Student Loans

Betsy DeVos Wants To Overhaul the Broken Federal Student Aid System

Her plan isn't perfect, but she's right that the system is broken. Congress should act to fix it.

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Education Secretary Betsy DeVos today outlined an overhaul of 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 or not you like what DeVos is pitching, the current system has some serious problems.

At the center of the secretary's proposal is a plan to spin off the Federal Student Aid (FSA) program from the Department of Education into a new, independent agency that would be run more like a bank. With more than $1.5 trillion in outstanding loans to more than 42 million borrowers, the FSA is the nation's largest consumer lender. DeVos argues that the number of unpaid loans—there are more than 11 million student loans in default, and 43 percent of all federal loans are "in distress"—is evidence that the program is not serving students' or taxpayers' best interests right now.

"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," DeVos told a crowd at the Federal Student Aid annual conference in Reno, Nevada. "FSA's mission is to serve students and their families, but its structure is set up to serve politicians and their policies."

DeVos believes the problem lies in the patchwork of overlapping programs that have been foisted on the FSA since it was created in 1965. When graduates start repaying their federal loans, they are faced with eight different repayment plans, each with different income requirements. There are at least 30 deferment options and 14 loan forgiveness programs. Each comes with its own websites, administrators, and forms to be filled out. It's a tangled, confusing mess created by decades of well-intentioned efforts at making it easier for students to repay their loans—but it has probably had the opposite effect.

DeVos' plan does not appear to address the biggest problem with student lending: the role that federally subsidized loans have played in inflating the cost of higher education in recent decades. Spinning off the FSA into an independent agency could reduce the federal government's role in paying for Americans' college educations, but that's certainly not a guarantee. And while the impulse to reduce unnecessary duplication in existing government programs is a worthy one, creating new government agencies carries costs of its own.

Politically speaking, DeVos' proposal is probably best understood as an attempt to head off a national student loan forgiveness program by giving Congress an alternative. The student loan crisis has led many progressive politicians—including several top candidates for the Democratic presidential nomination—to call for wiping out all student debt and making college "free." But this would mostly benefit people who can already afford to pay for college in the first place, and it ignores the fact that most college grads end up making a huge return on their 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 would report directly to Congress. The details of the plan remain sketchy, but the agency would be able to make loans and write its own rules for repayment plans and forgiveness options without having 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 working for students, and taxpayers will feel the pain if it leads to 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 the student loan bureaucracy. Maybe Congress could even consider the unintended consequences of having federal student lending in the first place.

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  1. I’m not quite sure how spinning the loans off into their own group would fix any of the confusion problems. Wouldn’t they be just as disorganized except in a separate department?

    1. Theoretically, creating a specific department for the loans would allow it to focus on streamlining the process, without having to worry about how nutritious school lunches are and all the other things on the Dept of Education’s plate (no pun intended)

  2. Why have a government run bank instead of just having private lenders follow student aid rules in repayment plans?

    Then, a more market sensitive group is responsible for the risk, limits the risks they assume, affects who goes to school, and therefore brings costs down?

    I fail to see how making the FSA it’s own agency solves any of the higher education problems plaguing us: specifically high risk investment with little return currently exemplified by the high price of higher education and the use of loans to pay for degrees better left pursued by those who can pay cash* for them.

    It is just as likely, as it is now, to be used as welfare for college education. Taxpayers are on the hook for these loans.

    *If fewer people are able to afford college, the current supply would rise as demand decreases and prices will return to a reasonable amount, making it more possible to pay cash (or have scholarships) cover the cost of an Art History degree.

    1. Your question places you close to the core of the problem. Whenever there are proposals to privatize anything, like the Postal Service or Social Security, there are hysterical objections. We can’t even privatize Amtrak. Turning student loans over to private banks would sacrifice a huge amount of power from the government to the private sector, and that is why it will NEVER happen.

