The Treasury Department Should Manage Federal Student Loans, Not the Department of Education
My latest at The Epoch Times
The Department of Education is responsible for issuing federal student loans. I don’t know about you, but I find this absolutely insane. Shouldn’t we give this task to the Department of the Treasury instead? Not only is the Department of Education ill-equipped to handle loans and credit analysis but by issuing loans, it also represents a particular conflict of interest for the department. At the very least, this is hardly best practice. Then again, Washington, D.C., is world-famous for giving the wrong people—or department—the right job, and by that I mean, delegating work to the worst possible solution available, on purpose.
The Department of Education administers all federal student aid programs, including loan origination and collection of federal student loans. The department also sets policies, manages loan servicing, and acts as a de-facto student loan clearinghouse.
If student loans were overseen by the Treasury Department, there would be a seismic shift in the way the federal student loan business was managed. Credit analysts would assess creditworthiness and manage financial risk, such as loaning money based on income, verifying repayment plans, deferment, and forgiveness programs. Analysts would likely turn down loan requests if students seemed unable to repay those loans in a timely manner. All in all, this would represent a turn toward fiscal accountability, which the Department of Education currently does not have to deal with.
Credit analysts would also oversee risk management, which in this case would mean loaning money to students based on the degree program they were seeking. If a student wanted $250,000 for a four-year degree program that would not yield the market-based return the analysts benchmark their analysis too, the student would not receive the loan. It’s simple. While evaluating the long-term sustainability of federal student loan programs involves more than just evaluating individual borrowers’ creditworthiness, fundamentals should still play a big part in the granting of loans. Otherwise, students are beholden to the Department of Education, and in many ways, the department’s politics.