The Department of Education’s Office of Federal Student Aid (FSA) is responsible for the administration and oversight of billions of dollars in federal student financial assistance. Unfortunately, the FSA itself is in dire need of financial support.
FSA has a lot on its plate: the office implements new regulations for income-driven repayment (IDR) plans, administers public service loan forgiveness (PSLF) program, monitors the conduct of federal student loan servicers, and processes a huge swath of defrauded borrowers’ debt relief claims. FSA also monitors predatory for-profit schools, to protect students from deceptive or abusive conduct. In addition, FSA will have to grapple with the introduction of the new, reworked Free Application for Federal Student Aid (FAFSA) form and the return to payment for tens of millions of federal student loan borrowers.
FSA’s ability to successfully carry out these tasks will be severely curtailed without additional funding: students’ and borrowers’ economic hopes are on the line. Congress must adopt President Biden’s fiscal year 2024 budget for FSA, which would deliver to the agency a much-needed increase of $620 million (30 percent) over fiscal-year 2023 levels.
FSA’s Role in Administration and Oversight
While the FAFSA is many students’ introduction to FSA, a student borrower’s relationship with the office goes far beyond their post-secondary education. FSA also plays a key role in servicer oversight, including monitoring loan servicers, the private companies that collect payments from borrowers; it is also responsible for alerting servicers to changes in rules.
Each year, Congress appropriates money to the Student Aid Administration, an account the FSA draws from for certain programs and operations. President Biden has called for a robust investment to support operations as the agency works to fulfill its mission of delivering financial assistance to all eligible Americans. FSA needs this funding in order to carry out its critically important work.
Funding is crucial for manpower. Without proper funding, FSA will not have the necessary staff to respond to student needs. Lack of manpower could prevent FSA from meaningfully engaging in sorely needed public information campaigns about changes in programs and program eligibility. Without increased support, FSA risks being unable to provide the services students need.
A lack of funding would also prevent FSA from addressing technology needs ranging from improvements of the FSA website’s “virtual assistant” to heightened cybersecurity and increased bandwidth, so that the website can handle a higher volume of visits The latter is especially critical, given the website outage in the wake of the administration’s debt cancellation announcement. A modernized interface and additional support for backend information technology and privacy protections would create a more user-friendly experience and limit public uncertainty and frustration. Insufficient funding could also hamper FSA’s ability to conduct a public information campaign to inform borrowers about the recent changes to the income driven repayment (IDR) program. Notifications about these IDR improvements are particularly crucial because of the role the program can play in decreasing the risk of delinquency and default for low- and moderate-income borrowers.
A resource-thin FSA can result in real-world consumer protection issues. Implementation challenges with the new IDR, which stands to cut low-income borrowers’ monthly payments in half and cap payments for those who borrowed only for undergraduate studies at 5 percent of their income, would create problems from borrowers already concerned about returning to active repayment. Additionally, the office has sought public input on ways to identify and increase transparency about low-value programs, which would require additional oversight staff.
In addition to its other responsibilities, FSA provides oversight of schools and programs that receive federal aid, duties which can include investigatory activities. When institutions aren’t honest and transparent about pricing, financing options, or outcomes, there are severe consequences for students. Misled and defrauded student borrowers are eligible for a unique loan forgiveness program, referred to as “borrower defense to repayment,” that can erase their outstanding federal student loan debt.
FSA processes borrower defense applications and provides borrowers with information on how to apply for relief. The office already must contend with a backlog of borrower defense claims dating back to when FSA only provided relief to individual students based on a specific calculation of hardship. This backlog kept struggling students and families from seeing their outstanding balances forgiven. A failure to invest in FSA could hamper the office’s ability to bring speedy relief to borrowers who’ve been waiting for assistance and forgiveness for years.
FSA is also responsible for overseeing federal student loan servicers. FSA’s oversight is needed to ensure that servicers report accurate information to credit bureaus, bill students the correct amount, provide accurate information to borrowers about eligibility for repayment plans, and accurately track payments. Unfortunately, servicers have proven themselves ineffective when it comes to tracking the progress borrowers make during repayment, offering refunds when appropriate, and in accurately advising borrowers of all of their options. Increased FSA funding protects borrowers by enhancing FSA’s ability to audit servicers and ensure they receive proper notice of changes in the rules governing implementation. The funding would also support the roll-out of a new system for servicing loans called the Unified Servicing and Data Solution (USDS), which will offer student borrowers full account management through the FSA website. The more centralized system will eliminate the problems that many borrowers have faced as a result of transfers of their loans from one servicer to another. All of these items together will create a better borrower experience and rebuild trust in the servicing system.
Return to Repayment
Many saw student loan cancellation as one piece of a larger plan to close the racial gap. Whether or not the Supreme Court allows cancellation to move forward, this fall will bring a return to student loan payments after a nearly three-year pause. The return to payment can place an additional burden on low-income and historically marginalized communities.
Debt cancellation was highly politicized. Borrowers seeking assistance, however, have come across the political spectrum. Congress must be held accountable for ensuring that FSA has the resources it needs to ensure borrowers are treated fairly and appropriately. Recent data shows that the people that applied for student loan forgiveness come from across the political spectrum —ensuring borrowers have support is a bipartisan issue.
The Reformed FAFSA
Every year, more than 17 million current and prospective students file the FAFSA, and colleges process more than 29 million individual FAFSAs sent to them. FSA awards more than $26 billion in Pell Grants and lends more than $80 billion in federal student loans every year to these applicants. Including aid from state, institutional, and private sources, about a quarter-trillion dollars in student aid is disbursed every year, larger than the gross domestic products of twenty U.S. states. Nearly all that aid runs–at least in part–through the FAFSA.
President Biden’s proposed increase in FSA funding would help ensure that the agency can see through two major changes to the FAFSA, updates which are scheduled to be implemented this year by Congressional mandate. The FUTURE Act, passed by Congress in 2019, changes how the form imports families’ IRS data. The FAFSA Simplification Act, passed in 2021, significantly alters the underlying formulas determining aid eligibility. Enacting these changes will be no mean feat: FSA must build new digital infrastructure and shepherd colleges, high schools, and families through these changes.
The launch date of the reformed FAFSA has already been postponed by two months, from October to December. A host of state financial aid deadlines fall just a few months after the rescheduled launch, meaning millions of families will be completing the form within an unusually condensed period of time. Questions about how colleges should construct aid offers based on the new FAFSA are already rising.
It is hard enough to ensure families complete the FAFSA without the potential hazards of website failures and delays in troubleshooting if FSA is under-resourced and under-staffed. The downstream issues of implementation will likely have disproportionately ill effects on the communities of color and low-income families that historically have had to fight the hardest to gain access to college.
President Biden’s proposal for fiscal year 2024’s FSA funding would smoothe the rollout of the reformed FAFSA and help preserve Americans’ faith that the federal government has their back when they pursue a college education. In a FAFSA cycle like no other, Congress must provide the funding to ensure our financial aid system can withstand the changes that lawmakers passed in the timeframe they designated.
The Biden administration’s budget proposal charts a path to improve college affordability through investments in free community college, infrastructure investments at HBCUs and other MSIs, and an increase in the Pell Grant. These are all vital and necessary changes with strong public support, and they signal the administration’s steadfast commitment to racial equity and economic opportunity.
But that agenda could be undermined if FSA remains hamstrung with little financial support.. Public trust in an active federal role in higher education requires that the pieces already in place run as designed. Congress must pass President Biden’s budget request for FSA and equip the agency with the funding it needs to continue its essential work for students and borrowers.