The student aid office has an expansive mission with a portfolio of $1.5 trillion in total student debt, rising loan defaults and mounting consumer complaints of poor loan servicing and abusive debt collection practices. It provides more than $150 billion a year in federal grants, loans and work-study funds to college students, and has become one of the nation’s largest lenders.
Policy experts have questioned whether the office has the economic expertise to meet the challenge and have recommended changes, but they have stopped short of calling for anything on the scale of what DeVos is proposing.
Speaking at a Federal Student Aid conference in Reno, Nev., on Tuesday, DeVos said: “A separate [Federal Student Aid office] would be better positioned to deliver world-class service to students and their families as they finance higher education. It would manage the student loan portfolio and work to secure its financial strength and sustainability.”
The Federal Student Aid office is in the middle of overhauling the way it administers and manages student loans, a project dubbed Next Generation Financial Services Environment, or NextGen. DeVos praised the work the office has accomplished to date but said the changes are not enough for the office to fully serve families.
She argues that the student aid office is burdened by political mandates from Congress that have added to the complexity of the lending system, with myriad repayment options, forgiveness plans and rules that often confuse families. Given the scope of the office’s responsibilities, DeVos said it could best serve students as an independent entity run by an apolitical board of governors.
The Federal Student Aid office “simply cannot satisfy the ever-changing political whims of Washington,” DeVos said. “We should be talking about the benefits of professional, experienced leadership who, as in the private sector, would be responsible for setting strategy, for overseeing the management of the loan portfolio, for ensuring institutions hold up their end of the bargain and for reporting to Congress.”
As it stands, the Federal Student Aid office has autonomy in setting goals, assessing its own success and awarding financial bonuses to employees. The office has operated with far less political interference than most other government entities since 1998, when it became the federal government’s first “performance-based organization.” The office has flexibility with contracts and its overall structure, similar to the private sector. But unlike the private sector, there is no board to hold the office accountable.
The National Association of Student Financial Aid Administrators has long urged Congress to review whether the Federal Student Aid office is subject to enough supervision by the education secretary. DeVos referred to the trade group’s past critiques of the office in her speech Tuesday, but the group’s president, Justin Draeger, noted that spinning off the unit was never among its recommendations.
“We recommended an independent oversight board that would consist of various stakeholders that span the financial aid life cycle,” he said. “I applaud [the Education Department] for taking a look at its overall structure if it leads to greater accountability and transparency.”
DeVos’s proposal would require congressional action, a heavy lift in the current political climate. Members of Congress are also questioning whether the secretary is presenting a solution in search of a problem.
“There’s nothing that could be done with a new agency that can’t be done today,” said Rep. Robert C. “Bobby” Scott (D-Va.), chairman of the House Education Committee. “The Department should focus its time and resources on implementing the existing student loan programs in good faith.”