Inefficiencies in the implementation and management of the federal Direct Loan program may be creating headaches for students and putting borrowers' credit at risk, according to a letter sent today by several House and Senate Republicans to Government Accountability Office (GAO) Comptroller General Gene Dodaro.
The letter was signed by House Education and the Workforce Chairman John Kline (R-MN), Subcommittee on Higher Education and Workforce Training Chairwoman Virginia Foxx (R-NC), Representative Judy Biggert (R-IL), Senate Committee on Health, Education, Labor, and Pensions (HELP) Ranking Member Michael B. Enzi (R-WY), Senator Lamar Alexander (R-TN), and Senator Tom Coburn (R-OK).
In the letter, the House and Senate leaders state concerns about rumored implementation challenges facing the Direct Loan program, and ask the GAO to provide information about the Department of Education's administrative and debt collection processes:
[W]e are increasingly concerned the department may not be appropriately managing student debt, particularly when helping borrowers who have defaulted on their loan payments.
Under the Direct Loan program, borrowers who are in default can "rehabilitate" their loan and return their credit to good standing by making a certain number of consecutive payments on their loans. Unfortunately, we recently heard from a borrower who claims to have made the required amount of on-time payments in an effort to rehabilitate his loan, but, due to the department's delays, is unable to remove the black mark of default from his credit report and take advantage of better repayment options.
As part of our oversight responsibilities, it is important for us to understand challenges with the Direct Loan program. Bureaucratic problems within the department that are creating additional issues for borrowers could have serious implications not only for the Direct Loan program, but also for the financial stability of all student loan borrowers.
In 2010, Democrats approved a federal takeover of the student loan industry. With the elimination of the Federal Family Education Loan program and transition to 100 percent direct lending, the federal government now originates and oversees every single new higher education loan in the country. Since the transition to the Direct Loan program, bureaucratic problems with loan rehabilitation and breaches of borrowers' personal security have come to light. This raises concerns that the department is improperly managing student debt, putting borrowers at serious risk. Adding insult to injury, a recent Bloomberg report reveals some students are being harassed during the debt collection process, indicating the department's collectors could be in violation of Fair Debt Collection laws.
House Education and the Workforce Committee Republicans are interested in hearing from borrowers and institution officials who have experienced difficulties with the Direct Loan Program, such as problems rehabilitating loans, issues with debt collection, privacy concerns, and poor customer service.