Public Service Loan Forgiveness: Opportunities for Education to Improve Both the Program and Its Temporary Expanded Process

The PSLF program was established in 2007 and forgives borrowers' remaining federal student loan balances after they have made at least 10 years of qualifying loan payments while working in public service. Starting in September 2017, the first borrowers potentially became eligible for the PSLF program and began applying to have their loans forgiven. In 2018, Congress appropriated $700 million to temporarily expand the PSLF program for certain borrowers who initially did not qualify for the program.

This statement—based on GAO's reports issued in September 2018 ( GAO-18-547 ) and September 2019 (GAO-19-595 )—discusses (1) the extent to which borrowers' requests for loan forgiveness through PSLF and the temporary expanded process have been approved or denied, (2) the extent to which Education provides the PSLF servicer with sufficient information to administer the program, and (3) opportunities for improving service to borrowers.

A large number of borrowers are pursuing the Public Service Loan Forgiveness (PSLF) program, but the Department of Education (Education) has denied about 99 percent of loan forgiveness applications as of March 2019. Close to one-half of these applications were denied because the borrowers had not yet made the required 120 qualifying monthly loan payments. As of May 2019, Education has also denied 99 percent of loan forgiveness requests made through the temporary expanded process, which is intended for borrowers who did not initially qualify for the PSLF program.

In its 2018 report, GAO found that shortcomings in the information Education provided to the loan servicer that administers the PSLF program increased the risk of administrative errors. For example, Education had not provided the PSLF servicer with a definitive source of information for determining which employers qualify. GAO made three recommendations to Education to address these issues (see table below). Education agreed with these recommendations and has taken some actions, but has not yet fully implemented them.

In its 2018 and 2019 reports, GAO found that Education can provide better service to borrowers by expanding outreach, streamlining processes, and sharing critical information with borrowers. For example, GAO found that Education does not include information for borrowers about the temporary expanded process in key online sources. GAO made five recommendations to Education to address these issues with the PSLF program and the temporary expanded process (see table below). Education agreed with these recommendations, but has not yet fully implemented them.

GAO has made eight recommendations to Education to improve its implementation of the PSLF program and its temporary expanded process. Education agreed with GAO's recommendations. As of September 2019, GAO continues to believe that actions are necessary to fully implement all of the recommendations discussed in this statement.

I am pleased to be here today to discuss the Department of Education’s  (Education) administration of the Public Service Loan Forgiveness (PSLF)  program. The PSLF program was established in 2007 and is intended to  encourage individuals to enter and continue careers in public service. It  does so by forgiving borrowers’ remaining federal student loan balances  after they have made at least 10 years of loan payments while working in  qualifying public service jobs and meeting other requirements. Starting in  September 2017, the first borrowers began applying for loan forgiveness  through the PSLF program. After concerns were raised about high PSLF  denial rates and some borrowers facing barriers to pursuing loan  forgiveness, Congress appropriated $700 million in 2018 to temporarily  expand the PSLF program to forgive the loans of certain borrowers who  did not initially qualify. However, borrowers have continued to cite  problems with Education’s management of the PSLF program and its  temporary expanded process.

Drawing on our prior work on the PSLF program and the temporary  expanded process, my remarks today address (1) the extent to which  borrowers’ applications for loan forgiveness through the PSLF program  and the temporary expanded process have been approved or denied, (2)  the extent to which Education provides the PSLF servicer with sufficient  information to administer the program, and (3) opportunities for improving  service to borrowers. In addition, I will highlight several key actions we  have recommended that Education can take to improve the PSLF  program and the temporary expanded process to help ensure consistent  services to borrowers and safeguard taxpayer funds. My testimony is  based on our prior reports issued in 2018 and 2019 and cited throughout  this statement. We used multiple methodologies to develop the findings,  conclusions, and recommendations for our prior reports. A more detailed  discussion of the objectives, scope, and methodologies, including our  assessment of data reliability, is available in each report.

The work upon which this statement is based was conducted in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Education administers federal student aid programs, including the William  D. Ford Federal Direct Loan (Direct Loan) program, through the Office of  Federal Student Aid. Only Direct Loans are eligible for the PSLF program  and the temporary expanded process. Under the Direct Loan program,  Education issues and oversees federal loans provided to students, and  contractors service these loans. Education currently contracts with nine  loan servicers that each handle the billing and other services for a share  of the over $1 trillion in outstanding student loans provided through the  Direct Loan program. Borrowers interested in pursuing loan forgiveness  under PSLF, or the temporary expanded process, must have their loans  eventually transferred to Education’s sole PSLF loan servicer in order to  proceed. This designated PSLF servicer handles day-to-day activities  associated with the PSLF program and the temporary expanded process,  which include responding to borrower inquiries, making preliminary  determinations about whether borrowers’ employment and loans qualify  for loan forgiveness, and processing loan forgiveness applications.