  3. It pisses me off to no end that I paid for my college degree with loans that I paid back and then I (along with all of us on here) are on the hook for the loans that gender studies and other useless majors incur. I understand paying for primary and secondary education, even though the system is seriously flawed, but if, as a young adult who can vote and get drafted to fight this country’s police actions, a student chooses to exercise their right to get a degree in interpretive dance, they should be forced to pay.

  4. I expect the eventual solution to involve (1) enabling students to attend colleges and universities in exchange for a combination of contemporaneous work, national service, and payment of a percentage of future income; (2) more rigorous accreditation standards and practices, likely reducing or eliminating for-profit and substandard educational institutions; and (3) hybrid programs featuring vocational training, trade apprenticeships, and a couple of years of college-level study.

    (We need plumbers, welders, automobile repair shop owners, and police officers — and we need them to be able to read a newspaper or a loan pitch, or help a high schooler with homework, and understand the material.)

    1. “”and we need them to be able to read a newspaper or a loan pitch, or help a high schooler with homework, and understand the material.””

      Things you should lean before you graduate high school.

    2. Excellent comment Rev. Gotta give credit where it’s due.

      1. I agree. The Rev sometimes gets it right!

    3. Wow, a comment from Rev. Kirkland that’s not totally bonkers! Is somebody spoofing him?

    4. I think that’s the first worthwhile post he’s ever made.

    5. An employer can pay your tuition tax free. An employer cannot pay your loans tax free. You have to pay that as earned income.

      A dentist has $120k for example in debt. You can go to military which will offer you some level of debt repayment as part of the package, or some programs like Indian Health Service. A private group cannot get a tax break. It can pay for any continuing education tax free. So you get to go to Bahamas for the facial dental conference once a year as a perk.

      Why not make student loan including interest tax free. If I earned $120k and paid $20k in loan repayments tax me at $100k.

  5. Just get the federal government completely out of anything to do with education.
    Simple, effective, and impossible.

    1. And the only constitutional option.

      1. Needs a repeat, “THE ONLY CONSTITUTIONAL OPTION!!!!!!!”

  6. I have a feeling that all this debt is going to be forgiven right after I pay off my student loans.

    That being said, I’m happy the federal loan program was there since I grew up without any money and no collateral to pledge for a $40k personal loan from a bank. There’s no way I would have been able to afford college without the loan programs – even though I turned down more expensive colleges, lived in a very cheap off-site room and held down a full time job while I was a student.

    All that being said, the return on investment has been huge. I started making six figures by the time I was 28. Part of that is because I specifically chose my major with the self-imposed criteria of my major must lead to a job that will allow me to repay my student loans. That’s why I chose not to go with my #1 interest – psychology – instead choosing the more marketable degree – economics.

    I’m happy to repay my debt to society with interest. Now that I make a good amount of money, I can go pay for a degree in interpretive dance, art history or grievance studies without borrowing from the government.

    1. At this point, the value side might be in taking loans and expecting them to be forgiven. The people planning to pay them back are doing it wrong.

      1. That sounds like an excellent way to destroy your credit and limit your job prospects.

    2. “There’s no way I would have been able to afford college without the loan programs”

      Actually, the only reason college is so expensive is because of those government loan programs.

      Without the government loan programs, educational institutions would have no choice but to charge amounts that the average person could actually pay as they go. Like they used to do.

      1. “Actually, the only reason college is so expensive is because of those government loan programs.”

        Which, while true, doesn’t change a single thing about his point. They ARE expensive, the universe where no loans are given and thus prices remain low is not the universe we live in.

        1. It does change his point, because his point is about an alternate universe “without the loan programs,” and in that universe, colleges would be charging prices that the average person could pay.

      2. Actually, the only reason college is so expensive is because of those government loan programs.

        Without the government loan programs, educational institutions would have no choice but to charge amounts that the average person could actually pay as they go. Like they used to do.

        I’m an econ major, and I am painfully aware of that. But expecting me to take the hit on my future income by not going to college at all with the hope that someday, maybe, the government will stop providing student loans is silly on its face.

