Public Hearing for Negotiated Rulemaking - Transcript of the May by 2xX4zA6

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                   U.S. DEPARTMENT OF EDUCATION (ED)

                OFFICE OF POST SECONDARY EDUCATION




      Transcription for Negotiated Rulemaking
         Sessions and Public Hearings 2012

Deliverable 4: Transcription of Public Hearing
held in the 8th Floor Conference Room located at
1990 K Street N.W., Washington, D.C. on May
31, 2012




The public hearings began as noticed in the
Federal Register at 9:00 a.m.




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PRESENT

EDUARDO OCHOA, Assistant Secretary for
      Postsecondary Education
LYNN MAHAFFIE, Senior Director for Policy
      Coordination, Development and
      Accreditation Services
DAVID BERGERON, Deputy Assistant Secretary
      for Policy, Planning and Innovation
RON SANN, Office of General Counsel
AJITA TALWALKER, Office of the Under
      Secretary




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ALSO PRESENT

CYNTHIA LITTLEFIELD, Association of Jesuit
      Colleges and Universities
ANGELIA MILLENDER, Broward College
MARK SARVER, eduKan
MEGAN MCCLEAN, National Association of
      Student Financial Aid Administrators
VICKIE SCHRAY, Bridgepoint Education
JOAN ZANDERS, Northern Virginia Community
      College
RICH WILLIAMS, United States Public Interest
      Research Group
LAUREN SAUNDERS, National Consumer Law
      Center
WES HUFFMAN, Coalition of Higher Education
      Assistance Organizations
DANIEL TOUGHEY, TouchNet Information System
ERIC RODRIGUEZ, Nelnet Business Solutions
ARNIE MILES, Georgetown University
JOHN SUESS, University of Maryland-Baltimore
      County
ROBERT BARBIERI, Higher One
CHRISTINE MULLINS, Instructional Technology
      Council
CHRISTOPHER MULLIN, American Association of
      Community Colleges
MAUREEN BUDETTI, National Association of
      Independent Colleges and Universities




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                             CONTENTS

Asst. Secretary Ochoa
      Welcome and Introduction ............. 4

Cyndy Littlefield, Association of Jesuit
      Colleges and Universities ............ 9

Angelia Millender, Broward College ........ 21

Mark Sarver, EduKan ....................... 29

Megan McClean, National Association of
      Student Financial Aid Administrators 35

Vickie Schray, Bridgepoint Education ...... 42

Joan Zanders, Northern Virginia Community
      College ............................. 51

Rich Williams, United States Public Interest
      Research Group ...................... 72

Lauren Saunders, National Consumer Law
      Center .............................. 84

Wes Huffman, Coalition of Higher Education
      Assistance Organizations ............ 91

Daniel Toughey, TouchNet Information
      System .............................. 96

Eric Rodriguez, Nelnet Business
      Solutions .......................... 108

Arnie Miles, Georgetown University ....... 125

John Suess, University of Maryland-Baltimore
      County ............................. 131

Robert Barbieri, Higher One .............. 140

Christine Mullins, Instructional Technology
      Council ............................ 148
               CONTENTS(Cont'd)
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Christopher Mullin, American Association of
      Community Colleges ................. 155

Maureen Budetti, National Association of
Independent Colleges and Universities ... 160

Daniel Toughey, TouchNet
Information System ...................... 165




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 1                     P-R-O-C-E-E-D-I-N-G-S

 2                                                             9:06 a.m.

 3                    ASST. SEC. OCHOA:               Good morning

 4   of behalf of the U.S. Department of

 5   Education, I welcome you to this public

 6   hearing.        We appreciate your interest and

 7   the time that you're taking to share your

 8   thoughts and recommendations with us.

 9                    Let me take a moment to introduce

10   my colleagues here with me.

11                    David Bergeron, Deputy Assistant

12   Secretary for Policy Planning and

13   innovation, and Ron Sann, an attorney from

14   our Office of General Counsel.

15                    As you know, we published a

16   notice in the Federal Register expressing

17   our intent to convene a committee to develop

18   regulations designed to prevent fraud in the

19   Title IV programs, especially in light of

20   the ever-changing and advancing technology.

21                    Our intent is to ensure that

22   Title IV funds are used properly and are, in


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 1   fact, provided to eligible individuals for

 2   their legitimate postsecondary pursuits.

 3   This hearing is the first step in that

 4   process.

 5                    The Department held a similar

 6   hearing last week on May 23rd in Arizona.

 7   We're also accepting written comments

 8   through our electronic system, and if you

 9   have actually hard copies of those comments

10   and you wish to leave them with our staff

11   outside the room, you're welcome to do so as

12   well.

13                    In September of 2011, the Office

14   of Inspector General issued the Department

15   an investigative program advisory report

16   outlining concerns about fraud in distance

17   education programs.

18                    As a result, the Department

19   issued a Dear Colleague letter, GEN-11-17,

20   alerting institutions to the issue and

21   providing guidance to assist in addressing

22   it.


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 1                    Since the OIG's report was

 2   released, we have established an internal

 3   task force to take a closer look at the

 4   issue, presented the topic at several

 5   conferences, including the most recent

 6   federal student aid conference, and now are

 7   taking steps to look at longer-term

 8   solutions.

 9                    In that context, regulatory

10   changes may be appropriate.                    Along with the

11   issue of fraud in the Title IV programs, we

12   are interested in looking at potential

13   issues around the use of debit cards and

14   other mechanisms for disbursing federal

15   student aid funds and improving and

16   streamlining the campus-based programs.

17                    It's important to remember that

18   these regulations are being developed in the

19   context of current law.                  We can't change the

20   Higher Education Act through our

21   regulations, so some issues, such as the

22   allocation formula for the campus-based


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 1   programs, are not on the table.

 2                    That should not constrain

 3   anyone's comments, but please recognize this

 4   important limitation on our actions.                          The

 5   purpose of this hearing is for us to hear

 6   from you.        We will not engage in a lot of

 7   dialogue or address questions about what

 8   issues may or may not be part of an eventual

 9   negotiating session.

10                    We will use the information

11   provided to us at these hearings, as well as

12   any written comments we receive, to inform

13   our next negotiated rulemaking process.

14                    We expect to announce the next

15   round of negotiated rulemaking during the

16   summer through a notice in the Federal

17   Register that will specify the subject

18   matter for negotiations and will request

19   nominations for negotiators.

20                    Thank you again for being here.

21   And we will begin with our first presenter,

22   who is Cyndy Littlefield from the


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 1   Association of Jesuit Colleges and

 2   Universities.

 3                    MS. LITTLEFIELD:               Good morning,

 4   everyone.        It's always such an honor to kick

 5   off these sessions.

 6                    First of all, I want to say to

 7   Dr. Ochoa, thank you for your years of

 8   service.        We understand you will be leaving

 9   us soon, so on behalf of the Higher Ed

10   community, I want to thank you for all of

11   your assistance and availability that you

12   have made to all of us in higher education.

13   So we wish you well, going back to

14   California, I understand.

15                    Good morning, everyone.                   I am

16   Cynthia Littlefield, Director of Federal

17   Relations of the Association of Jesuit

18   Colleges and Universities.                    In this

19   capacity, I have the honor of representing

20   all of the 28 Jesuit campuses in the United

21   States.

22                    AJCU is also affiliated with 100


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 1   international Jesuit institutions, some of

 2   which were founded in the 1500s, I might

 3   add.

 4                    I speak today in response to the

 5   inquiry by the Department of Education on

 6   three areas: distance education and

 7   potential fraud and abuse; the use of

 8   electronic fund transfers; and the potential

 9   of negotiating on-campus-based aid programs

10   for purposes of meeting the President's

11   executive order, 13563, improving regulation

12   and regulatory review.

13                    We appreciate the opportunity to

14   have this dialogue today.

15                    In the area of distance

16   education, AJCU founded Jesuit Net, our

17   distance education consortium, over 12 years

18   ago, amongst our Jesuit institutions, and we

19   developed our own competency-based distance

20   education component for all of our distance

21   education courses.

22                    To date, there are approximately


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 1   400 programs online, with many of our Jesuit

 2   institutions also developing their own

 3   distance education programs while utilizing

 4   our competency-based distance education

 5   program, which has been acknowledged by the

 6   Department of Education.

 7                    Since the Jesuit institutions are

 8   heavily engaged in distance education, any

 9   discussion on future regulatory action

10   regarding distance education is of concern.

11   Also, it is exacerbated because of the soon-

12   to-be requirement of state authorization on

13   distance education.

14                    There is a cause and effect on

15   the cost of that regulation alone, which

16   according to Regis University, is costing

17   anywhere between $125,000 to $150,000 to be

18   distance education authorized in all states

19   in the Union.

20                    In consultation with our Jesuit

21   institutions, we asked if they were aware of

22   any potential fraud or abuse that could have


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 1   occurred in this area of distance education.

 2   None of our institutions offered that there

 3   were any concerns over fraud and abuse.

 4                    Two of our institutions expressed

 5   a new trend of graduate students taking out

 6   a heavy amount of loan volume.                      One

 7   institution noted that 15 students dropped

 8   out of school soon after they registered.

 9                    To rectify that problem, that

10   institution is now delaying disbursements

11   about two weeks, so the student can solidify

12   the beginning of their online work.                          In this

13   way, the serious students will be staying,

14   and that is one way to augment this

15   potential concern in prevention of fraud.

16                    Another one of our institutions

17   proffered the following, that federal

18   student loans, between the Stafford and Grad

19   PLUS loans for grad students, can cover

20   assumed tuition and fees plus a reasonable

21   allowance for room, board, books,

22   transportation, and miscellaneous personal


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 1   expenses.

 2                    It is left to the school's

 3   discretion to define what is reasonable.

 4   Many people are troubled if they see working

 5   adults, many with potential good salaries,

 6   borrowing to the cost of attendance figure

 7   for distance ed online programs.

 8                    And so that is a developing trend

 9   amongst two of our institutions, but

10   certainly not amongst the others.

11                    From time to time, there's been

12   national articles that indicate potential

13   quality issues with some distance education

14   courses.        At our Jesuit institutions,

15   quality is certainly equitable with the

16   delivery of our traditional-based education

17   courses in person on our campuses.                         And any

18   new regulations to weed out faulty abuse by

19   other higher education entities will also

20   impact those institutions who deliver

21   quality distance education, much like the

22   gainful employment regulations.


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 1                    If there is a negotiated

 2   rulemaking session on this subject, then the

 3   hope would be that all institutions are

 4   equitably representative, including

 5   traditional-based institutions.

 6                    Now in the area of using

 7   electronic fund transfers, AJCU appreciates

 8   the study that was released yesterday by the

 9   United States student PIRG organization

10   citing potential complication with excessive

11   fees charged by banks to students.

12                    The last thing any of us want in

13   higher education are more fees and higher

14   interest rates.            Because of that, we

15   understand that there may be a need to delve

16   deeper into these complications.

17                    Some of our Jesuit institutions

18   do not use credit cards, and still prefer

19   using checks for payments, while

20   acknowledging that it would be easier to

21   track payments with debit cards, etcetera,

22   should there be a problem.


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 1                    There are also now in place

 2   third-party payment plans, of which everyone

 3   is familiar with, such as the 10-month

 4   paying plan, that a few of our institutions

 5   have in place.

 6                    On one hand, you don't want to

 7   interfere with an opportunity to provide

 8   payment options for students and parents.

 9   On another hand, you want to protect

10   students from excessive banking fees.

11                    If this is the intended focus in

12   a potential negotiating rulemaking session,

13   then the only question AJCU would ask, and

14   truly, we're torn about this issue, if this

15   is really a regulatory or a legislative

16   issue.      Perhaps it's a combination of both.

17                    And the final area to address,

18   and the one of more -- most concern to AJCU,

19   is the campus-based aid programs, and this

20   is our main purpose for asking to speak

21   today.

22                    The campus-based aid programs at


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 1   our Jesuit campuses remain a very high

 2   priority, second only to the Pell Grant

 3   program.        Each of these three campus-based

 4   aid programs, the Supplemental Educational

 5   Opportunity Grant, or SEOG, Federal Work-

 6   Study Program, and the Perkins Loan Program,

 7   all perform important niches in the delivery

 8   of federal student aid to needy students.

 9                    The programs have worked well for

10   decades, the only problem being that there

11   has been insufficient funding to meet the

12   heavy demands by emergent student

13   populations.

14                    Ten years ago, to give an

15   example, our Jesuit institution had a 10

16   percent average of Pell Grant student

17   population.          Now, we have increased that

18   population to 22 to 23 percent.                       It has been

19   a goal of our institutions to do so.

20                    The SEOG Program described lately

21   as duplicative of Pell Grants is hardly the

22   case.      SEOG is a campus-based aid program


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 1   with delivery of funds to the institution's

 2   financial aid officer for distribution to

 3   the neediest of students.                   Federal Work

 4   Study assists students to pay their expenses

 5   while working in school.                  And the Perkins

 6   Loan Program, although not funded since

 7   2004, remains an excellent program for

 8   students to avoid private loans at higher

 9   rates, and provide opportunities for

10   attending college.

11                    So in an effort to be helpful

12   today, I polled our AJCU financial aid folks

13   to see if there were any regulatory issues

14   on campus-based aid that had to be addressed

15   now through the negotiated rulemaking

16   process.        And all unanimously said no.

17                    One institution wrote, "Any

18   changes to the campus-based aid program

19   should be done during the reauthorization

20   process, where program policy is foremost,

21   rather than budgetary issues, and where

22   public comment is more easily and readily


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 1   attained from a wide population."

 2                    Other institutions had similar

 3   comments.

 4                    So the real question is, is there

 5   a compelling reason to have a negotiated

 6   rulemaking session on campus-based aid at

 7   this time?         We would answer, no, there is

 8   not.

 9                    In looking at the Department of

10   Education's plan for retrospective analysis

11   of existing regulations dated August 22,

12   2011, on page 17, multiple questions are

13   posed that the Department will focus on.

14                    One was, has Congress amended the

15   authorizing statute such that prompt review

16   of regulations is necessary?                     That answer is

17   no.

18                    Does the Department of Ed

19   anticipate reauthorization of the

20   authorizing statute in the near term, such

21   that prompt review of existing regulations

22   would likely be disrupted or not lead to


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 1   regulatory revisions that could be

 2   implemented before reauthorization?                          And we

 3   would say the answer is yes to that.

 4                    All of our Jesuit institutions

 5   are concerned about the closeness of time to

 6   reauthorization of the Higher Education Act.

 7   Next year, hearings will begin, and the

 8   process of reauthorization will start.                            Why

 9   waste the time and effort of regulatory

10   rulemaking when Congress is beginning the

11   reauthorization phase?                 It simply makes no

12   sense.

13                    And on one particular program,

14   the Perkins Loan Program, of which AJCU is

15   extremely involved with, we are working with

16   the administration on the redesign of that

17   program, which was articulated in the

18   beginning on the FY `10 budget.                       As we go

19   through this process, we ask if it would be

20   helpful to spend time on regulatory

21   rulemaking when this effort is underway.

22   Clearly, Congress has to decide many of


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 1   those issues.

 2                    And finally, there was serious

 3   concern when the Department issued this

 4   rulemaking notice that included campus-based

 5   aid as a potential rulemaking opportunity

 6   that it possibly meant that the Department

 7   was trying to implement the administration's

 8   FY `13 budget priorities for attaching net

 9   tuition pricing, needy student issues, and

10   graduation rates to campus-based aid

11   programs.

12                    Clearly, that has been

13   articulated by the White House and officials

14   at the Department of Education that that is

15   not the case.           And we appreciate that.

16                    So AJCU strongly encourages the

17   Department of Education to not include

18   campus-based aid programs in the upcoming

19   negotiated rulemaking session, because

20   reauthorization is months away, and there is

21   no overriding concern that regulatory relief

22   is needed because the programs function


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 1   well.

 2                    It will be in the reauthorization

 3   process where a healthy national debate will

 4   occur on the viability of these campus-based

 5   aid programs.

 6                    And finally, for the record, AJCU

 7   supports the Department trying to minimize

 8   regulatory burden for our colleges and

 9   universities.           It is just in the instance of

10   campus-based aid that the timing, we

11   believe, is not appropriate.

12                    I want to thank you for this

13   opportunity.

14                    ASST. SEC. OCHOA:               Our next

15   speaker is Angelia Millender from Broward

16   College.

17                    MS. MILLENDER:             Good morning, and

18   thank you.         My name is Angelia Millender,

19   and I'm the Vice President for Student

20   Affairs and Enrollment Management at Broward

21   College.

22                    I don't stand here today speaking


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 1   for all community colleges in the United

 2   States of America, nor do I stand here

 3   speaking on behalf of just Broward College.

 4   I stand here as a 30-year administrator and

 5   faculty and teacher in the K through 12

 6   system that has an interest in this issue

 7   since we disperse aid to 30,000 in an open

 8   access institution.

 9                    I agree with the dialogue and

10   will support any action to curtail the fraud

11   associated with federal student aid funds.

12   I further support the recommendations made

13   to eliminate checks and use electronic funds

14   disbursements and making adjustments to the

15   cost of attendance for distance learning

16   students.

17                    However, these two elements will

18   not fully resolve the issue, because

19   students who don't have bank accounts will

20   get their funds on pre-paid debit cards,

21   which could be no different from the recent

22   fraud rings around the federal tax returns.


