The Office of Federal Student Aid as a Performance-Based Organization

The Office of Federal Student Aid (FSA), within the U.S. Department of Education (ED), is established as a performance-based organization (PBO) pursuant to Section 141 of the Higher Education Act (HEA). FSA is a discrete management unit “responsible for managing the administrative and oversight functions supporting” the HEA Title IV federal student aid programs, including the Pell Grant and the Direct Loan programs. As such, it is the largest provider of postsecondary student financial aid in the nation. In FY2024, FSA oversaw the provision of approximately $120.8 billion in Title IV aid to approximately 9.9 million students attending approximately 5,400 participating institutions of higher education (IHEs). In addition, in FY2024, FSA managed a student loan portfolio encompassing approximately 45 million borrowers with outstanding federal student loans totaling about $1.6 trillion. Among other administrative and oversight functions, FSA develops and maintains the Free Application for Federal Student Aid (FAFSA); obtains funds from the Department of the Treasury to make aid available to students; contracts with numerous third parties to provide goods and services related to Title IV administration, such as student loan servicing; provides oversight of the numerous third parties (e.g., contracted student loan servicers and IHEs) that play a role in administering the Title IV programs; and provides information to third-party stakeholders—such as students, the public, and Congress—regarding Title IV program operations and performance. Responsibility for developing policy and promulgating regulations relating to Title IV programs, however, remains with the Secretary of Education. Congress established FSA’s PBO structure under the Higher Education Amendments of 1998 (P.L. 105-244) in response to a belief in Congress and ED that Title IV student aid programs were “severe[ly]” mismanaged and that ED was in need of restructuring to improve federal student aid delivery. In general, PBOs are intended to be business-like, results-driven organizations that have clear objectives and measurable goals designed to improve an agency’s performance and transparency. PBO leaders are to be held professionally accountable for meeting organization goals, with continued tenure and a portion of compensation linked to these measures of success. In exchange, PBOs and their leaders are granted greater discretion to deviate from certain government-wide management processes and to operate more like private-sector companies. Specific to FSA’s structure as a PBO, the HEA vests management of FSA in a chief operating officer (COO) who is appointed based on demonstrated ability and without regard to political affiliation. Each year, the COO and the Secretary must agree on and publicly make available a five-year performance plan for FSA that establishes measurable goals and objectives addressing a variety of statutory specifications, such as FSA’s responsibilities in improving customer service to stakeholders and reducing costs of administering Title IV student aid programs. The COO is required to annually submit to Congress a report on FSA’s performance. In addition, each year the COO and the Secretary, and the COO and FSA senior managers, enter into performance agreements that set forth measurable organizational and individual goals. The COO and senior managers are eligible to receive bonus compensation based on an evaluation of work performed relative to the annual goals specified in their annual performance agreements. The HEA provides FSA with some flexibilities with regard to general federal rules around hiring, compensation, and procurement. Since FSA’s creation as a PBO, it has experienced some notable successes, including Title IV aid programs’ removal from the Government Accountability Office’s High-Risk List in 2005, the transition to 100% direct lending under the Direct Loan program, and implementation of the Internal Revenue Service (IRS) Data Retrieval Tool. Since FSA’s establishment, the programs it administers have grown substantially larger, and the federal student aid programs and benefits have become substantially more complex to administer (e.g., with the addition of numerous loan forgiveness and income-driven repayment plans). In recent years, several issues have arisen related to FSA’s Title IV program administration. In broad terms, they pertain to oversight of entities participating in and helping with administration of Title IV programs, transparency, and accountability to certain stakeholders and consumers (i.e., aid recipients). Oversight issues relate to FSA’s oversight of IHEs participating in Title IV HEA aid programs. Criticisms have focused on FSA’s ability to proactively and consistently mitigate institutional risk in Title IV programs. Other concerns relate to FSA’s oversight of its contracted student loan servicers, including its monitoring of such entities and the accountability of servicers to FSA in certain areas of their performance. Concerns have also been raised about the shortage of operational guidance FSA has provided to loan servicers to enable them to ensure they are meeting Title IV statutory and regulatory requirements and to assist borrowers in navigating the aid programs. Transparency issues relate to the extent to which FSA makes available information about Title IV programs’ performance and operations to relevant parties. Policymakers sometimes have imperfect information on Title IV program performance and operations, which can make it difficult to make informed, well-honed policy or enforcement decisions. FSA has sometimes not made operational guidance available to Title IV program participants (e.g., IHEs), which can lead to a deterioration in trust between FSA and those participants. In addition, consumers may be faced with incomplete information on Title IV programs and the IHEs that participate in such programs, which may make it difficult to make informed college-going and financial decisions. Stakeholder accountability issues include the extent to which FSA is fulfilling its statutory mandate to consult with relevant stakeholders in developing performance plans and annual reports and whether FSA is leveraging information garnered from stakeholder interactions to make program administration improvements. They also relate to whether FSA is sufficiently responsive to customer needs, especially given that FSA administers programs for which, arguably, there are no comparable competitors. As part of its oversight role, Congress might consider whether any adjustments should be made to address any of these issues and, if so, the extent to which any efforts to address issues might involve or affect FSA’s PBO function and structure.