        What was I supposed to do, sit at home and shake my fist at the government so I could maybe, some day (probably never) save a total of $30k all while limiting my future earning potential? Fuck that, I make up more than that $30k per year in additional earnings because I have a college degree.

        1. I’m not saying you should have done anything different. I’m saying you shouldn’t be “happy the federal loan program was there,” since it caused you to pay 10x more for your degree than is really necessary.

        2. Yes but you will need near $60k a year more in income to write that check. What if the new job offered $20k less income and $30k in pre tax loan repayment. You would save around $10k per year. Rough figures

          Problem is they don’t let you do that. Your jump in income needs to exceed the earned income with all those taxes just to break even.

    3. Ultimately I think a lot of the students loans dilemma is going to evaporate as a better model takes over (ISAs). Reducing the amount of federal largesse the universities get to consume by reducing the amount of money spent on federal higher education subsidies (like loan guarantees, etc.) would probably speed the transition though.

  7. In the end spinning off the program will just make for bigger government. There are a lot of problems with post secondary education. This in no more a solution than is free college. We need to bring value back into education. You may have debt leaving college but those should be manageable. This mean more government support to hold down tuition. This means colleges need to better use there resources (teacher are teacher first and reseachers second) . This means students need to be ready for school and ready to work (4 years should be the rule not the exception).

  8. Yet another idea for a supposedly “independent” bureaucracy. The very concept is a Constitutional abomination. As is today’s administrative state at large. There are only 3 branches of the fed govt, and one of them has its power vested in the President alone. Anything outside of these is illegitimate.

    Streamlining and downsizing the bureaucracy is a good idea of course. But most of this requires Congressional action. The other problematic bit here is “write its own rules for repayment plans and forgiveness options” which smells like a nondelegation problem.

    So I count three problems: the “independent” bit furthering the heinous and unconstitutional 4th branch of government, the suggestion of reform by executive action where legislation is needed, and the suggestion of Congress taking action that would unconstitutionally delegate its powers to the administrative state.

    Obviously, the federal government should just get out of the student loan business altogether and let the free market do its thing. Then, the bloated university administrations can be gutted and destroyed, lavish facilities and arms races can end, mass layoffs, a rash of bankruptcies and closures of higher ed institutions . . . . the prospect of all this too exciting to even contemplate without losing your composure.

    Then, what follows would be technological and administrative innovation like you’ve never seen, with costs cut to the bone for educational offerings that you can complete online even cheaper than back in the day, when the Boomers paid a years’ tuition with the summer wages of a teenager!

    Until then, though, there are trillions of dollars in “loans” that aren’t really loans, because the millennials and zoomers don’t have to pay them back. The forgiveness provisions are part of the contract that they entered into. The minimally informed among them who took out large amounts would have never, ever done so, were it not for the fact that the contract they agreed to guaranteed the “loans” would disappear after a time, and during that time their payment obligations would be capped at a relatively low income-based figure of 10-15% of “discretionary” income. So it’s really more a like a heavy tax that some are paying to the government for 20-25 years to enrich the professors, in exchange for the privilege of attempting to gain some credentials that their Boomer advisers said were necessary but paid next to nothing for in their day. Kind of like Obamacare which is nothing but a massive wealth redistribution program from young people to older richer folks.

    1. Obviously, the federal government should just get out of the student loan business altogether and let the free market do its thing. Then, the bloated university administrations can be gutted and destroyed, lavish facilities and arms races can end, mass layoffs, a rash of bankruptcies and closures of higher ed institutions . . . . the prospect of all this too exciting to even contemplate without losing your composure.

      I totally agree.

      there are trillions of dollars in “loans” that aren’t really loans, because the millennials and zoomers don’t have to pay them back. The forgiveness provisions are part of the contract that they entered into.

      And this is where you lose me. This is just straight up false. Student loans aren’t even forgiven in bankruptcy. It is true that certain professions will allow you to get loan forgiveness — working for a 501(c)(3) or the federal government for 10 years are a couple of easily identified examples.

