Investments

Betsy DeVos Accused Of Student Loan ‘Scheme’

U.S. Secretary of Education Betsy DeVos is being accused of a new student loan “scheme.”

Here’s what you need to know.

The Accusation

In a series of tweets, The Intercept’s Washington bureau chief Ryan Grim suggested DeVos may have ulterior motives regarding her new student loan plan. Last week, DeVos unveiled a “proposal” that eventually could get the Education Department out of the student lending business.

DeVos pitched an idea to have your federal student loans managed by a standalone entity that is separate and independent from the Education Department. DeVos recommended that Federal Student Aid (FSA) – the nation’s largest provider of financial aid – be spun off from the Education Department so student loans can be better managed and administered.

DeVos proposed that FSA should be a standalone government corporation “run by a professional, expert and apolitical Board of Governors.” She believes this would help FSA deliver “world-class service” to students and families. DeVos does not think FSA should report to the Education Department.

“This very much appears to be a [DeVos] scheme to block the next president from unilaterally forgiving federal student debt, which she is well aware a president could do without Congress,” Grim tweeted. “My read is that if [President] Trump does this through executive order it can be undone by executive order. As long as Democrats don’t pass it into law, she can’t make it permanent.”

Student Loan Forgiveness

Student loan forgiveness has been a talking point on the presidential campaign trail. Senator Bernie Sanders (I-VT), a 2020 presidential candidate, wants to forgive all $1.6 trillion of outstanding student loans, including both federal and private student loan debt. Sanders’ student loan forgiveness plan has no eligibility requirements; all 45 million student loan borrowers are eligible for student loan discharge.

Similarly, Senator Elizabeth Warren (D-MA), also a 2020 presidential candidate, introduced legislation earlier this year to cancel student loan debt for more than 95% of borrowers, and would entirely cancel student loan debt for more than 75% of Americans with student loan debt. Principally, Warren would cancel $50,000 in student loan debt for every person with household income under $100,000 and cancel substantial debt for every person with household income between $100,000 and $250,000. Like Sanders, Warren would fund student loan forgiveness through new taxes. Both candidates would not assess income tax on any student loan debt that is cancelled.

Congress Or Executive Order?

There are two main schools of thought on who can cancel student loan debt. One camp says that student loan forgiveness amounts to government spending, which only can be appropriated by Congress. There is legislation – such as the Antideficiency Act – which prevents the federal government from spending money that is not appropriated. The second camp believes that a president can forgive student loans through executive order without congressional approval. Both Sanders and Warren support congressional legislation to forgive student loans.

Critics of the DeVos proposal will want to understand at least the following, among other questions:

  • Who would oversee and administer financial aid?
  • Would the proposed apolitical board of governors be appointed by the president or comprised of non-partisan career public servants?
  • Does a president’s ability to impact student loans through executive orders (including potentially – if legally permitted – student loan forgiveness) change if FSA is part of the Education Department or a separate entity?
  • What is the future role of the federal government in student lending?

Neither DeVos or the Trump administration has made a formal legislative or policy proposal to separate FSA. Rather, DeVos proposes that Congress, policymakers and educators further explore these issues.

Next Steps

As Washington debates the future of student loans, make sure you understand all your student loan repayment options. You can explore:

  • Student loan refinancing
  • Student loan consolidation
  • Income-driven repayment plans
  • Student loan forgiveness

This student loan quiz takes less than one minute to complete and provides you with a free, customized student loan repayment plan.

Show More

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button
Close
Close