# The Office of Federal Student Aid as a Performance-Based Organization > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/crs%3AR46143 ## Record - **Collection:** Congressional research report - **Document type:** Reports - **Published:** December 4, 2025 - **Citation:** R46143 ## Text The Office of Federal Student Aid as a Performance-Based Organization Updated December 4, 2025 Congressional Research Service https://crsreports.congress.gov R46143 SUMMARY 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. R46143 December 4, 2025 Alexandra Hegji Specialist in Social Policy Henry B. Hogue Specialist in American National Government Among other administrative and oversight functions, FSA • • • develops and maintains the Free Application for Federal Student Aid (FAFSA); • 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 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 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 Congressional Research Service The Office of Federal Student Aid as a Performance-Based Organization 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. Congressional Research Service The Office of Federal Student Aid as a Performance-Based Organization Contents Introduction ..................................................................................................................................... 6 FSA as a PBO: Distinctions from Most Agencies ........................................................................... 7 FSA Leadership ......................................................................................................................... 8 FSA Personnel Flexibilities ..................................................................................................... 10 FSA Procurement Flexibilities ................................................................................................ 10 FSA Independence ................................................................................................................... 11 Establishment of a PBO to Administer Federal Student Aid ......................................................... 12 Legislation to Establish a PBO to Administer Federal Student Aid ........................................ 14 2008 Higher Education Act PBO Amendments ...................................................................... 18 Subsequent Amendments ........................................................................................................ 19 Changes to Title IV Aid Affecting FSA’s Operations .................................................................... 19 FSA Functions and Structure ......................................................................................................... 22 Statutorily Specified FSA Functions ....................................................................................... 22 FSA Awarding, Disbursing, and Servicing Aid ................................................................. 23 FSA Contracting ............................................................................................................... 24 FSA Information and Assistance to Third-Party Stakeholders ......................................... 24 FSA Oversight................................................................................................................... 25 Selected FSA Statistics ............................................................................................................ 27 Funding for Federal Student Aid Administration .............................................................. 27 FTE Employment for Federal Student Aid Administration .............................................. 28 Trends Relevant to Federal Student Aid Administration .................................................. 29 FSA Structure .......................................................................................................................... 31 Statutorily Mandated Roles............................................................................................... 31 FSA’s Relationship with Other Actors .............................................................................. 34 FSA’s Performance Under Five-Year Performance Plan ............................................................... 38 Assessments of FSA as a PBO ...................................................................................................... 45 Current Issues ................................................................................................................................ 48 Oversight Functions ................................................................................................................ 49 IHE Oversight ................................................................................................................... 49 Loan Servicer Oversight ................................................................................................... 51 Discussion of Issues in Oversight and the PBO Structure ................................................ 54 Transparency ........................................................................................................................... 55 Information for Policymakers and Stakeholders ............................................................... 56 Information for Members of the Public ............................................................................ 58 Discussion of Issues in Transparency and the PBO Structure .......................................... 60 Stakeholder Accountability ..................................................................................................... 61 Figures Figure 1. Inflation-Adjusted Obligations for Federal Student Aid Administration, FY2009-FY2024 ($ in millions)................................................................................................. 28 Figure 2. Full-Time Equivalent (FTE) Employment for Federal Student Aid Administration, FY2009-FY2024 .............................................................................................. 29 Congressional Research Service The Office of Federal Student Aid as a Performance-Based Organization Tables Table 1. Selected Trends Related to Federal Student Aid Administration ..................................... 30 Table 2. FSA’s Performance Under Its Five-Year Performance Plan ............................................ 39 Table 3. Summary of Selected Current Issues Relating to FSA .................................................... 49 Appendixes Appendix. Selected Acronyms Used in This Report ..................................................................... 63 Contacts Author Information........................................................................................................................ 63 Congressional Research Service The Office of Federal Student Aid as a Performance-Based Organization Introduction The Office of Federal Student Aid (FSA) within the U.S. Department of Education (ED) is the primary entity responsible for the administration and oversight of the federal student aid programs authorized under Title IV of the Higher Education Act of 1965, as amended (HEA; P.L. 89-329, as amended).1 As such, FSA is the largest provider of postsecondary student financial aid in the nation.2 It performs functions that are akin to those of large banks, to which it has sometimes been compared.3 In FY2024, FSA oversaw the provision of $120.8 billion in Title IV aid to 9.9 million students attending approximately 5,400 institutions of higher education (IHEs).4 In addition, in FY2024, FSA managed a student loan portfolio encompassing 45 million borrowers with outstanding federal student loans totaling about $1.6 trillion.5 FSA is a performance-based organization (PBO) pursuant to Section 141 of the HEA. Conceptually, PBOs are intended to be results-driven organizations that have clear objectives and measurable goals designed to improve an agency’s performance and transparency. PBOs are led by chief executives who are personally accountable for meeting measurable goals within the organization. In exchange, PBOs are granted greater discretion than other government agencies to operate more like private-sector companies, with more control over the budget, personnel decisions, and procurement. FSA was established under the Higher Education Amendments of 1998 (P.L. 105-244) as the federal government’s first PBO. This was done in response to the belief that ED needed restructuring to improve federal student aid delivery.6 In recent years, FSA has come under scrutiny for its oversight of IHEs participating in the Title IV student aid programs7 and contracted loan servicers,8 its implementation of the FAFSA Simplification Act,9 its accounting related to the federal student loan programs,10 and its 1 In addition, FSA administers the Health Education Assistance Loan program. This program, which was previously authorized under Title VII, Part A, subpart I of the Public Health Services Act, was transferred to ED from the Department of Health and Human Services in FY2014. No new loans have been made under the program since September 30, 1998. 2 U.S. Department of Education (ED), Federal Student Aid (FSA), “About Us,” https://studentaid.gov/about. 3 National Association of Student Financial Aid Administrators (NASFAA), Improving Oversight and Transparency at the U.S. Department of Education’s Office of Federal Student Aid: NASFAA Recommendations, May 2017, p. 1. 4 FSA, FY2024 Report, November 15, 2025, p. 15. 5 FSA, FY2024 Report, p. 16. 6 See, for example, testimony of the chair of the Advisory Committee on Student Financial Assistance, in U.S. Congress, House Committee on Education and the Workforce, Subcommittee on Postsecondary Education, Training and Life-Long Learning, Field Hearing on H.R. 6: the Higher Education Amendments of 1998, hearing held in Clemson, SC, 105th Cong., 1st sess., May 2, 1997 (Washington: GPO, 1997), pp. 63-69. See also CRS Report RL32098, The Office of Federal Student Aid: The Federal Government’s First Performance-Based Organization (archived, available to congressional clients upon request). 7 See, for example, U.S. Government Accountability Office (GAO), Higher Education: Department of Education Should Improve Enforcement Procedures Regarding Substantial Misrepresentation by Colleges, GAO-23-104832, December 2022, https://www.gao.gov/assets/gao-23-104832.pdf. 8 See, for example, Consumer Financial Protection Bureau (CFPB), Annual Report of the CFPB Student Loan Ombudsman, November 2024, https://files.consumerfinance.gov/f/documents/cfpb_2024-annual-student-loanombudsmans-report_2024-11.pdf. 9 See, for example, GAO, FAFSA: Education Needs to Improve Communications and Support Around the Free Application for Federal Student Aid, GAO-24-107407, September 2024. 10 See, for example, FSA, FY2024 Report, pp. 186-194. Congressional Research Service 6 The Office of Federal Student Aid as a Performance-Based Organization engagement with stakeholders.11 This report provides information about the structure and organization of FSA, the nature of the work it performs, and its characteristics as a PBO. Additionally, the report discusses FSA challenges that have received considerable attention in recent years. Should Congress contemplate the reauthorization of the HEA or exercise oversight over FSA, it might examine some of the issues raised by these critiques and the way FSA’s organization as a PBO may affect congressional goals and policies. This report begins by discussing the HEA provisions that distinguish FSA from other types of federal agencies. This is followed by a discussion of the legislative history of the creation of FSA as a PBO and of the HEA Title IV programmatic changes that may affect its operations. Next, the report describes the current operations and structure of FSA. Finally, it discusses several issues related to FSA’s operations and how they may relate to its structure as a PBO. The issues presented have received recent congressional and stakeholder attention and have been identified in reviews of FSA’s operations.12 Appendix provides a list of selected acronyms used in this report. FSA as a PBO: Distinctions from Most Agencies Federal programs are usually carried out by or through agencies that are established in statute, with structural refinements established through directives issued by the agency head.13 Over time, Congress has created governmental and quasi-governmental entities with varying characteristics to address diverse needs in different contexts.14 Most federal agencies in the executive branch, however, are designed to be directly or indirectly accountable to the President. Furthermore, most federal agencies must comply with general management laws regarding financial management, procurement, information management, personnel, and other administrative practices. As a PBO, FSA has organizational features that are distinct from most other departmental subunits in the executive branch of the federal government.15 As the name suggests, PBOs are designed to have a greater focus on results—outcomes rather than outputs. To this end, they are required to have clear objectives and measurable goals. PBO leaders are to be held professionally accountable for meeting measurable goals within the organization, with continued tenure and a portion of compensation linked to these measures of success. In exchange, these organizations 11 See, for example, ED, Office of Inspector General (OIG), Federal Student Aid’s FY2020-2024 Strategic Planning Process, August 16, 2021, pp. 3-4, https://oig.ed.gov/sites/default/files/reports/2025-06/ FY21A20GA0002021624v100SECURED.pdf. 12 Numerous recent reports have examined aspects of FSA’s operations, such as GAO, FAFSA: Education Needs to Improve Communications and Support ; and ED, OIG, U.S. Department of Education’s Assessment and Recoupment of Liabilities from Closed Institutions of Higher Education, January 28, 2025, https://oig.ed.gov/sites/default/files/reports/ 2025-05/FY25%2520I24GA0163%2520%25281.28.2025%2529v100_508_SECURED.pdf. The issues described in this report are not intended to be exhaustive. 