      The Income Based Repayment option is very useful – I used it for the first 3 years I was out of college since I couldn’t come close to covering the full debt service on an entry-level banking salary (which are pretty good relative to other industries). Once I made too much money, I stopped qualifying for IBR and didn’t want it anyway – I wanted to repay my debt to society.

      The minimally informed among them who took out large amounts would have never, ever done so, were it not for the fact that the contract they agreed to guaranteed the “loans” would disappear after a time,

      This is a line of thinking I’ve never, ever heard an 18-year-old follow. You live in some sort of bizzaro world where all 18 year olds are just chomping at the bit to rent-seek and steal your hard-earned tax dollars! The reality is most teens take out these loans because they’ve been told all their lives that they have to go to college in order to make it in this world and tuition is the price they must pay to get into a middle class lifestyle. And for the vast majority of them, its true.

      1. “And this is where you lose me. This is just straight up false. Student loans aren’t even forgiven in bankruptcy. It is true that certain professions will allow you to get loan forgiveness — working for a 501(c)(3) or the federal government for 10 years are a couple of easily identified examples.”

        Nope. While they’re not bankruptible, every federal student loan is forgivable/dischargeable after 20-25 years under PAYE or IBR. During the 20-25 years, you pay 10-15% of discretionary income. The 10 year PSLF forgiveness is a different, shorter deal, not for certain professions but for employment with certain types of employers. (Even some doctors employed by nonprofit hospitals are aiming for PSLF forgiveness of 400-500k after interest piles up during their residency).

        “Once I made too much money, I stopped qualifying for IBR . . . This is a line of thinking I’ve never, ever heard an 18-year-old follow. ”

        You aren’t familiar with what’s going on at the graduate school level. Undergrad loans can be huge, but typically the massive loans are at the graduate school level. Take law school for example. NYU law costs $200k just in tuition. If you take the full government loan available, for your room and board and books and so on, which is not uncommon, you have $300k in debt upon graduation. The average graduate debt from NYU law is about $170k. That’s the average among some people with very little debt and others with $300k. From NYU law, you should have the option of working long hours at a large law firm and earning a high salary, IF that’s what you want to do. But for most of the law schools on this list: https://www.usnews.com/best-graduate-schools/top-law-schools/grad-debt-rankings?_sort=indebt-desc you have a very small chance of getting one of those jobs. In fact, the average starting salary of private sector law firms is $68k.

        At 7-8% interest, your annual interest on 300k is around $22,500. You’re not paying that off unless you make quite a lot of money. Even with a $160k-190k starting salary, after taxes you aren’t going to be making much of a dent off the bat unless you live very cheaply. With a 70k salary? Forget it. Let’s say you have a family of 4. 1.5x poverty line is 38,625. That means your minimum annual payments under PAYE are:

        70k salary = 3,137.50
        100k salary = 6,137.50
        160k salary = 12,137.50
        190k salary = 15,137.50

        All of those amounts could be less than your annual interest! Not to mention the standard 10-year repayment amount which would be around 40k annually at that high debt level. When you start to make 200k-500k+ a year, or have a reasonable projection of that possibility, then you start to get into a pretty tough analysis about whether to plow your resources into paying down high interest debt, versus waiting out the forgiveness clock. At lower loan amounts with correspondingly lower income, you have the same analysis. But either way, as you can see, any minimally competent person (and I’m definitely not saying all grad school attendees are) would never entertain paying the high full prices for grad school with loans in most circumstances, if it were not for the forgiveness period at the end, at least as a fallback option in case things don’t go as planned.

  9. anyone else see that Harris has dropped out of the race?

    1. Yes! Bye bye Senator Snatch.

  10. “Fix the federal student aid system?
    Fuck that.
    Eliminate the federal student aid system is a much better idea.

    1. Nuke it from orbit; only way to be sure.

    2. Student loans – one in a list of disastrous public policies created during the Lyndon Johnson administration. Everyone gets the government some people deserve.

