the first government system to take advantage of the GSA Government Wide Acquisition Contract, commonly referred to as the Virtual Data Center contract. Under this contract, costs are determined by the size of NSLDS rather than on a processing time basis, a change that substantially reduces the cost of handling the thousands of daily transactions. Being a new system, NSLDS has taken advantage of the most widely used and up-to-date technologies for developing and maintaining its processing facilities. These same technologies are prominent in the Department's PBO Modernization Blueprint.

NSLDS has proven itself to be a successful, valuable system responsible for preventing over $1 billion in grants and loans to ineligible borrowers since 1994. It has also provided audit support that allowed the Department to receive its first unqualified audit opinion ever. There have, however, been difficulties in the past which the Department has addressed.

Quality of data:

The initial emphasis by NSLDS in November, 1994 was to ensure that data was flowing to the system from the several thousand lenders and schools, guaranty agencies, and the Department's Title IV systems. Once all the data providers were supplying data on schedule, the Department turned its attention to its next objective, the quality of data in the system. Consequently, in January, 1997, the Department instituted a permanent and ongoing data quality effort as an integral part of its business practices. This effort has been successful — as noted by the Department's Inspector General in a recent draft report, "Office of Student Financial Assistance Programs (OSFAP) has made significant progress in improving the integrity of FFEL program data in the NSLDS."

Two recent opinions from independent auditing firms confirm the reliability of NSLDS data. A recent Price Waterhouse Coopers management analysis report concluded that ED can and should use NSLDS data as a valuable tool for helping ED to manage its business. Further, an Ernst and Young audit, currently in process, indicates that there are no material weaknesses in internal controls that would preclude using NSLDS in preparing the Department's financial statements. (This statement was in the context of a systems assessment.)

Examples showing positive results of NSLDS' ongoing focus on quality are:

Frequency of reporting:

NSLDS was originally designed for providers to report on a weekly basis. Because this would have been a burden to existing external systems, NSLDS decided to work in partnership with the providers to start with monthly reporting and move through iterative stages to greater frequencies as possible. One area where these efforts have proven successful was for the most needy students, those who rely upon Pell Grants. Originally, Pell processing occurred monthly, later became weekly, and now Pell updates are provided to NSLDS daily.

Access to NSLDS:

Despite continually growing processing volume, NSLDS contract costs have declined. In FY97, the cost was $26.5 million; FY 1998, $23.9 million; and FY99, $20.2 million. These costs are being reduced through the use of the GSA Virtual Data Center contract. The actual total cost of acquiring, maintaining, and using data about a loan or grant in NSLDS for an entire year is 15 cents.

As mentioned above, NSLDS has proven itself to be a productive system.

Question 7: What deficiencies have been identified in FDLP (including school administration issues) by the Inspector General and others, and what corrections have been made as a result? Please specify and explain problems, reforms and outcomes.

Answer: Since its inception, the Direct Loan program has provided $40 billion in aid to students. As with all new programs there have been mistakes and deficiencies which the Department is committed to correcting.

Lack of access to important data: As reported in OIG and annual ED financial statement reports, FDLP data has not been readily available to incorporate into the Department's risk data analysis system used for monitoring schools. Total FDLP funding for the three most recent academic years was recently incorporated into this data analysis system, allowing review teams to readily see which institutions were participating in the FDLP and at what level of funding. The Institutional Participation and Oversight Service (IPOS) in the Office of Student Financial Assistance Programs has a target date of December, 1999, for integrating FDLP data more fully into its data analysis system.

There has also been difficulty obtaining student level data from the Direct Loans contractor to allow comparisons with school records during program reviews or audits. For example, disbursement information maintained on the schools' books and records needs to be compared with similar information maintained by Direct Loans contractors to determine if schools actually used Direct Loans funds properly.

The Office of Student Financial Assistance Programs is focusing on data issues and improving its systems. Significant improvement in the availability of timely Direct Loans data for oversight and monitoring purposes is expected by the end of 1999.

Reconciliation process: Many schools have had trouble reconciling their FDLP drawdowns with loan information reported to the Direct Loan contractors. Because of the lack of timely or comparable data from Direct Loan contractors, it sometimes cannot be determined if reconciliation problems are caused by schools' improper actions or whether the problems are internal to ED and its contractors. Again, as the Office of Student Financial Assistance Programs focuses on data issues and improves its systems, reconciliation problems should be minimized.

