White House Issues Executive Order on Collection of Defaulted Federal Student Loans

On Friday March 21, 2019, as all of Washington awaited delivery of Robert Mueller’s report, The White House issued an executive order about promoting free and open debate on college campuses… and about students’ ability to repay their federal loans .

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The six page order has exactly two paragraphs about free speech; the rest is about increasing transparency around the cost of an education at any given school, a student’s likelihood of being able to pay back loans required to get the education, and what happens when they can’t.

The premise is that better information will help students and their families to choose the right level of education - and the right institution to provide it - based on outcomes experienced by prior students. The ideas presented would force schools to actively participate in a value-based return on investment discussion. Because money to pay students’ tuition virtually grows on trees as far as the schools are concerned, this is a discussion that most don’t have to participate in today.

The broad goals of the order are to:

• Align incentives of institutions with those of students and taxpayers to ensure that institutions share the financial risk associated with Federal student loan programs.
• Help borrowers avoid defaulting on their Federal student loans by educating them about risks, repayment obligations and repayment options
• Supplement efforts by states and institutions by disseminating information to assist students in completing their degrees faster and at a lower cost

Specifically, the order directs the Secretary of Education (Secretary) to:

• Make available, by January 1, 2020, through the Office of Federal Student Aid, a secure and confidential website and mobile application that informs Federal student loan borrowers of how much they owe, how much their monthly payment will be when they enter repayment, available repayment options, how long each repayment option will take, and how to enroll in the repayment option that best serves their needs;
• Expand and update annually the College Scorecard with program-level data for each certificate, degree, graduate, and professional program, for former students who received Federal student aid. Data would include things like estimated median earnings, median Stafford or PLUS loan debt, student loan default and repayment rates. (emphasis added)
• Expand and update annually the College Scorecard with institution-level data, providing the aggregate for all certificate, degree, graduate, and professional programs, for former students who received Federal student aid. Data would include things like: student loan default and repayment rates, and Graduate PLUS and Parent PLUS default and repayment rates. (emphasis added)
• Provide appropriate statistical studies and compilations regarding program-level earnings, consistent with section 6108(b) of title 26, United States Code, other applicable laws, and available data regarding programs attended by former students who received Federal student aid.

The White House suggests that “Access to this information will increase institutional accountability and encourage institutions to take into account likely future earnings when establishing the cost of their educational programs.”

The order also directs the Secretary to make available by January 1, 2020 a secure and confidential website and mobile application that informs borrowers of how much they owe, how much their monthly payment will be when the enter repayment, available repayment options, how long each repayment option will take, and how to enroll in the repayment option that best services their needs.

And, the order specifically calls out collections:

“By January 1, 2020, the Secretary… shall submit to the President… policy recommendations for reforming the collections process for Federal student loans in default.”

The President wants annual updates on the progress towards implementation of the policies in the order starting July 1, 2019.

insideARM Perspective

This is… so interesting. I’ll say upfront that I’m not an expert on Executive Orders. But I’m fascinated by this. I have three immediate thoughts:

First, the timing. The President specifically calls out the collections process for Federal student loans, literally in the midst of a contentious case about the collections process for Federal student loans at the Court of Federal Claims. It seems that this crazy saga has even reached the White House, and the President feels the need to send a message to the Department of Education: Get your act together.

Second, the pairing of free speech and the financing of education. I’m all for free and open debate on college campuses but I’m not sure why it’s mentioned in this order.

Third, as a parent, a taxpayer, and a former student, I really like the idea of the program and institution-level data about outcomes. I love that there would be an apples-to-apples comparison from one school to the next.