Separate it from political influence
Federal student loans are currently managed by the U.S. Department of Education, subject to the political whims of whoever is in the White House. Who likes this system?
Not Secretary Betsy DeVos*, who told the Federal Student Aid training conference Tuesday that she’d like to get her department out of the business altogether.
Federal student aid should become a “standalone government corporation, run by a professional, expert, and apolitical Board of Governors” that provides services “on par with world-class financial firms,” DeVos told the gathering:
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.” But that’s effectively what Congress expects based on its policies. …
FSA holds more than $1.5 trillion in outstanding loans to 42 million borrowers. That portfolio makes Federal Student Aid bigger than Bank of America, bigger than J.P. Morgan, bigger than Capital One. Indeed, it represents the country’s biggest consumer lender.
Yet DeVos’s proposed entity would not look like the constitutionally suspect Consumer Financial Protection Bureau or report to the education secretary, she continued. It would be “empowered to focus on its mission—partnering with institutions and all of you to serve students and their families.”
Writing in The Federalist, Young America’s Foundation spokesperson Spencer Brown credits the secretary with proposing “a small step … in the right direction.”
A standalone entity would make federal student aid “operate more as the Federal Reserve does, less influenced by swings in Washington’s power dynamics,” he says:
Rather than the current system where oscillating partisans seek to score political points or change tacks—thereby affecting millions of borrowers—Federal Student Aid leadership could adopt proven strategies to successfully manage student loans. The new system could serve borrowers more like customers who use private lenders. Most importantly, the continuity would give longer-term reforms a shot, such as addressing the rampant increases in the cost of education due to federal subsidization of higher education.
He notes that the “horror stories of women’s studies majors graduating with $250,000 in debt are outliers,” while more conventional borrowers – including himself, with $24,000 left to repay – are still “forced to navigate the convoluted world of loan repayment”:
One of more than ten loan servicers must be selected, then one of eight repayment plans based on varying qualification criteria as easy to understand as a “terms of service” pop-up on Facebook.
If repayment is impossible or impractical immediately, there are some four-dozen other options for deferring repayment or getting loans paid off by taxpayers. Even more than three years out of college and into repayment, I’m not entirely confident I navigated the process in the best way possible.
Brown posits that students would have an easier time with the system if federal student aid “were more straightforward and operated more like an ordinary bank.”