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RENO, Nev. — The Trump administration proposed Tuesday to break off the nearly $1.5 trillion federal student loan portfolio from the Education Department and have it instead be managed by a new independent federal agency.
Education Secretary Betsy DeVos pitched the proposal for federal student loans to be operated by "a stand-alone government corporation, run by a professional, expert and apolitical board of governors," instead of by the department's Office of Federal Student Aid.
“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,'” DeVos told thousands of college financial aid professionals gathered here for the department's annual conference. “But that’s effectively what Congress expects based on its policies.”
But the idea drew a chilly reception from House Education and Labor Chairman Bobby Scott (D-Va.). Congress would have to change the law in order to separate the Office of Federal Student Aid from the Education Department and make it a stand-alone entity.
“The Federal Student Aid office should already be putting students at the center of its work and should already be free from political whims,” Scott said in a statement. “The Department should focus its time and resources on implementing the existing student loan programs in good faith. There’s nothing that could be done with a new agency that can’t be done today.”
An aide to DeVos said there's no bill language or other formal proposal available yet. "The Secretary started a discussion today about her vision for an independent, customer-centric FSA," said a spokesperson, Angela Morabito. "This is just the start of a larger conversation, and it is not a formal proposal. Though it's encouraging that Secretary DeVos' idea has been so well-received, this is just the start of a bigger discussion about the future of FSA."
DeVos said that spinning off her agency's Office of Federal Student Aid into a new stand-alone entity would make it better suited to manage a complex student loan portfolio and provide better customer service to students and families.
“To be clear, I don’t think such an agency should look like another CFPB,” DeVos said. “Nor should it be a return to FFEL," which was the bank-based federal lending program that the Obama administration and Congress ended in 2010.
DeVos also said that the new entity "would not report to the secretary of Education.”
DeVos said that overhauling how the federal government manages student loans was “an idea that warrants far more discussion.”
She also said that the Trump administration is “committed to transforming Federal Student Aid for students” and that “Congress needs to come alongside us to make this happen.”
DeVos said that she opposes the massive footprint that the federal government has in student lending. Roughly 90 percent of all student loans are backed by the federal government.
But as long as the government continues to be involved in student lending, DeVos said, it should be managed by a professional, apolitical independent organization. “FSA’s mission is to serve students and families, but its structure is set up to serve politicians and their policies,” she said.
Juan Perez Jr. contributed to this report.