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 1                    As such, I would also include

 2   additional components for a more

 3   comprehensive approach to this issue.

 4   People who tend to commit fraud and other

 5   crimes usually know, the longer they stay

 6   around, the chance is, they might get

 7   caught.

 8                    Certainly, the payoff comes too

 9   soon in the semester, and this process alone

10   breeds Pell runners, which also lowers the

11   institution's student success rate.

12                    If the ED does not change the

13   disbursement timing for online with these

14   other strategies, then the problem may

15   continue.        As such, regulations that modify

16   these processes to include unequal

17   disbursements should allow direct cost,

18   tuition, books, and fees to disburse first,

19   and no balance funds immediately.

20                    The balance could be disbursed

21   later in the term, which is similar to

22   incremental budgeting model by the grant


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 1   funders in California.                 Also, mandates on

 2   institutions to include in their policies

 3   that more than physical presence, as is

 4   required in face-to-face instruction, be the

 5   same as required in online instructional

 6   modalities.

 7                    Institutional officers also want

 8   and need more flexibility and the discretion

 9   to limit sub and unsubsidized loans for

10   certain groups of students, and require

11   these students, at minimum, to achieve a

12   certain level of academic success before

13   loan debt is incurred.

14                    Not limiting loans for students

15   who enter institutions like ours many times

16   under-prepared creates defaulters.                         The

17   amounts of money students can get prior to

18   showing signs of successful completion

19   invites fraud, whether online or in person.

20                    Additionally, I would like to

21   bring focus to what I believe will be an

22   unintended consequence of the elimination of


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 1   ATB.     I know that that is not the focus of

 2   the discussion today, but I do recall that

 3   you indicated we could make comments.

 4                    Students who earn high school

 5   credentials not defined in the current ED

 6   definition of high school diploma or its

 7   equivalency are still allowed admissions to

 8   open access institutions, such as community

 9   colleges, but not -- will be allowed to get

10   federal student aid when the ATB provision

11   is eliminated.

12                    Currently, prior to this

13   regulation being effective July 1st, these

14   students could take and pass an improved ATB

15   test and qualify for federal student aid.

16   For example, students who hold certificates

17   of completion, in most cases, have completed

18   all credits and compulsory attendance, but

19   after July 1st, 2012, will not qualify for

20   federal student aid.

21                    This specific language eliminates

22   students who cannot pass high-stakes exit


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 1   exams and earn a credential with the word

 2   diploma in its title.

 3                    This issue is deeper than the

 4   name.      Yet those who complete their GED at a

 5   minimum cut score quality.                    The federal

 6   definition allows homeschooled students who

 7   are not required to pass high-stakes testing

 8   but only require parental certification of

 9   high school completion eligible for aid.

10                    Further, a foreign diploma is

11   eligible for aid, as well as these others,

12   based on an equivalency determination that

13   is not always uniform.

14                    And when you add diploma mills to

15   the picture, and those who get through our

16   system because even with our best efforts to

17   try to catch them, some will get aid.

18                    In my opinion, states should

19   regulate those diploma mills as businesses,

20   in the business of education, rather than

21   institutions validating the paper they sell.

22                    Make no mistakes, high school


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 1   graduates are no better prepared for college

 2   as a result of the numerous high school

 3   completion types than they were before we

 4   had them.

 5                    Many children are still being

 6   left behind, and more will be left behind if

 7   the ED allows the different definition of

 8   high school completion to include the word

 9   diploma.

10                    I could be -- it could simply be

11   stated that high school completion or its

12   equivalent in the language provided.                          These

13   credentials, regardless of what they are

14   called, will define these young adults for a

15   lifetime, add to their struggles to get a

16   job, and may cause them to eventually give

17   up.

18                    I stand here as an advocate

19   making a case for an opportunity for many.

20   I respectfully ask the ED to modify this

21   language in the federal student aid is under

22   your purview.           I don't know what that takes.


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 1                    These states' definition of high

 2   school completion is too disparate for any

 3   uniformity to make any sense.                      And back-and-

 4   forth politics between the states'

 5   Department of Ed and the US Department of Ed

 6   must end on this issue.

 7                    I strongly believe that if

 8   measures are implemented to curtail the

 9   fraud and require students to show progress

10   before mounds of money are thrown at them,

11   then we should have no worries about these

12   students who need opportunity.

13                    When a completion credential is

14   named something that does not qualify, we

15   further contribute to the victimization of

16   No Child Left Behind, literally.

17                    Any educator should know that

18   high-stakes testing has made no difference

19   but made the testing companies quite

20   profitable, but it has not made any

21   difference in the overall success rates of

22   students across this nation.


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 1                    I am appreciative of this

 2   opportunity, and I certainly thank you for

 3   your time.

 4                    ASST. SEC. OCHOA:               Thank you.

 5   Our next speaker is Dr. Mark Sarver.

 6                    DR. SARVER:           Good morning.            Thank

 7   you for the opportunity to address this

 8   group and present suggestions for regulatory

 9   changes to further help institutions combat

10   fraud and protect students and taxpayers

11   from fraudulent activity.

12                    As noted by the Inspector

13   General, fraud rings have taken advantage of

14   the expansion of distance education to

15   commit significant fraud against Title IV

16   programs and the higher education community.

17   I am here to represent that community.

18                    My name is Dr. Mark Sarver, and I

19   am the Chief Executive Officer of EduKan, a

20   consortium of community colleges in Kansas.

21   And we have been delivering online education

22   since 1999.


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 1                    The federal Pell Program is an

 2   integral part of EduKan's mission to be

 3   convenient, accessible, and affordable for

 4   our students, many of whom are first-

 5   generation, non-traditional learners who

 6   simply cannot afford to enroll in

 7   postsecondary programs without the

 8   assistance Pell provides.

 9                    It is my hope that my testimony

10   today will facilitate continued discussion

11   on the development of regulations designed

12   to prevent fraud and otherwise ensure the

13   proper use of Title IV, HEA program funds

14   within the context of current technologies.

15                    I intend to illustrate the ways

16   in which a practical application of an

17   existing technology has the potential to

18   deliver direct benefits to postsecondary

19   institutions, the federal government, and

20   taxpayers, by detecting and preventing

21   fraud, while also indirectly benefitting the

22   administration and efficiency of financial


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 1   aid programs by reducing the burden on

 2   regulated parties as mandated by Executive

 3   Order 22866.

 4                    Recognized in the distance

 5   education arena for its innovation, EduKan

 6   has pioneered many industry firsts,

 7   including the use of gesture-based

 8   biometrics for student authentication.

 9                    Although we were initially driven

10   by our commitment to reduce the cost and

11   burden of physical proctoring of tests, once

12   launched, we quickly realized the potential

13   value of biometrics to address the issues of

14   academic integrity, particularly financial

15   fraud.

16                    EduKan is the first institution

17   in the country to fully implement this

18   technology into our learning management

19   system as a way to not only corroborate

20   identity, but to also systematically and

21   proactively analyze available data to detect

22   and deter possible fraud.


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 1                    When a student enrolls in an

 2   EduKan class, he or she is required to

 3   establish a biometric profile using an input

 4   method they already have on their computer,

 5   such as a mouse, touch pad, keypad or

 6   stylus.

 7                    Because each student's gestures

 8   are as unique as a fingerprint, each time a

 9   student authenticates his or her identity,

10   the system captures those unique gestures.

11                    For example, I created a

12   biometric profile using my finger and my

13   touch pad.         My unique identifier or password

14   is 224.       Even if you watch me create the

15   profile, you would not be able to

16   authenticate the identity successfully

17   because you cannot replicate my gestures.

18   My speed, height, angle and approach is

19   unique as my fingerprint.

20                    In addition to recording the

21   original gesture and comparing it to data

22   points from previous authentications to


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 1   ensure accuracy, the program also captures

 2   the IP address of the person's computer,

 3   which allows us to identify those students

 4   who are working together or in the same

 5   location at the same time or submitting the

 6   same answers.

 7                    Dynamic gesture-based biometrics

 8   like the system used at EduKan can be used

 9   to identify Pell runners and straw students

10   participating in a fraud ring.

11                    Although many schools are front-

12   loading courses with mandatory faculty-

13   student engagement activities, Pell runners

14   have learned how to circumvent these

15   preventative measures.

16                    Even if a ringleader enrolls a

17   large number of straw students, a biometric

18   authentication program will prevent

19   successful authentications, while a close

20   examination of IP addresses will reveal the

21   identity and location of the fraudulent

22   activities.


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1                    Furthermore, the random-generated

 2   requests for authentication will expose

 3   individuals attempting to complete and

 4   submit fraudulent academic work.                        Logging

 5   off before an authentication is an indicator

 6   of potential fraud.

 7                    A biometric program like the one

 8   we use at EduKan will provide data to

 9   support further investigation into the

10   students' activities and resulting

11   disciplinary action.

12                    It was our intent to have a

13   program in which the average, honest student

14   can easily enroll and successfully complete

15   their coursework.              However, I firmly believe

16   that institutions must expand, that the

17   practical application of biometrics to

18   confirm student identity across multiple

19   events as part of the application,

20   enrollment, and attendance process, in

21   combination with retaining IP information in

22   the student data system, will set the


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 1   standard for fraud detection and prevention

 2   in higher education.

 3                    I would ask the members of this

 4   committee to consider how the use of dynamic

 5   gesture-based biometrics can be deployed at

 6   college campuses, particularly those that

 7   are primary targets of Pell runners.

 8                    And I thank you for the

 9   opportunity to address this committee.                            I

10   would entertain any questions, if you have

11   any.

12                    ASST. SEC. OCHOA:               Any questions?

13                    DEP. ASST. SEC. BERGERON:                     No

14   questions.

15                    ASST. SEC. OCHOA:               Our next

16   speaker is Megan McClean.

17                    MS. McCLEAN:            Good morning,

18   everyone.        On behalf of the National

19   Association of Student Financial Aid

20   Administrators, I thank you very much for

21   the opportunity to comment on proposed

22   negotiated rulemaking issues this morning.


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 1                    NASFAA has always believed that

 2   negotiated rulemaking remains the best

 3   process for promulgating regulations, and

 4   appreciates the history of collegiality that

 5   ED has developed in its approach to this

 6   statutory requirement.

 7                    We'd like to begin with just a

 8   general observation, that the biggest

 9   problem we've seen with the negotiated

10   rulemaking is the tendency to overload a

11   single team with more issues than it can

12   reasonably and effectively cover.

13                    Therefore, we urge ED to invest

14   sufficient resources in this endeavor to

15   maximize its effectiveness.

16                    On today's topics, we offer the

17   following comments.               Related to the campus-

18   based programs, we appreciate ED's ongoing

19   efforts to meet the President's directive to

20   conduct a retrospective analysis of

21   regulations.          The campus-based program

22   regulations are generally well-constructed,


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   but have not been given a comprehensive

 2   review for some time.

 3                    Given how close we are to

 4   reauthorization, this may not be the most

 5   optimal time, but should it occur, we do

 6   have a few suggestions.

 7                    In the federal Work-Study

 8   Program, we suggest a review of time sheet

 9   and record-keeping rules and disbursement

10   options to determine whether changes are

11   needed to allow or maximize the use of

12   current technologies.

13                    We also suggest reviewing the

14   program's specific disbursement rules to

15   determine whether they can more efficiently

16   be incorporated into the general provision

17   cash management rules.

18                    In the FSEOG Program, one of the

19   persistent issues that institutions find

20   difficult is the order of awarding.                          The law

21   requires priority for Pell Grant recipients,

22   and that within that priority, awards must


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   be made to students with the lowest EFCs.

 2   However, the requirement to award strictly

 3   in lowest EFC order is an interpretation of

 4   the law.

 5                    We would like to see more

 6   flexibility in how the institution could

 7   identify the lowest EFCs, including a

 8   reasonable cutoff that the school can set,

 9   based on its experience in packaging its

10   student population.

11                    On another topic, two issues

12   related to the return of Title IV funds got

13   short shrift due to lack of timing during

14   the program integrity negotiations.                          Our

15   members continue to express confusion over

16   the treatment of modules and the definition

17   of withdrawn.

18                    We believe those issues should be

19   revisited, and given the opportunity for a

20   fuller discussion than occurred at the

21   previous negotiation.

22                    With regard to fraud, we believe


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 1   that due diligence is more common than

 2   indifference on the part of schools.                          It's

 3   important to bear in mind that fraud does

 4   not look the same everywhere, and that one

 5   school's indicator of fraud may be another

 6   school's normal student characteristic.

 7                    We urge ED to recognize that

 8   schools know their populations best.

 9                    At the same time, we believe ED

10   can help support and expand institutional

11   efforts in a number of ways: providing

12   training in recognized fraud and

13   facilitating best practices on institutions

14   of similar types would be very useful.

15                    In addition, many schools are

16   fearful of invoking professional judgment,

17   and therefore, ED could more strongly

18   support school use of this provision.

19                    A report on fraud in distance

20   education by the OIG released last September

21   pointed out other actions that ED could take

22   to assist schools in identifying potential


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   fraud.

 2                    OIG suggested that ED establish

 3   computer-matching agreements with prison

 4   systems to help identify applicants that are

 5   incarcerated and therefore ineligible for

 6   most forms of federal student aid, as we've

 7   seen that inmates are apparently a target of

 8   some fraud rings.

 9                    The OIG report also observed that

10   ED has the ability to collect and analyze

11   web server logs for IP information in its

12   own systems, as well as examine and correct

13   vulnerabilities in its systems that create

14   opportunities for the fraud rings to

15   operate.

16                    Centralizing the effort to

17   identify potential fraud as much as possible

18   would greatly improve the efficiency of

19   those efforts.

20                    We also believe that ED needs to

21   improve its own response to reported fraud

22   from schools.           One of the biggest


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   frustrations that we have heard from schools

 2   is that when they report suspected fraud,

 3   nothing happens.

 4                    Schools should not be expected to

 5   act as enforcement agencies, but should be

 6   able to rely on government agencies that are

 7   responsible for investigation and

 8   enforcement.

 9                    And finally, this morning, we

10   just want to wrap up by saying that we think

11   it's important as a community to recognize

12   that despite its challenges, distance

13   education is here to stay, and is a fixture

14   of our modern world.                It will get more

15   sophisticated, and we don't want to inhibit

16   innovation or the ability to react to new

17   threats.

18                    Thank you very much for your

19   time.

20                    ASST. SEC. OCHOA:               Next speaker

21   is Vickie Schray.

22                    MS. SCHRAY:           Good morning.            My


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   name is Vickie Schray, Vice President of

 2   regulatory affairs for Bridgepoint

 3   Education.

 4                    The mission of Bridgepoint

 5   Education is to provide high-quality

 6   innovative education services to enrich the

 7   lives and communities the company serves.

 8                    Bridgepoint owns and operates two

 9   regionally-accredited universities, Ashford

10   University and University of the Rockies.

11                    Bridgepoint Education's

12   institutions offered over 1,400 courses, 85

13   degree programs with 140 specializations.

14   Our total enrollment, as of March 31st,

15   2012, was 94,863 students, of which 99

16   percent were exclusively attending classes

17   online.

18                    Before I offer my

19   recommendations, I would like to commend the

20   US Department of Education for their

21   approach in responding to the Inspector

22   General's investigative program advisory


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   report.

 2                    Rather than immediately launching

 3   into rulemaking, the Department sought to

 4   better understand the issue by meeting with

 5   institutions and creating an internal task

 6   force to better explore the issue.

 7                    I encourage the Department to

 8   continue this collaborative approach to

 9   addressing important issues that affect

10   taxpayer investment in higher education and

11   our nation's students.

12                    While the proliferation of

13   distance education has been a major driver

14   in helping to provide greater access to

15   students who did not previously have access

16   to higher education, it has also created new

17   vulnerabilities in the administration of

18   Title IV.

19                    The growth of online education

20   has been viewed by some as contributing to

21   the transformation of higher education and

22   playing an instrumental role in helping to


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   meet the President's completion agenda.

 2                    Development of burdensome

 3   regulations that lag best practice would be

 4   detrimental to the promise of increased

 5   access and choice to our nation's students,

 6   especially those that have been

 7   traditionally under-served.

 8                    No fraud or abuse of the Title IV

 9   funds can be tolerated.                  The issue of

10   preventing fraud in higher education is far

11   too important to wait for the promulgation

12   of final regulations.

13                    Instead, we encourage the

14   Department to work collaboratively with

15   institutions to identify those issues that

16   can be addressed immediately under current

17   authority, and second, those issues that may

18   require regulatory or statutory changes.

19                    First, issues that should be

20   addressed under current authority.                         As the

21   OIG reported, the scope of this problem is

22   too large for the OIG to investigate on its


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   own.

 2                    Conversely, given the complexity

 3   and national scope of the issue,

 4   institutions need assistance from the

 5   Department to effectively thwart the efforts

 6   of the fraud rings.

 7                    As my colleague from Ashford

 8   University testified at the Phoenix hearing,

 9   our institution has invested in technology,

10   policies, procedures, training, and staff to

11   detect and prevent fraud in our distance

12   education programs.

13                    Institutions are clearly the

14   first line of defense, but greater

15   communication and sharing of pertinent

16   information related to potentially

17   fraudulent activity by individuals is

18   needed.

