When the modern-day U.S. Department of Education (ED) was established in 1979, personal computers were in their infancy, cell phones were science fiction and almost all financial transactions were face-to-face. While much has changed, the core functions underlying how America manages its $1.3 trillion federal student aid (FSA) program covering 42 million student loan borrowers are remarkably similar to what they were almost 40 years ago.
Much like technology, current students and their parents — FSA’s core customers — are nothing like the students and parents of 1979. Today, 86 percent of college undergraduates own smartphones, putting the internet in their pockets. But even with so much information — and an app for everything — at their fingertips, today’s college students are novices when it comes to their finances: 51 percent of students surveyed in a recent LendEdu study reported receiving no personal finance education in high school, and 45 percent reported they hadn’t taken and didn’t plan to take a personal finance course in college.
Statistics like these contribute to the staggering fact that about 4.5 million Americans are in default on more than $75 billion in student loans. Despite a wealth of tools to help students identify their strengths, match them with educational programs offering a path to well-paying jobs, and complete their educations, only about half of college students actually graduate — and the ones who don’t face greatly increased odds of default. This reality demands a fresh look at the way students plan and pay for college, and how we support students to help them succeed.
Recently, Secretary of Education Betsy DeVos called for a modernization of educational infrastructure on par with world-class financial firms and connections with students from the beginning of the aid process through the life of their loans. Shortly thereafter, ED announced its plans to reimagine loan servicing — a big undertaking that aims to put taxpayer dollars to work in simplifying and improving the student loan servicing system from the inside out. And just last week, A. Wayne Johnson stepped back from his post as COO at FSA to shepherd these efforts in a newly created role as chief strategy and transformation officer.