The PSLF program and the temporary expanded process provide eligible  borrowers with forgiveness on the remaining balance of their Direct Loans  after they have met all program requirements. To receive forgiveness for  a loan, borrowers are required to be employed in a qualifying public  service job for 10 years when making 120 qualifying payments. Borrowers  must also be employed in a qualifying public service job at the time they  apply for forgiveness, and at the time they receive forgiveness for their  loans. Although there are some differences in the eligibility requirements  for PSLF and the temporary expanded process, borrowers are generally  required to:

Work full-time for at least 10 years at a public service organization, a government organization, agency, or entity at any level (federal,  state, local, or Tribal); a nonprofit, tax exempt organization (under section 501(c)(3) of  the Internal Revenue Code); or another private nonprofit organization that provides certain public  services.

Make 120 on-time monthly loan payments for the full amount due on  their bill. These monthly payments do not need to be consecutive.

Repay their loans through a qualifying repayment plan. The PSLF  program generally requires borrowers to repay their loans through one  of the eligible income-driven repayment plans or the Standard  repayment plan. The temporary expanded process allows borrowers  to qualify for loan forgiveness if they are participating in several  additional types of repayment plans, including the Graduated  repayment plan, Extended repayment plan, Consolidated Standard  repayment plan, and Consolidated Graduated repayment plan. In  addition, for the temporary expanded process, the following two  payments generally must be at least as much as the borrower would  have paid under an income-driven repayment plan: (1) the payment  made immediately prior to applying for the temporary expanded  process, and (2) the payment made 12 months prior to applying for  the temporary expanded process.

There are key differences in the processes for applying for loan  forgiveness under the PSLF program versus the temporary expanded  process (see table 1).

Approximately 99 Percent of Borrower Applications for Loan Forgiveness through Both the PSLF Program and the Temporary Expanded Process Have Been Denied

Despite broad borrower interest in the PSLF program and the temporary  expanded process, very few borrowers have been granted loan  forgiveness. A large number of borrowers are pursuing the PSLF  program, but our 2018 analysis found that Education had denied about 99  percent of borrowers that applied for loan forgiveness through the PSLF  program during the first 8 months that Education was accepting  applications (September 2017 through April 2018), according to data from  the PSLF servicer. According to Education’s most recent publically  released PSLF program data through March 2019, PSLF program denial  rates have continued to hover around 99 percent since our 2018 review.  Of the 76,002 loan forgiveness applications that had been processed, the  PSLF servicer had denied 75,138 (99 percent), as of March 2019.

According to data as of March 2019, close to one-half of the PSLF  program loan forgiveness applications the PSLF servicer had processed  were denied because the borrower had not yet made 120 qualifying  payments. The other most common reasons PSLF program applications  were denied were because of missing information on the application or  because the borrower did not have qualifying federal loans. For borrowers  that have been approved, Education had forgiven almost $31 million in  outstanding student loans, an average of more than $59,000 per  approved borrower.

Denial rates are also very high for the temporary expanded process. We  recently reported that from May 2018 through May 2019, Education had  denied 99 percent of the completed requests from about 40,000  borrowers (see fig. 1).

The majority of requests borrowers submitted for the temporary expanded  process were ineligible for consideration and were therefore denied  because the borrower had not previously submitted an application for the  PSLF program, according to data from the loan servicer. For the 1  percent of applications that were approved from May 2018 through May  2019, Education had granted almost $27 million in loan forgiveness under  the temporary expanded process, totaling about 4 percent of the $700  million appropriated funds, according to our 2019 report. Borrowers  received an average of about $41,000 in loan forgiveness.

The high denial rates for the PSLF program and temporary expanded  process suggest that many borrowers are confused by the requirements.  In our 2018 report, we noted that officials from the PSLF servicer said that  borrowers were frequently confused by the PSLF program requirements  related to qualifying loans, employment, repayment plans, and  payments. PSLF servicer officials also said that borrowers were  sometimes unaware that they were not on a PSLF-qualifying repayment  plan or that forbearance, deferment, and loan consolidation would affect  their qualifying payments. For example, the Consumer Financial  Protection Bureau has reported that borrowers have complained of  spending years making payments, believing they were making progress  towards PSLF loan forgiveness, and then learning that they were not  eligible. Similarly, in our 2019 report on the temporary expanded  process, we noted that officials from Education, the PSLF loan servicer,  and representatives from selected organizations representing student  borrowers all said that the requirement to submit an application for the  PSLF program to be eligible for the temporary expanded process can  confuse borrowers.

Shortcomings in the Information Education Provides to the PSLF Servicer Increase the Risk of Administrative Errors

We have previously reported on how shortcomings in the information  Education provides to the PSLF servicer has resulted in uncertainty about  PSLF program requirements and increased the risk of potential errors in  borrower eligibility determinations. To address these issues, we have  made three recommendations to Education to provide the servicer with  comprehensive guidance and instructions, additional information on  qualifying employers, and standardized prior payment information (see  table 2). Education agreed with these recommendations and has taken  some actions, but has not yet fully implemented them.

