"It's recently been suggested that the U.S. Department of Education is considering moving federal student loans––a program that in fiscal year 2016 administered nearly $96 billion––across town to the Department of the Treasury as part of the Trump administration's efforts to streamline the Education Department," NASFAA's Megan Coval writes for Education Week. "... The notion of such a move is not yet an official proposal from the Trump administration, which makes its likelihood difficult to predict and its impetus hard to pin down. As with many proposals that come from the administration, the devil is in details we do not have."
"But simply giving student loans a new home falls far short of solving the problems that have plagued FSA for years when it comes to improving students’ borrowing experience. For future college students, the idea opens the door to potential changes in how the federal government supplies financial aid to help pay for college and how it handles student-loan repayment.
As the administration examines the issue further, several important responsibilities should be considered before any action is taken to move under a different umbrella the $1.4 trillion in student-loan debt that FSA is responsible for managing.
While some might argue that a department responsible for collecting taxes would be better equipped to also collect student-loan payments, the competencies of administering and tracking numerous repayment plans, as well as the operations of nine student-loan servicers, are not easily replicated. In fact, a pilot program started by the Obama administration in 2015 to determine whether the Treasury could be more effective at collecting defaulted student loans found in its first year that private collection agencies were more successful at debt collection than the Treasury Department.
Policymakers must also consider how such a move might complicate the lending process for students and families. There is a natural fit for housing student financial-aid programs at the Education Department, since it handles all other education-related programs, including the Free Application for Federal Student Aid, or FAFSA. A move to the Treasury could fundamentally shift the underlying mission from a student focus to the collection of payments at all costs."
Read the full article in Education Week.
Publication Date: 7/13/2017