The Chief Operating Officer of a $127 Billion Federal Financial Program

So much has been written about the nomination and confirmation of Betsy DeVos as the new Secretary of Education. Both sides of the argument have been vehement in their opinions of what is best for our country. We don’t want to rehash any of that.

However, we do want to take a moment and understand the responsibilities of the Secretary of Education. We are setting aside the K-12 part of the equation (that’s not our ballgame). We have our eyes on higher education and the federal student loan and Pell Grant programs the Secretary of Education is responsible for running.

The Washington Post quoted Rohit Chopra as saying:  “The confirmation debate was heavily focused on K-12 education and civil rights, but in reality a very large portion of the department’s staff and an overwhelming majority of the department’s funding is tied to higher education initiatives…The new secretary will find herself much more occupied by troubles in the student loan market than she anticipated.”

The Secretary of Education is the Chief Operating Officer of the US Department of Education. As our title mentions, we are not talking about little numbers for this COO. We’re talking about $127 billion budget annually! The department manages $2 trillion in loans and grants and is facing high student loan defaults. The role and responsibilities of the Secretary of Education requires strong financial management experience and an understanding of higher education.

The mission of Capstone is to end the student loan crisis one family at a time, and as a result, keeping an eye on the actions of the government is important. The plans of government are always a moving target and too often they are reactive--trying to fix the loan problem after the fact. The reality is that student loans are part of the college funding equation for 7 out of 10 graduates. We are not anti-loan; we simply promote the avoidance of over-burdensome loans in the first place as part of a pre-approved budget for college! 

The exact nature of the current administration’s student loan plan is not clear yet. Changes to the repayment plan have been proposed. Currently, the available repayment plans cap monthly payments to between 10% and 15% of your income depending on the plan. After 20 to 25 years of on-time payments, any remaining balance is forgiven. The proposed plan would cap payment at 12.5% of income and shorten the repayment period to 15 years.

Shortening the repayment period by 5 or 10 years would result in a major cost to our federal government. They would be forgiving massive amounts of student loan debt. In addition, the administration has proposed including private bank loans in this federal repayment plan. Private bank loans are currently not eligible for these repayment plans. The banks are all in favor of this change…they are guaranteed to collect on the loan. A win-win for them! The government will be paying the banks for any outstanding amount eligible. 

While potentially great news for borrowers, the bottom line impact on the government and taxpayers (all of us!) could be huge.

How does this impact you? This is a constantly evolving business and many colleges and universities are reliant on federal money to keep their doors open. The largest topic that needs to be addressed is how to hold higher education entities accountable for tuition cost containment.  Staying informed and understanding all the moving parts helps you recognize and plan for their impact on your family.