In our 2018 report, we found that Education does not have a  comprehensive document or manual to provide the PSLF servicer with  guidance and instructions. This made it difficult to effectively administer  the PSLF program and provide consistent service to borrowers, according  to PSLF servicer officials. We reported that Education’s guidance and  instructions to the PSLF servicer are dispersed in a piecemeal manner  across multiple documents, including Education’s original contract with  the servicer, multiple updates to the contract, and hundreds of emails. As  a result, PSLF servicer officials said that their staff were sometimes  unaware of relevant PSLF program guidance and instructions in emails  provided by Education, which creates a risk that some policy updates will  be overlooked and not consistently implemented. The absence of a  central, authoritative source of PSLF guidance and instructions creates a  risk of differing interpretations and inconsistent implementation. It also  makes it difficult to maintain program continuity in the event of staff  turnover or if Education decides to contract with a new servicer to  administer the PSLF program. Federal internal control standards state  that agencies should communicate information to those who need it, in a  form that enables them to carry out their responsibilities.

Around the time our 2018 report was issued, Education officials told us  they planned to develop a comprehensive PSLF servicing manual, but  they did not have a timeline for completing it. In response, we  recommended that Education develop a timeline for issuing a  comprehensive guidance and instructions document for PSLF servicing.  Education agreed with this recommendation and reported in September  2019 that it was continuing its efforts to improve and streamline guidance  for the PSLF servicer. While Education said it is working on developing its  comprehensive PSLF servicing manual, it does not yet have a timeline for  how it will complete this manual and has pushed back the estimated  implementation date for this recommendation to 2020. To help ensure  that program requirements are applied consistently by the PSLF servicer,  we continue to believe that Education should fully implement this  recommendation.

Limited Information on Qualifying Employers

In 2018, we reported that Education had not provided the PSLF servicer  with a definitive source of information for determining which employers  qualify a borrower for PSLF loan forgiveness. Instead, Education had  identified some data sources the PSLF servicer can use to determine  whether borrowers are working for qualifying employers. However, we  found that these sources were not comprehensive, and that PSLF  servicer officials said they sometimes had to consult other sources that  have significant limitations. For example, PSLF servicer officials told us  they used an online directory of nursing home facilities to help determine  if certain nursing homes were nonprofit employers. However, this website  explicitly stated that it did not guarantee that the information it provided  was accurate or current. Federal internal control standards state that  agencies should communicate the necessary quality information to those  who need it, and PSLF servicer officials said that having additional  information would help them assess employers more quickly and  minimize the risk of inaccurate decisions. Borrowers would also benefit  from additional information about qualifying employers, according to PSLF servicer officials, in part because it would help them make better  informed employment decisions.

Our 2018 report recommended that Education provide additional  information to the PSLF servicer and borrowers to enhance their ability to  determine which employers qualify for PSLF. Education agreed with this  recommendation, and said it planned to incorporate qualifying employer  information into an online PSLF Help Tool. As of September 2019,  Education reported that it had incorporated a feature into its online PSLF  Help Tool to help borrowers determine if their employer fits within general  eligibility criteria. However, Education said more specific information to  help the PSLF servicer make employer eligibility determinations and an  employer database will not be available until 2020. We believe that if  Education fully implements this recommendation to provide the servicer  with more definitive employer information, it would help reduce the risk of  errors in assessing employer eligibility for PSLF.

Inconsistencies in Prior Loan Payment Data

In our 2018 report, we found that Education does not ensure that the  agency’s other loan servicers provide the PSLF servicer consistent  information on borrowers’ prior loan payments, which could increase the  risk of qualifying payments being miscounted for the PSLF program.  PSLF servicer officials said inconsistencies in the information provided by  other loan servicers make it challenging to determine whether borrowers  are on qualifying repayment plans or making qualifying payments.  Officials with Education and the PSLF servicer said that these  inconsistencies increase the risk of miscounting qualifying payments. This  is contrary to federal internal control standards, which state that agencies  should use quality information. Our 2018 report recommended that  Education standardize the payment information that the PSLF servicer  receives from other loan servicers to ensure the PSLF servicer obtains  more consistent and accurate payment information. Education agreed  with this recommendation and stated that efforts were underway to  improve the consistency of payment information exchanged between  servicers. As of September 2019, Education reported that it is planning to  standardize this loan payment data by spring 2020. If Education  implements this recommendation, we believe it would reduce the potential  risk of qualifying PSLF payment count errors moving forward.

Education Can Provide Better Service to Borrowers by Expanding Outreach, Streamlining Processes, and Sharing Critical Information with Borrowers

We have previously reported on how unclear processes and a lack of  information about the PSLF program and the temporary expanded  process could contribute to borrower confusion and high denial rates. We  have also reported that borrowers can face challenges detecting any  errors in payment counts for the PSLF program and with contesting  eligibility determinations for the temporary expanded process. To address  these issues, we have made five recommendations to Education to  improve service to borrowers by expanding outreach, streamlining  processes, and providing information to help borrowers catch and resolve  errors (see table 3). Education agreed with these recommendations, but  has not yet taken sufficient actions to fully implement them.

