DeVos Proposes New Agency, Run by Someone Else, for Student Loans

RENO, Nev. — Education Secretary Betsy DeVos has frequently been the target of angry borrowers who say her department does a bad job managing the student loans of tens of millions of people.

On Tuesday, she said the government’s $1.5 trillion student loan portfolio should be someone else’s problem.

Calling student loan financing an “untamed beast,” Ms. DeVos said it should be spun off into its own federal agency. Her department’s Federal Student Aid office is battered by “the ever-changing political whims of Washington,” she said, and “cannot fulfill its mission” in its current form.

“I’m not so sure the federal government should monopolize student lending,” she said in a speech at the start of a four-day training conference in Reno for 5,000 financial aid officers from schools nationwide. “But if it does — and, for now, it essentially does — then it must provide services on par with world-class financial firms.”

The Department of Education has for years drawn criticism from government auditors and lawmakers of both parties for its slipshod management of the vendors it hires to service its ballooning portfolio of loans. But Ms. DeVos has faced especially intense disapproval from borrowers and their advocates.

During her tenure, a program to relieve the debts of teachers, police officers and others who work in public-service jobs has become a bureaucratic disaster, rejecting nearly all who apply. The department allowed a troubled for-profit chain, Dream Center Education Holdings, to collect millions of dollars in federal funds that it was ineligible to receive before it collapsed this year.

And a federal judge recently held Ms. DeVos in contempt of court for illegally collecting on the debts of thousands of students defrauded by another, defunct for-profit chain of colleges. (In a court filing on Monday, the department said it had incorrectly tried to bill 45,000 borrowers, nearly three times the number it had previously acknowledged.)

On Tuesday, Ms. DeVos said a separate agency, governed by an “expert and apolitical” board, would be better able to run what has become, in effect, one of America’s biggest banks.

Such a change is possible but unlikely. Calls for carving the financial aid unit out of the Education Department have long swirled around Washington, and near the start of Ms. DeVos’s tenure, the department explored the idea of moving the division over to the Treasury Department. But such a shift would require legislation from Congress, which has shown little inclination to make major changes to the system.

Separating policy and operations in federal higher-education financing “has been a dream for 20 years, and it only works on paper,” said Ben Miller, who worked at the Education Department during the Obama administration and is now the vice president for postsecondary education at the Center for American Progress.

“The two things are too intrinsically intertwined,” he said. “You can put F.S.A. on the moon and as long as Congress still has a say on federal student loans, it’s still going to be political.”

Congress passed the Higher Education Act in 1965 and created government-backed loans to make college more accessible for students from low-income families.

For decades, banks served as middlemen and received government subsidies for the loans they made, but in 2010, Congress switched to direct lending. The Education Department backs around 90 percent of all student loans.

Soaring tuition costs have left a generation of students, and often their parents, crippled by debt. Nearly 11 million borrowers — around a quarter of those with federal loans — have fallen into delinquency or default, Ms. DeVos said.

Lawmakers have responded by adding income-based payment options and loan-forgiveness plans, but those concessions mean that the government is unlikely to recoup what it has lent. Over the next decade, the federal student loan program will begin running at a loss, the Congressional Budget Office warned in recent estimates.

Ms. DeVos took the stage on Tuesday to Carrie Underwood’s song “The Champion,” with the lyrics “I’ll be the last one standing” and “I live for the battle.” She offered few specifics about how the new federal agency she envisioned should operate. One thing was clear, though: It should not report to the education secretary.

Representative Robert C. Scott, Democrat of Virginia and the chairman of the House Education Committee, brushed off Ms. DeVos’s call to split her department.

“There’s nothing that could be done with a new agency that can’t be done today,” he said. “The department should focus its time and resources on implementing the existing student loan programs in good faith.”

Angela Morabito, a department spokeswoman, declined to name any lawmakers supporting Ms. DeVos’s suggestion.

“The secretary started a discussion today about her vision for an independent, customer-centric F.S.A.,” Ms. Morabito said. “This is just the start of a larger conversation, and it is not a formal proposal.”

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