  11. “Maybe Congress could even consider the unintended consequences of having federal student lending in the first place.”

    Members of congress have only one incentive – to stay in office. They have no incentive to consider longer term consequences. Unintended or other wise.

    The problem is the American people who keep voting for them. Look at the results: unaffordable homes, unaffordable university, takes two salaries to support a family. All the consequences of choices by the electorate.

    Why doesn’t Australia have a student loan crisis?

  12. For one hundred years [1868- 1967], California taxpayers funded the zero tuition, world class University of California, Berkeley, for their children. How was that possible?
    Today, Californians and others can’t afford to send their children to University. What happened?

    My theory:
    The essential bases for the lack of current funding are: the electorate became fragmented [e pluribus multum and a resultant diminution of “sense of collective responsibility”], California became overpopulated, the additional population did not reflect the economic substance and integrity of the population of the first hundred years, immigration driven excess population placed enormous pressure on resources, and drove up the cost of land and derivative costs way beyond inflation, and because millions of the newcomers were poor, their taxes didn’t begin to cover the costs of K12, welfare, etc for their families, and many of their children ended up in prison.
    As a consequence [somewhat simplified] State funds previously used to support the University were diverted to increased funding of K12, to prisons, and to welfare.

    Please tell me your theory.

    1. I’m sure there’s quite a bit of truth in that.

  13. Wipe all student loans. Good idea. The only reason this corrupt skag is promoting this idea, as is almost pointed out in the article, is to further benefit big business… that is, herself. They’ve raped and raped graduates for decades, now. She owns an f’ing student loan collection agency, folks! How many yachts does this gross, pathetic puppet have? She was put in this position by the orange idiot to appease her fellow 0.001 percenters, and to help make sure that they collect on that trillion+ debt. I will dance for joy the day universal student loan forgiveness is wiped in their faces. And, speaking of which, so many people I know signed up for said ‘forgiveness’, dutifully paid every month for ten years/120 months, and then DeVos SCREWED them, and they did NOT get the loan wiped, as promised. Straight to hell with her and all student loan debt. They want to wipe ALL interest and penalties, and just have every borrower repay the principal? Then, maybe we can talk.

  14. “DeVos’ plan does not appear to address the biggest problem with student lending: the role that federally subsidized loans have played in inflating the cost of higher education in recent decades.”
    While fixing the labyrinthine loan payback options is indeed a much-needed thing, if the cost itself is not addressed, there will continue to be problems.
    College simply costs too much for most people and most jobs that don’t involve fast food require college on your resume. (That in itself is also a problem as not all jobs really require specialized knowledge that a college degree is supposed to imbue.)

  15. I suspect her proposal has backdoor ways of tightening student loan debt although the details are not provided. A separate agency would need to have new responsibility and powers to transform student loan debt. There are lots of ideas to reform student loan debt such as making universities essentially cosigners and connecting debt to future earnings.
    As someone who has been in higher education for many years, the problems of higher education are deeply entrenched. Higher education is addicted to a construction frenzy, soliciting funds (public and private) for new facilities. Every part of a university (including administration) seeks this funding. At a time of exploding options for online education (lots of it is very cost effective), universities have intensified their insatiable appetite for new facilities. Most of the facilities are poorly utilized being almost empty 3 days per week.

    Research universities are diverting large amounts of their budgets for research at the expense of their primary mission (undergraduate and professional education). Parts of universities receive lots of grant support (mostly government) but at least 50% of research universities receive little external funding. Faculty research overall has little societal benefit although some faculty produce amazing discoveries and results. Most research is just read by a small amount of like-minded colleagues. The typical faculty member’s time at a research university is 40% research, 40% teaching, and 20% service. However, research brings the rewards so faculty mostly focus on research. Faculty for the most part are not focused on new course development. Despite propaganda by university administration, research emphasis detracts from the primary mission of a university (especially as perceived by the public).