19                    An important role for the

20   Department of Education is to collect

21   information that would be used to alert and

22   assist institutions in their detection and


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   prevention of fraud.                For example, the

 2   Department could create a centralized

 3   database or watch list of students that have

 4   been identified as potentially engaging in

 5   student identify fraud and suggest

 6   particular safeguards or actions by the

 7   institutions prior to certifying or

 8   releasing loan funds.

 9                    We also support the OIG's

10   recommendation that the Department should

11   immediately deploy the National Student Loan

12   Data System to provide institutions with

13   real-time data through flags regarding data

14   elements such as common student addresses,

15   student attendance patterns, and loan

16   activity on the institutional student

17   information record data to assist

18   institutions in the detection and prevention

19   of fraud.

20                    The Department in the October 20,

21   2011 Dear Colleague letter stated that

22   institutions have the authority to make more


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   frequent disbursements of Title IV funds so

 2   that not all the payment period's award is

 3   disbursed at the beginning of the period.

 4                    We agree that spreading the

 5   disbursements would delay the creating and

 6   release of a credit balance, and discourage

 7   fraud ring participants.

 8                    We urge the Department to provide

 9   additional guidance to assist institutions

10   in developing new policies for distance

11   education students, and would welcome the

12   opportunity to work collaboratively with you

13   on this important issue.

14                    The second set of recommendations

15   focus on those issues that may require

16   statutory or regulatory change.                       We

17   encourage the Department to work with

18   Congress to amend the Higher Education Act

19   to exclude room and board from the cost of

20   attendance calculation and limit student

21   borrowing to direct educational cost for

22   online students.


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 1                    As our institution provides one

 2   of the lowest-cost options for earning an

 3   online degree resulting in credit balance,

 4   we are also attractive to those who are

 5   intent on fraudulently accessing financial

 6   aid funds.

 7                    Our online student population is

 8   predominantly independent adults working

 9   full time, and allowing them to borrow for

10   room and board may not be in their best

11   interest.

12                    We believe limiting the cost of

13   attendance is a commonsense approach to

14   addressing this issue, and will likely

15   decrease the amount of debt incurred by

16   online students and reduce funds available

17   as a credit balance or refund to those

18   individuals who want to defraud the

19   government.

20                    While the OIG recommends that

21   institutions serve as the entity collecting

22   and retaining the IP addresses, we


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   understand that institutions would carry out

 2   those duties at the direction of the

 3   Department as manager of the federal Direct

 4   Loan Program.

 5                    In other words, the institution

 6   would simply carry out an administrative

 7   task for the Department.                  We urge the

 8   Department to ensure that any new

 9   regulations protect the institution from

10   liability for carrying out these IP data

11   collection tasks.

12                    We encourage the Department to

13   develop through negotiated rulemaking

14   regulations that provide explicit guidance

15   and flexibility to institutions to take

16   necessary steps if they suspect a student is

17   engaging in student identity fraud.

18                    These steps may include delaying

19   release of stipend funds and/or credit

20   balances beyond 14 days while investigating

21   suspicious situations, and/or while

22   requiring and weighting documentation


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   providing the student's identity as deemed

 2   appropriate by the institution.

 3                    Holding institutions responsible

 4   only for taking action on what they know and

 5   when they know it, providing assurance that

 6   institutions acting in good faith or having

 7   certain safeguards in place will not be

 8   blamed for fraudulent or criminal behavior

 9   of students, providing that institutions who

10   have taken the appropriate steps to prevent

11   fraud are not penalized by those fraudulent

12   students who do succeed in enrolling and who

13   ultimately drop out by excluding these

14   students from the institution's cohort

15   default rate and gainful employment measures

16   such as repayment rate and debt-to-income

17   ratios, establish clear guidelines for what

18   an institution should do in cases whereby

19   fraud cannot be proven by the institution,

20   but behaviors indicate that it is likely,

21   for example, hold loans, return loan funds,

22   hold stipends, require notarized identity


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 1   documents, and report to the OIG.

 2                    In closing, we agree that

 3   institutions are the first line of defense

 4   in combating fraud, but believe that a

 5   collective and collaborative approach with

 6   the OIG, the Department, and the

 7   institutions is needed to share important

 8   information, identify tools, and develop

 9   guidance to assist institutions in detecting

10   and preventing fraudulent activity.

11                    Thank you very much for this

12   opportunity this morning.

13                    ASST. SEC. OCHOA:               Our next

14   speaker is Joan Zanders.

15                    MS. ZANDERS:            Good morning.            I am

16   Joan Zanders.           I'm just beginning my 26th

17   year as a director of financial aid, and

18   currently serve as the Director of Financial

19   Aid and Student Support Services at Northern

20   Virginia Community College.

21                    We are a school of six full

22   campuses, many sites, and over 78,000


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 1   students in Northern Virginia.                      Our students

 2   come from 180 countries.                  We are in close

 3   proximity to Washington, DC and we really

 4   are a microcosm of the world.

 5                    About three weeks ago, I had the

 6   opportunity to watch 7,700 students graduate

 7   from NoVa.         We are educating Northern

 8   Virginia.        Community colleges are completing

 9   degrees.

10                    What I see generally are the

11   problem areas, and that's what I'm here to

12   address this morning.                I really needed that

13   graduation to see the other side of it.

14                    I'm largely speaking from my own

15   experiences this morning, not necessarily

16   for my college, but from things that I have

17   seen, especially in the last few years.

18                    I am a true believer in higher

19   education as an equalizer, but I also know

20   full well that we must be good fiduciaries

21   of the public trust and tax dollars, or we

22   will likely loose public support for these


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 1   programs and risk the futures of many of our

 2   nation's children and grandchildren.                          I am

 3   speaking for our future.

 4                    It has to be about access and

 5   accountability.            We must have both, not just

 6   for the colleges, but for the students.                             And

 7   I think to some extent, we have gone so far

 8   on the side of access that we have forgotten

 9   a little bit about the accountability side.

10                    Since the Federal Register did

11   give us the leeway to address additional

12   issues, I am going to use that opportunity.

13   I will start with the fraud and abuse,

14   however.        But I want to mention that fraud

15   and abuse come in many disguises.                        It's not

16   just all about distance education.

17                    The first batch of ISIRs I pulled

18   in this year at NoVA included over 300

19   independent students with nothing but zeros

20   on the ISIRs.           Over 100 dependent files were

21   pulled in with all zeros for both the

22   student and the parents.


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 1                    Of these, less than ten indicated

 2   any means-tested benefits.                    I'm not sure how

 3   one lives in Northern Virginia on nothing,

 4   but, none of these were selected for

 5   verification by the Department of Education.

 6                    Of those who were independent,

 7   and these were independent for a variety of

 8   reasons, we found one student who was 19

 9   years old, not married, and claiming six

10   dependents with no income.                    We had another

11   one who was claiming dependents -- or many

12   who were claiming dependents other than

13   children or spouse without any income,

14   emancipated minors in states with no

15   emancipation rights, to many, many homeless

16   students.

17                    I have a colleague who said she

18   tracked homeless students for a year, and of

19   the 300 who claimed homelessness, when all

20   was said and done, five of them were

21   actually qualified to be homeless.                         Because

22   that question makes a student independent,


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 1   it changes everything.                 It changes the EFC

 2   completely.

 3                    Some of these I know are

 4   mistakes, but are some attempts to defraud?

 5   We don't know.

 6                    More and more people seem to be

 7   being paid under the table, not reporting

 8   taxes at all.           And since we're using current

 9   year, I also wonder how many students have

10   just not filed their taxes yet, they're

11   putting in all zeroes, they're not flagged

12   for verification, and nothing ever comes of

13   a change in those figures.                    I don't know why

14   these files are not of more concern.

15                    Item number two, each year,

16   largely because of where we are in the

17   country, we receive hundreds and hundreds of

18   files where students do not meet the

19   citizenship match.

20                    In most instances, these students

21   are going to the social security

22   administration to update their citizenship


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 1   status, which I was told would happen within

 2   a few days, but which seems to be taking

 3   months.

 4                    Why cannot the Department of

 5   Homeland Security share information in a

 6   timely fashion with the Social Security

 7   Administration?            We are asked as financial

 8   aid directors to view citizenship documents

 9   and determine aid eligibility when we know

10   that there are websites that allow creation

11   of citizenship documents.

12                    How can we, as lay people,

13   possibly know that we have a valid document?

14   I am a huge vocal advocate for the DREAM

15   Act, so please don't take this the wrong

16   way.     I truly believe in the DREAM Act.

17                    But that's not optional at this

18   point, because Congress can't make a

19   decision on it.            But why must financial aid

20   administrators determine the validity of

21   citizenship documents when we, as a country,

22   have the means to do that if departments


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 1   would communicate with one another in a

 2   timely fashion?

 3                    Online classes are the likely

 4   targets for scammers, since students have

 5   never had to appear on campus in many

 6   instances.

 7                    But contrary to that premise, the

 8   only fraud ring we have found thus far

 9   involved on-campus students who were

10   otherwise dependent filing as recently

11   married with spouses who didn't make enough

12   to file taxes, thus making the student

13   independent and much more eligible for grant

14   aid.

15                    None of these students were

16   selected for verification, and were found

17   due to red flags coming from communications

18   with the students.

19                    I actually had to push the OIG to

20   investigate further because on initial view,

21   it appeared there wasn't enough money at

22   risk to continue the investigation.


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 1                    When all was said and done, two

 2   colleges were involved and a ring was

 3   established, but it was very, very difficult

 4   to get the OIG to pursue it.                     I'm now on a

 5   first-name basis with the OIG.

 6                    The formula continues to be

 7   streamlined in an attempt to simplify the

 8   process for students and families.                         I

 9   realize how very difficult it is to verify

10   the value of assets if a family chooses not

11   to be forthcoming with the information.

12                    For some reason, one of my staff

13   members recently had a reason to ask further

14   questions of a parent.                 Listed on this file

15   were $30,000 in assets.                  When all was said

16   and done, we found two beach houses of over

17   $1.5 million value each.

18                    At the same time, in years past,

19   because of the farm crisis, farms were

20   eliminated, family farms were eliminated as

21   an asset in the formula.                  Then, because

22   family farms were eliminated, family


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 1   businesses were eliminated, or small

 2   businesses were eliminated.

 3                    I come from an area where farms

 4   are selling for about $10,000 an acre or

 5   more, but the formula hasn't changed.                           I'm

 6   sorry, but these are not normally needy

 7   people.

 8                    I've had farmers ask me what

 9   their AGI could be to get a Pell Grant.

10   Though I couldn't and wouldn't provide a

11   figure due to the many variables the farmer

12   needed to know, indicating that he can make

13   his AGI say anything it needed to say to get

14   a Pell Grant, and all they have to do is buy

15   seed early, buy fertilizer early, buy

16   machinery early.

17                    And I'm not picking on farmers,

18   but what happens when the AGI is manipulated

19   and assets are not there, then the burden

20   falls on individuals with W-2 income.                           They

21   pick up the balance.

22                    I am told we might get to a FAFSA


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 1   that would fit on a postcard.                      That would be

 2   simple, but would it be fair?                      If we start

 3   going down that road, those with only W-2

 4   income again will be the ones who are

 5   carrying the load for everyone.

 6                    We seem to be streamlining

 7   ourselves right into a major Pell Grant

 8   deficit with a formula that has little to do

 9   with reality.           If we insist on simplifying

10   to the point that we can't really ensure

11   that needy students are receiving the funds,

12   why not take all the millions of dollars

13   that we are using to determine who gets the

14   limited dollars and provide at least the

15   first two years of postsecondary education

16   for everyone?           I think the money would be

17   better spent.

18                    As I mentioned earlier, we're a

19   large community college.                  In the past two

20   years, we've seen a huge increase in the

21   number of students with loan debt in excess

22   of $45,000.


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 1                    Often these students are coming

 2   back to us with bachelor's degrees, master's

 3   degrees, doctoral degrees, taking minimal

 4   credits in a new program, and borrowing the

 5   maximum amount in loans.

 6                    Some are legitimate programs.                       We

 7   have nursing programs and oftentimes have

 8   advanced degree programs coming back to take

 9   those programs.            But some of these students

10   have been to five, six, seven different

11   postsecondary institutions.

12                    I have seen loan volumes of over

13   $200,000 on more than one occasion.                          Most of

14   these are not flagged by the Department,

15   because there is undergraduate excess

16   available to the student.

17                    We are running reports on

18   aggregate loan volumes to find these

19   students and then checking NSLDS.                        Most have

20   much unpaid interest in collection costs.

21                    I can think of three particular

22   files just as examples.                  A husband and wife,


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 1   he was a master's, she was a doctorate, with

 2   a combined loan total of about $350,000, and

 3   income of about $150,000.                   And they're

 4   coming back to us, taking minimum credits,

 5   and borrowing the maximum.

 6                    A mother with an income range of

 7   $6900 to $11,000 on two different years,

 8   totally maxed out on her own student loans,

 9   and has thus far borrowed PLUS Loans for her

10   children to the tune of over $250,000.                            I

11   think we know who's going to pay that money

12   back.

13                    A colleague of mine reported a

14   potential new student to his college who was

15   on her fourth college in two years, and who

16   had already borrowed over $22,000 in student

17   loans.      She happened to also be getting a

18   senior citizen waiver due to the fact that

19   she was now 91 years old.

20                    We can't discriminate on the

21   basis of age.           We know that.            But we're

22   hearing more and more of what we are now


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 1   terming granny scams.                And since loans for

 2   students who die are forgiven, we can justly

 3   assume who will be paying these loans back.

 4                    I'm not sure how we address this

 5   program, but it is becoming a big problem.

 6   I feel somebody is going to set up shop in a

 7   nursing home.

 8                    Students are now able to borrow

 9   at two different schools simultaneously if

10   the loan periods don't overlap.                       No notice

11   is sent to the schools until the loan total

12   for the year is exceeded.

13                    Would it be possible to provide

14   MRRs for loans to prevent loan over-awards

15   before they happen, or an ICR flag on a

16   subsequent transaction that indicates loans

17   at more than one school?                  We have to

18   literally go into COD to figure these things

19   out.

20                    On the campus-based issue, there

21   is currently no provision included in

22   regulation that allows a college to deny a


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 1   Perkins Loan for other than unwillingness to

 2   repay.      I recently had a student with over

 3   $90,000 in loans absolutely insisting that

 4   he could get a Perkins Loan and I really had

 5   no right to deny it.

 6                    I checked with the Department,

 7   there was nothing there, unlike sub and un-

 8   sub loans that we do have a right to deny on

 9   a case-by-case basis.                That doesn't help our

10   default rates.

11                    Currently, there's no requirement

12   for colleges to collect other college

13   transcripts from students who move from

14   college to college.               I think that could help

15   some of the balance problem, if we were

16   required to have transcripts.

17                    I know that would be burdensome

18   for many schools, and in some instances,

19   it's considered to be a hindrance for

20   students to return to college.                      But we're

21   seeing enough bounce that something has to

22   change, and we're paying for credits over


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 1   and over again that have already been

 2   completed because students owe bills at

 3   previous schools.

 4                    We've requested transcripts

 5   recently from a student who had been to five

 6   different colleges.               She couldn't get four

 7   of the five because she owed four of the

 8   five money.

 9                    Some students just really need a

10   chance to start over, but the question is,

11   how many times?            If there are any credits

12   that would transfer towards the current

13   degree, it would be in the student's best

14   interest to bring in these credits, thus

15   saving the student and/or taxpayer

16   additional funds, and moving the student

17   closer to degree completion.

18                    We've had students who really are

19   bouncing from school to school and having

20   nothing completed.              We don't really want to

21   be next in that process.

22                    Two additional issues truly need


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 1   the attention of the Department of

 2   Education.         The first is a return to Title

 3   IV, as was mentioned by Megan McClean.                            It

 4   was not negotiated to satisfaction two years

 5   ago, and the current regulation is unfair to

 6   students and nonsensical when different real

 7   scenarios are considered.

 8                    Example 1, two students enrolled

 9   in the same exact classes, but due to

10   timing, if the student drops the 16-week

11   class for the semester the week before the

12   eight weeks is over and has two remaining

13   eight-week classes, the student owes nothing

14   back.

15                    If he tries to stay in the course

16   two additional weeks, withdraws in the ninth

17   week, completes the first two classes

18   successfully, goes two weeks longer than his

19   brother, he's going to owe money back.

20                    A student enrolls in three 16-

21   week classes and one weekend class.                          During

22   the weekend class, which is held during the


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 1   third week of the term, he drops his three

 2   16-week classes, since he's failing them.

 3   Since he was still in the weekend class,

 4   he's not subject to R2T4.

 5                    He finishes his weekend class,

 6   possibly even with an F, and owes no money

 7   back, whereas the student who may have

 8   withdrawn after that period would owe all

 9   kinds of money back.

10                    This is the one that borrows me

11   the most.        A student registers for three

12   five-week modules, especially in the summer

13   time, three credits in each module.                          She

14   declines her loan, but receives a Pell Grant

15   at three-quarter time.

16                    She successfully completes one

17   module.       Between modules one and two, she

18   learns her mother has a health problem and

19   decides it best to drop modules two and

20   three.      Because she never started two and

21   three, the school must adjust her Pell Grant

22   to the less than half-time status.