Education uses several methods to inform borrowers about the PSLF  program and temporary expanded process requirements, including  through its website and webinars. Congress also appropriated $4.6  million in 2018 for Education to conduct outreach to borrowers about  PSLF, including the temporary expanded process. However, our recent  work has found several areas in which the agency’s outreach activities  related to the temporary expanded process are limited. While Education  and PSLF loan servicer officials told us that they primarily direct  borrowers to online sources to inform them about requirements for the  temporary expanded process, we found that the agency does not include  information about the temporary expanded process in key online sources.  For example, according to agency officials, one of Education’s primary  PSLF outreach mechanisms—the online PSLF Help Tool, which the  agency launched in December 2018—does not include any information  about the temporary expanded process. Officials from Education and  the PSLF servicer stated that integrating information about the temporary  expanded process into the online PSLF Help Tool would be beneficial for  borrowers and would reduce confusion about the temporary expanded  process. In addition, our 2019 report found that while all nine of  Education’s loan servicers’ websites contain some information on the  PSLF program, none of them (other than the PSLF loan servicer)  included information about the temporary expanded process on their  websites or provided a link to Education’s website specific to the  temporary expanded process. Education officials told us that only the  PSLF servicer is required to have information about the temporary  expanded process on its website; however, other loan servicers may also  serve borrowers who are potentially eligible but may be unaware of the  temporary expanded process.

This limited outreach to borrowers about the temporary expanded  process reduces the likelihood that borrowers are able to take advantage  of this opportunity. Further, federal internal control standards state that  management should externally communicate the necessary quality  information to achieve the entity’s objectives. To improve Education’s  borrower outreach about the temporary expanded process, our  September 2019 report recommended that Education include information  about the temporary expanded process in its online PSLF Help Tool and  that Education require all loan servicers to provide information about the  temporary expanded process on their websites. Education agreed with  both of these recommendations, and stated that it would take steps to  address them. If Education implements these two recommendations, we  believe it would help the department provide better service to borrowers  by raising awareness of the temporary expanded process and  requirements.

In September 2019, we reported that Education’s process for requesting  loan forgiveness through the temporary expanded process is not clear to  borrowers and may contribute to high denial rates. In particular, the  requirement that borrowers must have already submitted a separate  PSLF application in order to be eligible for loan forgiveness through the  temporary expanded process can confuse borrowers. Borrowers currently  must submit a separate PSLF application, even if they know it will be  denied, before Education will consider their request for forgiveness  through the temporary expanded process. Education officials  acknowledged that the majority of requests for the temporary expanded  process come from borrowers who have not first submitted a PSLF  application. Similarly, our September 2019 report found that 71 percent of  the denied requests were denied because the borrower had not submitted  a PSLF application. Officials from the PSLF loan servicer said that  borrowers who called were frequently confused when they received a  denial for the temporary expanded process based on the fact that they  had not first submitted an application for the PSLF program.

This lack of a borrower-friendly process complicates the path towards  loan forgiveness and does not align with Education’s strategic plan  objective to improve the quality of service to customers. To address this  issue, our 2019 report recommended that Education streamline the  process for borrowers to request loan forgiveness through the temporary  expanded process by integrating the request for temporary expanded  process consideration into the PSLF application, eliminating the need for  borrowers to submit a separate PSLF application prior to consideration.  Education agreed with this recommendation and stated that it will  integrate requests for the temporary expanded process into the PSLF  application as part of its ongoing initiative to overhaul its online portal for  student loan borrowers. Implementation of this recommendation would  improve service to borrowers by making the process easier and less  confusing.

Information to Help Borrowers Identify and Remedy Potential Errors

In 2018, we reported that although Education and PSLF servicer officials  acknowledged the risk of miscounting qualifying payments, the PSLF  servicer did not provide borrowers with sufficient information to easily  identify PSLF program errors. Officials with the PSLF servicer said they  rely on borrowers to catch any payment counting errors resulting from  issues with information provided by other loan servicers. As we reported,  the PSLF servicer provided borrowers with aggregate counts of qualifying  payments, which are useful for helping borrowers track their progress, but  did not provide borrowers with enough detail to check the servicer’s  counts and identify prior payments that the servicer may have missed.  This is also contrary to federal internal control standards which call for  communicating necessary information to external parties. Our 2018  report recommended that Education ensure that borrowers receive  sufficiently detailed payment information from the PSLF servicer to be  able to identify any errors in the servicer’s counts of qualifying payments.  Education agreed with this recommendation and stated that efforts were  underway to standardize the payment count information that is provided  to borrowers. As of September 2019, Education reported that it is  reviewing communications from the PSLF servicer to ensure that  borrowers receive sufficiently detailed information regarding payment  counts and payment history and that this review will be completed by  September of 2020. To help borrowers detect potential payment counting  errors that could ultimately affect their eligibility for the PSLF program, we  believe Education should implement this recommendation and provide  borrowers with more detailed qualifying payment information.

