Report: How to Improve Oversight of Office of Federal Student Aid

By Allie Arcese, Sr. Director of Strategic Communications & Engagement

By Allie Bidwell, NASFAA Senior Reporter

The branch of the Department of Education (ED) that doles out approximately $120 billion in federal financial aid each year is just one of three performance-based organizations (PBO) within the federal government, and has come under scrutiny by thought leaders and lawmakers alike. But the answer to improving oversight isn’t doing away with the PBO structure, or moving the office to a different federal agency, according to a new report.

While some critique directed toward the Office of Federal Student Aid (FSA) is valid, other issues point back to problems within ED or the function of a PBO, according to the report, jointly published this week by the Center for American Progress, a left-leaning think tank, and the American Enterprise Institute, a right-leaning think tank.

In the last several years particularly, lawmakers have pointed fingers at FSA for not living up to expectations as PBO—a structure intended to make the office function more like a private company than a government agency—for falling short of how a PBO should operate, and for inhibiting transparency and accountability, among other things.

“As student loans become an increasingly common tool that Americans use to finance higher education, there are significant worries about the management and oversight of the federal financial aid programs,” wrote authors Ben Miller of the Center for American Progress, and Jason Delisle of the American Enterprise Institute.

“Critics have argued that FSA has not faithfully adhered to the PBO concept or that the PBO framework frustrates transparency, accountability, and policy reforms. This report finds a more complicated story,” Miller and Delisle continued. “The PBO structure was designed to be somewhat independent from political pressures, which its drafters saw as a feature that would allow it to focus on day-to-day business operations and avoid the distractions of the latest policy agenda. But that independence can cut both ways, making the agency seem unresponsive to the directives of officials at the Education Department or even Congress.”

Overall, the authors wrote that there are both benefits and drawbacks to FSA’s structure as PBO, saying it is “neither panacea nor pariah.” They also noted that Congress should consider updating the goals of the PBO—something that has not been done since its became a PBO in 1998, rather than turning to a more radical move of eliminating the PBO structure or moving FSA to another agency, such as the Treasury, which had been suggested in recent years.

“To be sure, federal aid programs have become larger and more complicated since FSA became a PBO, creating oversight challenges not contemplated in the 1990s,” the report said. “For this reason, policymakers should consider updates to the PBO that address today’s problems rather than ending it entirely.”

They also suggested that ED improve its management of FSA, such as by developing “more detailed and clearer five-year performance agreements” with specific objectives and measurable outcomes.

Two years ago, NASFAA conducted its own white paper examining how best to improve oversight and transparency at FSA, suggesting that creating an oversight board that reports to the public, the secretary of education, and to Congress “would be a good option to ensure accountability for taxpayers, transparency for policymakers, and collaboration for stakeholders.” NASFAA also made numerous recommendations to improve transparency, such as streamlining and consolidating all required reports on FSA’s website, publicizing when required reports are posted, expanding the FSA Data Center to include more data, with public stakeholder input, while protecting student privacy and data security, and more.

Still, lawmakers have taken issue with increases in improper payments in the Pell Grant and Direct Loan programs in recent years—though ED met most marks in correcting the improper payments—and issuing performance bonuses to some within FSA while the organization misses the mark in some measures.

The authors wrote, however, that the move to structure FSA as a PBO has been relatively successful, as the crisis it aimed to solve—delays in processing aid applications and “rampant undetected fraud and abuse in grant and loan programs”—“was largely resolved following the conversion.”

“More recently, FSA has successfully navigated other challenges such as the transition to a direct lending system, which greatly expanded the scope of FSA’s operations. Both examples showcased what the PBO does best. There were clear end goals to meet even if the exact steps to get there were not clearly spelled out,” they wrote. “Today, FSA faces a different and arguably more complex set of challenges. The federal student aid programs are much larger, more complicated, and under more direct control of FSA. Meanwhile, policymakers are more interested in how these programs operate and perform.”

As lawmakers work to reauthorize the Higher Education Act (HEA), they should closely examine FSA’s history before making major policy decisions, the authors wrote.

“Similarly, [ED] must start acknowledging the importance of FSA through more meaningful and active management,” they wrote. “Ensuring that the PBO is truly performance-based, with all the requirements for oversight and management that requires, is an important first step to guaranteeing that these programs achieve their intended aims.”


Publication Date: 5/2/2019

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