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 1                    On top of that, since she dropped

 2   the two later-starting classes while not

 3   attending another class, the school is

 4   required to complete R2T4 for her.

 5                    She will owe back part of the

 6   less-than-half-time Pell even though the

 7   amount she received was exactly what she

 8   would have received if she had registered

 9   for only three credits to start with.

10   Totally unfair to the student.

11                    This formula needs major work,

12   and I'm not going to go into the details of

13   this.      I'm going to send this to the

14   Department.

15                    But I would like us to look at a

16   totally different formula.                    Let's forget

17   R2T4 and focus on what the student should

18   receive in the next term.

19                    I agree there have to be

20   consequences.           But why not look at

21   minimizing the amount of availability for

22   aid in the coming term so that the student


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 1   doesn't have an outstanding bill?

 2                    Number one, it's very difficult

 3   for the student to repay that money and

 4   consequently then return to college, so

 5   they're sitting there with a debt on their

 6   account.

 7                    If instead, that student who

 8   fails to complete what they started were

 9   restricted to a lesser enrollment status, we

10   would possibly encourage success.

11                    Let's say a student finishes

12   three out of twelve credits.                     Next term,

13   they can be no more than half-time status,

14   whatever the status is, plus a status.                            If

15   they finish nothing, they can enroll for

16   less than half-time status, no loans, no

17   anything, except for the Pell Grant.

18                    If they can prove success at that

19   level, then they would increase their aid in

20   future terms.           I'll send the details of that

21   to the Department.

22                    I know this would be cumbersome


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 1   at first, but I think it can be done through

 2   NSLDS and reporting the student has changed

 3   schools.        Transcripts would be required to

 4   show exactly what the student was eligible

 5   to receive in the coming term.

 6                    Changing programs would not have

 7   an impact, student is still required to

 8   complete at a given level -- at a reduced

 9   level in order to receive Pell Grant in the

10   future or other types of aid.

11                    The last issue of concern is the

12   recently-voiced limitation on paying for

13   book charges with Title IV aid when charges

14   from a non-college-owned bookstore are

15   applied to the student's account.                        I think

16   the vast majority of colleges now have non-

17   college-owned bookstores, and this issue

18   really needs to be addressed.

19                    If community colleges were forced

20   to release money to students for books prior

21   to census date, with the churn that we have,

22   we would lose thousands of dollars from that


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 1   early release aid.

 2                    If we didn't collect the money

 3   from the student, the only way to cover it

 4   would be with increased tuition for our

 5   students, which is not a good solution at

 6   all.

 7                    What I frequently refer to as the

 8   theory of over-correction is alive and well

 9   across the country, and not just in

10   financial aid.

11                    My fear in bringing forward these

12   issues and possible solutions is that we

13   will, once again, overcorrect, causing more

14   problems instead of solutions, and hurting

15   students.

16                    I firmly believe that we must

17   find a balance between access and

18   accountability, and have an expectation that

19   access will yield results.                    If we do so,

20   committing fraud and abuse will be much more

21   difficult.

22                    And I am more than willing to


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 1   work with the Department on any of these

 2   issues.       I would invite the Department and

 3   Congress to come spend a week in our office.

 4   I would love to have you experience the

 5   issues that we see on a regular basis, and

 6   maybe it would help formulate better policy.

 7                    Thank you.          I greatly appreciate

 8   working with the Department of Education.

 9                    ASST. SEC. OCHOA:               The next

10   speaker is Rich Williams.

11                    MR. WILLIAMS:             Hello, everyone.

12   Good morning.           My name is Rich Williams.

13   I'm the higher education advocate with the

14   United States Public Interest Research

15   Group, a national public interest advocacy

16   and student advocacy organization.

17                    Thank you very much for the

18   opportunity to make public comments.                          I'd

19   like to spend my time today addressing an

20   issue that has been -- we've been hearing

21   growing complaints about from our student

22   membership around the rapidly growing market


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 1   of campus debit cards, including debit cards

 2   designed for the sole purpose of

 3   disbursement of federal student aid.

 4                    While we believe a well-

 5   structured debit card program can provide

 6   benefits to students, many current programs

 7   provide little to no choice for students,

 8   while high fees on grant and loan money

 9   leave students deeper in debt.

10                    Wall Street is headed back to

11   campus, continuing a long track record of

12   targeting college students to push bank

13   products that leave them deeper in debt.

14                    People would be shocked to learn

15   that some of the biggest banks in this

16   country are skimming potentially hundreds of

17   millions of dollars in financial aid dollars

18   meant for students, millions of students are

19   impacted, and they are the most neediest

20   students in the country.

21                    Banks and other financial firms

22   are taking advantage of a variety of


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 1   opportunities to form partnerships with

 2   colleges and universities to produce campus

 3   student ID cards and offer or receive

 4   student aid disbursements on debit cards or

 5   pre-paid cards.

 6                    In addition to on campus

 7   services, such student ID functions offered

 8   on the cards, some cards offer traditional

 9   debit card services linked to bank accounts.

10   Others provide additional, reloadable pre-

11   paid card functions.                Financially,

12   disbursement is the biggest.

13                    While schools are obtaining

14   revenues and reducing costs for outsourcing

15   certain services, the relationships between

16   schools and financial institutions have

17   raised certain questions, because students

18   end up bearing some of the costs directly,

19   including per swipe fees for using your

20   debit card as a debit card of fifty cents, a

21   pay to pay fee; inactivity fees of $10 or

22   more starting six months of inactivity, not


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 1   even a full academic year; overdraft fees of

 2   up to $38; and plenty more.

 3                    Other issues include the effect

 4   of aggressive marketing strategies by

 5   partnering banks on student choice and weak

 6   consumer protections on certain cards that

 7   hold student aid funds.

 8                    Above all, these deals provide an

 9   unprecedented opportunity to market and

10   bundle financial products with virtually no

11   competition, including credit cards and

12   private student loans.

13                    We recently released a report,

14   "The Campus Debit Card Trap," which details

15   many of the comments in greater detail.

16   Some of the key findings that we report,

17   millions of students are affected.                         Almost

18   900 of the 7300 campuses participating in

19   the federal student aid program now have

20   banking partnerships.

21                    Higher One, the biggest financial

22   firm, has partnerships with 520 campuses,


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 1   enrolling over 4 million students.

 2   Currently over 12 percent or one in eight of

 3   all federal aid recipients national disburse

 4   their aid money onto Higher One bank

 5   accounts.        Wells Fargo, the biggest bank in

 6   the market, partners with 43 campuses that

 7   enroll over 2 million students.

 8                    And there's big money at stake.

 9   Higher One makes 80 percent of its revenues

10   by siphoning fees from student debit cards.

11   These fees include ATM and other transaction

12   fees, overdraft fees, and interchange fees

13   that are imposed on merchants who accept the

14   cards.

15                    Most of the students who are

16   impacted are the neediest.                    Students most

17   reliant on financial aid come from low and

18   moderate income backgrounds.

19                    The service appears to be

20   endorsed by the colleges.                   Huntington Bank

21   paid $25 million to co-brand and link their

22   checking accounts with Ohio State University


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 1   student IDs.          Other schools receive

 2   substantial payouts, revenue sharing deals,

 3   and large reductions in administrative

 4   costs.

 5                    Many bank contracts require aid

 6   recipients to visit their website before

 7   they choose how to receive their aid either

 8   into existing accounts, onto a check, or a

 9   disbursement card.              They co-brand with the

10   college, which implies an endorsement, even

11   if it's not the case.

12                    These relationships create at

13   least the appearance of a conflict of

14   interest.        Banks count on students letting

15   their guards down as consumers when the

16   school logo is attached.

17                    Based on our evaluation of the

18   issues surrounding the growing campus card

19   marketplace, and other potential impacts to

20   students, we have created a framework for

21   discussion on best practices that offer

22   specific recommendations to the Department


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 1   of Education to improve safeguards for

 2   students.

 3                    A few of the specific

 4   recommendations include, the Department

 5   should do more to collect information about

 6   the marketplace, which is currently opaque,

 7   including thorough annual compliance audit

 8   surveys already required of third-party

 9   servicers.

10                    Additionally, the Department

11   should enforce current regulations requiring

12   institutions to provide all contracts with

13   third-party services, including modified or

14   renewed contracts.              These contracts should

15   always be publicly available in an easily

16   accessible database.

17                    I might add, many of these

18   contracts are being signed for a decade or

19   longer time periods, while there's no

20   restrictions on how quickly banks can change

21   and modify the bank accounts, including the

22   fees and terms and conditions that the


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 1   students have on their accounts.

 2                    Three, the Department should

 3   enforce current rules that ban any credit

 4   function, such as overdrafts, on bank

 5   accounts where a school or an agent of the

 6   school opens the account on behalf of the

 7   student, establishes a process the student

 8   must follow to open a bank account, or

 9   similarly assists the student or parent in

10   opening a bank account.

11                    Four, we include a variety of

12   recommendations about updating the

13   Department's current regulations in light of

14   new bank tactics concerning the disbursement

15   of financial aid.

16                    A few of them fall back

17   ultimately to the principle that the

18   Department should create rules that ensure

19   students have a clear and unbiased choice

20   about where to bank and which financial aid

21   disbursement method they wish to use.

22                    Certain tactics currently mislead


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 1   students, including mailers from the bank to

 2   the student before they even set on campus,

 3   potentially even including a debit card

 4   which they are instructed to activate;

 5   setting up tables on campus during

 6   orientation and other events to market their

 7   products; co-branding with the University

 8   logo; misleading language about the purpose

 9   of debit cards, including phrases like, you

10   must activate your card now in order to

11   receive aid; and even giving gifts to

12   students to open checking accounts.

13                    These may sound familiar, because

14   they are mostly heavily restricted or banned

15   practices in relation to credit cards.

16   However, with debit cards, totally legal.

17                    Additionally, the Department

18   should ban all fees on financial aid

19   dollars, whether disbursed to a pre-paid

20   card or a bank account in partnership with

21   the school.          Financial aid dollars are

22   taxpayer money designed to pay for


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 1   educational expenses, not an education in

 2   high bank fees.

 3                    The Department should require all

 4   banks and financial firms to accept or

 5   disburse federal student aid to make their

 6   affinity agreements with schools public,

 7   just like with credit card agreements.                            The

 8   Department should ban co-branding of

 9   materials including debit cards, websites

10   and mailers, unless a student opts in to the

11   service.

12                    Regulators should require the

13   campus provide an adequate number of

14   regularly replenished on-campus ATMs.                           I

15   think this is where we're seeing many of the

16   problems.

17                    Currently, banks are able to meet

18   the minimum letter of the law by having one

19   ATM on campus.            As you can imagine, when

20   financial aid is disbursed, there's a run

21   onto those ATMs, and they break down or run

22   out of money within the first day.


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 1                    And I report, we have a picture

 2   of a line 50 students long on the day of

 3   disbursement at one community college.                            That

 4   ATM broke down within two hours and students

 5   were forced to use ATMs -- foreign ATMs and

 6   incur not only up to a $3 charge from their

 7   bank provider, but an additional charge from

 8   the owner of the ATM.

 9                    ATMs should also be made

10   available 24 hours a day.                   Currently, many

11   of them are placed in buildings that are

12   locked up, leaving students no choice but to

13   use foreign ATMs, again incurring the fee.

14                    The Department should create

15   rules -- or the Department should create

16   additional guidance to help schools better

17   understand federal aid requirements in the

18   ever-changing bank landscape.

19                    The Department should also

20   advocate that schools negotiate out fees

21   from their contracts, and possibly reward

22   those who do.


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1                    The Department should more

 2   aggressively pursue and collect complaints

 3   related to debit cards and financial aid

 4   disbursement, investigate potential

 5   violation, and use their current authority

 6   to find banks and financial firms

 7   participating in third-party servicing

 8   contracts that are violating those rules.

 9                    And finally, the Department

10   should act in strong partnership with the

11   Consumer Financial Protection Bureau and

12   attorney generals around the country to

13   enforce rules and create new ones that

14   protect students.

15                    We would like to submit a full

16   copy of our "Campus Debit Card Trap Report"

17   as our written comments, which has

18   additional details about our comments and

19   additional recommendations.

20                    We look forward strongly to

21   working with the Department of Education and

22   colleges moving forward to protect students


      Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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 1   and their financial aid from being whittled

 2   away by bank fees.

 3                    Thank you.

 4                    ASST. SEC. OCHOA:               Thank you.

 5                    Our next speaker is Lauren

 6   Saunders.

 7                    MS. SAUNDERS:             Good morning.            I

 8   am Lauren Saunders, managing attorney with

 9   the National Consumer Law Center.                        We

10   advocate on behalf of low-income consumers

11   and seek to protect them in their financial

12   lives.

13                    Thank you for this opportunity to

14   testify today on behalf of our low-income

15   clients.        We support efforts to reduce fraud

16   and increase efficiency in disbursement of

17   higher education funds.                  But we think the

18   Department needs to do more to ensure that

19   students have the choice of where to bank,

20   and that they are protected from unnecessary

21   fees, risks, and inconveniences when the

22   school selects their account.


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 1                    The education that a student

 2   receives in college is more than what takes

 3   place in the classroom.                  Encouraging

 4   students to make wise financial choices and

 5   to learn how to manage a financial account

 6   is essential.

 7                    Schools should not skew the

 8   choice that a student makes, or worse, make

 9   bad choices for them by choosing an

10   institution that provides the most revenue

11   to the school.

12                    The school account can provide

13   convenience and other benefits to students.

14   But some schools offer pre-paid cards and

15   not full-fledged bank accounts, and other

16   offer accounts like Higher One that purport

17   to be checking accounts, but that have many

18   of the limitations of pre-paid cards, such

19   as numerous fees, a lack of branches to make

20   deposits, and small ATM networks.

21                    Even when schools choose a

22   traditional bank account, ATM networks vary,


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 1   and overdraft fees in particular have been a

 2   problem for many students at some banks.                             A

 3   recent study found that 17 percent of

 4   consumers ages 18 to 24 incurred overdraft

 5   fees, a rate nearly twice as high as that of

 6   older consumers.

 7                    Not all banks are the same.                      Citi

 8   and HSBC do not permit debit card and ATM

 9   transactions to trigger overdraft fees, nor

10   does Bank of America on debit cards.                          Other

11   banks permit, and sometimes encourage,

12   overdraft fees.

13                    Wells Fargo and US Bank, two

14   banks that have among the largest numbers of

15   school contracts, permit overdraft fees on

16   debit cards and ATM transactions.                        Those two

17   banks are also among a small number of banks

18   that offer 300 percent short-term small

19   loans, account advance payday loans that can

20   trap consumers in a cycle of debt.

21                    Department rules prohibit turning

22   a school-selected card into a credit


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 1   instrument, yet banks that solicit consumers

 2   to opt in to overdraft protection on their

 3   debit card skirt that rule.

 4                    Direct deposit to an account of

 5   the student's own choosing should always be

 6   the first choice, one that is actively

 7   encouraged.          Many students already have bank

 8   accounts when they start school, especially

 9   the large number of older students who have

10   already been managing their financial

11   affairs.

12                    Even when opening a new account,

13   a student may have a variety of reasons for

14   preferring an account other than the one

15   that has the contract with the school.                            The

16   student might prefer a bank that has a

17   broader free ATM network or branches in the

18   student's home city, has lower fees, does

19   not encourage overdraft fees or

20   overspending, has more sophisticated mobile

21   apps or other financial management tools, or

22   is a smaller, community-based institution


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 1   with more personal service.

 2                    The Department already has rules

 3   that require students to affirmatively

 4   consent to an account that the school

 5   selects for them.              The Electronic Funds

 6   Transfer Act has similar rules that restrict

 7   mandated accounts and unsolicited debit

 8   cards.      Unfortunately, these rules seem to

 9   be honored more in the breech.

10                    The Department should revise its

11   model forms and find multiple early, easy,

12   and convenient steps in the financial aid

13   application and agreement process for the

14   student to indicate their choice of direct

15   deposit, or, if they prefer, a paper check.

16                    Schools should not wait until the

17   funds are ready to disburse, resulting in

18   delays if the student selects an option

19   other than the school-selected account.

20                    If the student does choose an

21   account selected by the school, the school

22   has a high obligation to ensure that the


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 1   account is appropriate for students and does

 2   not result in unnecessary fees.                       Many

 3   students will rely on their school's

 4   endorsement, and these accounts may stay

 5   with students for a long time, for many

 6   years to come.            A report from Consumers

 7   Union just this week shows how difficult it

 8   is to change banks.

 9                    The Department should ban

10   revenue-sharing in order to ensure that

11   schools do not have a conflict of interest

12   when they select a contract.                     The Department

13   should also set standards for school-

14   selected or endorsed accounts.

15                    The Department of Labor, for

16   example, put forth guidance on the fees

17   appropriate on pre-paid cards used by states

18   to pay unemployment benefits.

19                    Standards for these accounts can

20   assist schools in negotiating the best deals

21   for their students.               Department and schools

22   together should ensure that students are


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 1   clearly informed that they can decline an

 2   account and can transfer any money to their

 3   own account easily and without charge.

 4                    They should ensure that any

 5   account arranged by the school has

 6   sufficient free ATM access, does not carry

 7   any overdraft fees or credit features,

 8   provides ample free access to account

 9   information, does not carry unnecessary or

10   excessive fees, complies fully with

11   Regulation E, and carries deposit insurance,

12   and has terms that are clearly and

13   conspicuously disclosed to the student

14   before the student decides to accept the

15   account.

