Education Secretary Proposes Major Overhaul of Federal Student Aid System

Betsy DeVos testifies during a Senate Committee discussing proposed budget estimates on March 28, 2019. (Zach Gibson/Getty Images)

Education Secretary Betsy DeVos unveiled her vision for the future of federal government’s student lending programs, proposing to make the Federal Student Aid (FSA) office into a bank-like agency independent of her department.

Overseeing more than $1.5 trillion in outstanding loans to 42 million borrowers, the FSA has become the nation’s top consumer lender, according to DeVos in a Tuesday speech at the Federal Student Aid Training Conference in Reno, Nevada. She argued that the Education Department should get out of the banking business.

“Congress never set up the U.S. Department of Education to be a bank, nor did it define the secretary of education as the nation’s ’top banker,'” said DeVos, clarifying the role her department should be playing in the student loan business. “But that’s effectively what Congress expects based on its policies.”

DeVos told the crowd that the inherent problem with government-run student aid lies in the FSA’s structure, which is “set up to serve politicians and their policies.” As the Congress and the past administrations continued to meddle with student loan programs, the FSA has become a cumbersome mess that confuses students and parents.

When graduates start repaying their federal loans, according to DeVos, they are faced with eight different repayment plans, each with different eligibility requirements. There are at least 30 deferment options, 14 loan forgiveness programs, and 11 different providers, each comes with its own websites, phone numbers, and forms to be filled out.

“Is it any surprise…that both principal and interest are currently being paid down for only one in four loans? Nearly 11 million borrowers have loans that are delinquent or in default? And 43 percent of all loans are considered ‘in distress?’” she asked.

DeVos’ plan to tackle the problem involves turning the FSA into an independent entity somewhat similar to the Federal Reserve, or in her own words, “a standalone government corporation, run by a professional, expert, and apolitical Board of Governors.”

The proposal, although far from detailed, would allow the overhauled student loan bureaucracy to make its own rules for repayment plans and forgiveness options without having to answer to Congress, so that it could truly focuses on providing students with better services.

Making such sweeping reforms to a federal bureaucracy would ultimately require the approval of an increasingly partisan Congress, which is trying to move forward an impeachment process against DeVos’ boss.

“President Trump and this administration are committed to transforming Federal Student Aid for students,” DeVos said. “Congress needs to come alongside us to make this happen.”