Trump moves student loan administration to the SBA. You got a problem with that?

 Last month, The Wall Street Journal reported that 43 percent of borrowers who owe on their student loans weren't making payments. According to the WSJ, that's about 9 million people.

How about the 57 percent of borrowers who aren't delinquent? Are they faithfully making their monthly loan payments and whittling down the principal of their loans?

Not all of them. Approximately 2.5 million borrowers have economic hardship deferments that exempt them from making their monthly loan payments, and millions more are enrolled in Income-Based Repayment plans (IBRPs), which result in payments so low that they don't cover accruing interest. 

The General Accounting Office recently reported that 4.5 million borrowers who were current on their income-driven repayment plans were paying zero on their loans due to their low income. 

In 2018, Education Secretary Betsy Devos gave a speech comparing the federal student loan program to a looming thunderstorm. Only one out of four borrowers, Devos said, were paying down the interest and principal on their loans.

Do you think student loan repayment rates have improved since Secretary Devos made that speech six years ago? No, they haven't. In fact, almost no one paid on their college loans for three years due to the COVID crisis.

Indeed, the federal student loan program is in disarray, mainly due to the Department of Education's mismanagement.  DOE couldn't do a competent job when it was tasked with designing the standardized financial aid (FAFSA) application

Now, President Trump has transferred the administration of the student loan program to the Small Business Administration. If Trump hasn't been sued yet for this move, he will be soon. After all, his administration has been sued more than 100 times during the first two months of Trump's presidency.

Critics should refrain from slamming Trump's efforts to reform the federal student loan program. The only sector of the American economy benefiting from the status quo is the higher education industry, which charges students an exorbitant price for college degrees that often fail to prepare graduates for the world of work. 

Shut Down the U.S. Department of Education: Why the Hell Not?

 When Kinky Friedman ran for Texas governor in 2006, he had a compelling bumper-sticker slogan. "Kinky Friedman for Governor. Why the Hell Not?"

I found Kinky's message persuasive and voted for him in the Texa primary.

I feel the same about President Trump's campaign promise to shut down the U.S. Department of Education. Why the hell not?

Critics warn that closing DOE would mean the elimination of the Department's Office of Civil Rights (OCR), which investigates discrimination claims against colleges and schools. Without OCR, they warn, we're likely to see an uptick in race and sex discrimination and the harassment of gay and transgender students on college campuses.

I reject that argument. 

OCR's investigatory and enforcement authority has long been a threat hanging over U.S. higher education. Still, it hasn't prevented the emergence of racism and antisemitism at the universities --particularly elite institutions like Harvard and Columbia. In fact, colleges are displaying more bigotry than at any time since the McCarthy era.

DOE's defenders also point out that the Department needs to administer the federal student loan program and distribute college loans.

I reject that argument as well. 

DOE has done a terrible job overseeing the student loan program. The higher education community has complained for over a decade that the federal student aid application form (commonly called the FAFSA) was unduly cumbersome and complicated for students and their parents to fill out. In 2020, Congress passed the FAFSA Simplification Act, directing DOE to create a simpler financial aid form.

DOE tackled the issue but didn't release the newly designed form until December 30, 2023, three months after students needed it. Consequently, the college admission process was delayed all over the U.S., with the Government Accountability Office (GAO) finding that:

Delays, glitches, and other issues led to a 9% decline in submitted FAFSA applications among first-time applicants and an overall decline of about 432,000 applications as of the end of August [2024].

Of course one mistake, even a massive screwup like the FAFSA debacle, is not a justification by itself for closing a federal agency. Nevertheless, over the years, DOE has shown itself unable to properly monitor the venal for-profit college industry or to rein in college costs, which have gone up year after year partly due to massive infusions of federal cash.

I agree with the Trump administration that education is a state responsibility that should not be overregulated or controlled by the federal government.

If Trump manages to close down DOE, I don't think its disappearance will adversely affect American education. Freed from onerous federal regulations, the colleges might even cut the cost of tuition. 

Now, that would be a miracle.

Senators Lamar Alexander and Michel Bennet Propose a Simpler FAFSA form: What a Good Idea!

"Everything should be made as simple as possible," Albert Einstein observed, "but not simpler."  And indeed, simplicity, is a great virtue.  How many of us have struggled with a problem we thought was complicated, only to have an "ah ha" moment when we realized our problem was not as complicated as we first believed.

"Everything should be made as simple as possible, but not simpler."

Senator Lamar and Senator Bennet Have A Good Idea for Streamlining Federal Student Aid Applications

Senator Lamar Alexander of Tennessee and Senator Michael Bennet of Colorado have struck a blow for simplicity in the federal student aid program, a program that is entirely too complicated.   As they explained in an op ed essay in the New York Times earlier this week, the two senators have introduced a bill to reduce the complexity of the standardized federal student aid form, which every college student must fill out to qualify for federal student aid.

Currently, this form, commonly called the FAFSA form, has 108  questions and is 10 pages long. With its attached instructions, the entire form is 82 pages long!

Senators Lamar and Bennet propose to throw this form out, which is so complicated and time-consuming that many students simply forgo applying for federal student aid. 

They want to substitute a form that only has two questions:  What is your family size? What was your household income two years ago?

Senators Lamar and Bennet's proposed legislation would also reduce the number of federal student loan programs to three: one program for undergraduates, another for graduate students, and a third for parents who borrow money to pay for their children's college education .  And, perhaps most importantly, they propose just two repayment options: the standard 10-year repayment plan and an income-based repayment plan.  

Lamar and Bennet's op ed essay did not provide any details about what their income-based repayment plan would look like.  Would it be a variation of President Obama's Pay As You Earn plan, requiring borrowers to pay 10 percent of their discretionary income over 20 years or would it would be a less generous variation?  But the simplicity of having a single income-based repayment plan will reduce the confusion many college-loan borrowers experience when they try to convert their 10-year repayment plans to long-term income-basde repayment plans.

Senators Lamar and Bennet acknowledged the input they got for their reform proposals from Susan Dynarski and Judith Scott-Clayton. Ms. Dynarski is co-author of a provocative Brookings Institution study that recommends payroll deductions as the most efficient way for students to make their loan payments if they are enrolled in income-based repayment plans. (I discussed this proposal in my last blog posting.)

Efficiency-Driven Reforms Are Good But Radical Reforms of the Federal Student Loan Program Are Necessary
Senator Lamar and Senator Bennet have made sensible proposals for improving the way the Federal Student Loan Program Operates. And Susan Dynarski and the Brookings Institution have also made reasonable proposals for collecting student-loan payments from borrowers who participate in income-based repayment programs.  

Without a doubt, these proposals will help make the federal student aid program operate more efficiently. But they won't help bring the federal student loan program under control.  These proposals do nothing to stop the runaway cost of higher education. They do nothing to address the abuses in the for-profit college industry, and they do nothing the ease the strain on millions of student-loan debtors who are already in default. 

We won't be getting serious about addressing the student loan crisis until we amend the bankruptcy laws to allow worthy college-loan debtors to obtain bankruptcy relief, publicize the real student-loan default rate, and rein in the for-profit colleges.  Unless we do these things, other reform proposals will do nothing more than put a band-aid on a gaping wound. 

References

Lamar Alexaner & Michael Bennet. An Answer on a Postcard. New York Times, June 19, 2014, p.  A25.