16                    I've described these issues at

17   greater length in the written testimony that

18   we have already submitted.                    Thank you for

19   this opportunity to testify.

20                    ASST. SEC. OCHOA:               Thank you.

21                    So, next speaker is Wes Huffman.

22                    MR. HUFFMAN:            Good morning.            My


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 1   name is Wes Huffman, and I'm the Legislative

 2   Director for the Coalition of Higher

 3   Education Assistance Organizations, or

 4   COHEAO.       And I am here to offer this

 5   testimony on behalf of our board of

 6   directors and members.

 7                    I would like to present the

 8   following comments on the upcoming

 9   negotiated rulemaking on several important

10   issues, but most particularly, the campus-

11   based programs and Perkins Loans.                        That's

12   kind of the main issue for COHEAO.

13                    COHEAO is a coalition comprised

14   of colleges and universities and commercial

15   organizations with a shared interest in

16   improving access to postsecondary education.

17                    Specifically, COHEAO members have

18   expertise in the Perkins Loan Program and

19   other student financial assistance programs.

20   They are the ones who administer the Perkins

21   Loan Program, working with students over a

22   number of years from the time a Perkins Loan


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 1   is first disbursed until it is fully repaid.

 2                    In the vast majority of cases,

 3   the loans are fully repaid, showing a sign

 4   of success with the program, with financing

 5   going to students for generation after

 6   generation.

 7                    As many of you all know, Perkins

 8   Loans are offered at low interest with well-

 9   crafted cancellation benefits, and more

10   importantly, or perhaps most importantly,

11   Perkins Loans also feature the human touch

12   of campus-based services, which allows on-

13   campus administrators to provide Perkins

14   borrowers with one-on-one service to assist

15   them in the management of their student

16   debts.

17                    Campus-based servicing is

18   especially important today, at a time when

19   many students are graduating with thousands

20   of dollars of student debt, and the

21   government is trying to increase counseling

22   and education to help manage that debt.


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 1                    Perkins Loan administrators are

 2   already providing this counseling in many

 3   fashions, and are quite focused on expanding

 4   the provision of financial education for

 5   their students, and in some cases, former

 6   students, as they are repaying the loans.

 7                    COHEAO commends the Department

 8   for its efforts in streamlining regulations

 9   and appreciates the focus on campus-based

10   programs.        We are extremely hopeful the

11   negotiated rulemaking effort will produce

12   regulations which allow the programs to

13   operate more smoothly for students and

14   schools, while still safeguarding taxpayer

15   funds.

16                    In particular, COHEAO would

17   encourage the Department to create a

18   regulatory structure which allows campuses

19   to engage students efficiently and

20   effectively using modern communication tools

21   and methods, which students prefer and

22   expect from their college or university.


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 1                    We are also hopeful the

 2   Department will give strong consideration to

 3   the cost benefits for colleges and

 4   universities of going paperless, and the

 5   benefits afforded to students, such as

 6   easily accessible but secure personalized

 7   documents and information as it continues in

 8   these streamlining efforts.

 9                    As the Department knows, many

10   schools turn to third-party servicers to

11   assist them with the administration of the

12   Perkins Loan Program.

13                    COHEAO fully supports the efforts

14   to maintain program integrity in the Title

15   IV programs, in particular, Perkins Loans,

16   but we would also support any efforts from

17   the Department to identify and eliminate

18   areas of excessive redundancy in the area of

19   third-party oversight.

20                    In the discussion of the Perkins

21   Loan Program, we suggest that extra care be

22   taken to avoid adding administrative burden.


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 1   The Department deserves nothing but praise

 2   for attempting to streamline regulations

 3   governing the Title IV program, particularly

 4   campus-based, but there is always concern

 5   about unintended consequences.

 6                    Perkins Loans regulations have

 7   been reviewed multiple times in recent

 8   years, including significant regulatory

 9   changes as part of negotiated rulemaking in

10   2007, 2009, and 2012.

11                    COHEAO members were honored to

12   participate in each of those negotiations

13   involving the Perkins Loan Program, and we

14   are hopeful the Department will again seek

15   our members during the review of the campus-

16   based programs.

17                    Members of COHEAO have an

18   expertise on both the front end and back end

19   aspects of the Perkins Loan Program, which

20   would serve the negotiating committee quite

21   well as it reviews these programs, and we

22   look forward to the opportunity to submit


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 1   nominations for negotiations.

 2                    Thank you for the opportunity to

 3   testify.

 4                    ASST. SEC. OCHOA:               Thank you.

 5   We're going to shortly take a break, but if

 6   Daniel Toughey is here, then his testimony

 7   would put us back on schedule.

 8                    So come on up.

 9                    MR. TOUGHEY:            Thank you.          Good

10   morning.        My name is Dan Toughey, and I'm

11   President of TouchNet Information System.

12                    And we'd like to thank the

13   Department of Education for reviewing an

14   important issue of the distribution of

15   credit balances, of Title IV funds, and as

16   it relates to technology currently available

17   on the market.

18                    It's our hope that the

19   establishment of a committee will allow a

20   thorough examination of the distribution

21   processes and practices currently in place,

22   in light of the growing complaints by


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 1   students expressing their dissatisfaction of

 2   the banking products being aimed at it

 3   today.

 4                    As background, TouchNet is a

 5   leading provider of electronic payments and

 6   electronic software for the higher education

 7   industry for the past 20 years.                       We focus

 8   100 percent of our energy and effort on

 9   colleges and universities, and we have a

10   large, installed base of client institutions

11   that collectively represent about 6 million

12   students.

13                    During the past decade, TouchNet

14   has worked with many of our client

15   institutions to work on streamlining and

16   automating the student aid disbursement

17   process.        In that time frame, we've observed

18   a numerous number of approaches and

19   programs.        We've acquired a significant

20   amount of knowledge on how to do the job

21   right.

22                    Our current software offering


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 1   called TouchNet E-refunds enables colleges

 2   and universities to electronically

 3   distribute Title IV money using the ACH

 4   system, or more commonly referred to as

 5   direct deposit.

 6                    Students are able to enroll

 7   online.       They're able to see and manage and

 8   get text notifications of activity within

 9   their refund in their student account.                            And

10   most importantly, they're able to receive

11   their funds electronically into their own

12   bank account.

13                    This solution has literally saved

14   our client institutions millions and

15   millions of dollars of postage, checks,

16   printing, and handling the cost.

17                    But more important than that,

18   folks, more important is what it has not

19   done, and it has not caused any student

20   protests, any lawsuits, or any negative

21   press for our client institutions.

22                    The key to a direct deposit


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 1   program and the savings an institution can

 2   recognize is directly related, naturally, to

 3   the number of students that select the

 4   direct deposit option.

 5                    Many of our client institutions

 6   have achieved success rates of around 50 to

 7   60 percent or more without mandating

 8   electronic disbursements, as currently

 9   provided for in the FSA guidelines.

10                    Several of our institutions have

11   mandated electronic disbursements, and have

12   achieved success rates of over 80 percent.

13   This is very similar to the success rates

14   that private employers and the Social

15   Security Administration receive with direct

16   deposit programs of payroll and government

17   benefits, respectively.

18                    Folks, there is little doubt --

19   there is no doubt that direct deposit is the

20   low-cost, student-friendly approach to

21   delivering Title IV funds.                    The challenge,

22   however, is to increase the participation


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 1   rate to 100 percent so colleges and

 2   universities can stop cutting checks and

 3   start cutting costs better every day.

 4                    Now, as you're very aware,

 5   there's a growing trend in the higher

 6   education community to outsource financial

 7   aid disbursement to third-party servicers

 8   affiliated with banking entities.

 9                    The allure to institutions of not

10   having to deal with this difficult process

11   of disbursements of financial aid seems to

12   outweigh the downside risks of allowing

13   third-party banks and their banking partners

14   to have direct access to student borrowers.

15                    Unfortunately, there's also a

16   growing number of students who are crying

17   foul because they've been taken advantage of

18   by these providers.               Hardly a day goes by

19   without another news article, a new report,

20   or website postings complaining about

21   unreasonable fees and the heavy-handed

22   process that banks are using to sell their


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 1   products.

 2                    Ladies and gentlemen, there is a

 3   significant problem in the industry, and

 4   something needs to be done about it now.

 5                    That being said, TouchNet is not

 6   opposed to using debit cards as part of a

 7   balanced approach to a financial aid

 8   disbursement program.                In fact, we most

 9   likely will have one in a future offering.

10                    However, students must be

11   protected from excessive charges and

12   aggressive business practices that are

13   sometimes used to push bank products and

14   debit cards.

15                    Because of this, the Department

16   of Education will have to take a more active

17   role in providing guidelines and a framework

18   that ensure a level of fairness and

19   transparency when providing bank products as

20   part of a Title IV funds disbursement

21   process.

22                    It is absolutely vital that the


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 1   student refund process and problems of today

 2   do not become and do not emulate the student

 3   loan problems and process of the past.

 4                    Therefore, today, we submit to

 5   the Department of Education what we call the

 6   4 for 4 E-Disbursements Framework as it

 7   applies to bank products.                   As you can

 8   imagine, it has four tenets.

 9                    The first one is, to restrict

10   third-party marketing to students.                         The

11   process of distributing financial aid is

12   based upon a relationship between the higher

13   education institution and the student.                            No

14   third-party servicer should be allowed to

15   market its products and services directly to

16   students without each student's individual

17   consent.

18                    And we must restrict the co-

19   branding of these bank products and debit

20   cards with the institution's logos, which

21   implies an endorsement by the institution.

22                    And further, we must prevent


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 1   third-party servicers from mailing or

 2   distributing plastic cards to students

 3   without their consent.                 We need to stop

 4   carpet-bombing students with plastic.                           That

 5   was point number one.

 6                    Point number two is, we need to

 7   present unbiased enrollment options.

 8   Students must be able to choose their

 9   electronic disbursement options without

10   undue bias and pressure.                  Direct deposit and

11   bank products must be presented equally with

12   a balance of information that allows the

13   student to make a good decision.

14                    Enrollment must be easy for both

15   options, available online for both options,

16   and able to be completed within just a few

17   minutes.

18                    In short, direct deposit cannot

19   be harder to enroll in than opening a new

20   bank account.

21                    The third tenet is we need to

22   eliminate exclusivity for bank contracts.


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 1   Long-term exclusive contracts between third-

 2   party service providers and institutions are

 3   common today.           However, such contracts are

 4   not advantageous for students or the

 5   institution.

 6                    New, lower-cost bank options

 7   always become available over time, and

 8   institutions need the flexibility to add or

 9   subtract such products without contract

10   restrictions with their third-party service

11   providers.

12                    This will promote competition

13   between third-party service providers and

14   allow the institutions to choose the best

15   products for their students at any time.

16                    And the fourth and the final

17   tenet of the framework would be, we must

18   disclose all fees up front.                    All fees for

19   bank products associated with the Title IV

20   disbursement process must be transparent and

21   visible.

22                    The fees should be highlighted in


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 1   a single table similar to the nutrition

 2   label required by the FDA on food products.

 3   Such a financial fee label would simplify

 4   the information presented to students in a

 5   transparent matter.

 6                    This will reduce the confusion,

 7   make costs clearer, and of course, eliminate

 8   hidden fees.

 9                    At the same time, TouchNet does

10   not believe that bank fees should be

11   regulated by the Department of Education,

12   provided there's some kind of framework or

13   rules that are established properly, as I

14   just mentioned, the competitive forces of

15   the market will drive costs to a reasonable

16   level.

17                    As the process goes forward,

18   which I certainly hope it does and needs to,

19   I think it's very important to understand

20   that high fees is only part of the problem.

21   In fact, it's the visible part of the

22   problem.


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 1                    But even more troublesome is the

 2   enrollment process itself that is both

 3   overly aggressive and deceptive at times.

 4                    Today, some third-party service

 5   providers in effect are saying to students,

 6   we have your money, come get it, but get it

 7   our way.

 8                    I truly believe that most schools

 9   do not understand up front when they sign

10   these contracts what they are getting into,

11   but then find themselves locked into five-

12   year exclusive agreements and no way out.

13                    In conclusion, the 4 for 4 E-

14   Disbursements Framework provides a practical

15   and effective set of guidelines to ensure

16   the integrity of the financial aid

17   disbursement process.                It should be

18   seriously considered.

19                    The advancement of electronic

20   payments, while a best practice, must be

21   administered with the needs of the student

22   borrower in mind.              Aggressive and misleading


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 1   business practices must not be associated

 2   with the disbursement of Title IV federal

 3   financial aid.

 4                    As a model to reference in your

 5   review, I would encourage you to go to the

 6   US Treasury Department program called Go

 7   Direct.

 8                    Effective March 2013, less than

 9   on year from now, all federal benefits,

10   including social security and veterans

11   benefits, will be disbursed and received

12   electronically.

13                    Although the Go Direct program is

14   not perfect -- in our opinion, nothing is --

15   it does follow the basic tenets of the 4 for

16   4 E Disbursement Framework I just talked

17   about.

18                    Once again, TouchNet would like

19   to thank the Department for their

20   consideration of this vital issue, and we

21   wish the Department much success addressing

22   them in the coming months.


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 1                    Thank you.

 2                    ASST. SEC. OCHOA:               Thank you, Mr.

 3   Toughey.        I apologize for mispronouncing

 4   your name earlier.

 5                    We will take now a fifteen-minute

 6   break.

 7                    (Whereupon, the proceedings went

 8   off the record at 10:39 a.m. and resumed at

 9   11:00 a.m.)

10                    ASST. SEC. OCHOA:               All right,

11   folks.      We're going to reconvene.                    Our next

12   speaker is Eric Rodriguez.

13                    MR. RODRIGUEZ:             Good morning.            My

14   name is Eric Rodriguez.                  I'm a certified

15   fraud examiner, and I'm also the manager of

16   fraud aversion department for Nelnet.

17                    Since 1978, Nelnet's been one of

18   the leading education planning and education

19   financing companies in the United States,

20   and provides a comprehensive suite of

21   products and services to education-seeking

22   families and operational product services to


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 1   institutions that service them.

 2                    Simply put, the company helps

 3   families prepare, plan, and pay for

 4   education.

 5                    Over the past decade, Nelnet has

 6   grown from existing primarily as a financial

 7   provider in the student loan industry to

 8   offering a diverse set of products and

 9   services for both schools and consumers.

10                    This shift has helped Nelnet

11   become a premier organization, not only in

12   education finance, but also in education

13   services as well.

14                    Nelnet is focused on providing

15   outstanding services to help students and

16   institutions that service them reach their

17   goals.      The company offers a broad range of

18   financial services, technology-based

19   products, and tools to assist the education-

20   seeking family throughout the learning life

21   cycle.

22                    Nelnet currently operates five


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 1   segments, asset generation and management,

 2   student loan and guarantee services, tuition

 3   payment processing and campus commerce,

 4   enrollment services and list management, and

 5   software and technical services.

 6                    We support more than 24 colleges

 7   and universities in their goals to recruit

 8   and retain students and help students and

 9   families research, find, and apply to

10   schools that match and encourage their

11   education and career goals.

12                    We provide customer services for

13   nearly five million student loans today,

14   borrowers, and indirectly service an

15   additional 10 million borrowers on our

16   hosted system.

17                    We provide services that allow

18   4800 private and faith-based K-12 schools

19   and approximately 650 colleges and

20   universities to easily evaluate, manage, and

21   grant financial aids and donations for their

22   institution.


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 1                    In addition to those schools, we

 2   overcome affordability concerns with our

 3   tuition payment plans and convenient online

 4   payment options.             We're helping more than

 5   about 1.5 million families.

 6                    In the past year, Nelnet's loan

 7   servicing payment processing segment

 8   increased its number of borrowers to provide

 9   customer service on behalf of the Department

10   of Education by about eight percent, which

11   makes it around 3 million new accounts

12   there.

13                    In total, by the end of last

14   year, we serviced more than $76 billion of

15   Department-owned and Federal Family

16   Education Loan Programs, student loans for

17   nearly 5 million borrowers.

18                    With our goal to provide the best

19   service to our customers and consistently be

20   number-one ranked student loan servicer for

21   the Department of Education, we continue to

22   make business decisions that will bring


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 1   improvements to this area.

 2                    Our operations rely on stable,

 3   secure processing, transmission, and storage

 4   of confidential information within computer

 5   systems and networks.                Although we believe

 6   we have robust change management and

 7   information security procedures and

 8   controls, cyber security system stability

 9   and the continued development and enhancing

10   of our training, controls, audit procedures,

11   processes, and practices remain a priority.

12                    Now, I bring nearly about 30

13   years of experience in the fraud detection

14   and prevention in the credit card arena,

15   debit card, store of value, loans, and

16   counterfeit.          I find fraud to be kind of a

17   difficult beast to tame.                  I mean, we have to

18   be able to work together to be able to

19   reduce fraud.

20                    It's pretty much devastating to

21   the consumers, especially to the borrowers

22   themselves, when fraud occurs and there's


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 1   loss, they have to clear the credit bureaus,

 2   they have to deal with the schools, they

 3   have to deal with the guarantors, all

 4   different types of segments throughout

 5   there.