Further, our 2019 report on the temporary expanded process found that  Education does not provide complete information to borrowers about  options they have to contest payment counts or other aspects of the  eligibility determination process. An Education official told us that while  there is no formal process for borrowers who are dissatisfied with their  temporary expanded process determinations to contest the determination,  borrowers do have additional options for addressing concerns, such as an  additional review by the PSLF servicer, or a complaint to Education’s  Federal Student Aid Feedback System or Ombudsman. Education  officials told us that the agency does not provide information about these  options in its denial letters or on its website for the temporary expanded  process, noting that borrowers could find this information at the bottom of  Education’s Federal Student Aid main website. However, borrowers may  not know where to find this information should they choose to contest  their temporary expanded process determination, because this  information is not effectively communicated to them in accordance with  federal internal control standards. To address this, our 2019 report  recommended that Education provide borrowers with more information on  the website for the temporary expanded process and in the servicer’s  denial letters about options available to borrowers should they wish to  contest the servicer’s decision. Education agreed with this  recommendation and stated that it would add information about the  options borrowers have to contest temporary expanded process decisions  to relevant websites and denial letters. Implementing this  recommendation will increase the likelihood that borrowers with valid  concerns about the temporary expanded process will have them  appropriately resolved.

In conclusion, my statement has highlighted several actions Education  could take to strengthen the PSLF program and the temporary expanded  process to deliver on the promise the federal government has made to  borrowers pursuing careers in public service. Education is responsible for  establishing an administrative structure for the loan servicer, but more  than 10 years after the PSLF program was first established, Education  has not provided the loan servicer with a comprehensive source of  guidance and instructions on how to operate the PSLF program, and  could provide additional information to help ensure that eligibility  determinations are being made correctly. Education is responsible for  ensuring that borrowers are aware of and understand programmatic  requirements. However, the high denial rates for the PSLF program and  its temporary expanded process suggest that borrowers are still  confused. It is also important for Education to maintain borrower  confidence, but the department has not provided critical information to  borrowers to help them remedy potential errors.

Large numbers of borrowers have pursued careers in public service,  sometimes at lower pay than in the private sector, with the hope of one  day achieving loan forgiveness through the PSLF program. They have  often had to navigate the PSLF program requirements with a lack of  sufficient information from Education only to be denied 10 years later  when they applied for loan forgiveness because their prior years of  employment or loan payments did not qualify. In addition, some  borrowers who were denied may not be aware that they might be eligible  for loan forgiveness through the temporary expanded process, potentially  missing out on this temporary opportunity. Education needs to take action  to better serve these borrowers and help smooth their long road towards  loan forgiveness. Education has not yet taken action to fully implement  the eight recommendations discussed in this testimony. We continue to  believe that implementing these eight recommendations would strengthen  program administration, improve service to borrowers, and help to fulfill  the original goal of encouraging individuals to enter and continue in public  service employment. We will continue to monitor Education’s efforts in  these areas.

Chairwoman Davis, Senior Republican Smucker, and Members of the  Subcommittee, this completes my prepared statement. I would be  pleased to respond to any questions that you may have at this time.

If you or your staff have any questions about this testimony, please  contact Melissa Emrey-Arras, Director of Education, Workforce, and  Income Security, at (617) 788-0534 or emreyarrasm@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this statement. GAO staff who made key  contributions to this testimony include William Colvin (Assistant Director),  Nora Boretti (Analyst-in-Charge), Linda Collins, and Aaron Karty.  Additional support was provided by James Bennett, Deborah Bland, Alex  Galuten, Lara Laufer, Sheila R. McCoy, and Jessica Orr.

This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.

The Public Service Loan Forgiveness program forgives federal student loan balances for borrowers who have made 10 years of payments while working in certain public service jobs.

We testified that about 99 percent of borrower applications for loan forgiveness have been denied, and that borrowers may be confused about program requirements. The Department of Education does not provide enough information on program requirements—such as a comprehensive list of qualifying employers.

We recommended in 2018 and 2019 that Education make more information available to borrowers.


Veterans Affairs: Sustained Leadership Attention Needed to Address Long-Standing Workforce Problems

VA operates one of the largest health care delivery systems in the nation and provides billions of dollars in benefits and services to veterans and their families. However, VA faces serious and long-standing problems with management challenges and veterans' access to health care and disability benefits. These issues contributed to GAO's decision to list several areas involving VA on GAO's High-Risk List, including managing acquisitions, managing risk and improving veterans' health care, and improving and modernizing VA's disability programs.

This testimony discusses (1) human capital challenges facing VA and its components, (2) GAO recommendations addressing some of those challenges, and (3) how those challenges are related to a broader set of government-wide human capital problems.

This testimony is based on GAO's work on VA issued since 2017, as well as GAO's work on government-wide strategic human capital management issued since July 2014. To conduct these studies, GAO reviewed key agency documents and government-wide employment data and interviewed knowledgeable agency officials and managers, as well as subject matter specialists.