13 For more on statutory and administrative reorganization mechanisms, see CRS Report R44909, Executive Branch Reorganization; and CRS Report R48523, Organizing Executive Branch Agencies: Structure and Delegations of Authority. 14 For example, Congress has sometimes established federal agencies that are relatively independent from the President. See CRS Report R43391, Independence of Federal Financial Regulators: Structure, Funding, and Other Issues. For more on the taxonomy of federal organizational forms, see GAO, Federally Created Entities: An Overview of Key Attributes, GAO-10-97, October 2009. 15 One other federal entity that was established as a PBO is the Federal Aviation Administration’s Air Traffic Organization. See Executive Order 13180, “Air Traffic Performance-Based Organization,” 65 Federal Register 77493, December 11, 2000. The U.S. Patent and Trademark Office (PTO) also has a PBO-like structure, and some observers liken it to such. See, for example, NASFAA, Improving Oversight and Transparency, p. 1. Congressional Research Service 7 The Office of Federal Student Aid as a Performance-Based Organization and leaders are granted greater discretion to deviate from certain government-wide management processes and to operate more like private-sector companies. Key statutorily established features of FSA include, among others, the appointment and compensation arrangements for its chief operating officer (COO) and other senior managers, exemptions from certain government-wide personnel and procurement requirements, and greater independence from political pressure in the exercise of its functions. FSA Leadership Most high-level subunits within departments are led by political appointees who are appointed by the President or the Secretary and serve at their pleasure for an indefinite term.16 Political appointments are not subject to the same statutory requirements as career appointments to the Senior Executive Service (SES) or appointments to the competitive service.17 Depending on the authority used to make a political appointment, compensation will usually be determined by the Executive Schedule,18 the SES pay system,19 or the General Schedule.20 Consistent with the PBO framework, the HEA contains provisions designed to enable FSA to attract leadership with demonstrated ability and expertise, incentivize leadership to meet performance goals, and shield FSA leadership from political pressures. FSA is led by a COO, whom the Secretary of Education appoints for a term of three to five years.21 The appointment is to be made based on “demonstrated management ability and expertise in information technology (IT), including experience with financial systems, and without regard to political affiliation or activity.”22 The COO’s work and priorities are governed by a performance agreement with the Secretary that includes measurable organizational and individual 16 In general, political appointees have included those who are appointed by the President with the advice and consent of the Senate, those who are appointed by the President alone, those who are given non-career Senior Executive Service appointments, and those who are given Schedule C appointments. Schedule C covers middle- or lower-level positions that are not required to be filled using merit-based hiring requirements, because appointees to such positions carry out confidential or policy-determining duties. 17 The SES is a government-wide personnel system that includes most of the middle- and top-level positions in federal agencies. It comprises career and non-career (political) appointees. Career SES appointments are made through a competitive, merit staffing process set out in Title 5, Sections 317.501-317.503, of the Code of Federal Regulations. The competitive service consists of most civil service positions below the SES level. The system is intended to be merit-based and free from political influence and is governed by the provisions of Title 5 of the U.S. Code. Additional information on the SES and the competitive service may be found in CRS Report R41801, The Senior Executive Service: Background and Options for Reform; and CRS Report R45635, Categories of Federal Civil Service Employment: A Snapshot. 18 “The Executive Schedule, which is divided into five pay levels, is the basic pay schedule for positions, other than Senior Executive Service positions and positions in the Federal Bureau of Investigation and Drug Enforcement Administration Senior Executive Service, to which this subchapter [‘Executive Schedule Pay Rates’] applies” (5 U.S.C. §5311). This schedule covers, for example, Secretaries and most other agency heads, as well as Assistant Secretaries and most other top-level agency leaders. 19 For more on this system, see U.S. Office of Personnel Management (OPM), “Senior Executive Service: Compensation,” https://www.opm.gov/policy-data-oversight/senior-executive-service/compensation/. 20 The General Schedule is the compensation system for most positions in the competitive service. Schedule C appointees are usually also compensated under this schedule. For more on the General Schedule, see OPM, “Pay & Leave—Pay Systems: General Schedule Overview,” https://www.opm.gov/policy-data-oversight/pay-leave/paysystems/general-schedule/. 21 HEA §141(d)(1). 22 HEA §141(d)(1). Congressional Research Service 8 The Office of Federal Student Aid as a Performance-Based Organization goals.23 The COO may be reappointed to additional terms of three to five years if her or his performance is satisfactory.24 The HEA also specifies the manner in which a COO may be removed: REMOVAL.—The Chief Operating Officer may be removed by— (A) the President; or (B) the Secretary, for misconduct or failure to meet performance goals set forth in the performance agreement in paragraph (4). The President or Secretary shall communicate the reasons for any such removal to the authorizing committees.25 The law appears to authorize the President to remove the COO at will.26 In addition, the Secretary may remove the COO “for misconduct or failure to meet performance goals set forth in the performance agreement.”27 Either the President or the Secretary must provide their reasons for removal to the authorizing congressional committees.28 The COO’s compensation includes basic pay, which is tied to the pay levels of the SES, and an annual bonus not to exceed 50% of the basic pay.29 The senior managers of FSA are appointed by the COO without regard for the competitive service appointment provisions of Title 5 of the U.S. Code.30 The work and priorities of these senior officials are governed by annual performance agreements with the COO that include measurable organizational and individual goals.31 Senior managers serve at the pleasure of the COO or, in the event that the COO position is vacant, the Secretary.32 As is the case for the COO, the compensation of senior managers includes basic pay, which is tied to the pay levels of the SES, 23 HEA §141(d)(4). 24 HEA §141(d)(2). 25 HEA §141(d)(3). 26 The removal provision could be subject to multiple interpretations. No explanation of the provision could be located in the legislative history of the Higher Education Amendments of 1998. It appears, however, that the provision might have been drawn from Section 2 of the Clinton Administration’s model PBO bill at https://govinfo.library.unt.edu/npr/ initiati/21cent/billlegi.html. The section-by-section analysis that accompanied this model bill states, “The COO may be removed by the President at will, or the Secretary for misconduct or non-satisfactory performance under the performance agreement” (emphasis added). This analysis may be found at https://govinfo.library.unt.edu/npr/initiati/ 21cent/billsect.html. Arguably, the evidence is not definitive, but a reasonable reading of the statute can distinguish these standards for removal by the President and the Secretary. In any event, because the COO is accountable to the Secretary on the basis of measurable organizational and individual performance goals, at-will removal by the President might be more difficult politically than would be the case for most presidential political appointees. 27 HEA §141(d)(3)(B). 28 HEA §141(d)(3). 29 HEA §141(d)(4). For example, in 2022, the COO reportedly received a base pay of $203,685, close to the maximum SES pay for that year, and a bonus of $50,539 (U.S. Federal Government Employee Lookup at https://www.federalpay.org/employees; OPM, “Pay and Leave,” https://www.opm.gov/policy-data-oversight/payleave/salaries-wages/salary-tables/22Tables/exec/html/ES.aspx; and FSA, FY2024 Report, p. 127). The COO’s aggregate annual compensation may not exceed the President’s salary (HEA §141(d)(4)(C). 30 HEA §141(e)(1). 31 HEA §141(e)(2). 32 HEA §141(e)(4). Congressional Research Service 9 The Office of Federal Student Aid as a Performance-Based Organization and an annual bonus.33 The total annual compensation of a manager may not exceed 125% of the maximum basic pay for the SES pay system.34 FSA Personnel Flexibilities Unless otherwise specified in law, executive branch employment is governed by the civil service laws of Title 5 of the U.S. Code. Consistent with the PBO framework, the HEA includes provisions that give FSA more flexibility in the staffing, classification, and pay of its employees. The statute stipulates that FSA shall not be subject to any cap on the number or grade of its employees.35 FSA and the Office of Personnel Management (OPM) are directed to jointly develop and implement personnel flexibilities that are consistent with Title 5 of the U.S. Code.36 In addition, the COO is authorized to establish technical and professional positions that are not subject to the provisions of Title 5 pertaining to competitive service appointments.37 The HEA provision places covered positions in the excepted service, under which FSA could use alternative hiring procedures that relax the traditional competitive hiring procedures in Title 5 (such as application of veterans’ preference, public notice, and/or modified qualification standards). FSA is directed to develop a performance management system consistent with Title 5 that establishes goals or objectives for employees.38 FSA Procurement Flexibilities When executive branch agencies need to acquire goods or services to carry out their functions, they are required to comply with the Federal Acquisition Regulation (FAR)39 and applicable procurement statutes. The PBO procurement provisions of the HEA are consistent with this overarching requirement while also permitting certain flexibilities. They state, “Except as provided in this section, the PBO shall abide by all applicable Federal procurement laws and regulations when procuring property and services.”40 The procurement flexibilities provided to the PBO include, for example, those related to the use of experts and consultants. Whereas agencies are generally constrained in obtaining such services by limitations and conditions of Title 5 of the U.S. Code41—such as requirements for a specific appropriation or other statutory authorization and for reporting to OPM on such actions—the PBO may obtain such services without regard to this provision.42 33 HEA §141(e)(3). 34 HEA §141(e)(3). 35 HEA §141(g)(1). Determination of the number and grade of an agency’s employees is usually part of the executive branch budget process. The final decisions on the agency’s employment levels are made after consultation with and approval of OMB in accordance with the guidance provided in Section 85 of Circular A-11 at https://www.whitehouse.gov/omb/information-for-agencies/circulars/. (See subsection on estimating employment levels.) The budget process for ED is described in greater detail at https://www2.ed.gov/about/overview/budget/ process.html. 36 HEA §141(g)(2). CRS was unable to locate information concerning the implementation of this provision. 