 6                    Now, identity theft affects over

 7   about 11 million Americans in 2010.                          That's

 8   one out of 20.            That's a lot.            That's a lot.

 9   I'm elated to hear the Department of

10   Education Office of Inspector General has

11   taken this issue to heart, and taken

12   important steps in acquiring information to

13   help mitigate these risks.                    It's going to

14   help mitigate these risks to our student

15   populations, to taxpayers, and all the

16   educational institutions.

17                    I read the memorandum from the

18   Office of Inspector General entitled,

19   Investigative Program Advisory Report,

20   Distance Education Fraud Rings, and I do

21   concur with their findings.                    We do have big

22   issues in fraud, specifically, identity


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 1   theft.

 2                    We need to take proactive steps

 3   in mitigating the risks by adding

 4   preventative measures, not just fight the

 5   fires as they come.

 6                    There are many steps that we can

 7   take to institute and help reduce the number

 8   of identity theft incidents and reduce the

 9   burden of the OIG officers and the

10   educational institutions.

11                    Let's start with distance

12   learning programs.              Large percentage of

13   these colleges or universities that offer

14   distance learning programs are lower tuition

15   rates, yet the student, as you've heard from

16   many who have testified already, take the

17   maximum amount.

18                    So, I go out there, I go to a

19   school, my tuition's going to be $2,500, I

20   take out $10,000, so I'm going to walk away

21   with $7,500, $6,500, somewhere around there.

22                    I believe that we should cut


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 1   those costs to be just the cost of the

 2   tuition and books.              You guys are familiar

 3   with the fraud triangle from Donald Cressey.

 4   You have the three parts there, you have the

 5   pressure, you have the opportunity and the

 6   rationalization.

 7                    Take away one of those, you're

 8   going to curtail the fraud there.                        So let's

 9   take away that opportunity.                    Let's take away

10   that $7,500 that's there that they can take.

11                    If I'm a fraud ringleader, and

12   I'm going to go onto a distance learning

13   school and see I'm only going to be allowed

14   to get $2,500, the cost of tuition, fees,

15   and books, I'm not going to bother.                          It's

16   not worth my time.              So, why even bother?

17   Right there, you've solved your problems

18   with distance education.

19                    Now, we look at that, and there's

20   other traditional types of identity theft as

21   well.      There's the Student PLUS Loans.

22   Here, we have identity theft which occurs


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 1   where the parent is not signing these loans.

 2   You have the uncle, the aunt, the brother,

 3   the sister, and it's not until they graduate

 4   from school that these loans go into

 5   repayment.

 6                    And when these loans go into

 7   repayment, and we start to collect, the

 8   parent says, I never signed this, and most

 9   of them are electronic, of course.                         So

10   there's another issue there.                     Those loans

11   are huge, the Parent PLUS Loans.                        You can

12   take out $40,000, $50,000.                    Those burdens go

13   to the taxpayers, then.

14                    What can we do in these

15   instances?         We need to have some form of

16   validation.          Currently, today, I know we

17   have the FAFSA that's out there.                        We also do

18   a run through Social Security

19   Administration.

20                    In my experiences, looking at

21   these fraud cases, the actual FAFSA does

22   have the parent information, and the student


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 1   loan application does not.

 2                    So if we were able to work and

 3   maybe bounce against these databases, we

 4   would be able to probably curtail a lot of

 5   these frauds.           We would be able to see that

 6   the FAFSA had the parent name and the actual

 7   loan application had someone else's name in

 8   place there.

 9                    In addition, we should do some

10   other sorts of verification, maybe through

11   voter registration.               I know not everyone is

12   registered, but it's going to help out a lot

13   there.

14                    Other items we can look at to

15   help within these is when we provide these

16   loans, again, we should segment how we send

17   out these loans.

18                    They should be -- you heard it a

19   lot from a lot of other people here, you

20   should actually send out what's needed for

21   the tuition, fees, and books, and stagger

22   the rest of those going forward.


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 1                    Most of them do not want to wait

 2   a long period of time to get that money.

 3   They're going to want to go in, get the

 4   money, drop out of school, take it.                          So if

 5   you take that opportunity away from them

 6   there, they're probably not going to

 7   continue.

 8                    Another item I looked at is with

 9   identity theft, it's a very difficult crime

10   to prosecute.           First of all, the statute of

11   limitations, many of the times, again, like

12   I said, they apply for the loans, it's not

13   going to be years until they graduate, and

14   finally until someone resolves the issue, it

15   may be five, six, seven, eight years, in

16   that time the statute of limitations are

17   gone.

18                    So OIG is burdened with trying to

19   investigate these, and not being able to

20   prosecute.

21                    My solution that would be, would

22   they apply through the FAFSA systems, or


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 1   they apply through the government websites

 2   for the loans, we should put out there a

 3   banner stating that you're entering a

 4   government website or a government computer

 5   system, and any falsification could be

 6   prosecuted as far as using an unauthorized

 7   computer system.

 8                    This process then would allow us

 9   to prosecute regardless of those timeframes,

10   and it will also allow us to have the

11   ability to go after these fraud rings with

12   less -- if you want to say, less proof as

13   far as seeing -- you know, trying to prove

14   that it's identity theft.                   We actually can

15   capture that they've signed on, their IP

16   address, so we can prove that in court, then

17   we can prosecute.

18                    And again, most of these are

19   going to be higher dollar amounts from the

20   student PLUS Loans.

21                    Other recommendations that I have

22   that I've seen is training, training of the


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 1   university financial aid offices, training

 2   of the guarantors, training of the

 3   servicers.         Training is very important.                      We

 4   need to be able to train our front lines to

 5   be able to recognize fraud.

 6                    We need to be able to capture

 7   this information.              NSLDS is a perfect area.

 8   We should have a fraud file in place there.

 9   We don't, so, most of these fraud rings are

10   going to be jumping from school to school to

11   school, and the next school doesn't know

12   they've just defrauded another school.

13                    So, if we can capture that

14   information up front, place it in a database

15   that we utilize like NSLDS, at least the

16   other schools have the opportunity to look

17   at that flag and make a decision, or refer

18   it to OIG.

19                    We need an easy way, as well, to

20   be able to track and follow these frauds.

21   Maybe a website with a main database that

22   OIG can use, and that the schools can enter


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 1   this information as well.

 2                    We need to start capturing IP

 3   addresses.         We're accepting all these online

 4   applications, yet we don't know who these

 5   individuals are.             We have no way of tracking

 6   them.

 7                    Capturing their IP address will

 8   help us not only in trying to identify them,

 9   but we can see if we're seeing the same IP

10   address over and over and over again and see

11   if there's a pattern, so that we can tell

12   that there is maybe a fraud ring hitting a

13   certain sector, a certain area.

14                    We need to update each other.                       We

15   need to have some sort of quarterly events,

16   whether it's with OIG, the institutions, so

17   that we can see what the fraud trends are

18   and what the areas are that are being

19   affected.

20                    We need participation from the

21   universities, from the guarantors, from the

22   lenders, from everyone, from the Department


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 1   of Education.

 2                    Verification, again, we've

 3   brought this up.             You've heard it from

 4   everyone.        We have a lot of individuals

 5   applying for colleges who don't have a high

 6   school diploma, don't have a GED.                        We should

 7   be verifying this.              We need to have some

 8   sort of system in place.

 9                    Let it be the institutions,

10   Department of Ed.              The Department of Ed

11   should probably use their systems to see who

12   they have on file for graduates, so that we

13   can verify this information, make it a

14   little easier.

15                    Recently, I've read an article

16   that there was about $250,000 in losses due

17   to a fraud ring entering and applying, and

18   none of them had actual high school

19   diplomas.        They were all fake.

20                    Actually, I'm from Lincoln,

21   Nebraska, and we, right in our backyard, we

22   just had a fraud that occurred there as


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 1   well.      A mother applied for student loans

 2   using her son's information, took over

 3   $200,000 as well.              The son didn't know

 4   anything about it.

 5                    So it happens in nice, quiet

 6   areas.      It happens in large cities.                      It

 7   happens everywhere.               Part about it is, we

 8   have to be able to work together and try to

 9   curtail that.

10                    I know the second sector of this

11   was use of technology.                 There is a lot of

12   pros and a lot of cons of how this should

13   go.     I do support the use of technology,

14   because it makes it easier for

15   investigation.            It makes it easier to track.

16                    In the same aspect, I don't like

17   the idea of any significant banking

18   institution taking advantage of students

19   with fees as well.              So, there's got to be a

20   balance there, and that's something that we

21   can find.        But I don't think it should

22   curtail the electronic processing.


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 1                    Cooling-off periods is another

 2   thing I've heard, and I'm kind of an

 3   advocate of.          If it's a traditional school

 4   where they're going to school and not

 5   online, we should not be sending all of

 6   those funds up front.

 7                    Again, like I said, we should be

 8   sending those funds to pay the tuition costs

 9   and the fees and possibly the books, and

10   then the rest, there should be a cooling

11   period to make sure that they're in school

12   and attendance is checked, at least for the

13   first three weeks, make sure they're there.

14                    Even the bookstores, books can

15   run us several hundred dollars, a couple of

16   thousand dollars.              We should probably

17   advocate, if there is a local bookstore,

18   using vouchers for that bookstore, not using

19   online bookstores as well to make purchases.

20   Those funds that are not used from those

21   accounts can then be returned to the

22   Department of Education.


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 1                    Again, I just want to say that I

 2   applaud the efforts of the Department in

 3   examining what can be done and what must be

 4   done to combat the fraud within the Title IV

 5   funding area, and offer numerous resources

 6   and assistance to the Department for

 7   developing new tools to mitigate fraud and

 8   streamline distribution processes.

 9                    I want to thank you guys for your

10   time.

11                    ASST. SEC. OCHOA:               Thank you.

12   We're going to -- we have a gap here in the

13   scheduled testimonies, but if these

14   individuals are here, they're welcome to

15   come up now.

16                    Next on the list, we have Arnie

17   Miles, Charlie Leonhardt, and Heidi Wachs

18   listed together.             I'm not sure if any of

19   them are here.

20                    MR. MILES:          Thank you.           My name

21   is Arnie Miles.            I'm a middleware architect

22   for Georgetown University.                    I'm also the


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 1   project lead for the common identity trust

 2   infrastructure, which is a joint partnership

 3   between the Postsecondary Electronic

 4   Standards Council and InCommon.

 5                    The Postsecondary Electronic

 6   Standards Council is an organization located

 7   here in DC that is devoted to standing up

 8   standards for data communications across

 9   higher ed.

10                    They have a strong representation

11   from admissions officers, registrars, and

12   service providers, be they profit or non-

13   profit, all the big service providers that

14   contribute to the higher ed arena.

15                    InCommon is the de facto expert

16   in identity management and federation with

17   over -- with almost 280 higher ed

18   institutions participating in a federation.

19   Our project CommiT is designed to provide

20   three things.           We provide single sign-on for

21   students.        We provide a privacy protecting

22   unique identifier for students, which is a


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 1   big boon to higher ed institutions when the

 2   students show up.              But, and most importantly

 3   for this conversation, we provide enhanced

 4   level of assurance for credentials as they

 5   go through the system.                 We have been working

 6   about a year now, and in October, we intend

 7   to roll out our first prototype.

 8                    Participants include testing

 9   agencies, several large higher ed service

10   providers, five or six of the major

11   institutions, and our project is going to --

12   let me catch my breath here a second.                           Our

13   project is going to be rolling out a

14   database that contains the minimum amount of

15   information to uniquely identify a human

16   being, and to provide password reset.

17                    The unique identifier will allow

18   real-time connection to attribute stores

19   that are housed in a variety of different

20   locations, like College Board, ACT, high

21   school transcripts, letter of

22   recommendation, all the various places that


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 1   a high school student touches en route from

 2   high school to university.

 3                    We have met with the CIO of FSA,

 4   who has expressed an interest in joining us

 5   in a pilot project and participating as a

 6   service provider and a consumer of our

 7   attributes.

 8                    What ends up happening is we will

 9   provide a credential, and when the student

10   first shows up, it's a low-level of

11   assurance credential, very similar to what

12   you might get from Google or OpenID or

13   Facebook.        That means it's the same person

14   every time, but that person can assert that

15   they're Donald Duck, if they so choose, and

16   no one knows the wiser.

17                    As they interact, as this student

18   interacts with the system, however, events

19   happen.       For example, they show up to take

20   an exam, and they're required to show a

21   photo ID, and the proctor checks that photo

22   ID against the ticket that the person


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 1   provides.        That event is captured in the

 2   CommiT data store.

 3                    They show up for another exam,

 4   they show up for the ACE or the ACT or any

 5   other exam.          Those events are captured.

 6                    They go to their guidance office

 7   at the high school and say, I want to start

 8   the process.          The guidance officer can go

 9   into the system and say, I verify that this

10   student is who they say they are.

11                    As they go through these events

12   accumulate, the interaction with the system

13   accumulates.          And as these interactions

14   accumulate, we have a better assurance that

15   the student is, in fact, who they say they

16   are.

17                    If we know the student is in fact

18   who they say we are, we've gone a long ways

19   towards preventing this sort of fraud that

20   we're here to address today.

21                    We also have a mechanism for

22   accessing in real-time from the


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 1   authoritative sources records of graduation

 2   from high school, letters of recommendation,

 3   and exams, which also increase our level of

 4   assurance.

 5                    So students, when they arrive,

 6   when they apply for student loans, FSA has a

 7   good sensation that this student is who they

 8   say they are as they move into their further

 9   assurance processes, those further assurance

10   processes are also documented in CommiT.

11                    When the student arrives at the

12   campus, the student has what we call an

13   InCommon Silver or a NIST level of assurance

14   two credential.            We can assert, with

15   authority, that the student is who they say

16   they are because we have verified their

17   photo IDs multiple times.                   We have checked

18   their credentials.              We have access to the

19   high school transcripts.                  Their guidance

20   counselor has vouched for them.                       All of

21   these events have happened and are stored.

22                    The events happen anyway.                     The


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 1   effort really isn't monumental for anybody

 2   to add to the process.

 3                    In a moment, Jack Suess is going

 4   to speak to you about InCommon, which is the

 5   key to this entire process.                    InCommon is

 6   already providing the federated

 7   infrastructure to enable this sort of

 8   sharing of attributes and credentials

 9   amongst institutions, so I'm going to turn

10   it over to Jack now.

11                    Thank you very much.

12                    ASST. SEC. OCHOA:               Thank you.

13   And Jack Suess is our next speaker.

14                    MR. SUESS:          Hi.      It's an honor to

15   get a chance to speak before you.                        My name

16   is John Suess.            I'm the Vice President of IT

17   and CIO at the University of Maryland-

18   Baltimore County.              I'm also the chair of the

19   InCommon Federation here in -- that's part

20   of the United States higher education.

21                    I come to you speaking really

22   both as an institutional CIO, so one that


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 1   might have to implement some of the

 2   requirements that would come forth, and also

 3   as someone who has been working with higher

 4   ed on trying to develop standards that we

 5   think may begin to address some of the

 6   concerns that were outlined in the Inspector

 7   General's report.

 8                    I wanted to take a moment and

 9   just speak a little bit about InCommon, to

10   give just a little bit of background, since

11   it may not be clear.

12                    InCommon has been around for

13   almost a decade.             We developed a number of

14   the federated identity technologies.                          These

15   are acronyms such as SAML, the secure access

16   markup Language.             We've developed software

17   called Shibboleth.

18                    This technology is now used by

19   banks, by businesses; federations are

20   operated in over 30 countries around the

21   world.      Most of Europe operates their entire

22   higher education system using federated


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 1   technology.

 2                    And so it's a tried and true

 3   technology that's been out there for a

 4   number of years.

 5                    In the United States, we

 6   presently have 278 universities that are

 7   members of InCommon.                These universities

 8   represent about 7.5 million students today.

 9   They're most of the larger institutions that

10   are part of research and education.

11                    In addition, we have 100

12   sponsored partners.               These sponsored

13   programs are corporate entities that

14   generally offer software as a service or

15   cloud options to higher education.

16                    Finally, we have 22 agencies or

17   government labs that are members of

18   InCommon.        National Science Foundation,

19   National Institutes of Health, Department of

20   Energy are all members of InCommon and used

21   for higher ed to be accessing government

22   resources in those contexts that are there.


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 1                    One of the key things I wanted to

 2   highlight is over the last two years, I've

 3   spent quite a bit of time working with the

 4   government FICAM activities, the Federal

 5   Identity and Credential Access Methods group

 6   that's out of the GSA, and also the NSTIC

 7   Initiative for the national strategy for

 8   trusted identity in cyberspace.

 9                    InCommon is a trusted framework

10   provider that is recognized by FICAM, and we

11   strongly encourage the Department of Ed as

12   it thinks about these processes that it's

13   doing to leverage the work that is being

14   done in other government agencies around

15   these activities.

16                    For higher ed, what we would like

17   to be able to do is know that students

18   accessing the FAFSA form may go through the

19   same process that faculty doing grant-funded

20   research do with NSF or NIH, and not have to

21   implement completely different solutions for

22   the Department of Ed vis-a-vis the


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 1   Department -- NIH, NSF, etcetera.                        And so we

 2   strongly encourage that there will be great

 3   institutional benefits if there could be a

 4   common approach that the Department of Ed

 5   looks at across multiple agencies.