Serious human capital shortfalls are undermining the Department of Veterans Affairs' (VA) ability to provide veterans with quality and timely services. Over the past two decades, GAO has identified major challenges with VA human capital practices. For example, in March 2019, GAO found large staffing shortages, including physicians and registered nurses, at the Veterans Health Administration's (VHA) 172 medical centers. In December 2016, GAO found that high attrition, increased workload, and burnout among VHA's human resources (HR) staff, along with ineffective internal controls to support its HR operations, have impeded VHA's ability to serve the nation's veterans (see figure).

Continued leadership attention to addressing GAO's recommendations could help VA better execute its mission. GAO has made numerous recommendations to VA, 40 of which were designated as priorities because they could significantly improve VA's operations. Twelve of the 40 were aimed at strengthening VA's human capital management efforts. Of these, six have been addressed. However, VA still needs to take additional actions on the other six, such as developing a modern and effective performance management system. Beyond these priority recommendations, VA can use key talent management strategies that GAO has identified for acquiring, incentivizing, and engaging employees and thus be more competitive for a high-performing workforce in a tight labor market.

Some of the challenges facing VA are part of a larger set of human capital issues affecting government as a whole. Although Congress, the Office of Personnel Management, and individual agencies have made improvements in recent years, human capital management in general remains a high-risk area because of mission-critical skills gaps within the federal workforce. Structural issues impede the ability of agencies to recruit, retain, and develop workers, including outmoded position classification and pay systems, ineffective recruiting and hiring processes, and challenges in dealing with poor performers.

GAO has designated 40 of its prior recommendations to VA as priorities for implementation. Twelve of these priority recommendations are aimed at strengthening VA's human capital management efforts. To date, VA has implemented six of these priority recommendations, but needs to take additional action on the other six. GAO will continue to monitor VA's progress in implementing these recommendations.

Thank you for the opportunity to participate in today’s hearing on the  Department of Veterans Affairs’ (VA) ability to recruit and retain talented  employees and thus ensure quality medical care and other services for  our nation’s veterans. VA operates one of the largest health care delivery  systems in the nation and provides billions of dollars per year in benefits  and services to veterans and their families. However, the department and  two of its components, the Veterans Health Administration (VHA) and the  Veterans Benefits Administration (VBA), face serious and long-standing  problems with management challenges and problems with veterans'  access to care and disability compensation benefits. In multiple reports,  we have found that mission-critical skills gaps and a lack of effective  strategic human capital management have limited VA’s ability to carry out  its vital mission to serve and honor America’s veterans.

VA needs a strong workforce to provide quality and timely care to  veterans, but over the past two decades, we and others have expressed  concern about certain VA human capital practices. In February 2015, we  added managing risks and improving veterans’ health care to our list of  federal high-risk areas. Since then, VA has made some progress in  ensuring its resources are being used cost-effectively and efficiently to  improve veterans’ timely access to health care and to ensure the quality  and safety of that care.

My remarks today focus on (1) some of the key human capital  management challenges facing VA and its components—especially at its  largest component, VHA—and the impact those challenges are having on  VA’s essential mission; (2) specific recommendations and talent  management strategies we have identified in our prior work that VA can  leverage to recruit and retain a high-performing workforce in a highly  competitive labor market; and (3) how a number of the human capital  challenges that VA is facing are part of a broader set of government-wide  human capital problems that are also jeopardizing the missions of other  federal agencies.

The bottom line is that both VA-specific human capital and government- wide structural issues are hampering VA from acquiring and retaining the  talent it needs to fill vacancies and serve veterans. VA-specific human  capital issues include such difficulties as recruiting and retaining clinical  and human resources (HR) staff at VHA. Government-wide structural  issues include a federal personnel system that is, in many ways, unable  to meet the requirements of today’s federal work and workforce.

Nevertheless, VA can take, and in some cases is already taking, a  number of steps to strengthen its human capital management efforts but  more work is needed. VA will need continued leadership attention and  strong congressional oversight. Other steps will be required within VA to  fully implement our open recommendations and mitigate any newly  emerging problems.

This testimony is based on our recent work on VA issued since 2017, as  well as our work on government-wide strategic human capital  management issued between July 2014 and July 2019. For the VA  studies, among other things, we reviewed key agency documents and  interviewed knowledgeable agency officials and managers in  headquarters as well as in several medical facilities across the country.  For the government-wide human capital work, among other things, we  reviewed government-wide employment data and interviewed officials  from the Office of Personnel Management (OPM) and subject matter  specialists from think tanks, academia, government employee unions,  and other areas. Our reports provide further details on our scope and  methodology.

We conducted the work on which this statement is based in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our objectives. We believe that the evidence obtained provides  a reasonable basis for our findings and conclusions based on our audit  objectives.

At VA, and indeed at all federal agencies, strategic human capital  management plays a critical role in maximizing the government’s  performance and assuring its accountability to Congress and the nation  as a whole. As we have long reported, there is a direct link between the  effectiveness of an agency’s personnel management efforts and its ability  to carry out its mission. Addressing challenges in areas such as disaster  response, homeland security, economic stability, and numerous other  complex and evolving issues requires a skilled federal workforce able to  work seamlessly with other agencies, levels of government, and  nongovernmental entities.