37 HEA §141(g)(3). This provision originally capped the number of these excepted service positions at 25. This ceiling was removed as part of amendments to the HEA’s PBO provisions that were included in the HEOA. P.L. 110-315, §117(6); 122 Stat. 3078, 3116. 38 HEA §141(h). 39 See the FAR at https://www.acquisition.gov/browse/index/far. 40 HEA §142(b). 41 5 U.S.C. §3109. 42 HEA §142(b)(2). Congressional Research Service 10 The Office of Federal Student Aid as a Performance-Based Organization In another example of procurement flexibility, the HEA provides the PBO with authority to “use a two-phase process for selecting a source for a procurement of property or services.”43 In such a process, an agency first issues a general solicitation and then issues a second solicitation with more specific requirements to a limited group of vendors from among respondents to the first solicitation. In contrast, the FAR provides for the use of this authority under limited circumstances.44 In a final example, the circumstances and criteria under which the PBO may pursue a procurement with only one company differ from those followed by most agencies. The Competition in Contracting Act of 1984, as amended, allows seven statutory exceptions to “full and open competition” under which most agencies may make “sole-source” contract awards.45 FSA is not subject to these competition requirements when dividing the procurement of a system into smaller components or “modules.” After awarding the first module of a system to a vendor on a competitive basis, FSA may award contracts for subsequent modules to the same vendor on a noncompetitive or “single-source basis.”46 FSA Independence As noted above, most high-level subunits within departments are led by political appointees who serve at the pleasure of, and under the direction of, the Secretary. In some cases, however, subunits are statutorily structured to have some independence from political leadership. A variety of structural mechanisms in different combinations have been used over time to establish such independence. Consequently, agencies vary in their level of structural independence from political leadership. In addition, notwithstanding these structural features, a specific leader of such a departmental subunit might elect to adhere to the Secretary’s agenda for other political or policy reasons.47 Although the HEA explicitly states that FSA is subject to the direction of the Secretary of Education,48 the agency is afforded a greater level of independence from political leadership than most departmental subunits in the executive branch.49 This is due to the HEA provisions that pertain to the appointment and removal of the FSA COO, as well as those that stipulate FSA’s 43 HEA §142(d). 44 See, for example, 48 C.F.R. Subpart 36.3. 45 41 U.S.C. §3304 and 10 U.S.C. §3204. See also 48 C.F.R. §6.302. 46 HEA §142(g)(4)(A). See also “Procurement” in the appendix of Ben Miller and Jason Delisle, Ensuring Accountability and Effectiveness at the Office of Federal Student Aid, Center for American Progress and American Enterprise Institute, May 2019, p. 29, http://www.aei.org/publication/ensuring-accountability-and-effectiveness-at-theoffice-of-federal-student-aid/. Single-source basis is defined as the award of a contract “to a source after soliciting an offer or offers from, and negotiating with, only such source (although such source is not the only source in the marketplace capable of meeting the need) because such source is the most advantageous source for purposes of the award.” HEA §142(l)(4). 47 For more on this kind of agency independence, see CRS Report R43391, Independence of Federal Financial Regulators: Structure, Funding, and Other Issues. 48 HEA §141(b)(1). 49 The independence features discussed here are those provided for in statute. The actual level of independence exercised by the agency might be influenced by additional factors, including, for example, administrative implementation decisions, organizational culture, and leadership styles. For a discussion of the evolution of FSA’s relationship with ED during the initial implementation of this statute, see GAO, Federal Student Aid: Additional Management Improvements Would Clarify Strategic Direction and Enhance Accountability, GAO-02-255, April 2002, pp. 22-24, https://www.gao.gov/new.items/d02255.pdf. The independence of FSA and its potential policy and operational effects are also discussed in Miller and Delisle, Ensuring Accountability and Effectiveness at the Office of Federal Student Aid. Congressional Research Service 11 The Office of Federal Student Aid as a Performance-Based Organization independence in carrying out certain functions. As noted above, the COO’s appointment is to be made for a three- to five-year term on the basis of specified abilities, expertise, and experience “without regard to political affiliation or activity.”50 Although the COO may be removed from office before the end of a term, the statute includes atypical specifications of the circumstances and manner in which this may occur.51 The statute also specifies that FSA “shall exercise independent control of its budget allocations and expenditures, personnel decisions and processes, procurements, and other administrative and management functions.”52 Although this authority is subject to the direction of the Secretary, it is not a common specification for a departmental subunit.53 Establishment of a PBO to Administer Federal Student Aid FSA54 was established as the federal government’s first PBO in 1998. When Congress established this structure, it departed from conventional organizational arrangements that were then in use within the federal government. The PBO model was drawn from government innovations in Great Britain in the 1980s and 1990s.55 It was then developed and promoted for American governmental use by the National Partnership for Reinventing Government (NPR),56 a major Clinton Administration governmental reform initiative. The Administration’s rollout of the PBO touted the model’s potential benefits and portrayed it as a commonsense development in the effort to streamline the federal government and make it more responsive to its “customers.” The NPR initiative, led by Vice President Al Gore, aimed to improve federal government performance by reorganizing agencies and processes to be guided by market principles and 50 HEA §141(d)(1). 51 HEA §141(d)(3). As previously noted, this removal provision could be subject to multiple interpretations. (See footnote 27.) Removal of an incumbent COO might be more politically difficult than would be the case for most presidential political appointees. 52 HEA, §141(b)(4). 53 The conference report for the Higher Education Act Amendments of 1998, in which this provision was added, stated, “The conferees explicitly clarify that the PBO, while a part of the Department of Education, shall exercise independent control from the principal offices of the Department in carrying out its day-to-day activities, including its budget allocations and expenditures, its personnel decisions, its procurements, and its other administrative and management functions. This level of independence is critical to providing the PBO with greater flexibility in the management of the operational functions assigned to it.” U.S. Congress, Higher Education Amendments of 1998 Conference Report, report to accompany H.R. 6, 105th Cong., 2nd sess., September 25, 1998, H.Rept. 105-750 (Washington: GPO, 1998), p. 281. 54 When it was first established, FSA was known as the Office of Student Financial Assistance. In order to prevent confusion, FSA is consistently used to refer to the PBO that was established in 1998, notwithstanding the name change. 55 The approach developed in Great Britain, which became known as the Next Steps Initiative, arose out of a 1988 study by a senior adviser to Prime Minister Margaret Thatcher. The study proposed to change the incentives and structures within the British civil service to prioritize performance and results and thereby improve the government’s service delivery. The decision to adapt this approach for American national government was reportedly made after Vice President Al Gore and other Administration officials met with the British officials who had been responsible for the development of that nation’s initiative. Alasdair Roberts, “Command Performance,” Government Executive, August 1996, pp. 21-26; and Alasdair Roberts, “Performance-Based Organizations: Assessing the Gore Plan,” Public Administration Review, vol. 57 (November/December 1997), p. 465. 56 The initiative was initially called the National Performance Review, also with the abbreviation NPR, and was renamed the National Partnership for Reinventing Government for President Clinton’s second term. Congressional Research Service 12 The Office of Federal Student Aid as a Performance-Based Organization incentives.57 The NPR’s first report put forth hundreds of recommendations.58 These recommendations were intended to lead to better government service delivery and greater “customer” satisfaction.59 In general, this would be accomplished through the streamlining of personnel practices, procurement, and other government operations; improvement of management tools and incentives; and promotion of efficiency and economy in administration. Administration-endorsed PBO-related legislation was introduced in late 1995,60 but it was not until early 1996 that the Vice President introduced the PBO concept as a major new focus of the ongoing NPR.61 The aim was to improve government service delivery by implementing certain functions through the use of business-like practices and incentive structures. Agencies reorganized as PBOs would be freed from adherence to certain procurement and civil service laws and would, at the same time, develop systems of performance incentives and accountability for results. In advocating for the creation of federal PBOs, Vice President Gore stated: Government agencies need to change their incentives and internal cultures to shift from a focus on process to a focus on customers and achieving results. They need to become more responsive to citizens, yet account for program costs and safeguard broader public interests. This can be done by creating performance-based organizations (PBOs) that set forth clear measures of performance, hold the head of the organization clearly accountable for achieving results, and grant the head of the organization authority to deviate from governmentwide rules if this is needed to achieve agreed-upon results. PBOs involve structural changes as well as changes in incentives affecting federal employees. 62 The NPR identified seven candidates for conversion, but none has been formally converted into a PBO.63 However, one of the entities targeted for conversion, the Patent and Trademark Office, was statutorily reorganized and given many PBO-like structural characteristics. Because it has 57 For a critique of the NPR in comparison with other 20th-century management reform initiatives, see Ronald C. Moe, Administrative Renewal: Reorganization Commissions in the 20 th Century (Lanham, MD: University Press of America, 2003), pp. 117-130. 58 Office of the Vice President, From Red Tape to Results: Creating a Government That Works Better and Costs Less: Report of the National Performance Review (Washington, GPO: 1993). 59 The NPR’s use of customer to refer to beneficiaries of specific governmental services exemplifies its intentional adoption of private sector business terminology in line with the initiative’s focus on adoption of market principles and forces for public sector bureaucracies. 60 See H.R. 2533 (104th Congress), the United States Intellectual Property Organization Act. This legislation would have reestablished the PTO, then a bureau within the Department of Commerce, as an agency with many PBO-like attributes. It did not specifically use the PBO nomenclature, however. Vice President Gore made reference to such legislation in his remarks introducing the PBO model in early 1996, cited below. Other legislation introduced in the 104th Congress (e.g., H.R. 1659, H.R. 3460, and S. 1458) would have reestablished the PTO as a government corporation. In 1999, the office was re-established as the U.S. PTO, an agency within the Department of Commerce with many PBO-like attributes. P.L. 106-113, Div. B, §1000(a)(9) (referencing App. I, Title IV, Subtitle G). 61 NPR, Reinvention’s Next Steps: Governing in a Balanced Budget World: A Speech by Vice President Al Gore and Supporting Background Papers (Washington, NPR: 1996), pp. 6-8, 17-20. The Vice President’s remarks were delivered at the National Press Club on March 4, 1996. 62 NPR, Reinvention’s Next Steps, p. 17. The excerpted text is drawn from the background papers that accompanied the speech. 