Education Secretary Betsy DeVos today outlined an overhaul from the federal government's student lending programs, aiming to excise political influence and streamline a tangled bureaucracy.
Congress, of course, will have to approve any changes. But lawmakers should seize the opportunity to pass some reforms. Whether you like what DeVos is pitching, the current system has some serious problems.
At the center of the secretary's proposal is a intend to spin from the Federal Student Aid (FSA) program in the Department of Education into a new, independent agency that might be run a lot more like a bank. Using more than $1.5 trillion in outstanding loans to a lot more than 42 million borrowers, the FSA is the nation's largest consumer lender. DeVos argues that the quantity of unpaid loans-there tend to be more than 11 million student education loans in arrears, and 43 percent of federal loans are \”in distress\”-is evidence the program isn't serving students' or taxpayers' needs at this time.
\”Congress never set up the U.S. Department of Education to be a bank, nor made it happen define the secretary of education because the nation's 'top banker.' But that's effectively what Congress expects according to its policies,\” DeVos told a crowd in the Federal Student Aid annual conference in Reno, Nevada. \”FSA's mission is to serve students as well as their families, but its structure is to establish for everyone politicians and their policies.\”
DeVos believes the issue lies in the patchwork of overlapping programs which have been foisted on the FSA because it was created in 1965. When graduates start repaying their federal loans, they're faced with eight different repayment plans, each with various income requirements. There are a minimum of 30 deferment options and 14 loan forgiveness programs. Each comes with its very own websites, administrators, and forms to become completed. It's a tangled, confusing mess developed by decades of well-intentioned efforts at making it simpler for students to settle their loans-but it has probably had the opposite effect.
DeVos' plan does not seem to address the largest problem with student lending: the function that federally subsidized loans have took part in inflating the cost of advanced schooling in recent decades. Spinning off the FSA into a completely independent agency could reduce the federal government's role in spending money on Americans' college educations, but that is definitely not a guarantee. Even though the impulse to lessen unnecessary duplication in existing government programs is really a worthy one, creating new government departments carries costs of its own.
Politically speaking, DeVos' proposal is most likely best understood as an attempt to go off a national student loan forgiveness program by providing Congress an alternate. The student loan crisis has led many progressive politicians-including several top candidates for the Democratic presidential nomination-to demand eliminating all student debt and making college \”free.\” However this would mostly benefit individuals who can already manage to pay for college in the first place, and it ignores the fact that most college grads wind up creating a huge return of investment. It would do nothing to stop rapidly growing costs, and it would be financially unsustainable without massive tax increases.
DeVos, meanwhile, would transform the FSA into an independent agency that will report directly to Congress. The details from the plan remain sketchy, however the agency would be able to make loans and write its very own rules for repayment plans and forgiveness options without needing to obey Congress' demands or administer dozens of overlapping programs.
DeVos is right that the current status quo of federal student lending is broken. It clearly isn't employed by students, and taxpayers will have the pain if it results in the creation of a multi-trillion-dollar new entitlement program for \”free\” college. Her alternative isn't perfect, but let's hope it starts a broader effort to untangle a student loan bureaucracy. Maybe Congress could even think about the unintended consequences of having federal student lending in the first place.
