Defunding Borrower Trust

Why was the Department of Education seeking more funding for Student Aid Administration (SAA) and how does it relate to the Office of Federal Student Aid (FSA)?

Think of Student Aid Administration (SAA) as an account from which the Office of Financial Student Aid (FSA) receives funding for salaries and certain programs and activities. Ideally, every year, money is appropriated by Congress for that account with enough support for all of those activities. FSA has a lot on its plate, and the programs it administers touch every student, every school, and every borrower in the U.S. in some way: It implements the FAFSA, performs oversight of schools to hold them accountable for providing high-quality programs, runs the Direct Loan program, and manages student loan servicers, among other activities. 

It’s especially important that FSA has additional funds this year because there are a lot of big reforms coming down the pike that will benefit students and borrowers. These include FAFSA simplification, trying to put in place new loan servicing contracts and accountability structures, implementing a 2019 law (the FUTURE Act), which will make it easier for students to fill out the FAFSA and access affordable repayment plans, providing a way for more borrowers to exit default, and implementing new accountability- and loan-related regulations. FSA is doing this while still working on other initiatives such as processing Public Service Loan Forgiveness (PSLF) applications and waivers, making income-driven repayment-related (IDR) account adjustments, implementing regulations created through the negotiated rulemaking process, and managing possible debt cancellation and the announced end of the student loan payment pause. Implementing these reforms comes on top of standard work and takes a lot of time, resources, and strategy. 

Can you infer why Congress didn’t provide the additional funding? 

There was desire on both sides of the aisle to appropriate funding to help FSA work on the additional activities and programs I mentioned. For example, FAFSA simplification has been a high priority for the left and the right. But while there is an acknowledgement that additional funding is needed, there wasn’t agreement on what the funding should go to. A recent NPR piece highlights political issues tied up with the Administration’s larger priorities, including debt cancellation, that were not popular on the right side of the aisle. The Education Department is going to have to make tradeoffs because of its lack of resources, but we do not know yet exactly what that will look like. 

As we know, there are pre-existing challenges in the loan servicing system with its servicers, such as their mishandling existing programs and limited oversight by FSA. This can negatively impact borrowers’ experiences in repayment and understanding of their loans. How do the new and updated programs at FSA affect servicers?

Whenever we make a big change to the student loan system, servicers have to implement — or carry out — those changes. For example, when the Department of Education introduces a new IDR plan later this year, servicers are going to have to update their systems and training to ensure borrowers are charged the right amount and payments are applied correctly. When FSA asks servicers to make changes, it has to provide them with instructions and often with additional funding. All of these processes also involve additional FSA staff time and resources. 

When there is less money to go around, there are fewer resources to do these things in addition to conducting oversight, awarding new servicing contracts, and performing all of FSA’s other duties, including monitoring schools and implementing financial aid programs. Borrower outreach and technology are also very expensive. The bottom line is that all of these pieces affect borrowers’ experiences and the service they receive in the student loan system, and they cost money that the Department of Education does not have. 

How does it impact students and borrowers? 

When programs, activities, and services are limited by budget constraints, students and borrowers will bear the brunt of the trade-offs that have to be made in the system. It may take longer for them to have access to beneficial resources and information. A new servicing system may be delayed. They will likely have worse experiences and worse outcomes in repayment. Schools engaged in predatory and fraudulent behavior may slip through the cracks. And, according to a recent article by the Washington Post, students and schools may be affected by a delay in the FAFSA release date. 

Are there any larger issues these funding constraints can create, making a larger loss in the long run?

There is a lot of evidence pointing to where the system is not working well, such as the complexity of IDR plans and challenges borrowers face staying enrolled, the punitive nature of the default system, the need for new servicing contracts and standards, and schools engaged in predatory behavior, among others. The Biden Administration is working to address a lot of these issues. 

We — those at FSA and higher education advocates — all want the same thing: a fair, reliable, easy-to-use, affordable system for students and borrowers. If all of these systemic changes are not appropriately funded, then they can’t be appropriately implemented. 

How might less funding impact the return on investment (ROI) that student borrowers get?

When people take out loans to pay for college, they typically end up paying more over time because they must pay their loans back with interest. When students get stuck in the loan system or trapped in default, the costs can add up, leaving both borrowers and taxpayers on the hook. And because these costs tend to add up more quickly for those who can least afford them — including low-resource students and borrowers of color — this becomes not only an issue of cost, but also an issue of equity. 

In addition, when loan repayment doesn’t work well, it can contribute to family financial insecurity and cause borrowers to lose faith and trust in the system. And when people distrust the system, there is evidence that they are less likely to advise friends and family to go to college if they have to take out loans to do so. This can be a harmful message because, as long as we have this debt-financed system for higher education, loans are necessary for many people to access college, which can put them on a path towards upward economic mobility. 

Is there anything else we should know?

The lack of funding touches everyone’s lives: It affects loans, the FAFSA, consumer protection — everything in higher ed. This points to the importance of all of us in the higher ed community doing our parts to lift up the need for additional resources for the Office of Financial Student Aid.

How did you get into education policy?

I started my career working on public health and the safety net, which might seem like a world away from higher ed policy. But access to an affordable, high-quality education is an important anti-poverty tool and a critical way to boost families’ economic mobility. I had a chance to work on student loan policy at my last job and to have a broader higher ed portfolio at my current job — including working at the intersection of higher ed and family economic security. I see this as another path to making sure that we are designing policies and programs that serve and support under-resourced communities.

What do you like to do when you’re not immersed in policy?

When I’m not at work, I try to travel as much as possible. I also enjoy baking, gardening, spending time with friends and family, and generally being outdoors. I also love Top Chef!