63 The seven functions and entities that were initially identified included inspections of international shipments of agricultural products of the Animal and Plant Health Inspection Service, Department of Agriculture; dissemination of technical information of the National Technical Information Service, Department of Commerce; Intellectual property rights of the PTO, Department of Commerce; commissary services of the Defense Commissary Agency, Department of Defense; mortgage insurance services of the Federal Housing Administration and Government National Mortgage Association, Department of Housing and Urban Development; retirement and benefit management services of the Federal Retirement and Insurance Service, OPM; and St. Lawrence Seaway operations of the St. Lawrence Seaway Development Corporation, Department of Transportation. NPR, Reinvention’s Next Steps, p. 20. Congressional Research Service 13 The Office of Federal Student Aid as a Performance-Based Organization these features, some observers have referred to it as a PBO.64 Though not contemplated as a potential PBO within the scope of the initial NPR list, FSA represented the first organization aligned with the PBO framework outlined in the NPR. In addition to FSA, one other entity—the Air Traffic Organization of the Federal Aviation Administration—has been explicitly established as a PBO in statute. Legislation to Establish a PBO to Administer Federal Student Aid Prior to the establishment of FSA, federal student loan programs were administered by the Office of Student Financial Assistance Programs (SFAP), a unit within ED’s Office of Postsecondary Education (OPE). As discussed below, in the mid-1990s, leadership of these programs had temporarily become divided between SFAP and a unit in the Secretary of Education’s office that had been established for the purpose of accelerating the implementation of the Direct Loan program. Although the Higher Education Amendments of 1998 (P.L. 105-244) established FSA’s PBO structure, interest in converting SFAP into a PBO seems to have arisen as early as 1996 amid growing concerns within Congress and ED that the student financial aid programs were “severe[ly]” mismanaged.65 The model was attractive to some congressional advocates of SFAP reform, as it appeared that its design features might address some of the agency’s perceived problems while maintaining the financial assistance function within ED.66 Moreover, it appears that the possibility of establishing a PBO within ED to implement these programs was under consideration by the Secretary of Education prior to Vice President Gore’s introduction of the new organizational model in 1996, which, as described earlier, did not include SFAP as a candidate for conversion into a PBO.67 As the Clinton Administration was introducing the PBO model, congressional committees were monitoring and expressing concern about difficulties in the management of the student financial aid programs at ED. At a July 1996 hearing, ED’s IG reported on a number of difficulties at ED, 64 See, for example, Thomas H. Stanton et al., U.S. Patent and Trademark Office: Transforming to Meet the Challenges of the 21st Century, National Academy of Public Administration, August 2005, p. 157, https://www.napawash.org/ studies/academy-studies/us-patent-trademark-office-transforming-to-meet-the-challenges-of-the-21st: “In 1999, Congress passed legislation making USPTO the second federal PBO as ‘an agency of the United States within the Department of Commerce.’” Characterizations like these in the public administration literature suggest that, in that discipline, the PBO designation might connote a cluster of characteristics and organizational arrangements based around certain principles rather than a discrete organizational type that must be established in statute as such. 65 As discussed below, for example, in the context of a July 1996 hearing on perceived mismanagement of student financial aid programs at ED, the IG discussed the Secretary of Education’s interest in the PBO model as well as the IG’s assessment of the potential merits and drawbacks of converting student financial aid administration to it. See U.S. Congress, House Committee on Economic and Educational Opportunities, Subcommittee on Oversight and Investigations, Hearing on Split Decision: The Inspector General’s Report on the Divided Management Structure of Student Financial Aid Programs at the Department of Education, 104th Cong., 2nd sess., July 10, 1996 (Washington: GPO, 1996), pp. 4, 11-12. Prior to 1996, Congress and the Administration had explored options for improving the servicing and collection of student loans that would have involved organizational changes. See Departments of the Treasury and Education, A Study of the Feasibility of the IRS Collecting Repayments of Federal Student Loans, June 1995, which was undertaken pursuant to a congressional directive. In addition, the Administration was considering at least one additional federal student aid delivery organizational change alternative—a mutual benefit corporation— while the PBO model was under consideration. See U.S. Congress, House Education and the Workforce, Postsecondary Education, Training, and Life-Long Learning, Hearing on H.R. 6—The Higher Education Amendments of 1998, 105th Cong., 1st sess., June 19, 1997 (Washington: GPO, 1998), p. 35. 66 See, for example, testimony of the chair of the Advisory Committee on Student Financial Assistance, Subcommittee on Postsecondary Education, Training and Life-Long Learning, Field Hearing on H.R. 6, pp. 63-69. 67 Subcommittee on Oversight and Investigations, Hearing on Split Decision, p. 11. Congressional Research Service 14 The Office of Federal Student Aid as a Performance-Based Organization including program leadership being divided between OPE and the Senior Advisor to the Secretary for Direct Lending, poor coordination and communication between these offices, poor OPE staff morale, and a shortage of employees qualified in IT and financial analysis. Related problems included an interruption in efforts to improve the existing Federal Family Education Loan program, growth in the backlog of institutional cohort default rate appeals, confusion in the student loan community about where to find help for technical questions, concerns about the monitoring of financial statements and the procurement of needed IT, and difficulties with the processing the Free Application for Federal Student Aid (FAFSA).68 In a February 12, 1996, memorandum, the Secretary of Education reportedly expressed an interest in establishing SFAP as a PBO.69 ED’s IG testified in July of that year that such a transition appeared to be premature but that certain changes—such as leadership from a highly qualified chief executive officer to provide a stable, long-term leadership and consistency of purpose and a significant, focused reengineering effort—could be made to SFAP to prepare it for such a transition.70 In May 1997, the Advisory Committee on Student Financial Assistance (ACSFA)71 reported that implementation of financial aid programs was plagued by staff without the necessary experience, outdated computer systems and “a web of large, uncoordinated, uncompetitive contracts which fail to deliver on time and produce unacceptable cost overruns.”72 ACSFA recommended restructuring the delivery of federal student aid under a PBO and reengineering Title IV systems and contracts, two processes the committee asserted were closely linked.73 During a July 1997 hearing, the Assistant Secretary heading OPE testified that the Administration was reviewing the PBO model among several different organizational modifications that might improve management of federal student assistance programs.74 By March 1998, the Secretary of Education was voicing his support specifically for the PBO approach, stating that such a conversion would enhance ED’s flexibility with regard to potential management and procurement reforms and allow it to more efficiently deliver student aid yet also hold it accountable for results and allow the Secretary to maintain control of policy.75 68 Subcommittee on Oversight and Investigations, Hearing on Split Decision. 69 Subcommittee on Oversight and Investigations, Hearing on Split Decision, p. 11. 70 Subcommittee on Oversight and Investigations, Hearing on Split Decision, p. 11. 71 ACSFA was established by the Higher Education Amendments of 1986 to “provide advice and counsel to the Congress and to the Secretary on student financial aid matters.” (P.L. 99-498; see also 20 U.S.C. §1098). Authority for ACSFA expired on October 1, 2015 (HEA §491(k)). 72 See Subcommittee on Postsecondary Education, Training and Life-Long Learning, Field Hearing on H.R. 6, pp. 6369, at 67. A copy of an ACSFA letter to House Committee on Education and the Workforce Chair William F. Goodling transmitting the recommendations may be found as an attachment to the record of a hearing held in July of that year: U.S. Congress, House Committee on Education and the Workforce, Subcommittee on Postsecondary Education, Training and Life-Long Learning, H.R. 6, The Higher Education Amendments of 1998 Student Loan Programs, 105th Cong., 1st sess., July 22, 1997 (Washington: GPO, 1998), pp. 110-116. 73 U.S. Congress, House Committee on Education and the Workforce, Subcommittee on Postsecondary Education, Training and Life-Long Learning, H.R. 6, the Higher Education Amendments of 1998: System Modernization Efforts at the Department of Education and Accreditation, 105th Cong., 1st sess., July 29, 1997 (Washington: GPO, 1998), p. 7. 74 Subcommittee on Postsecondary Education, Training and Life-Long Learning, H.R. 6, the Higher Education Amendments of 1998, p. 81. The Assistant Secretary’s testimony echoed that of the Secretary during a hearing held the previous month. U.S. Congress, House Education and the Workforce, Postsecondary Education, Training, and LifeLong Learning, Hearing on H.R. 6—The Higher Education Amendments of 1998, 105th Cong., 1st sess., June 19, 1997 (Washington: GPO, 1998), p. 35. 75 Letter from Secretary of Education Richard Riley to congressional leaders, March 2, 1998. Congressional Research Service 15 The Office of Federal Student Aid as a Performance-Based Organization In September 1997, the chair and ranking member of the House Committee on Education and the Workforce subcommittee with jurisdiction over higher education policy introduced a standalone bill to establish a PBO within ED to manage the information systems associated with Title IV programs.76 In his introductory remarks, the chair noted problems with federal student aid information systems and financial statements before asserting, “A customer-focused, performance-based organization within the Department, run by an experienced Chief Operating Officer, can take the steps necessary to properly reengineer the current systems and contracts.”77 Provisions from this bill were included in the HEA reauthorization bill as reported by the committee in April 1998.78 The Senate Committee on Labor and Human Resources reported out its main bill for the HEA reauthorization in May 1998.79 This bill included provisions that were “developed in cooperation with the administration” to establish a federal student aid-related PBO in ED.80 The role of the PBO that would have been established by this legislation was arguably broader than that in the House committee-reported measure. The PBO established in the House bill would have been “a discrete management unit responsible for managing the information systems supporting” Title IV programs,81 whereas the Senate bill would have empowered the PBO “to administer various functions relating to student financial assistance programs authorized under” Title IV.82 Text from the committee reports concerning the PBO sections of the reauthorization legislation provides a snapshot of the committees’ perceptions about the management of financial aid distribution programs by ED at the time. Report language also laid out the committees’ intentions for and expectations of this change in organizational structure and management paradigm. Both the House and Senate committees of jurisdiction appeared to be concerned with perceived management problems at ED. The House Committee on Education and the Workforce discussed the prevalence and persistence of IT problems and their apparent impact on the ability of ED to deliver student aid economically, effectively, and efficiently. Specifically, the committee noted ED’s limited progress in integrating numerous data systems despite legislative mandates; the tripling over five years of ED’s budget for student aid information systems; and the fact that even with significant expenditures, student aid systems required dozens of paper forms and experienced “needless” process delays and breakdowns.83 76 H.R. 2536 (105th Congress). This bill was referred to committee and not further acted upon. 77 Representative Howard P. “Buck” McKeon, “Introducing the 21 st Century Student Financial Aid System Improvement Act of 1997,” extensions of remarks, Congressional Record, daily edition, vol. 143, part 129 (September 24, 1997), p. E1834. 