Last Tuesday, James Runcie, head of the Education Department’s federal student aid program, revealed in his resignation memo that the FSA (Federal Student Aid) may be moved to the Treasury. Cited by USA Today who obtained a copy of his memo, Runcie said, “Today members of (Federal Student Aid) senior executive management met with Treasury officials to discuss transferring all or a portion of FSA to Treasury.” His resignation comes in the wake of clashes with Trump and DeVos on this proposal as well as other issues. As an Obama-era holdover, his term was supposed to run until 2020. The reasoning behind this move can be explained by Trump’s budget proposal for 2018.
Why is this Move Being Considered?
According to The New York Times, Trump wants to cut the funding of the Education Department by 50 percent. It has been Trump’s goal to overhaul education, and reduce the power and reach of the Education Department. But Trump is not the only one that feels education needs to be reformed, though he may disagree with others on how this should come to fruition.
According to “Moving Student Loans to Treasury Gets Little Traction,” Senator Elizabeth Warren stated that “the federal student loan system desperately needs reform, but there is no evidence that Treasury would be any better at advancing student interests.” She goes on to say, “Disruptive organizational changes that do not address this basic concern will be at best meaningless and at worst harmful for the millions who struggle daily with these loans.” Others have voiced their concerns about the move, including Representative Bobby Scott, who said, “[the] treasury’s focus is on collecting money, not access to higher education.” However, as stated by Representative Virginia Foxx, the FSA has had a track record of “inefficiency and mismanagement.” She says,“Having a debate on ideas to ensure our federal financial aid system serves the best interests of students, families and taxpayers is a debate worth having.”
How Would the FSA Look If Transferred to the Treasury?
While you can trace support for this idea back to when the Obama administration was considering this idea, it is unclear if the Treasury would be the better option. The main issue is that the Education Department was struggling to manage trillions of dollars of assets. Rohit Chopra, a former student loan ombudsman at the Consumer Financial Protection Bureau who also briefly worked for the Education Department, stated that “The Education Department is a policy shop with a trillion-dollar bank on the side.”
One possibility is that that the Treasury could possibly streamline the process for students applying for federal student aid. This is due to the fact that when you apply you have to provide details on your earnings. As suggested by The New York Times, having this process under the same roof as the Internal Revenue Service could make things easier for students.
However, in a recent pilot program, the Treasury attempted to collect defaulted student loans. The goal was to prove that they could save money by keeping everything in house rather than contracting private companies, which was the Education Department’s standard operating procedure. The program revealed that student loans are different from other loans, and are quite difficult to collect. After the first year, the initial report revealed that the private control group collected at higher rates than the government control group, which clouds whether the Treasury would indeed be more efficient. Though the proposal does appear to have some bipartisan support, it still has a hill to climb against its objectors. In the interim, the main focus will be on finding Runcie’s replacement.