Education Secretary Betsy DeVos introduced reforms to the federal student loan program on Tuesday, proposing to transform the Federal Student Aid (FSA) office into an agency that operated more like a bank and independent of her department.
The FSA has become the country’s top consumer lender, overseeing more than $1.5 trillion in outstanding student loans to some 42 million borrowers, DeVos said in a speech at the Federal Student Aid Training Conference in Reno, Nev.
In her comments, DeVos noted that the Department of Education should get out of the banking business.
“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,’” she said. “But that’s effectively what Congress expects based on its policies.”
DeVos told attendees that the major problem with federally-run student loans is the FSA’s structure, which she said is “set up to serve politicians and their policies.”
In the past, she said, Congress and successive administrations have meddled with the student loan program creating a cumbersome mess of policies and regulations that are confusing to students and parents.
DeVos said when students graduate and begin repaying their loans, they face eight different repayment programs and each with separate eligibility requirements.
She said there are about 30 deferment options, 14 loan forgiveness programs, and 11 different providers — all with their own phone numbers, websites, and forms.
“Is it any surprise…that both principal and interest are currently being paid down for only one in four loans? Nearly 11 million borrowers have loans that are delinquent or in default? And 43 percent of all loans are considered ‘in distress?’” she asked.
Her reform plan includes transforming the FSA into an independent entity somewhat similar to the Federal Reserve, or in her own words, “a standalone government corporation, run by a professional, expert, and apolitical Board of Governors.”
The separate entity would be empowered to make its own rules and set its own regulatory processes without having to answer to Congress and, therefore, be subjected to political persuasion.
“President Trump and this administration are committed to transforming Federal Student Aid for students,” DeVos said. “Congress needs to come alongside us to make this happen.”