78 U.S. Congress, House Committee on Education and the Workforce, Higher Education Amendments of 1998, report on H.R. 6, 105th Cong., 2nd sess., April 17, 1998, H.Rept. 105-481 (Washington: GPO, 1998), p. 104. 79 S. 1882 (105th Congress). 80 U.S. Congress, Senate Committee on Labor and Human Resources, Higher Education Act Amendments of 1998, report to accompany S. 1882, 105th Cong., 2nd sess., May 4, 1998, S.Rept. 105-181 (Washington: GPO, 1998), p. 28. Further commenting on the process of developing the PBO provisions, the report stated, “In order to address these problems, the committee has worked closely with members of the higher education community and representatives of the Secretary to create a new performance-based organization within the Department of Education. The committee is pleased that the Department has finally become a full partner in this effort and looks forward to working with the Secretary to improve the quality and efficiency of services provided to students and other participants in the student financial aid programs” (p. 75). 81 H.R. 2536 (105th Congress). 82 S. 1882 (105th Congress). 83 U.S. Congress, House Committee on Education and the Workforce, Higher Education Amendments of 1998, report on H.R. 6, 105th Cong., 2nd sess., April 17, 1998, H.Rept. 105-481 (Washington: GPO, 1998), p. 104. Congressional Research Service 16 The Office of Federal Student Aid as a Performance-Based Organization The Senate Committee on Labor and Human Resources described a more general and overlapping set of issues related to the need to improve the administration of Title IV aid and problems regarding the Direct Loan Consolidation program, the printing of the FAFSA, and reports that ED was falling significantly behind in its efforts to become Year 2000 compliant.84 Both the House and Senate committees intended for the establishment of a PBO organizational structure to address the management problems they had identified. For example, the House Committee on Education and the Workforce noted that the purposes of the proposed change were to increase effectiveness, economy, and efficiency by giving administrators greater management flexibility while requiring greater accountability for results. The committee also expected that a PBO structure would accomplish the following aims that were specifically delineated in the HEA: • • • • • Improve service to program participants, Reduce the costs of administering the programs, Increase accountability, Provide greater flexibility in management and administration of the programs, and Integrate the information systems that support the federal student aid programs.85 In doing so, the committee stated: The Committee firmly believes that a customer-based, Performance-Based Organization within the Department, operated by an experienced Chief Operating Officer can take the necessary steps to properly reengineer the current systems and contracts…. The Committee also believes the creation of a PBO will result in a more efficient, effective, less expensive and less bureaucratic financial aid delivery system. The end result should be a system that is easy for students and parents to use and one that ensures that students have the information they need to select the education that is best for them—all while ensuring that taxpayer funds are being used efficiently and effectively.86 The Senate Committee on Labor and Human Resources also identified its goal for the change, although it did so more generally. The committee also noted its effort to divide policy functions, which were to be retained by OPE, from operational functions, which were to be carried out by the new PBO: The goal of the performance-based organization has been, and remains, to improve the delivery of student financial aid to students and their families. In order to accomplish this, the committee has attempted to identify the functions performed by the Office of Postsecondary Education and segregate those that are essentially policy functions that must be retained by OPE from those that are administrative and that may appropriately be handled by the performance-based organization. The PBO will be responsible for administration of the information and financial systems that support student financial 84 U.S. Congress, Senate Committee on Labor and Human Resources, Higher Education Act Amendments of 1998, report to accompany S. 1882, 105th Cong., 2nd sess., May 4, 1998, S.Rept. 105-181 (Washington: GPO, 1998), pp. 7576. Year 2000 compliance refers to the efforts of the federal government to prevent widespread and severe IT problems that might have arisen at the turn of the new century as a consequence of date formatting in computer programming that did not provide for a distinction between years in the 20 th and the 21st centuries. 85 HEA §141(a)(1). 86 U.S. Congress, House Committee on Education and the Workforce, Higher Education Amendments of 1998, report on H.R. 6, 105th Cong., 2nd sess., April 17, 1998, H.Rept. 105-481 (Washington: GPO, 1998), p. 104. Congressional Research Service 17 The Office of Federal Student Aid as a Performance-Based Organization assistance programs as well as any additional functions that the Secretary determines are necessary or appropriate to improve the delivery of student aid.87 Both the Senate- and House-passed bills would have established a new PBO vested with responsibilities related to federal student aid delivery. Specific differences between the competing versions regarding the new entity’s authority, purposes, functions, relationship with ED, and other organizational features were ironed out through a conference process that yielded a consensus measure.88 Resolution of the PBO-related differences does not appear to have been a sticking point in the conference process.89 The conference report was agreed to by the two chambers and President Clinton signed the Higher Education Amendments of 1998 into law on October 7, 1998. 2008 Higher Education Act PBO Amendments In 2008, the Higher Education Opportunity Act (HEOA; P.L. 110-315)90 amended the HEA PBO provisions. The report of the Senate Committee on Health, Education, Labor and Pensions noted its general approval, at that time, of the PBO as implemented: The committee applauds the efforts since the last reauthorization to implement the PBO. Schools and individuals have benefited from improved efficiency in originating, servicing and processing grant and loan aid. The ombudsman has provided needed guidance to students struggling to navigate the complex system. There is strong support for continuation of these efforts to make further progress in the delivery of student financial aid.91 In line with this assessment, the 2008 amendments appear to have clarified and expanded FSA’s role in the administration of Title IV programs. They changed the characterization of the PBO’s functions from “operational” to “administrative and oversight,” seemingly broadening the mandate of the agency.92 In addition, whereas the previous provisions vested the PBO with responsibility for administration of the information and financial systems supporting Title IV programs, the 2008 amendments enlarged the scope of responsibilities beyond this specified support function to administration of “the Federal student financial assistance programs authorized under title IV.”93 The HEOA also amended FSA’s personnel and procurement flexibility provisions, as discussed below.94 87 U.S. Congress, Senate Committee on Labor and Human Resources, Higher Education Act Amendments of 1998, report to accompany S. 1882, 105th Cong., 2nd sess., May 4, 1998, S.Rept. 105-181 (Washington: GPO, 1998), pp. 7576. 88 U.S. Congress, Higher Education Amendments of 1998, conference report to accompany H.R. 6, 105th Cong., 2nd sess., September 25, 1998, H.Rept. 105-750 (Washington: GPO, 1998). 89 See, for example, a news report on the conference outcome and related controversies that notes the existence of PBO-related provisions in a single sentence: The agreement “would set up a performance-based organization in the Education Department to improve oversight of federal student aid.” Sue Kirchhoff, “Rewrite of Higher Education Act Has a Bipartisan Glow,” CQ Weekly, September 26, 1998, pp. 2593-2594. 90 Amendments to the PBO provisions that had been enacted in 1998 may be found in §117 at 122 Stat. 3114. 91 U.S. Congress, Senate Committee on Health, Education, Labor, and Pensions, Higher Education Amendments of 2007, report to accompany S. 1642, 110th Cong., 1st sess., November 15, 2007, S.Rept. 110-231 (Washington: GPO, 2007), p. 12. 92 See, for example, HEA §141(a)(1). 93 P.L. 110-315, §117(2)(B)(ii)(I). 94 See report subsections entitled “FSA Personnel Flexibilities” and “FSA Procurement Flexibilities.” Congressional Research Service 18 The Office of Federal Student Aid as a Performance-Based Organization Subsequent Amendments Since enactment of the HEOA, the HEA PBO provisions have been updated to address somewhat limited issues. For example, the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (P.L. 115-232) made modest changes to FSA’s procurement flexibilities as part of a set of amendments across multiple federal statutes to update federal procurement flexibilities.95 Additionally, the Stop Student Debt Relief Scams Act (P.L. 116-251) updated the PBO’s statutory functions to include helping prevent improper use of FSA’s student loan systems by unauthorized users as part of broader updates to the HEA to prevent fraud, commercial advantage, or private financial gain.96 Changes to Title IV Aid Affecting FSA’s Operations Since FSA’s inception, both statutory and regulatory changes have been made to the Title IV student aid programs. These changes may have had an effect on FSA’s operations. At the time of FSA’s formation in 1998, Title IV of the HEA authorized and ED administered two primary federal student loan programs: the Federal Family Education Loan (FFEL) program and the Direct Loan program. These two programs provided borrowers with loans for postsecondary education with substantially similar terms and conditions as one another, but each program had significantly different administrative structures. Private lenders originated FFEL program loans, and either they or secondary market loan purchasers (who bought loans from originating lenders) were responsible for completing many loan servicing tasks, including working with postsecondary institutions to track students’ enrollment and loan eligibility status, billing borrowers, and conducting initial collection services if a loan became delinquent. Additionally, under the FFEL program, state and nonprofit guaranty agencies received federal funds to administer many aspects of the program, such as providing technical assistance to IHEs and lenders, providing credit and loan rehabilitation counseling to borrowers, and performing collections work. Under the Direct Loan program, the federal government essentially serves as the “banker” by providing loans to students and their families using federal capital. ED assumes the primary role in administering the Direct Loan program (described below), including providing technical assistance to IHEs, contracting with loan servicers to perform day-to-day administrative tasks, providing loan counseling to borrowers, and initiating collections work. In May 2008, in response to concerns about the continued availability of FFEL program loans due to several FFEL program lenders curtailing or ceasing their participation in the program, the Ensuring Continued Access to Student Loans Act of 2008 (P.L. 110-227) granted ED the temporary authority to purchase student loans made under the FFEL program. In October 2008, P.L. 110-350 extended this authority through July 1, 2010. After purchasing loans made under the FFEL program, control of loan servicing was transferred to ED. In 2009, the SAFRA Act (P.L. 111-152, Title II) terminated the authority to make new loans under the FFEL program after June 30, 2010. Since July 1, 2010, the Direct Loan program has been the primary federal student loan 95 P.L. 115-232, Division A, Title VIII, §836(g)(2); 132 Stat. 1872-1873. 