Federal Student Aid Eyeing a Restructure, Plans to Rollout New Digital Tools as Part of Ambitious Five-Year Plan

By Owen Daugherty, NASFAA Staff Reporter

The Department of Education’s (ED) Federal Student Aid (FSA) is set to undergo an overhaul as part of its five-year strategic plan.

With $1.5 trillion in its loan portfolio and more than $120 billion in Title IV aid distributed annually to millions of students, the strategic plan will chart the course for FSA’s future, according to a draft of the plan released last month.

“With the federal student loan portfolio now accounting for nearly a third of the federal balance sheet, FSA has responsibilities and obligations that were not anticipated when it was designed— and those responsibilities are likely to grow,” the draft stated. “For that reason, FSA will continually evaluate its internal organization of staff and work streams to support the Department of Education’s sustainability of the student aid programs.”

As a performance-based organization (PBO), FSA is required by law to, among other things, seek to improve customer satisfaction and provide high quality, cost-effective services, which much of the draft plan focuses on.

Notably, FSA acknowledged that its role in the higher education and student loan landscape has changed dramatically over the years, shifting from “a lender of last-resort and a guarantor of student loans to private lenders” to what it constitutes now — one of the country’s largest banks, which FSA noted it was not designed to be.

As such, FSA is considering whether a different organizational or governance structure is warranted, particularly as the ongoing pandemic caused by the novel coronavirus gives added importance in preparing for the future.

By comparison, FSA said large financial institutions,“typically benefit from the collective expertise of a highly qualified board of directors, and perhaps FSA would be better served by a similar governance structure.”

“Such a governing body could set policy and oversee operations while shielded from political influence,” FSA noted. “The number of programs, the unique requirements and limitations of each, as well as the challenges COVID-19 has brought to postsecondary enrollment and borrowers’ ability to repay, has created the need for FSA to continue to evolve in order to fully execute these obligations.”

Education Secretary Betsy DeVos previously questioned why FSA wasn’t a standalone entity, “run by a professional, expert, and a political Board of Governors.”

NASFAA in a white paper published in May 2017 concluded that organizational and structural changes were needed at FSA to increase oversight and transparency, and further improve on the service the organization provides.

In the paper and subsequent comments submitted, NASFAA suggested FSA create an oversight board that reports directly to the public, the secretary of education, and Congress.

A key goal FSA’s draft strategic plan focuses on its growing workforce, detailing ways to increase employee engagement and workplace inclusion while preparing employees to implement the Next Generation Financial Services Environment (NextGen).

To do so, FSA said it will continue to hire, develop, and retain specialized personnel as well as implement an organizational training and development roadmap, among other things.

Another core goal outlined in the plan is to deliver a customer experience on par with other “large financial service companies.”

“This should include a single point of connection to assist students and borrowers with federal student aid needs, readily available personalized customer information, and informed borrower tools for assistance,” the plan stated.

FSA is striving to ensure all borrowers are able to easily access pertinent information regarding federal financial aid, be able to apply for financial aid, and have information on repayment options.

In recent months FSA has begun making upgrades to its federal student aid website, notably  implementing a loan simulator to help student borrowers compare repayment plans, and a pilot program to allow some to make loan payments directly through the site, which it plans to expand.

In the coming years, FSA said it will continue to introduce new digital tools to offer both current and prospective borrowers personalized interactions. The myStudentAid app, which has already been downloaded millions of times, will be expanded, and a single digital platform will be developed offering loan counseling, personalized communication, and the option to make student loan payments, among other things.

“These improvements will help create a better customer experience and improve information to positively impact repayment outcomes,” FSA said.

Additionally, FSA is hoping the additional online and digital resources will reduce call volume, allowing it to handle more complex issues over the phone, which the organization said will help streamline the processing of applications for borrower benefits and protections, including borrower defense and Public Service Loan Forgiveness (PSLF).

In short, FSA is attempting to better meet borrowers where they are, seeing as how FSA over the years has become more central in the student loan repayment process.

Several noteworthy trends were outlined in the draft, such as the aforementioned increase in FSA’s loan portfolio and its impact on taxpayers, with outstanding student loan debt more than doubling from 2009 to 2019, meaning the portfolio has grown more over the last decade than it had during the prior 45 years.

Notably, FSA attributed the massive increase to the continuing rise in tuition and related expenses at higher education institutions.

Another trend FSA identified is that students are making major decisions about their financial futures without adequate knowledge and understanding of the impact of those choices, leading FSA to conclude that “improved education about the risks and benefits of student borrowing could help students make better decisions about which degrees, schools, and programs make the most sense for them.”

Two other trends FSA noted that led to some of the upcoming initiatives in the draft plan both involved technology, one being the advent of new digital products and the wide-scale utilization of digital tools among the next generation of borrowers, which is driving new customers’ service expectations.

And partly because of the increase in digital tools available, more data is readily accessible than ever before, creating both new opportunities and risks. FSA pointed to the increase in data as a potential susceptibility of cyberattacks.

“The amount of data FSA stores is growing every day,” FSA said. “Better utilization of collected data will enable FSA to improve student, parent, and borrower services.”

NASFAA is currently drafting comments in response to FSA’s strategic plan. If you have any thoughts or reactions that relate to the draft strategic plan that you would like us to consider including in our comments, please email them to NASFAA at [email protected] by October 8, 2020. You also have the option of submitting your own feedback using FSA’s feedback form. We ask that if you do submit your own feedback, you send NASFAA a copy of your comments as well.

The public comment period ends at 11:59 p.m. ET on Oct. 23, 2020.


Publication Date: 10/1/2020

James C | 10/1/2020 1:0:32 PM is poorly organized. Right now to complete entrance counseling and the MPN you have to click "in school" even though we want students to complete these tasked prior to starting school. I could go on with how poorly organized the site is

Peter G | 10/1/2020 12:43:33 PM

I've become a pretty firm believer in the view that FSA should take on verification.

The current system may have been necessary 20 years ago but is outdated. Students have to go through the process with multiple schools, and schools are relying on a mishmash of document submission dependent on whether a student used the DRT or not.

As Congress debates simplifying and integrating the application process, it's key to think about verification as a critical and still very common part of that process. 6,000 schools can't all integrate with the IRS, but FSA could.

This would also push FSA to really assess the process for cost-effectiveness, whereas right now all the cost is externalized onto schools and students.

G. Michael J | 10/1/2020 12:26:41 PM

I would hope that in planning for the future, FSA will begin to think of schools, as well as students, as their customers. That shift would allow FSA to help schools comply with statutes and regulations, and plan and implement best practices, to benefit their students. The current relationship between FSA and schools seems more contentious and adversarial to me than it has ever been.

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