In our March 2019 report, we identified key trends in agency operations  and attitudes toward work that are affecting how federal work is done and,  consequently the skills and competencies that workers will need to  accomplish agency missions. Agencies will need to apply appropriate  talent management strategies that are adapted to these trends to recruit,  develop, and retain a high-performing workforce and better meet their  missions (see fig. 1).

Staffing Challenges at VA Are Systemic, Long-Standing, and Undermining Its Mission

Over the past two decades, we and others have expressed concern about  certain human capital practices at VA and its components. For example,  in November 2018, VA’s Office of Inspector General identified leadership  and workforce investment as a major management challenge. The  Inspector General noted that the root cause for many of the issues it  identified at VA was poor and unstable leadership as well as staffing  shortages. Similarly, in May 2019, we reported that leadership turnover  impeded VA’s ability to address a number of management challenges we  identified such as managing acquisitions, managing risk, and improving  veterans’ health care.

At VHA, we found that serious human capital shortfalls are undermining  its ability to meet the health care needs of veterans. Key examples from  our prior work include the following:  In March 2019, we reported that VHA’s 172 medical centers have  large staffing shortages, including physicians, registered nurses,  physician assistants, psychologists, and physical therapists, as well  as HR specialists and assistants.

As of December 2018, VA reported an overall vacancy rate of 11  percent at VHA medical facilities, including vacancies of over 24,000  medical and dental positions and around 900 HR positions.

In July 2016, we found that losses in VHA’s five clinical occupations  with the largest staffing shortages, including physicians, registered  nurses, and psychologists, increased from about 5,900 employees in  fiscal year 2011 to about 7,700 in fiscal year 2015. Voluntary  resignations and retirements were the primary drivers. VHA’s exit  survey indicated that advancement issues or dissatisfaction with  certain aspects of the work, such as concerns about management and  obstacles to getting the work done, were commonly cited as the  primary reasons people left.

In December 2016, we found that several problems combined to  impede VHA’s ability to improve delivery of health care services to  veterans. These problems include high attrition (often involving  transfers to other federal agencies), increased workload, and burnout  among VHA’s HR staff. Another issue is a lack of effective internal  control practices to support HR operations such as information  systems that meet operational needs (see fig. 2).

In our preliminary findings in a forthcoming report on the extent to which  succession planning policies and procedures at VA and its components  are consistent with key leading practices, we have identified several  concerns. For example, according to VA officials, the agency has not  produced a department-wide succession plan since 2009 due to  leadership turnover. Department-wide, around 30 percent of VA  employees on board as of September 30, 2017, will become eligible to  retire in the next 5 years.

Effective succession planning can help VA ensure it has a pipeline of  talent to meet current and future mission requirements. In our prior work,  we noted that effective succession planning is more than filling existing  vacancies with people that have the same occupational skills and  competencies. Rather, succession planning focuses on current and future  needs and develops pools of high-potential staff to meet the  organization’s mission over the long term.

Continued Leadership Attention to Implementing Our Prior Recommendations and Other Talent Management Strategies Could Help VA Better Serve Veterans

We have designated 40 of our prior recommendations to VA as priority  recommendations because, upon implementation, they may have an  especially significant impact on VA’s operations. Twelve of these priority  recommendations are aimed at strengthening VA’s human capital  management efforts and will help address VA’s challenges in such areas  as recruiting and retaining doctors and nurses, performance  management, and employee misconduct. To date, VA has implemented  six of these priority recommendations, but needs to take additional action  on the other six. While VA agreed or partially agreed with and is taking  steps to implement five of these remaining priority recommendations, it  disagreed with one related to developing a process to accurately count all  physicians at each VA medical center because it does not believe this  affects its ability to assess workload. Nevertheless, we continue to believe  that VHA needs a systematic process to identify all physicians working at  VA medical centers as part of the agency’s efforts to monitor and assess  workload. The six unimplemented priority recommendations are for VA  to  1.  develop a process to accurately count all physicians providing care at  each VA medical center (recommended in 2017),  2.  develop a modern and effective performance management system in  which VA managers make meaningful distinctions in employees’  performance ratings (recommended in 2016),  3.  ensure that ratings-based performance awards are administered in a  manner that is consistent with leading practices (recommended in  2016),  4.  develop a plan to implement a modern information technology system  to support employee performance management processes  (recommended in 2016),  5.  collect complete and reliable misconduct and associated disciplinary  action data (recommended in 2018), and  6.  ensure that employees who report wrongdoing are treated fairly and  protected against retaliation (recommended in 2018).

We will continue to monitor VA’s progress in implementing these and our  other open recommendations.

