Why the Treasury Department Could Be Your New Student Loan Servicer

Treasury Department

Yesterday, news broke that James Runcie, head of the Federal Office of Student Aid, resigned. According to The New York Times, Runcie’s resignation memo revealed one of the deciding factors behind his departure is the Trump Administration’s proposal to move the management of student loans from the U.S. Education Department to the U.S. Treasury Department.

This information comes on the heels of a proposal to drastically cut the Education Department’s budget over the next 10 years, which could signal some major changes for student loan borrowers. Here’s what you need to know.

Advocates of the proposal believe it could simplify student loan management

The idea of moving the management of student loans to the Treasury Department isn’t new.

“During the Obama administration, the idea of shifting responsibility for the student loan program to the Treasury Department had some supporters.”

James Kvaal, former deputy under the Secretary of Education, believes a move could simplify things for borrowers. That’s because student borrowers sometimes have to deal with both the Education Department and the IRS – which is under the Treasury Department.

Applications for income-driven repayment plans require information from your tax return. By moving student loans to the Treasury Department, students filling out those applications would no longer have to deal with two agencies.

The move could also theoretically increase safety. For example, the IRS’ online tool to retrieve student loan borrower data for the application through the Education Department was recently hacked and had to be temporarily removed from the website.

James Runcie and other critics believe the Treasury Department isn’t capable

Advocates think the proposal is, in part, the answer to issues plaguing the Education Department. These issues include poor budgetary estimates and management of student loan servicers. Meanwhile, critics of the proposal think the Treasury Department isn’t up to the task.

Runcie’s resignation memo states, “This is just another example of a project that may provide some value but will certainly divert critical resources and increase operational risk in an increasingly challenging environment.”

Former Treasury Secretary, Sarah Bloom Raskin, echoes Runcie. “Moving the agency that is supposed to provide stewardship for student loan borrowers to an agency that is working on a shoestring with a skeletal crew strikes me as a recipe for a policy disaster.”

The Treasury Department has already unsuccessfully tried to collect on student loans in the past. In 2015, the Treasury Department launched a two-year pilot program with the hopes of increasing collection rates and educating borrowers about their options for repayment. The program was a failure.

According to The New York Times, the private collectors used as a control group to measure the Treasury’s success during the program were more successful in their collection efforts. “[They] recovered more money and got more borrowers out of default.”

What does this mean for student loan borrowers?

As of right now, the proposal to move the management of student loans from the Education Department to the Treasury Department is still just that – a proposal. It will require Congress to take action, which means nothing is happening today.

For student loan borrowers wondering how this could impact their repayment, it’s too soon to tell.

However, there is one thing they can be sure of: Changes are coming in a lot of ways to student loans in this administration. The best thing borrowers can do is stay abreast of these changes and understand their rights at every turn.

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