96 P.L. 116-251, §5; 134 Stat. 1131. Congressional Research Service 19 The Office of Federal Student Aid as a Performance-Based Organization program,97 although many FFEL program loans remain outstanding,98 and FFEL program lenders and guaranty agencies remain responsible for administering several aspects of those programs. These changes have vested FSA with a larger scope of responsibility than Congress might have originally contemplated when it authorized FSA’s PBO structure, as FSA became responsible for administering a larger share of the federal student loan programs (in terms of loan volume and individual borrowers associated with these changes) than that for which it had previously been responsible under the FFEL program. Moreover, the switch to almost 100% direct lending in 2010 had the effect of fundamentally altering the federal student loan marketplace. During the roughly 15-year period that the two programs operated concurrently, IHEs and borrowers were provided the opportunity to “shop around.” That is, IHEs chose whether to apply to participate in the FFEL program or Direct Loan program, and the caliber of administrative and servicing work available within the respective loan programs may have been a factor in those decisions.99 Additionally, schools opting to participate in the FFEL program usually compiled preferred lender lists that they shared with students. Again, assessments of the caliber of administrative and servicing work provided through differing lenders likely factored into the selection of lenders for such lists.100 Borrowers attending FFEL program participating IHEs were free to select among an array of lenders, including but not limited to those on the preferred lender lists.101 There were opportunities available for IHEs and for borrowers who were dissatisfied with customer service to pursue other options.102 The competition that existed within the FFEL program and across the loan programs provided incentives for those involved in administrative and servicing work to provide enhanced customer service. By transitioning to a single model of federal student lending (the Direct Loan program) under which a single entity (the federal government) both makes and is responsible for administering loans, the federal student loan marketplace transitioned from one with some builtin incentives to provide enhanced customer service to one in which there may be less incentive to do so.103 97 As of the fourth quarter of 2024, approximately $1.5 trillion in Direct Loan program loans were outstanding. This accounts for approximately 90% of all outstanding Title IV student loan debt. ED, Office of Federal Student Aid (FSA), “Federal Student Aid Portfolio Summary.” 98 As of the fourth quarter of 2024, approximately $165 billion in FFEL program loans were outstanding. This accounts for approximately 10% of all outstanding Title IV student loan debt. ED, FSA, “Federal Student Aid Portfolio Summary.” 99 In addition, the HEA explicitly permitted FFEL program lenders and guaranty agencies to offer borrowers interest rate and loan fee discounts (see HEA §433(b)(5)(A)). Thus, the variation in discounts offered by FFEL program lenders may have factored into an IHEs’ decisions to participate in either program and into students’ decisions on FFEL program lenders. 100 The process by which IHEs compiled lender lists was governed by the HEA and ED regulations. For example, in compiling a preferred lender list, IHEs were required to disclose the criteria for including lenders on the list, including “high quality servicing.” HEA §487(h)(1)(C)(iii). 101 Borrowers often selected a lender on their IHEs’ preferred lender lists. However, there were concerns that some lenders were providing compensation or other benefits to some IHEs to secure placement on their preferred lender lists. Such arrangements, it was argued, created a conflict of interest for IHEs and “undermine[d] students’ trust in the process, and magnifie[d] the risk of illegal quid pro quo deals.” U.S. Senate, Health, Education, Labor and Pensions Committee, Report on Marketing Practices in the Federal Family Education Loan Program, July 14, 2007, p. 11. 102 One of the benefits Congress perceived in the dual system of federal student loans was that it allowed for students and IHEs to “benefit from a competitive environment.” See U.S. Congress, Senate Committee on Labor and Human Resources, Higher Education Amendments of 1998, report to accompany S. 1882, 105th Cong., 2nd sess., May 8, 1998, S.Rept. 105-181 (Washington: GPO, 1998), p. 2. 103 FSA’s practice of contracting with multiple loan services and private collection agencies may have sustained a (continued...) Congressional Research Service 20 The Office of Federal Student Aid as a Performance-Based Organization Several other statutorily and administratively driven changes in the Title IV aid programs since FSA’s creation as a PBO may have also had the effect of increasing the scope and complexity of FSA’s administrative functions. These include but are not limited to the following: • • • • increases in the amount and type of aid benefits available to students, including extension of PLUS Loan availability to graduate and professional students under the Deficit Reduction Act of 2005 (P.L. 109-171) and the authorization of the TEACH Grant program under the College Costs Reduction and Access Act of 2007 (P.L. 110-84); authorization and implementation of myriad income-driven loan repayment plans that allow borrowers to make monthly payments in amounts indexed to their adjusted gross income;104 increased complexity of aid benefits, including establishment of a 6% interest rate cap on federal student loans during military service under the Servicemembers Civil Relief Act (P.L. 108-189), the Public Service Loan Forgiveness (PSLF) program105 under the College Costs Reduction and Access Act (P.L. 110-84), cumulative lifetime maximums on certain students’ eligibility to receive Pell Grants established under the HEOA106 and amended under the Consolidated Appropriations Act, 2012 (P.L. 112-74);107and administrative attempts to effectuate broad-based student loan cancellation policies;108 and changes made to aid administration, including the process to receive a discharge of federal student loans after a determination that a borrower is totally and permanently disabled as established under the HEOA and implemented via subsequent regulatory changes, statutory changes made by the FUTURE Act (P.L. 116-91) authorizing ED to access Internal Revenue Service tax return data for the purposes of administering Title IV student aid programs, and significant statutory changes to the underlying processes and methodologies for determining federal student aid eligibility made by the FAFSA Simplification Act (Title VII, Division FF of P.L. 116-260). degree of competition among participants in the federal student loan marketplace. This may be viewed as having been intended to promote enhanced customer service. See, for example, U.S. Congress, House Committee on Appropriations, Departments of Labor, Health, and Human Services, and Education, and Related Agencies Appropriation Bill 2019, report to accompany S. 3158, 115th Cong., 2nd sess., June 28, 2018, S.Rept. 115-289, pp. 200201. 104 For additional information on the income-driven repayment plans, see CRS Report R45931, Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers. 105 For additional information on the PSLF program, see CRS Report R45931, Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers. 106 The HEOA amendments introduced lifetime eligibility limited for Pell Grants. For students who received their first Pell Grant on or after July 1, 2008, cumulative Pell Grant lifetime eligibility was limited to 18 full-time semesters (or the equivalent). 107 The Consolidated Appropriations Act, 2012, reduced the cumulative lifetime eligibility for Pell Grant aid from 18 semesters to 12 semesters beginning in award year 2012-2013. Any Pell Grant received prior to award year 2012-2013 is included in the student’s lifetime limited. 108 For additional information, see CRS Insight IN11997, The Biden Administration’s One-Time Student Loan Debt Relief Policy under the HEROES Act of 2003 (available to congressional clients on request); CRS Report R48156, The Biden Administration’s Student Loan Debt Relief Rulemaking; and CRS Insight IN12454, Student Loan Debt Relief: The Biden Administration’s Second Proposed Rule. Congressional Research Service 21 The Office of Federal Student Aid as a Performance-Based Organization FSA Functions and Structure Section 141 of the HEA tasks FSA with managing administration and oversight of the Title IV federal student aid programs. Among other functions, FSA develops and maintains the FAFSA; obtains student aid funds from the Treasury and makes them available for disbursement to students; contracts with third parties that perform myriad administrative tasks associated with the Title IV programs (e.g., loan servicing); provides information on the Title IV programs to students, Title IV participants (e.g., IHEs), Congress, and other stakeholders; and provides oversight of Title IV program participants, including IHEs and the third-party loan servicers with which it contracts. The HEA specifically establishes two roles within FSA—the COO and the Student Loan Ombudsman—to carry out FSA’s functions, but much of FSA’s organizational structure has been established through administrative action by the COO. In addition, many outside entities may have an interest in or have asserted a role over aspects of the federal student aid programs.109 Thus, in coordination with ED, FSA maintains relationships with outside stakeholders, executive branch entities, and Congress. FSA also maintains relationships with offices within ED at large. Statutorily Specified FSA Functions Section 141 of the HEA specifies several high-level aspects of aid administration for which FSA is responsible. These include the following: • • • The administrative, accounting, and financial management functions for the Title IV aid programs, including • collecting, processing, and transmitting of data to students, IHEs, and other authorized stakeholders; • development of specifications for software and procurement of systems to support Title IV aid administration; • acquisitions of all hardware and software and procurement and management of all IT contracts to support Title IV aid administration; • contracting for information and financial systems to support Title IV aid administration; • providing customer service, training, and user support related to Title IV aid administration; and • ensuring the integrity of the Title IV aid programs. Development, in consultation with the Secretary, of FSA’s annual budget, and Taking action on improper access and use of FSA’s student loan systems by unauthorized users.110 109 For example, the CFPB has asserted supervisory authority over selected federal student loan servicers. Bureau of Consumer Financial Protection, “Defining Larger Participants of the Student Loan Servicing Market,” 78 Federal Register 73383, December 6, 2013. 110 This includes, for instance, detecting patterns of improper systems use, maintaining a reporting system to permit FSA contractors to alert ED of the potential misuse of such systems, and proactively contacting federal student loan borrowers whose accounts may have been improperly used regarding such suspicious activity. HEA §141(b)(2). Congressional Research Service 22 The Office of Federal Student Aid as a Performance-Based Organization The Secretary may delegate additional functions to FSA as necessary or appropriate to achieve FSA’s purposes.111 FSA is given control of its budget allocations and expenditures, procurements, personnel decisions and processes, and other administrative and management functions but remains subject to the direction of the Secretary.112 The HEA specifies that the Secretary “shall maintain responsibility for the development and promulgation of policy and regulations” related to Title IV aid.113 In doing so, the HEA requires the Secretary to “request the advice of, and work in cooperation with” FSA.114 To fulfill its statutory responsibilities, FSA undertakes many discrete tasks (discussed below). FSA Awarding, Disbursing, and Servicing Aid Students wishing to receive Title IV student aid must annually apply for assistance using the FAFSA, which is developed and maintained by FSA in accordance with specifications set forth in the HEA.115 After a student submits the FAFSA, an automated system contracted by FSA processes the FAFSA,116 and then IHEs (or the third-party servicers with which they contract)117 use information from it to calculate the amount of aid for which a student is eligible. FSA obtains funds from the Treasury and makes them available to IHEs, which in turn disburse those funds to students. Once a grant is disbursed, in many cases administrative functions are significantly decreased.118 However, FSA may be required to implement and/or oversee administrative functions after a grant has been disbursed. For instance, if an individual receives a Pell Grant in excess of the amount for which they are eligible, they may be required to return a portion to FSA. Once a Direct Loan program119 loan is disbursed, FSA assigns it to a contracted loan servicer. Loan servicers perform a variety of administrative functions such as collecting payments and performing delinquency prevention activities. Certain “specialty loan servicing programs” (such as the Public Service Loan Forgiveness program and Total and Permanent Disability discharges) are managed internally by FSA, although some third-party contractors—known as business process operations vendors—may perform manual processing and customer service functions for 111 HEA §141(b)(3). 112 HEA §141(b)(4). 113 HEA §141(b)(1). 114 HEA §141(b)(1). 