A Long-Standing Conservative Vision
The idea of separating the student loan portfolio from the Department of Education is not a new concept. During the first Trump administration, then-Education Secretary Betsy DeVos frequently advocated for Congress to relieve her department of its banking duties. DeVos argued that the Department of Education was never intended to be a bank and pitched the idea of a standalone government corporation.
In 2019, DeVos told attendees at an FSA training conference that the student loan office should be run by a "professional, expert, and apolitical board of governors." She argued that the current structure placed an undue burden on the Secretary of Education, who was effectively forced to act as the nation’s "top banker."
This vision is also reflected in the Heritage Foundation’s Project 2025, a comprehensive set of policy recommendations designed for a second Trump term. The document suggests that the executive branch should work with Congress to "spin off FSA and its student loan obligations to a new government corporation with professional governance and management."
For the current Secretary of Education, Linda McMahon, the restructuring of the FSA appears to be part of a larger "proof of concept." McMahon has been open about her desire to dismantle the Department of Education entirely, though she has acknowledged that only Congress has the legal authority to do so. By outsourcing programs and responsibilities to other agencies through interagency agreements, McMahon is attempting to demonstrate that education programs can continue to function without a centralized department.
Concerns Over Service and Oversight
Beyond the political and legal hurdles, there are significant practical concerns regarding the impact on students and colleges. The FSA does more than just distribute money; it serves as a regulatory body, ensuring that colleges and universities comply with federal laws and financial standards.
Advocacy groups like Protect Borrowers and the American Federation of Teachers (AFT) have been vocal in their opposition to the plan. They described the FSA as an office already struggling with various challenges and condemned the proposed restructuring as a "pointless distraction" from the financial hardships facing borrowers.
Melanie Storey of NASFAA emphasized that any reform of this magnitude requires careful planning and a realistic timeline—something she believes is currently lacking.
"Any reform, restructure, or relocation of FSA’s core functions must be done thoughtfully and with careful attention to minimize disruption in service to students and families," Storey said. "That simply cannot be done in the proposed timeline."
As the October 2027 deadline approaches, the future of the Office of Federal Student Aid remains a central flashpoint in the administration’s broader effort to reshape the federal government. While the administration maintains that these changes are necessary for efficiency and reform, the potential for disruption in the nation’s student aid system continues to loom over millions of American families.