 6                    One of the things in support of

 7   FICAM that InCommon has done which we think

 8   will give -- helpful here is we've launched

 9   what is the Assurance Program this year.

10                    This is a program where

11   universities can submit for certification

12   that they can offer level 1 and level 2

13   credentials that meet the FICAM-approved

14   standards.

15                    Our trusted framework documents

16   have to be approved by FICAM.                      They explain

17   the auditing process that we go through, the

18   security process that we go through for

19   these credentials.

20                    We now have a committee that's

21   made up of industry higher ed security

22   leaders, higher ed auditors, that reviews


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 1   the submissions that come in from

 2   institutions to ascertain if they are

 3   meeting the standards to be eligible for

 4   offering these higher credentials.

 5                    We think that this program is

 6   soon going to support Second Factor, as well

 7   as other mechanisms for improving

 8   reliability of credentials.                    It's really a

 9   place where we're trying to adopt best

10   practices that meet both FICAM and NSTIC in

11   terms of the approaches that they're

12   outlining.

13                    Our relationship to CommiT is

14   that we see CommiT as a great project that

15   could be bringing in identities into the

16   higher education ecosystem that

17   automatically have come with a level of

18   assurance 1 or 2.

19                    By the fact that a student is

20   having to register for CommiT, they're going

21   to be applying through the CommiT process to

22   universities, this allows us to have a


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 1   transferral of trust that yes, in fact,

 2   their name is who they say they are, their

 3   ID, their alternate email address, all of

 4   these things as we issue credentials.

 5                    We think this goes a long way

 6   towards meeting the Higher Education

 7   Opportunity Act requirements.                      And so we

 8   think that this fits where the Department of

 9   Ed is trying to go.

10                    I would sort of end by saying

11   just a couple of quick recommendations.

12   One, we really do strongly encourage the

13   Department of Ed to allow as one of the

14   supported mechanisms -- approaches for

15   identity verification for campuses to use

16   the InCommon assurance approach that meets

17   FICAM and NSTIC.

18                    We think this fits with the other

19   government strategies that are there.                           It

20   adopts GSA-recommended practices.                        And we

21   think it is really aligned very nicely with

22   the program that you want to see in terms of


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 1   improving identity verification.

 2                    Our second recommendation would

 3   be, and we have had discussions with the

 4   Department of Ed, but we think that the

 5   FAFSA form could be one of the key

 6   activities that becomes something that large

 7   numbers of entities would use their

 8   institutional credentials to be accessing

 9   the FAFSA form.

10                    And so if the Department of Ed

11   would extend FAFSA to be a relying party

12   application under the FICAM framework, we

13   think that this would have tremendous

14   benefits, both for the Department of Ed, and

15   for the higher education.

16                    One, in doing so, the Department

17   of Ed could encourage that students use

18   their institutional credentials that have

19   been approved at these higher levels of

20   assurance as a means of having some

21   additional verification.

22                    Now, you may still allow


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 1   alternate means, but this would give you a

 2   chance for focusing many of your reviews on

 3   people who are using the non-institutional

 4   credentials that have lower levels of

 5   assurance, or have other processes that you

 6   put in place for those entities.

 7                    Lastly, I want to just highlight

 8   that the one thing I don't recommend is

 9   asking campuses to maintain lots of data on

10   IP addresses, log files, other kinds of

11   things.       At many universities, this

12   generates tremendous amounts of data.

13   Discerning which students are coming from

14   which IP address, and separating them from

15   all other faculty and staff, or students who

16   don't receive financial aid, will really be

17   a nightmare in terms of whose log entries do

18   we give you, what IP addresses do we keep.

19                    And so I really worry about this

20   idea of maintaining lots of log data that

21   was recommended by the Inspector Generals.

22   We have processes as part of the assurance


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 1   framework that require us to keep certain

 2   kinds of activities for relying parties, and

 3   so we think by following that, we would meet

 4   the spirit that you intended in that

 5   approach.

 6                    And that finishes my comments.

 7                    ASST. SEC. OCHOA:               Thank you.

 8                    Our next speaker is Robert

 9   Barbieri.

10                    MR. BARBIERI:             Good morning.            My

11   name is Robert Barbieri, and I'm in-house

12   counsel at Higher One.                 We certainly

13   appreciate the opportunity to comment this

14   morning.

15                    As a leading provider of

16   technology and payment services to higher

17   education institutions, Higher One is

18   particularly interested in regulatory reform

19   that encourages the application of

20   technology and innovation to improve the

21   delivery of Title IV refunds to students and

22   prevent financial aid fraud.


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 1                    Founded in 2000, Higher One's

 2   focused on helping college business offices

 3   manage operations and provide enhanced

 4   services to students.                We work closely with

 5   colleges and universities to ensure that

 6   students receive financial aid refunds and

 7   credit balances securely and quickly.

 8                    Indeed, Higher One developed the

 9   first widely adopted refund disbursement

10   solution, and has maintained a singular

11   focus on higher ed.               We do not offer or sell

12   any credit products.

13                    Currently, approximately 6.2

14   million students at more than 830 campuses

15   nationwide use our services.                     Historically,

16   the disbursement of financial aid refunds

17   has been paper-based, costly, and

18   inefficient for institutions.

19                    The Department of Education has

20   worked towards modernizing refund

21   disbursements through the use of electronic

22   funds transfers, or EFTs, to mitigate fraud,


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 1   reduce expenses, and improve services to

 2   students.

 3                    Indeed, in its 2008 negotiated

 4   rulemaking, the Department acknowledged the

 5   emergence of EFTs in the disbursement of

 6   Title IV funds, and facilitated their use

 7   through its final regulations.

 8                    We believe that the Department

 9   should continue to support electronic

10   solutions, especially as a means of fraud

11   detection and prevention.                   Fraud deeply

12   impacts federal and state governments,

13   higher education institutions, students,

14   their families, and taxpayers alike.

15                    We cannot afford to tolerate the

16   abuse of programs vital to our national

17   interest, especially at a time when families

18   are struggling through economic hardships,

19   and institutions are facing budget cuts.

20                    Higher One's solution helps

21   prevent fraud by intrinsically analyzing

22   disbursement data for irregularities related


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 1   to the amount of a refund, frequency,

 2   location, and general trends.

 3                    Furthermore, our platform employs

 4   a verification process that promotes the

 5   authentication of a recipient's identity.

 6   We believe it's imperative that all entities

 7   involved in the administration of Title IV

 8   programs work in concert to help mitigate

 9   the risk of fraud.

10                    With respect to how students

11   receive their refunds, Higher One has always

12   made choice a hallmark of its solution.

13   Students at schools that use Higher One's

14   services can select to have their refunds

15   electronically deposited into any domestic

16   bank account, directly deposited to a

17   checking account serviced by Higher One, or

18   in some cases, have a paper check sent to

19   them in the mail.

20                    Students are never charged a fee

21   to receive their refunds, regardless of how

22   they choose to receive their refunds.


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 1                    For many students and families,

 2   the lack of eligibility and accessibility of

 3   banking services represents a significant

 4   barrier to establishing a financial

 5   foothold, and we believe that it's important

 6   to provide access to financial products for

 7   all students.

 8                    An electronic refund distribution

 9   service would be incomplete if students who

10   are unable to qualify for traditional

11   banking services were not provided with the

12   means to receive their refunds

13   electronically.

14                    It's also essential that the

15   terms and conditions of each account are

16   clearly communicated to the students in ways

17   that they can understand.

18                    All banks, credit unions, and

19   check-cashing services charge for the

20   services they provide.                 The large,

21   traditional banks require capital to cover

22   the costs of their vast networks of brick-


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 1   and-mortar bank branches, and their fee

 2   schedules reflect this.

 3                    Students often do not qualify to

 4   have the monthly fees or minimum balance

 5   requirements of such banks waived.

 6   Nontraditional or online banks choose a more

 7   streamlined, electronic means of servicing

 8   their customers, who are often less reliant

 9   on making the trip to bank branches and

10   actually prefer the convenience of their

11   laptop or smart phone.

12                    These banks are able to pass

13   along such cost savings to their customers,

14   and as such, they're popular with college

15   students.        Higher One is one such company

16   providing students with access to high-

17   value, FDIC-ensured banking services.                           And

18   we've enhanced our account offerings with

19   features that meet the demands of the

20   college students we serve.

21                    We recommend that the negotiating

22   committee that is ultimately appointed


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 1   recognize the importance of electronic

 2   solutions, like Higher One's, in the

 3   delivery of Title IV refunds, and the value

 4   of accessible, student-oriented checking

 5   accounts, and that any new regulations are

 6   carefully drafted to prevent unnecessary

 7   barriers to the use of EFTs and post-

 8   disbursement financial management options

 9   that are essential to such processes.

10                    At the same time, we agree that

11   the negotiating committee should explore

12   whether enhanced disclosure of checking

13   account fees to students is appropriate.

14                    Higher One favors transparency.

15   Our banking website includes full

16   disclosures of all fees that may be assessed

17   on account holders, and even detailed tips

18   on precisely how to avoid such fees.

19                    The negotiating committee should

20   also be aware of the potential unintended

21   consequences of regulating banking fees that

22   are associated with servicing checking


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 1   accounts after electronic disbursements have

 2   been made, and should be mindful of the

 3   existing regime of federal banking laws and

 4   regulations that have been promulgated by

 5   Congress and other agencies.

 6                    We thank you for this opportunity

 7   to comment.          We've also submitted written

 8   comments, and we look forward to further

 9   sharing our experiences and assisting the

10   Department as we can in the upcoming

11   rulemaking process.

12                    Thank you.

13                    ASST. SEC. OCHOA:               Thank you.

14                    At this point, we don't have any

15   other scheduled speakers until 1:30.                          So are

16   there any speakers that wish to step forward

17   at this time that aren't scheduled?

18                    MS. MULLINS:            I'm not on the

19   list, but may I go ahead?

20                    ASST. SEC. OCHOA:               Yes.

21                    Please identify yourself.

22                    MS. MULLINS:            Good afternoon.


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 1   I'm Christine Mullins.                 I'm the Executive

 2   Director of the Instructional Technology

 3   Council.

 4                    We represent community colleges

 5   around the country that have distance

 6   learning programs, so this is obviously a

 7   real item of interest to us.                     And we've

 8   informed our members about the different

 9   scenarios, as far as the distance learning

10   fraud rings go, although I've heard comments

11   that we should not really call it distance

12   learning fraud rings, but just fraud rings,

13   because these are fraudulent groups that

14   have targeted -- all types of students are

15   taking part in these rings, the face-to-face

16   as well as the distance learning students.

17                    So I actually appreciate the

18   recognition that the Department of Education

19   has had as far as that goes.                     And I was a

20   little concerned with the investigative

21   report, the IG report, because -- and I've

22   heard a couple comments today that perhaps


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 1   we should limit the amount of money that

 2   students receive for distance learning --

 3   the amount of money that distance learning

 4   students receive so that they wouldn't be

 5   able to receive the housing allowance that

 6   all students are entitled to.

 7                    And I just wanted to mention that

 8   we shouldn't discriminate against those

 9   distance learning students who need that

10   money and are taking the courses that they

11   are enrolled for, just as any other

12   community college student, and they have

13   jobs, perhaps they're taking part-time work,

14   or they're mothers who are at home who can't

15   get a job, and they're taking classes at

16   their local community college so that they

17   can get those academic credentials so they

18   can get better jobs, and they can work in

19   the community.

20                    So I think it would be wrong to

21   discriminate against those students, because

22   any community college student is entitled to


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 1   that, that student financial aid, so the

 2   online students should be just as well.

 3                    And I just wanted to mention that

 4   this is an issue that community colleges are

 5   looking at.          This has been a problem.                   They

 6   are also interested in combating these fraud

 7   rings.

 8                    They don't want to be seen as

 9   being negligent, and they have been making

10   sure that these rings are available on the

11   campus.

12                    The president's forum had a

13   really interesting session on this, where

14   they had groups from different colleges,

15   for-profit universities come to talk about

16   what the steps that they're taking to combat

17   these rings.          And a lot of it is

18   communication among their staff, making sure

19   that the financial aid people are in touch

20   with the faculty members so they all know

21   what's going on, and they can work together

22   to try and combat these rings.


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 1                    So it's not going on in

 2   isolation.         I don't think the colleges are

 3   saying, oh, well, you know, this isn't an

 4   issue for us.           They are taking those steps.

 5                    So I really value the Department

 6   of Education's approach to let the colleges

 7   work together and try and combat this fraud,

 8   and it may be that different colleges have

 9   to use different methods, not only the

10   communication, but maybe delaying the

11   financial aid that's disbursed, giving it

12   out in chunks so that those who are

13   committing fraud are not able to get as much

14   money up front, communicating with the

15   financial aid staff, making them know that

16   they can say no to some of these

17   perpetrators, because they're often very

18   vocal, and they're not always the nicest of

19   people, so sometimes it takes some educating

20   the staff to make sure that they know that

21   they can say no.

22                    The staff at these different


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 1   colleges do a lot of research to make sure

 2   that the --          students are who they say they

 3   are, going through, and someone was even

 4   saying that they're going on Google maps to

 5   make sure that addresses that some of the

 6   fraud rings are giving are actual, true

 7   addresses.

 8                    So I just want to make sure that

 9   folks know, and I know the Department of

10   Education is aware of this, that the

11   colleges really are taking steps to try and

12   combat this.

13                    And I think that a logical

14   approach, and what I appreciate this forum,

15   and as the Higher Education Act is

16   reauthorized, there will be further

17   discussion on this and other issues for

18   student authentication and all of that.                             I

19   think it's very important to have a real,

20   reasoned approach and talk with those like

21   at Northern Virginia Community College who

22   are in the trenches trying to deal with


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 1   this, and trying to work through it, rather

 2   than create a -- you know, throwing the baby

 3   out with the bath water type of thing,

 4   saying, oh, well, we're going to cut all

 5   financial aid to students who really need

 6   that money in order to graduate, just

 7   because we can't think of a way to combat

 8   this issue, not to punish those legitimate

 9   students, because there are students who

10   definitely are ripping off the system.

11                    So I appreciate your allowing me

12   to make that point.

13                    Thank you.

14                    ASST. SEC. OCHOA:               Thank you.

15                    Are there any other speakers that

16   wish to step forward at this point, that

17   aren't on the schedule?

18                    All right.          Then we will break,

19   and reconvene at 1:30.

20                    Thank you.

21                    (Whereupon, at 11:43 a.m., the

22   meeting was recessed, to reconvene at 1:30


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 1   p.m.)

 2             A-F-T-E-R-N-O-O-N S-E-S-S-I-O-N

 3                                                             1:33 p.m.

 4                    MS. MAHAFFIE:             Good afternoon and

 5   welcome back.           We appreciate your interest

 6   and your continued comments.

 7                    I'm Lynn Mahaffie.                I'm the

 8   Senior Director for Policy Coordination,

 9   Development, and Accreditation Service here

10   in the Office of Postsecondary Education.

11                    You met Ron Sann this morning,

12   and in a couple minutes, we'll be joined by

13   Ajita Talwalker from our under-secretary's

14   office.

15                    We have three people scheduled to

16   speak.      The first is Christopher Mullin.

17                    Thank you.

18                    MR. MULLIN:           Good afternoon.              My

19   name is Christopher Mullin, and I serve as

20   the Program Director for Policy Analysis at

21   the American Association of Community

22   Colleges.


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 1                    AACC is a national organization

 2   representing the nation's 1132 community,

 3   junior, and technical colleges, and their

 4   more than 13 million students.

 5                    Community colleges are higher

 6   education's largest sector, currently

 7   enrolling close to half of all US

 8   undergraduates.

 9                    Federal student aid is critical

10   to access and success in postsecondary

11   education.         The Pell Grant Program has a

12   particularly important role in facilitating

13   student success, given the financial

14   barriers of low-income students.

15                    Last year, over 3 million

16   students at community colleges received

17   approximately $11 billion to assist in

18   meeting educational expenses.

19                    Because of the overwhelming

20   importance of the Pell Grant and other Title

21   IV programs to community college students,

22   AACC and its member institutions are


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 1   extremely keen to combat any abuses of these

 2   programs that could threaten their perceived

 3   integrity in the eyes of policy-makers and

 4   the public.

 5                    Even though all evidence suggests

 6   that instances of fraud are relatively rare,

 7   upon learning about fraud in the form of

 8   Pell runners and fraud rings as described in

 9   the Office of Inspector General's report and

10   related media in the fall of 2011, AACC

11   immediately took action to better understand

12   the phenomenon.

13                    We began contacting colleges and

14   engaging in conversations to better

15   understand the issues.                 In January of 2012,

16   we convened staff and presidents from our

17   colleges, along with a representative from

18   our national council for State Directors of

19   Community Colleges, and policy analysts and

20   specialists, to discuss federal student aid

21   with an eye towards abuse in the programs.

22                    What we learned, summarized in a


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 1   report published in April of 2012, and that

 2   will be submitted with part of my remarks

 3   today, was that the extent of the problem is

 4   yet to be fully known, and that community

 5   colleges are actively engaged in practices

 6   to maintain the integrity of Title IV

 7   student aid, and that there are numerous

 8   actors within an institution that can help

 9   to prevent the abuse of federal student aid

10   programs.