The Department is improving Direct Loan reconciliation by: providing schools with a Direct Loan School Account Statement to facilitate monthly reconciliation; implementing automated system balancing and reconciliation between the Loan Origination System and the Central Data System; and utilizing a software program developed by the Department's Client Account Managers, which enables schools to compare the information in their school's data bases with data in EDExpress. In addition, the A-133 Compliance Supplement and SFA Audit Guide now require auditors to do tests to determine whether Direct Loan Servicing records are supported by information in schools' internal records.

Oversight perspective: It is important to note, from a monitoring and oversight perspective, the Department can more easily handle problems with FDLP institutions than those in FFEL. There are no lender and guaranty agency intermediaries to deal with in the FDLP; it is easier to control the flow of funds to poorly performing institutions in the FDLP than FFEL; and easier to bring FDLP institutions into compliance.

Question 8: What is your program doing to decrease defaults? What techniques are effective in preventing defaults? What is the proper role for schools to have in decreasing defaults? Explain.

Answer: The Department has enforced the cohort default rate requirements of the statute, and has made a major effort to resolve school cohort default rate appeals in a more timely fashion. Strict enforcement has rid the loan programs of many poorly performing schools that had large numbers of defaulters, which, in turn, has decreased the numbers of defaults. The Department has also included default rate analysis in determining whether to grant full certification or provisional certification to schools. This has also helped to reduce the number of defaults. To ensure these benefits are extended to the Direct Loan program and to ensure equal treatment to all schools, the Department established Direct Loan cohort default rates and sanctions administratively without being required by statute.

In addition to these enforcement efforts, the Department is helping schools reduce the number of defaults through a series of cohort default rate training seminars. In addition to one-on-one sessions with some schools, the Department has provided training to postsecondary schools located in Puerto Rico, degree-granting proprietary schools located in New York, historically black colleges and universities (HBCUs), and Texas schools. These seminars are designed to provide schools with an understanding of how cohort default rates are calculated, the consequences associated with cohort default rates, and the importance of preventing students from defaulting on their loans.

These efforts to ensure that schools are aware of the consequences associated with high cohort default rates, coupled with default prevention training, are at least partially responsible for decreased cohort default rates over the last 10 years.

Schools play a very important role in reducing the number of borrowers who default. Schools have first level access to each borrower. Not only do schools have a responsibility to provide quality education, they also have a responsibility to provide students with information and guidance on financial responsibility and debt management. Many schools are beginning to incorporate financial management seminars as part of a student's curriculum. These financial management seminars will assist students in making the best decisions based on their financial situations.

The Department has found that a strong peer networking group can assist less knowledgeable and sophisticated schools to lower their cohort default rates. For example, the HBCU community has recently created one-on-one partnerships between HBCUs that are experiencing difficulty implementing an effective default prevention strategy and HBCUs that have been able to implement effective default prevention strategies.

The Department is also engaged in default avoidance activities affecting other points in the loan process, before and after the time when the cohort default rate is measured. The Department's Direct Loan servicing system provides assurance that borrowers receive timely notices and that account balances are correct. The Department works with schools and others to provide entrance and exiting counseling to students entering and leaving school, and special counseling to delinquent borrowers. In pursuing its customer service goals, the Office of Student Fiancial Assistance will examine using systems common in private business that may provide up-front, proactive counseling and assistance to at-risk borrowers. As part of its Modernization Blueprint, OSFA expects to collaborate with financial partners to ensure borrowers have access to all the information they need to understand their financial obligations and their debt repayment options. In addition, in its work with the guaranty agency community to implement new legislation authorizing "Voluntary Flexible Agreements", the Department is encouraging guaranty agencies to strengthen their efforts to help high risk borrowers avoid default.

The Department, and the Office of Student Financial Assistance particularly, are expanding direct activities to minimize the growth of the defaulted loan portfolio as overall loan volume increases in both the Direct Loan and FFEL programs. OSFA's Debt Collection Service continues to be one of the best in the government, effectively using private collection agencies to notify defaulters of their obligations, and bringing back into repayment those defaulters who have the ability to repay. Additionally, the Department is continuing to investigate partnerships with other systems to better track borrowers; for example, proper addresses and contact information is essential to ensure students' billing can be delivered properly and timely counseling can undertaken. One possible partnership proposed in the President's FY 2000 budget was the Department of Health and Human Services' National Directory of New Hires. This proposal would authorize HHS to share up-to-date employment information about defaulted borrowers with the Department and its guaranty agencies, enhancing our ability to identify and pursue those defaulters that have sufficient income to repay their debts.

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