115 HEA Sections 473-480 specify the data that are collected in the FAFSA. HEA Section 483 requires that ED (via FSA) make available for free, and for individuals to file with ED, the FAFSA “to determine the eligibility of a student for Federal financial aid” under Title IV. 116 The system is known as the FAFSA Processing System. 117 IHEs may contract with third-party servicers for assistance in administering the Title IV aid programs. However, an IHE ultimately remains responsible for the Title IV funds and is held accountable if a third-party servicer mismanages the programs or funds. HEA §481(c); 34 C.F.R. §668.25. 118 An exception to this is the TEACH Grant program. Post-disbursement administration of the TEACH Grant program is somewhat similar to administration of the Direct Loan program in that ED and its third-party contractors perform various functions related to the TEACH Grant program, such as tracking the recipient’s progress toward fulfilling program service requirements. Individuals who do not fulfill the service requirements have their TEACH Grants converted into Direct Loans, which are then serviced by a contracted loan servicer. For additional information on the TEACH Grant program, see CRS Report R46117, Teacher Education Assistance for College and Higher Education (TEACH) Grants: A Primer. 119 FSA administrative tasks for FFEL and Perkins Loan program loans vary considerably from those of the Direct Loan program. Many of these tasks are not detailed in this report, as they comprise a relatively small portion of FSA’s total loan portfolio in FY2019. FSA, FY2024 Report, p. 28. Congressional Research Service 23 The Office of Federal Student Aid as a Performance-Based Organization these programs.120 FSA may, if necessary, assign a defaulted loan to its defaulted loan servicer, the Default Resolution Group, which attempts to recover payment on defaulted loans from borrowers. FSA may also use other options to collect on defaulted Direct Loans, including referring a borrower’s account to the Treasury Offset Program.121 FSA Contracting FSA “relies on a multitude of contracts and thousands of vendor employees to deliver its mission.”122 Services for which FSA maintains contracts include servicing of Direct Loans and ED-held FFEL program loans and Perkins Loans,123 collection of defaulted Direct Loans and EDheld FFEL program loans and Perkins Loans, and IT infrastructure to support myriad tasks such as the processing of submitted FAFSAs. FSA also has a contract for the National Student Loan Data System (NSLDS), which is a central database for student aid. NSLDS maintains detailed administrative data to track Title IV grants and loans throughout their lifecycle and to support Title IV administrative functions.124 FSA Information and Assistance to Third-Party Stakeholders Numerous individuals and entities have a stake in the Title IV federal student aid programs and rely on FSA to provide timely and accurate information about them. Students, their families, and borrowers rely on FSA to provide information and assistance throughout the entire financial aid process. IHEs and FSA’s third-party contractors rely on communications and assistance from FSA to administer various aspects of the aid programs. Members of Congress and the general public rely on FSA for information about the performance of the Title IV aid programs. FSA operates several websites that enable stakeholders to access relevant information about program operations. FSA maintains the website http://www.studentaid.gov, which is FSA’s “primary customer-facing website”125 and the FSA Partner Connect website, which consolidates guidance and resources related to Title IV administration for use by individuals involved in Title IV administration.126 FSA also operates several repositories of Title IV program data to enable it and stakeholders to access information about the programs and their performance. Section 485B of the HEA tasks ED with development of the NSLDS. FSA has primary responsibility for administration of the NSLDS and has contracted with a third party to operate it. FSA also maintains the Federal Student Aid Data Center—a centralized, publicly available source for selected administrative data 120 ED, Justification of Appropriation Estimates to the Congress FY2025, “Student Aid Administration,” p. 15, https://www.ed.gov/sites/ed/files/about/overview/budget/budget25/justifications/r-saa.pdf. 121 The Treasury Offset Program collects delinquent debts owed to federal agencies by withholding certain federal benefits (e.g., Social Security benefits, income tax refunds) and remitting those payments to the relevant federal agency. 122 FSA, FY2024 Report, p. 109. 123 ED-held FFELs include, for example, those acquired by ED with authority provided to it under the Ensuring Continued Access to Student Loans Act of 2008 (P.L. 110-227). ED-held Perkins Loans include, for example, those assigned to ED by an IHE that elects not to independently service the loans. 124 President’s FY2025 Budget Request for the ED, Congressional Budget Justification, “Student Aid Administration,” p. 35. 125 FSA, FY2024 Report, p. 69. 126 FSA Partner Connect, “About This Site,” https://fsapartners.ed.gov/more-info/about-this-site. Congressional Research Service 24 The Office of Federal Student Aid as a Performance-Based Organization and other information related to the Title IV programs.127 The Title IV program data on FSA’s Data Center are often derived from NSLDS. In addition, FSA operates the Enterprise Data Management Analytics Platform Service, which is a “data analytics platform that ingests data from multiple Federal Student Aid (FSA) systems of records to perform big-data analytics on FSA data in one common location, produce reports and statistical models, and serve as a centralize repository of information about FSA customers across the full student aid life cycle.”128 FSA also makes its statutorily required annual report129 to Congress publicly available.130 Finally, the Office of Consumer Education and Ombudsman131—a subunit within FSA—serves as a single point of contact for students and aid recipients to provide feedback or to file complaints and disputes about the Title IV programs.132 FSA Oversight FSA has a large oversight role in ensuring that various Title IV program participants comply with Title IV program requirements. Both statute and regulations prescribe many aspects of the Title IV programs, including student aid program terms and conditions and requirements IHEs must meet to participate in the programs. IHEs and third-party contractors play a significant role in ensuring that the Title IV programs are administered properly. In addition, some Title IV programs (e.g., the campus-based aid programs133) vest a larger share of administrative functions with IHEs, while others (e.g., the FFEL program) vest additional administrative functions with outside entities such as guaranty agencies. IHEs and Their Third-Party Servicers FSA’s oversight of IHEs relates largely to ensuring that they meet eligibility requirements to participate in the Title IV programs134 and that they (and any third-party servicers with which they may contract) properly administer the Title IV programs.135 FSA certifies an IHE’s eligibility to participate in the Title IV programs and recertifies its eligibility thereafter.136 FSA verifies each 127 The Data Center includes, among other information, data on student aid amounts disbursed and number of recipients, IHEs participating in the Title IV programs, and lenders and guaranty agencies participating in the FFEL program and documents related to FSA’s management and business processes, such as loan servicer contracts. FSA, “Federal Student Aid Data Center,” https://studentaid.gov/data-center. 128 ED, “Notice of a New System of Records,” 87 Federal Register 56038, September 13, 2022. 129 HEA §141(c)(2). 130 See FSA, FY2024 Report. 131 The HEA establishes within FSA the Student Loan Ombudsman, which is tasked with providing assistance to Title IV loan borrowers (HEA §141(f)). The Office of Consumer Education and Ombudsman appears to fulfill this statutory requirement and also provides assistance to other types of FSA customers. 132 FSA, FY2024 Report p. 128. In FY2024, the Office of Consumer Education and Ombudsman (at the time, called the Ombudsman Office) received approximately 290,000 complaints, more than double the number of complaints from FY2023. The Ombudsman Office attributed this increase to a number of factors, such as FSA’s implementation of “notable changes to federal financial aid programs,” including the end of the COVID-19 student loan repayment pause and implementation of the FAFSA Simplification Act. FSA, FY2024 Report, pp. 128-133, 138. 133 These include the Federal Supplemental Educational Opportunity Grant program, the Federal Work-Study program, and the Perkins Loans program. For additional information on these programs, see CRS Report RL31618, CampusBased Student Financial Aid Programs Under the Higher Education Act. 134 For additional information on the requirements IHEs must meet to participate in the Title IV programs, see CRS Report R43159, Eligibility for Participation in Title IV Student Financial Aid Programs. 135 For data on the types of oversight activities in which FSA engaged for FY2024, see FSA, FY2024 Report, pp. 115119. 136 HEA §498; 34 C.F.R. Part 668. Congressional Research Service 25 The Office of Federal Student Aid as a Performance-Based Organization IHE’s accreditation status and whether the IHE is legally authorized to operate within a state. FSA also evaluates an IHE’s financial responsibility and administrative capability to administer the Title IV programs. After an IHE is certified to participate in the Title IV programs, FSA ensures that it is conforming to eligibility and administrative requirements. FSA does this by performing program reviews and by reviewing required IHE compliance audits and financial statement audits conducted by thirdparty auditors.137 FSA reviews the IHE’s required third-party compliance and financial statement audits and attempts to resolve issues with them. During a program review, FSA evaluates an IHE’s compliance with Title IV requirements. Review priority is given to certain IHEs specified in statute (e.g., those IHEs with high cohort default rates).138 FSA has the authority to impose sanctions and corrective actions on IHEs and their third-party servicers. Examples include imposing fines, imposing specific conditions or restrictions related to administration of Title IV funds, and terminating Title IV participation.139 FSA Contractors FSA’s oversight of its third-party contractors generally consists of ensuring that they fulfill the terms and conditions of their contracts with FSA. In general, federal agencies, including FSA, have a number of tools to help ensure a contractor adequately performs a contract.140 Examples include requiring corrective action,141 using performance-based incentives,142 and terminating the contract. FSA contracts with numerous third-parties for a variety of goods and services related to administration of the Title IV programs, including student loan servicers. FSA contracts with seven vendors to perform a variety of student loan servicing and debt collection tasks largely related to the Direct Loan program.143 For the primary set of loan servicing contracts (referred to as the Unified Servicing and Data Solution), FSA uses performance-based incentives to encourage vendors to meet desired results (e.g., ensuring borrowers are in current repayment status and meeting customer service goals). It does so by basing the number of borrower loan accounts allocated and compensation levels on servicers’ ability to meet stated goals.144 For contracts related to the specialty loan servicing program (i.e., those FSA contracts with business process operations vendors), FSA similarly uses performancebased metrics to determine future work allocations.145 In addition, FSA issues guidance to vendors to assist them in day-to-day operations and conducts monitoring activities, such as audits 137 HEA §498A. 138 HEA §498A(a)(2). 139 34 C.F.R. Part 668, Subpart G. For additional information, see CRS In Focus IF12939, HEA Title IV Student Aid Program Enforcement Actions. 140 For additional information on maintaining government contractor accountability, see CRS Report R45322, Selected Legal Tools for Maintaining Government Contractor Accountability. 141 Corrective actions typically require contractors to remove, correct, or replace goods or reperform services for failing to conform to contract specifications. 142 Performance-based incentives reward contractors with payments for meeting or exceeding goals or standards. 