Student loan program faces uncertain future amid sweeping proposals
Millions of students who take out debt in the U.S. could be subject to a vastly different borrower experience if the $1.4 trillion federal loan program moves to the Treasury Department’s oversight.
President Trump's proposal to shift that program from the Department of Education appeared to be closer to reality after an outgoing Education Department official confirmed in his resignation memo on Tuesday that the move was being discussed.
“Today members of (Federal Student Aid) senior executive management met with Treasury officials to discuss transferring all or a portion of FSA to Treasury,” James Runcie, chief operating officer of Federal Student Aid, a unit with the Education Department that handles issuing and administering federal student loans, wrote in the memo, which was obtained by USA TODAY.
Moving the Financial Student Aid to the Treasury "may provide some value but will certainly divert critical resources and increase operational risk in an increasingly challenging environment," he wrote.
Citing politicization of the department and his shrinking resources, Runcie resigned late Tuesday. Runcie couldn’t be reached for comment.
Learn more: Best private student loans
The department didn’t respond to requests for further comment on Runcie’s memo. But in a statement, it confirmed his resignation, which was effective immediately.
Donald Trump's budget cuts back key student loan programs
Trump to grant student loan servicing work to just one company
What student loan borrowers can expect in Trump's change to one vendor
Trump and Secretary of Education Betsy DeVos' desire to shrink the Education Department is well-chronicled. But their intent to transfer one of its most important functions to another part of the executive branch underscores the political and operational strife that it has come under with the change in the administration -- and the possible fallout for students who rely on it to complete their college education.
Details are scant on how Treasury's handling of the program would be different, although any transfer would need Congressional approval. But while Treasury is full of finance experts, its record on handling student loans is hardly spotless. And given Trump's intent to downsize government functions -- likely by outsourcing many of the tasks to private vendors -- Runcie's memotriggered criticism from student advocate groups and lawmakers who were concerned that students' "customer" experience would be undermined.
“Treasury’s focus is on collecting money, not on promoting access to higher education," said Rep. Bobby Scott (D-Va.), ranking member of the House Committee on Education and the Workforce. "We have seen that Treasury does not view outreach and customer service as a core part of its mission.”
Of $1.4 trillion of student loans outstanding, more than $1 trillion is issued by the Education Department. The department outsources collection on late payments and defaults to private companies. In 2015, Treasury, under the Obama administration, launched a pilot program to collect on a small sample of defaulted loans, an effort to "test potential improvements in the collection process."
The program ended this year after Treasury concluded that contacting borrowers and working with them to repay were difficult tasks. Of more than 21,000 calls made by Treasury employees to borrowers, only 2% of them answered the call.
The plan to possibly move the student loan unit to the Treasury comes amid other bigchanges proposed by the administration. This month, Trump, in his fiscal 2018 budget, called for drastically cutting back some student loan programs. The changes would streamline income-based repayment options, eliminate a need-based federal loan that doesn't accrue interest while the borrower is in school, get rid of a program for public service workers, and cut back the budget for Pell Grants, need-based financial aid offered by the Education Department.
The Trump administration also wants to hand over the work of servicing federal student loans to one company — from the current roster of nine — in what it says is a money-saving move.
"Moving the program to a different agency might not solve the underlying problem," said Rohit Chopra, a senior fellow at the Consumer Federation of America and former student loan ombudsman at the Consumer Financial Protection Bureau. "The key issue is that they place the student loan industry's interest before the interest of students and taxpayers."
Sen. Patty Murray (D-Wash.), ranking member of the Senate Committee on Health, Education, Labor and Pensions, said "it is deeply troubling to see that Department of Education civil servants do not feel they can adequately do their jobs in the current environment under Secretary DeVos."
"This kind of chaos, mismanagement, and undue political interference is not a surprise, but it is still deeply disappointing," she said.
Follow USA TODAY reporter Roger Yu on Twitter @ByRogerYu.