What the Trump Administration Could Do to Improve Student Loans
Four suggestions for improving the financial-aid process
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.
The idea, previously circulated under the Clinton administration and ultimately ruled out by it, resurfaced following the abrupt resignation of James Runcie, the chief operating officer of the Education Department’s office of federal student aid, or FSA. Runcie, who resigned in late May, cited in his resignation memo a potential relocation of the student-loan programs as one of many points of conflict between himself and U.S. Secretary of Education Betsy DeVos. He wrote in the memo that senior members of his department met with Treasury officials to discuss transferring all or a portion of FSA to their department, a move he calls "another example of a project that may provide some value but will certainly divert critical resources and increase operational risk in an increasingly challenging environment."
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.
Customer service for student borrowers is of utmost importance during their time in school and the period of repayment. Students who are well-informed about the process are much more likely to borrow responsibly and repay in a timely manner. The complexity of repayment plans, forgiveness options, and in-school deferment options necessitates a responsive, borrower-centric agency. The core issue is not where loan operations are hosted, but rather whether the federal student-aid process can be improved.
As a performance-based organization, FSA is required by law to improve customer satisfaction and provide high-quality, cost-effective services. However, after benchmarking FSA against other federal performance-based organizations and examining complaints from federal partners such as Congress and the Government Accountability Office, the National Association of Student Financial Aid Administrators (NASFAA), concluded that structural changes are needed to improve its oversight and transparency issues.
A 2015 report by NASFAA, for which I serve as vice president of policy and federal relations, offers a number of recommendations for FSA to improve student-loan servicing. Any decisionmaker who is involved in the future of student financial aid should consider these:
• Develop a central online loan portal where students can manage all their loan repayments.
• Strip individual loan-service branding from communication with students so Education Department communications don’t look like junk mail.
• Provide standard consumer protections in line with other consumer financial products—such as error resolution and delinquency servicing—that are offered by mortgage lenders and credit card companies. Currently, there is no set of protections for federal student-loan borrowers.
• Use appropriate technologies, such as an app, that allow servicers to more efficiently communicate with student borrowers. (The working relationship with FSA has become so strained and so time-consuming that it hampers financial-aid advisers’ ability to assist students effectively.)
NASFAA released a report in May that recommends establishing a robust customer-satisfaction system, publicizing the results, and incorporating them into the performance metrics of the overseeing department to ensure it better serves students, stakeholders, and taxpayers. These changes are necessary whether the administration of student-loan programs remains at the Education Department or moves to the Treasury.
While the Treasury Department certainly has the infrastructure to divvy up and collect student-aid money, educating a vast federal agency solely and historically focused on finance about the ins and outs of education policy may prove challenging. NASFAA urges the Trump administration and Congress to carefully consider whether such a move would be beneficial to students, parents, and postsecondary institutions before making any decisions that would impact millions of borrowers.
Vol. 36, Issue 37, Page 28Published in Print: July 19, 2017, as If the Trump Administration Moves Student Loans, What Does It Need to Know First?