    1. Starving universities for aid and loans for garbage degrees like grievances studies will likely help. I haven’t seen how it breaks down. But I suspect a large percentage of people pole who take worthless degrees in gender, sexual, and ethnic studies, (among others) default at a higher rate then graduates of business, STEM, and other programs that teach tangible skills for gainful professional employment.

  16. Voters must start thinking about student loan debt in a different way. Probably 50% of student loan debt funds a lifestyles such as rent, car payments, food, entertainment, … Tuition has increased much more than it should but tuition is only half the problem. Proposals for free college are essentially free lifestyles. Unbelievable the problem with student loan is worse for older students. Student loan amounts increase with age. I know individuals who foolishly went back to school in their 50s, borrowing huge sums for degrees that could never be cost justified. Worse, these individuals used most of the loans for house payments. Not a penny has been paid back.

    Students, educational institutions, and employers must be confronted with the high cost of higher education, both education costs and living costs. Students must make tradeoffs of using lower cost alternatives (such a high quality online education) against the costs of traditional higher education. Employers must stop using university degrees as a stamp of basic competence especially when lower cost alternatives can provide the same or higher levels of knowledge and skill acquisition. Universities must share in the pain of student debt. Traditional universities have become relics of education establishment, committed to preserving a high cost model of higher education. The attitudes of students, parents, and employers are keys to reform of higher education. The attitudes will not change as long as almost unlimited funding for higher education continues.

    1. You’re indirectly talking about time preference. Our entire monetary system is based on the assumption of inflation, which artificially props up consumption, and consequently produces a population of people with an abnormally high time preference. The effect compounds itself over time in society and politics. Asking spoiled students and universities, weaned on the fed’s printing press, to tighten their belts and be more efficient does not compute.

      We’re living in a country where most of our leaders behave as if MMT is an incontrovertible fact. We will NEVER decrease spending until the whole thing implodes on itself.

  17. Why don’t we simply quit loaning students money? I graduated in 6 1/2 years because I dropped out of school in order to make money to go back to school. I was debt-free when I graduated. Make the ones that borrowed the money pay back what they borrowed with several plans that would allow them to get debt-free. It’s not entirely their fault, it is placed at the feet fo Congressmen and women who have been pandering to young folks to get votes. Have the plans get everyone debt-free in 7 years and then close the department down. We do not need another wasteful government department that lives in perpetuity.

  18. Science, Anyone?

    Indeed, the American educational system screams for real reform. Will it gets that for which it yearns? Unlikely! Why?

    There is no sound, scientifically-based model for real reform offered to the American public. Does one exist? Yes, but it remains hidden, ignored by the powers-that-be.

    Where can it be found?

    Try:
    https://www.nationonfire.com/education/ .

  19. I earned $5000 ultimate month by using operating online only for 5 to 8 hours on my computer and this was so smooth that i personally couldn’t accept as true with before working on this website. if you too need to earn this sort of huge cash then come and be part of us. do this internet-website online ……….. http://www.me2gold.com

  20. Can we just not have the federal government in the student loan business at all? Please!

    The states should be doing this on their dime.

  21. Harvard Tuition in 1964 $1520
    1965 – FAFSA legislated

    1970 Article, “This is the first time since 1949 that the College has increased tuition two years in a row. This year, Harvard raised its tuition from $2000 to $2400”

    2019 – Harvard Tuition $62,196
    + Mandated Student Health Insurance $3,700
    + Mandated Student Health Fee $1,206

    U.S. Inflation 1964 from $1520 is today’s $12,618.. FAFSA has forcefully funneled 5.4-Times more money into educational institutions (never-mind the increases in grant money). Taking for granite that the proficiency of education delivery hasn’t been improved AT ALL in over 60-years.

    Free-Markets = Improved Proficiency = Cheaper
    Gov-Markets = Stale/Declining proficiency = More Expensive (by 5x the rate of inflation)

    1. Final Value —
      “I have a college degree but no experience” — We’ll call you.
      “I have 1-year experience but no degree” — When can you start!

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