11                    Examples include providing

12   bookstore credits, monitoring whether

13   students are authentically engaged in the

14   learning environment, disbursing aid over

15   the semester, and mining data for multiple

16   or similar data points.

17                    This report makes clear that

18   community colleges are already taking a

19   variety of steps to combat fraud in the Pell

20   Grant Program.            Any regulations in this area

21   should empower and support campus officials

22   in these efforts, and not impose a one-size-


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 1   fits-all approach where that is not

 2   warranted.

 3                    Our report also identified

 4   additional steps that the Department of

 5   Education can take, either through

 6   regulation or other changes to its

 7   procedures, to help institutions combat Pell

 8   Grant fraud.

 9                    ED should deploy its National

10   Student Loan Data System to provide more

11   real-time information to institutions about

12   prior attendance patterns and loan debt

13   through the use of flags or messages on the

14   student institutional student information

15   report records that ED electronically sends

16   to the colleges.

17                    Timely information about students

18   is critical in identifying potential cases

19   of fraud, and we should be using tools that

20   we have at hand to our best advantage.

21                    ED can also clarify when colleges

22   are justified in placing fraud alerts on


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 1   student records to further empower

 2   institutional actors.

 3                    AACC and its member institutions

 4   look forward to working with the Department

 5   on this important issue.                  I thank you for

 6   your time.

 7                    MS. MAHAFFIE:             Thank you.

 8                    Our next speaker is Maureen

 9   Budetti.

10                    MS. BUDETTI:            Good afternoon.

11   I'm Maureen Budetti, and I'm the Director of

12   Student Aid Policy at NAICU, the National

13   Association of Independent Colleges and

14   Universities.

15                    I appreciate the opportunity to

16   speak today on behalf of our nation's

17   private, non-profit colleges and

18   universities.

19                    NAICU represents 962 colleges and

20   universities of varying size and mission,

21   and our schools have long been supportive of

22   the success of the student aid programs,


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 1   whether it be in their structure,

 2   administration, funding, or integrity.

 3                    NAICU and its members have also

 4   worked with the Department through a variety

 5   of negotiated rulemaking processes on a

 6   variety of topics, and we certainly are

 7   interested in participating in the

 8   development of the current efforts as well.

 9                    As described in the Federal

10   Register of May 1st, 2012, the Department

11   intends the upcoming negotiated rulemaking

12   to cover several somewhat unrelated but very

13   important topics, the so-called straw

14   student rings, the use of debit cards, and

15   the campus-based programs.

16                    While NAICU has long been

17   supportive of efforts to prevent fraud, at

18   this time, we would like to focus to a

19   larger extent on examination of the campus-

20   based programs.

21                    However, I do note that since

22   coming over to provide these remarks, I've


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 1   spoken with just two people who have really

 2   clarified to me the seriousness of the other

 3   issues, so we will be paying attention to

 4   those as well.

 5                    Your notice mentions your intent

 6   to improve and strengthen the federal

 7   campus-based aid programs.                    It also mentions

 8   that the Department's review of these

 9   programs is part of a larger effort to

10   systematically review departmental

11   regulations.          And in this case, the

12   Department would be looking at ways to

13   improve the administration of those

14   programs.

15                    We are unaware of any major

16   administrative problems associated with the

17   campus-based programs.                 Therefore, we urge

18   you to maintain these valuable programs, and

19   not try to remake them through the

20   regulatory process, especially on the eve of

21   a scheduled reauthorization of the Higher Ed

22   Act.


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 1                    We deeply appreciate the

 2   Administration's support for and interest in

 3   campus-based aid.              The three campus-based

 4   programs are of vital importance to our

 5   schools.        They often make the difference

 6   between a student attending college or not.

 7                    We are particularly appreciative

 8   of the Administration's innovative proposals

 9   to revitalize the Perkins Loan Program.

10   Such a transformation would provide the

11   benefits to federal student loans to

12   students who are in real need of additional

13   borrowing capacity and are now forced to

14   seek it on the more expensive and

15   restrictive private market.

16                    We were disappointed when the new

17   program was stripped from the 2009 SAFRA

18   legislation, and hope that the

19   reauthorization will give Congress an

20   opportunity to review and enact this very

21   worthy proposal.

22                    The campus-based aid programs are


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 1   an essential part of the federal framework

 2   of need-based aid.              By requiring a

 3   substantial match by colleges, these

 4   programs have changed student aid practices

 5   on campuses, while substantially growing the

 6   federal investment.

 7                    Unfortunately, the lack of

 8   funding over the years has restricted their

 9   planned expansion to additional schools, and

10   denied the assistance of SEOG, Work Study,

11   and Perkins Loans to many needy students.

12                    Currently, only about half of our

13   schools participate in these programs.

14   However, while we do not see a need for

15   substantial regulatory change without a

16   change in statute, colleges are reeling from

17   the continuous rule-changing and substantial

18   increase in regulatory burden from recent

19   negotiated rulemaking sessions, and even

20   more change is expected in teacher education

21   this summer.

22                    We encourage the Department to


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 1   focus its effort on ongoing fraud and abuse

 2   where it happens, and as it happens, through

 3   its power of enforcement.

 4                    Please do not focus your limited

 5   resources on remaking highly functional

 6   programs that are under the purview of

 7   Congress in order to make any policy

 8   changes.

 9                    We appreciate again the

10   opportunity to testify and look forward to

11   working with you in the future.

12                    MS. MAHAFFIE:             Thank you.

13                    Finally, we have Nathan Dean.                       Is

14   Nathan Dean here?

15                    Okay.       We have nobody else

16   scheduled to speak, but if there is anybody

17   who would like to speak at this time, please

18   let us know.

19                    (Pause.)

20                    Ajita Talwalker from our

21   undersecretary's office -- we have four more

22   persons scheduled to speak, but I don't


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 1   think he's back yet.

 2                    We will be here until 4:00.                      If

 3   there's anybody who would like to speak,

 4   please let us know, and in the meantime,

 5   we'll wait and see if Nathan Dean comes

 6   back.

 7                    (Whereupon, the proceedings went

 8   off the record at 1:43 p.m. and resumed at

 9   2:08 p.m.)

10                    MS. MAHAFFIE:             Good afternoon.             I

11   just want to let you know, we have no more

12   scheduled speakers.

13                    We will be here until 4:00 if

14   anybody would like to speak, but I just

15   wanted to let you know that we have nobody

16   else scheduled.            Thank you.

17                    (Whereupon, the proceedings went

18   off the record at 2:08 p.m.                    and resumed at

19   3:05 p.m.)

20                    MR. TOUGHEY:            So I said I'd text

21   my wife -- I'd text my wife, and I said,

22   this is just great, because this is the only


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 1   forum I know of I can talk and nobody

 2   challenges anything I say, and they just

 3   simply go next.

 4                    (Laughter.)

 5                    And so, I don't know that that

 6   happens very often.               But anyhow, for

 7   everybody, I'm Dan Toughey.                    I'm President

 8   of TouchNet Information Systems.                        We're an

 9   electronic payment and ecommerce software

10   provider to higher education.

11                    We've been doing it for 20 years,

12   and we have a lot of schools.                      Our school

13   population represents about 6 million of the

14   19 or 20 million or so students out there,

15   so we have a pretty big footprint in the

16   market.

17                    But I made some comments earlier

18   today, and so now I'm making comments as Dan

19   Toughey, private citizen, and I think that

20   they're very different than my comments were

21   this morning.

22                    But we were in an interesting


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 1   conversation in the back about fees, related

 2   to campus debit cards, and why -- maybe why

 3   it won't be easier for schools to do better

 4   due diligence in the process of selecting

 5   those debit cards for more competitive fees,

 6   because clearly, when you look at the

 7   providers of these programs in the market

 8   today, in the higher education market today,

 9   there are more competitive debit card

10   offerings out there, frankly, all over the

11   place.

12                    But I mentioned briefly this

13   morning, I said, well, as the committee goes

14   forward, I really think the committee needs

15   to focus on the process at least as much as

16   the fees, because it's the process that is

17   where the students get trapped.                       And of

18   course, that report that just came out

19   yesterday, and Rich Williams spoke about

20   this morning, I think he called it the

21   campus debit card trap.

22                    And let me just describe the


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 1   process -- not all third-party servicers

 2   use, but let's say, at least some, they

 3   represent a pretty good share of the market

 4   for this type of solution out there.

 5                    So, what happens -- what happens,

 6   it's really called a refund management

 7   program, and what the schools like about it

 8   is not necessarily the bank accounts and the

 9   debit cards and all of that.                     What they like

10   about the program is that it completely

11   outsources and off-loads the disbursement

12   process to a third party and gets it

13   completely out of the way of the school.

14                    And this process of disbursement

15   is very painful for schools.                     I mean, they

16   just -- you can see their eyeballs when you

17   start to talk about it.

18                    And in fact, when you talk about

19   the fraud element and more distributions are

20   needed over time so that fraud doesn't

21   happen sooner in the process, they're

22   sitting back there going, oh my goodness,


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 1   you're talking about more of these horrible

 2   distribution processes that have to take

 3   place.

 4                    And of course, students are not

 5   easy to deal with in reality during this,

 6   because that's their money, in their

 7   opinion, and they want it now.                      Right?        So

 8   it's different when they're paying the

 9   schools, obviously, right?

10                    But how that process works in

11   some cases right now is, the school signs up

12   with a vendor who has a complete outsourced

13   refund -- we call it student refund

14   management program.               And when it's time to

15   make a disbursement, the school then wires

16   all the money.            Okay, so maybe it's $10

17   million, depending on the size of the

18   school, maybe it's more than that.                         Maybe

19   it's less than that.

20                    But they wire a complete lump sum

21   to the third party servicer's bank partner.

22   Okay?      So every third party servicer that


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 1   does this, has debit cards, they have to be

 2   affiliated with some kind of banks.

 3                    Some of those banks are well

 4   known, Wells Fargo, otherwise, others of

 5   them, you've never heard of before, Bancorp,

 6   Fulton Bank.          Things like this, okay?

 7   You've never heard of them before.

 8                    But those are the only folks that

 9   can issue debit cards and bank accounts, so

10   organizations that present themselves

11   somewhat as a bank really are affiliated

12   with one of these banks.

13                    But anyhow.           So let's just use

14   $10 million for example, it's disbursement

15   time.      $10 million is wired over to the

16   bank.

17                    The bank, at that point, then the

18   bank sets up, I'm going to say dummy

19   accounts, but they call them soft accounts,

20   for each student.              The money goes into an

21   account that's already established, okay,

22   long before the student even knows this.


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 1                    And then, the school sends over

 2   the list of students with their PII, and

 3   says, these are the students, these are the

 4   amounts.        And I hate to say it this way, but

 5   basically, they say, go get them.

 6                    And so the third-party servicer

 7   then has all the money, and they have all

 8   the students' information, and they start

 9   the marketing process of get your refund,

10   okay?      Get your refund now, we have your

11   money.

12                    So the student then logs on to

13   the third party servicer's website,

14   typically using or has to use a 16-digit

15   debit card number that they were sent in the

16   mail to log on, and then they're asked to

17   select, how do you want this distribution?

18                    And there's three ways generally

19   presented, at least two ways, but sometimes

20   three.      The first way is, click here, and

21   you can have your money right now.                         Okay?

22   Boom.


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 1                    Next way is, if you want to do a

 2   direct deposit to your existing bank

 3   account, you have to print out a form and

 4   either mail it or fax it back in, plus,

 5   direct deposit takes two to three days to

 6   make happen.          Right?

 7                    So basically, they have to --

 8   they can open a bank account online, but

 9   they can't put in their bank account number

10   for their existing accounts.                     They have to

11   print out a form, mail it, or fax it.

12                    Or the third way would be, if you

13   want a paper check, and then, literally,

14   this is a screen that's in that report that

15   was mentioned this morning from Rich

16   Williams, that there's all these steps for a

17   check, and 21 days later, you get it.

18                    So, you can see what happens to

19   the students.           I have two kids, college-

20   aged, and I have always said, they are no

21   competition to this, that if they are asked

22   to do one of those three, they would go,


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 1   give me my money now.                Right?

 2                    And when you do that, you just

 3   opened up a new bank account, and off you

 4   go.    And that's why this process has become

 5   magic.

 6                    Banks, for years, have tried to

 7   figure out, how do we open up -- partner

 8   with schools, how do we open up school bank

 9   accounts?        They never get above 15 percent

10   of the student population.

11                    But using this method, tied to

12   disbursement money, and the money is at the

13   bank already, they're getting 40, 50, 60

14   percent or more of the student population

15   clicking that money that basically says,

16   give it to me now.              Okay?

17                    So now, we've got all of these

18   students that have these bank accounts that

19   they frankly don't need.                  Most students come

20   to school with a bank account.                      The Federal

21   Reserve says that 92 percent of Americans

22   have a bank account, and only 8 percent are


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 1   truly un-banked.

 2                    It might be a little bit

 3   different with college students, definitely

 4   different around border towns and that type

 5   of thing.        But the fact of it is, this is,

 6   in most cases, another bank account that is

 7   now opened for the purpose of getting my

 8   financial aid refund money fast and now.

 9   Okay?

10                    So there's the magic in the

11   system.       Regardless of what the fees are on

12   that card or bank account, that's how those

13   bank accounts are being opened, and the

14   schools love it because they don't have to

15   do any of this.

16                    The vendor loves it because all

17   of a sudden, now there's a formula to open

18   up a mass number of bank accounts and

19   replicate this at campus after campus after

20   campus after campus.                Right?

21                    And then we have all these new

22   bank accounts out there.                  And so that


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 1   basically, in my opinion, is the process.

 2                    There are not good, fair, equal

 3   choices.        If, in fact, direct deposit was

 4   laid there with the same ability to plug in

 5   your existing bank account number online at

 6   that moment, just like, open a new bank

 7   account for me, if those two choices were

 8   sitting there, equally presented, direct

 9   deposit would win 75 percent of the time.

10                    It's no different than with the

11   Social Security Administration.                       Again, we

12   were talking about that, that March 2013,

13   they will go completely electronic.

14                    And so a social security

15   recipient has to go up to their website, I'm

16   sure they have call-in capabilities as well,

17   but there sits two buttons.                    One says, go

18   direct deposit, and one says, get a prepaid

19   debit card, which is very close to what a

20   bank account is.

21                    They look the same.                 They have

22   the same positioning.                They have the same


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 1   marketing capability.                There's no preference

 2   one way or another.

 3                    And when you select, go direct

 4   deposit, it isn't putting the recipient

 5   through all of these hoops, now you have to

 6   go print this and send that.                     It is just

 7   simple, enter in your bank account number.

 8   If you select, I want a debit card, then you

 9   go over to Comerica's bank site, and they

10   tell you about the debit card.                      Same thing.

11                    But then I put in my PII, versus

12   it being pre-populated.                  That's another key

13   point.      The recipient puts in their personal

14   information, their social security number,

15   their birth date, those types of things that

16   are needed to activate those accounts.

17                    So, folks, I hate to say it, but

18   it's the process, first of all.                       It's a

19   process that schools love, and then it's a

20   process that students can't get out of.

21   There is not truly an opt-in mechanism

22   happening here.            This is not everybody, but


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 1   this is some, okay, in a big part of the

 2   market it's happening out there.

 3                    So, then you move further

 4   downstream, if you have the process the

 5   schools like, and you have a way to get,

 6   let's just say, 50 percent of those students

 7   to take the bank account, and you have a

 8   five-year exclusive contract tied to that,

 9   then your fee structure is kind of in your

10   hands.      There's no competition.

11                    You know, there's no way out for

12   the school.          The students, you know, it's

13   kind of like Facebook.                 Have you ever tried

14   to close out a Facebook account?                        You can't

15   do it.      It's an act of Congress to try to

16   get yourself out of Facebook, okay?                          The

17   same thing kind of happens here, as well.

18                    So that's why -- that's why this

19   thing, in my opinion, has got to change just

20   from the perspective of, I really believe

21   that there's competition happening in the

22   market around debit cards, and there's going


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 1   to be more competition there, and the fees

 2   will come down and be more reasonable.                            And

 3   of course with the Consumer Financial

 4   Protection Bureau on this, and everything

 5   else like that, that's all driving that.

 6                    But there's got to be the focus

 7   on the process, okay?                The process is where

 8   the problem is, and the process is the

 9   heyday for the banks and the bank marketing

10   partners that they've never had before.

11   There's a little genius in that process, but

12   it's really kind of changed the game

13   dramatically.

14                    So.      So, I've always said that my

15   kids would be no match for this.                        There's no

16   way.     I mean, if you picked up -- if my

17   daughter Erin or Patrick got the email or a

18   phone call that said, we got your financial

19   aid money, come up to the website and pick

20   your method, and you got up to the website

21   or you're on the phone and they go, I can

22   have it right now because it's already pre-


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 1   populated in a bank account, and I can walk

 2   out the door and spend it, versus going

 3   through these other things?                    It's a hands

 4   down slam kind of situation.

 5                    So, anyhow, that concludes my

 6   second and my last comment for the day on

 7   the topic.         But anyhow, thank you very much

 8   for considering those comments.

 9                    ASST. SEC. OCHOA:               Thank you.

10                    (Whereupon, the above-entitled

11   matter was concluded at 3:17 p.m.)

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    Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV
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