Beyond these specific recommendations, VA and other agencies can use  talent management strategies to better compete for critical positions in a  tight labor market and to help meet agency missions. In our prior work we  noted that while these strategies are not an exhaustive list, collectively  they suggest basic steps that agencies can take within existing authorities  to address the demographic and technological trends affecting work that  are discussed earlier in this statement. These strategies include:

Align human capital strategy with current and future mission  requirements. With shifting attitudes toward work, technological  advances, and increased reliance on nonfederal partners, agencies  need to identify the knowledge and skills necessary to respond to  current and future demands. Key practices include identifying and  assessing existing skills, competencies, and skills gaps.

Acquire and assign talent. To ensure agencies have the talent  capacity to address evolving mission requirements and negative  perceptions of federal work (e.g., that it is too bureaucratic), agencies  can cultivate a diverse talent pipeline, highlight their respective  missions, recruit early in the school year, support rotations, and  assign talent where needed.

Incentivize and compensate employees. While federal agencies  may struggle to offer competitive pay in certain labor markets, they  can leverage existing incentives that appeal to workers’ desire for  schedules and locations that provide work-life balance.

Engage employees. Engaged employees are more productive and  less likely to leave. Agencies can better ensure their workforces are  engaged by managing employee performance, involving employees in  decisions, and developing employees.

Strategic Human Capital Management Is at Risk Government-wide and Is Impacting Agencies’ Missions

A number of the staffing challenges facing VA are actually part of a  broader set of human capital issues affecting government as a whole. As  we noted in our March 2019 update of government high-risk areas, the  federal government faces long-standing challenges in strategically  managing its workforce. We first added strategic human capital  management to our list of high-risk government programs and operations  in 2001. Although Congress, OPM, and individual agencies have made  improvements since then, strategic human capital management remains  a high-risk area because mission-critical skills gaps within the federal  workforce pose a high risk to the nation. Of the 34 other high-risk areas  on our 2019 High-Risk List, skills gaps played a significant role in 16 of  the areas, including information technology management and  acquisitions, strengthening management functions at the Department of  Homeland Security, and, as noted above, veterans’ health care at VA.

While causes for these skills gaps related to high-risk areas vary, they  often occur because of a shortfall in talent management activities such as  robust workforce planning or training. Additionally, the changing nature  of federal work and the high percentage of employees eligible for  retirement have the potential to produce gaps in leadership and  institutional knowledge and could threaten to aggravate the problems  created from existing skills gaps. For example, 31.6 percent of permanent  federal employees who were on board as of September 30, 2017 will be  eligible to retire in the next 5 years, with some agencies having  particularly high levels of employees eligible to retire.

High-performing organizations have found that the full life cycle of human  capital management activities needs to be fully aligned and focused on  the cost-effective achievement of an organization’s mission. These  activities include workforce planning, recruitment, on-boarding,  compensation, engagement, succession planning, and retirement  programs.

Further, adding to agencies’ staffing challenges is the fact that much has  changed since the Civil Service Reform Act of 1978 and the Classification  Act of 1949 laid the foundation of much of today’s federal personnel  system. Agencies’ missions have evolved and employees’ expectations  of work and the workplace are changing. As a result, the extent to which  the current and future workforce finds the government’s employment  policies and practices relevant is an open question.

We and others have identified several structural challenges within the  federal human capital system that impede the ability of agencies to  recruit, retain, and develop workers, both today and in the future. For  example:

Classification system. The General Schedule classification  system—which defines and organizes federal positions primarily to  assign rates of pay—has not kept pace with the government’s  evolving requirements.

Recruiting and hiring. Federal agencies need a hiring process that is  applicant friendly and flexible while also meeting policy requirements.

Pay system. Employees are compensated through an outmoded  system that (1) rewards length of service rather than individual  performance and contributions, and (2) automatically provides across- the-board annual pay increases, even for poor performance.

Performance management. Federal agencies have faced long- standing challenges developing modern, credible, and effective  employee performance management systems and dealing with poor  performers.

Going forward, to help agencies effectively carry out their missions, OPM  and federal agencies must take some important steps to address ongoing  human capital problems. These actions include continuing to develop the  capacity to measure and address existing mission-critical skills gaps and  using workforce analytics to predict and mitigate future gaps.

Chairman Takano, Ranking Member Roe, and Members of the  Committee, this completes my prepared statement. I would be pleased to  respond to any questions you may have at this time.

If you or your staff have any questions about this testimony, please  contact Robert Goldenkoff, Director, Strategic Issues, at (202) 512-2757  or GoldenkoffR@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this  statement. GAO staff who made key contributions to this testimony are  Shirley Hwang (Assistant Director), Alexander Ray (Analyst-In-Charge),  Sarah Green, Allison Gunn, and Shelby Kain.

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The Department of Veterans Affairs has serious, long-standing problems managing health care and disability benefits. Several areas related to VA’s performance appear on our list of High Risk issues.

This testimony focuses on VA’s difficulty recruiting and retaining its workforce, and recommendations we’ve made in this area, among other things. VA has lost a lot of human resources staff and faces large shortages of medical staff at its centers.

Twelve of our priority recommendations are aimed at addressing VA’s long-standing workforce problems, such as improving how it rates and awards employees and handles disciplinary actions.