From the U.S. Government Accountability Office, www.gao.gov Transcript for: Education's Direct Loan Program Description: Audio interview by GAO staff with Melissa Emrey-Arras, Director, Education, Workforce and Income Security Related GAO Work: GAO-16-523: Federal Student Loans: Education Could Improve Direct Loan Program Customer Service and Oversight Released: June 2016 [ Background Music ] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. It's June 2016. In fiscal year 2015, the Department of Education issued almost $96 billion in direct loans for higher education to 9.1 million borrowers. Melissa Emrey-Arras, a director in GAO's Education Workforce and Income Security team, led a recent review of the Direct Loan Program, looking at potential issues with borrower communication and oversight of loan servicers. Jacques Arsenault sat down with Melissa to talk about what they found. [ Jacques Arsenault: ] First, can you tell me a little about the Direct Loan Program and how it compares to other student loans? [ Melissa Emrey-Arras: ] Sure. The Direct Loan Program involves loans that come directly from the Department of Education and the government. So, they are unlike private loans where you might go to a local bank to get a student loan, these are coming directly from the government. And they also have several options available that are quite beneficial. For example, the Direct Loan Program provides several repayment options that allow you as a borrower to pay less based on your income. So, there are several benefits to participating in the Direct Loan Program. [ Jacques Arsenault: ] Now, the Department of Education administers this loan program and the money is coming from the government, but borrowers still have to deal loan servicers, right? [ Melissa Emrey-Arras: ] That's right. And so the Department of Education contracts with 10 different loan servicers. And these are entities that collect the payments, they provide customer service, and they operate call centers. So, if a student has a question or wants to make a change to their repayment plan, they can call and talk to someone live about their situation. [ Jacques Arsenault: ] OK. So, when it comes to that communication and really customer service, how are those loan servicers doing? [ Melissa Emrey-Arras: ] Well, we found that some borrowers that we spoke with had a very hard time contacting their servicer by phone. Upon hearing about this, we went and looked to see what the actual call center hours are and we found that they vary tremendously. For example, only one of the 10 servicers has call center hours on the weekends. And the other call center hours are much more limited,especially for those who live on the west coast. For example, one servicer's hours end at 1:30 Pacific Time. So, we're not even talking about evening or weekend hours. We're talking about just standard business hours and not being available during that time frame. And we found that all together, limited weekday hours and early closing affected 8.6 million Direct Loan borrowers. And this stands in contrast to other government call centers that have much more extended hours. For example, the IRS call center hours are between 7:00 a.m. and 7:00 p.m. local time. [ Jacques Arsenault: ] So, in addition to the kind of lack of convenience, can you talk about the impact that those limited hours have on borrowers of people who might be calling? [ Melissa Emrey-Arras: ] I think the concern is that borrowers who are struggling, especially those who are having trouble paying back their loans are not going to be able to reach someone to speak to about their situation and make changes so that they can avoid being late or delinquent or potentially even defaulting on their loans. [ Jacques Arsenault: ] And do you have a sense of where these problems originate? Are these loan servicers not fulfilling their contracts? Or is there a problem with the contracts themselves? [ Melissa Emrey-Arras: ] It's really a problem with the contracts themselves. The Department of Education does not have a minimum standard for call center hours. And as a result, the loan servicers can really set the hours as they choose. And as we've seen, those hours are not always set to benefit borrowers. [ Jacques Arsenault: ] So, then beyond the customer service angle, and it certainly seems like there are problems there, your team also looked more broadly at how the Department of Education oversees these servicers. Can you tell me a bit about what you found there? [ Melissa Emrey-Arras: ] Well, one of the things that we found is that the Department really has trouble tracking borrower complaints. So, when borrowers have a difficulty with their servicer or there's a concerned about their loan, they can make a complaint. And those complaints are important for the Department of Education to be aware of because then they can make changes to improve customer service. But the problem now is that the complaints are all in different locations and in different systems and Education isn't able to track everything together and then make improvements. We also found in addition to the issues with complaint tracking that there are some financial incentives for servicers that don't take into account customer service and program integrity goals. For example, if a servicer is found guilty of breaking the program's rules, it doesn't get less business in the future. For example, we found that servicers had inappropriately denied borrowers a full grace period before having to pay back their loans. But this had absolutely no effect on the number of new accounts the servicers were given the next year. [ Jacques Arsenault: ] So, it sounds like there's a lot of work that education needs to do in terms of how these contracts are set up and the oversight that they're doing and maybe consequences or something along those lines. Can you tell me about the recommendations that GAO is making in this report? [ Melissa Emrey-Arras: ] We're making several recommendations. The first is that Education should establish a minimum standard in those contracts that specifies what the core call center hours are to really improve call center availability. Especially for those who are living on the west coast. We also are making a recommendation that it improve how it tracks borrower complaints to make sure that it can capture all of the complaints and not just some of them. And then we finally are making a recommendation that it change the way that it evaluates and compensates loan servicers to really improve customer service. [ Jacques Arsenault: ] And then finally, what would you say is the bottom line of this report? [ Melissa Emrey-Arras: ] I think the bottom line is that there are some significant weaknesses currently in the management of the Direct Loan Program and that these weaknesses make it difficult for the Department of Education to ensure that student loan borrowers are getting good customer service that they really need to manage and pay back their loans. [ Background Music ] [Narrator:] To learn more, visit GAO.gov and be sure to tune in to the next episode of GAO's Watchdog Report for more from the congressional watchdog, the U.S. Government Accountability Office.