143 The FY2024 appropriation to support these contracts totaled $1 billion. ED, “Fiscal Year 2024 Congressional Action” table, https://www.ed.gov/sites/ed/files/about/overview/budget/budget24/24action.pdf. 144 See, for example, FSA contract with Central Research, Attachment 08, “Service Level Methodology Performance Metrics,” Attachment 20, “At-Risk Borrower Performance Incentive,” and Attachment 21, “Future Borrower Allocation Methodology,” available at https://sam.gov/opp/0264de6ac3354dd6814455e535e783e9/view. 145 See, for example, contract with Edfinancial Services, https://studentaid.gov/sites/default/files/ed-financialservices.pdf. Congressional Research Service 26 The Office of Federal Student Aid as a Performance-Based Organization and quality assurance reviews.146 The terms of the final FSA contract with the vendor that performs debt collection work are not publicly available. Entities Engaged in Selected Title IV Programs For FFEL program loans not held by ED, guaranty agencies administer many aspects of the program, such as providing default aversion assistance147 to FFEL program lenders and services related to the federal loan guarantee. In the campus-based programs, IHEs perform many of the administrative functions described earlier in this section (e.g., award disbursement and loan servicing) and are also afforded some discretion in determining the mix and amount of campusbased aid funds awarded to students. FSA oversees these entities in their fulfillment of these functions. Selected FSA Statistics As described above, the scope of FSA’s operations covers many activities and responsibilities. Selected statistics and additional information provide insight into the scale of FSA’s operations. Figure 1 presents information on funds obligated for student aid administration. Figure 2 presents data on FTE employment for federal student aid administration. Funding for Federal Student Aid Administration Funding obligations for federal student aid administration generally comprise two broad categories: (1) salaries and expenses148 and (2) student loan servicing.149 Figure 1 presents annual inflation-adjusted funding obligated for federal student aid administration for FY2009-FY2024.150 Over this period, obligations for federal student aid administration increased from $1.1 billion in FY2009 to about $2.2 billion in FY2024. Obligations for student aid administration have increased by 30% since FY2011 (the first full fiscal year in which no new FFEL program loans were made). Since FY2016, the composition of student aid administration between salaries and expenses and discretionary servicing activities has remained somewhat even (about 50% for each category). Prior to that time, salaries and expenses comprised the majority of obligations for student aid administration.151 146 Ibid. 147 When undertaking default aversion assistance, guaranty agencies work with borrowers to bring into current repayment status loans that are in danger of going into default. HEA §422B(d)(3). 148 Salaries and expenses include, for example, personnel compensation and benefit costs of federal employees. 149 Student loan servicing includes payments made to loan servicers pursuant to their contracts with FSA. Loan servicers perform myriad functions related to student loan administration, including but not limited to processing payments, communicating with borrowers about the status of their loans, and providing information about loan benefits and features. 150 FY2009 was the fiscal year following enactment of the HEOA, the most recent comprehensive reauthorization of the HEA. 151 Some of the growth in loan servicing costs (evident since FY2011) is likely attributable to the growth in the number of borrowers with loans being serviced and in outstanding loans. Some is also likely due to the termination of authority to make new loans under the FFEL program, under which loan servicing was largely the responsibility of private lenders. Under the FFEL program, different mechanisms were used to provide federal subsidies that helped cover such loan servicing costs. For additional information, see CRS Report RL33674, The Administration of the Federal Family Education Loan and William D. Ford Direct Loan Programs: Background and Provisions (archived, available to congressional requesters upon request). Congressional Research Service 27 The Office of Federal Student Aid as a Performance-Based Organization Figure 1. Inflation-Adjusted Obligations for Federal Student Aid Administration, FY2009-FY2024 ($ in millions) Figure is interactive in the HTML version of this report. Source: Office of Management and Budget, Budget of the United States Government, FY2011-FY2026, Appendix for the Department of Education. Notes: Obligation means a binding agreement that will result in an outlay either immediately or in the future. See OMB’s Circular A-11 (2018), Section 20—Terms and Concepts. Data are inflation-adjusted using the Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPI-U). In FY2009, servicing activities were not reported separately from student aid administration. FY2024 figures exclude approximately $17 million in “reimbursable program activity,” which comprised about $16.5 million allotted to FSA from ED’s Nonrecurring Expenses Fund to support FSA’s Unified Servicing and Data Solution and about $55,000 in “reimbursables” to ED for parking at ED’s Lyndon Baines Johnson building. CRS communication with ED, Office of Congressional Affairs, August 26, 2025. FTE Employment for Federal Student Aid Administration Figure 2 presents data on FTE employment for FY2009-FY2024 for federal student aid administration. The number of FTE employees working on federal student aid administration has risen from 1,058 in FY2009 to 1,568 in FY2024, a 48% increase. Other offices within ED besides FSA also perform student-aid related administrative activities.152 In addition, a number of contractor staff (e.g., loan servicing staff) provide outsourced business operations for student aid administration. In winter and spring of 2025, ED’s total workforce decreased by almost 50% through a number of administrative actions, including a reduction in force and employee participation in a deferred resignation option and a voluntary separation incentive payment option.153 Reports indicate that FSA’s staff decreased by about 700 employees as part of this 152 These offices include the Office of Finance and Operations; the Office of Chief Information Officer; the Office of General Counsel; the Office of Postsecondary Education; the Office of Planning, Evaluation, and Policy Development; and the Office of the Under Secretary. President’s FY2026 Budget Request for the U.S. Department of Education, Congressional Budget Justification, “Student Aid Administration,” pp. 7-8. 153 ED, “U.S. Department of Education Initiates Reduction in Force,” press release, March 11, 2025, https://www.ed.gov/about/news/press-release/us-department-of-education-initiates-reduction-force. Congressional Research Service 28 The Office of Federal Student Aid as a Performance-Based Organization decrease.154 Figure 2. represents FTE employment for federal student aid administration through FY2024; thus, it does not depict the 2025 reduction in force. Figure 2. Full-Time Equivalent (FTE) Employment for Federal Student Aid Administration, FY2009-FY2024 Figure is interactive in the HTML version of this report. Source: Office of Management and Budget (OMB), Budget of the United States Government, FY2011-FY2025, Appendix for the Department of Education (ED); FSA, Annual Reports, FY2009-FY2024. Notes: FTE employment “is the basic measure of the levels of employment used in the Budget. It is the total number of hours worked (or to be worked) divided by the number of compensable hours applicable to each fiscal year.” See OMB’s Circular A-11(2024), Section 20—Terms and Concepts. The number of FTE employment for other ED offices in FY2024 is estimated. Trends Relevant to Federal Student Aid Administration Over the past several years, the workload of FSA has varied. Table 1 provides information related to FSA’s workload, including the number of FAFSAs processed, the number of students receiving aid, the total dollar amount of federal student aid provided through the Title IV federal student aid programs, the total number of federal student loan recipients who have outstanding balances, and the total dollar amount of principal and interest outstanding for even-numbered years during the FY2010-FY2024 period. As shown in Table 1, the number of individuals receiving Title IV aid and the number of FAFSAs processed has declined since FY2012. However, the total number of federal student loan recipients with outstanding loan balances and the total dollar amount of principal and interest outstanding increased over the period examined. 154 Cory Turner, “The Education Department Is Being Cut in Half. Here’s What’s Being Lost,” NPR, March 13, 2025, https://www.npr.org/2025/03/12/nx-s1-5325854/trump-education-department-layoffs-civil-rights-student-loans; Liam Knox, “Education Department Reeling After Layoffs,” Inside Higher Ed, March 25, 2025, https://www.insidehighered.com/news/government/politics-elections/2025/03/25/education-department-staff-struggleafter-mass. Congressional Research Service 29 The Office of Federal Student Aid as a Performance-Based Organization Table 1. Selected Trends Related to Federal Student Aid Administration Even-Numbered Years FY2010-FY2024 (in millions) 2010 2012 2014 2016 2018 2020 2022 2024 Total number of FAFSAs processed (award year)a 19.5 21.9 21.2 19.8 18.9 18.1 17.5 17.9 Unduplicated count of student aid recipientsb 13.8 13.9 12.8 11.9 10.8 9.5 8.2 9.3 Total amount of federal student aid awarded (dollars)c 162,296 177,225 169,614 170,920 167,982 148,443 148,184 203,415 Total amount of federal student aid awarded, excluding Consolidation Loans (dollars)d 145,138 141,261 135,045 125,257 126,350 118,042 112,358 132,304 Unduplicated count of recipientse who have federal student loans outstanding 34.3 38.3 40.7 42.3 42.9 42.9 43.5 42.7 Total principal and interest outstanding on federal student loans (dollars)f 749,800 948,200 1,129,800 1,292,200 1,439,200 1,566,300 1,634,500 1,638,600 Source: FSA, Application Volume Reports, FAFSA Volume Reports, by State, Application Cycle 2009-2010 through Application Cycle 2023-2024; OMB, Budget of the United States Government, FY2011-FY2026, Appendix for FSA; FSA, Federal Student Loan Portfolio Summary FY2010-FY2024, Q4. Notes: All figures are for fiscal years, with the exception of total number of FAFSAs processed, which are presented based on final year of application cycle. a. Prior to award year 2017-2018, the FAFSA became available for submission 18 months prior the award year ending in the calendar year shown in the header. Beginning in award year 2017-2018, the FAFSA became available for submission 21 months prior to the award year ending in the calendar year shown in the header. For additional information, see ED, “Changes Impacting the 2017-2018 FAFSA: Frequently Asked Questions,” https://financialaidtoolkit.ed.gov/resources/fafsa-changes-17-18-faq.pdf. b. Unduplicated count of students aided through federal student aid programs authorized under Title IV of the HEA. c. Total aid available through federal student aid programs authorized under Title IV of the HEA. d. Total aid available through federal student aid programs authorized under Title IV of the HEA, other than Consolidation Loans. A Consolidation Loan allows a borrower to combine one or more previously obtained federal student loans into a single, new loan. Congressional Research Service 30 The Office of Federal Student Aid as a Performance-Based Organization e. f. A recipient is the student who benefits from the federal student loan. In most cases, the recipient is the borrower. For Parent PLUS Loans, the parent is the borrower and the child is the recipient. Outstanding balance of principal and interest at the end of the fiscal year for federal student loans made through the Direct Loan, FFEL, and Perkins Loan programs. FSA Structure Section 141 of the HEA establishes FSA’s PBO structure as a discrete management unit within ED and subject to the direction of the Secretary in the exercise of its functions. FSA operates under the coordination of the Office of the Under Secretary, which is the office within ED that coordinates policies and programs related to postsecondary education, as well as vocational and adult education.155 Although the HEA specifically establishes two roles within FSA (the COO and the student loan ombudsman), much of FSA’s organizational structure and leadership arrangements have been established through administrative action by the COO, subject to the direction of the Secretary.156 In addition, FSA interacts with various other offices within ED to facilitate the implementation of ED policies in aid administration. Statutorily Mandated Roles FSA is composed of numerous offices, each responsible for varying aspects of Title IV student aid administration.157 Two FSA roles are specifically mandated by the HEA: the chief operating officer and the student loan ombudsman. These offices have been charged with carrying out both statutory and administratively delegated functions, as discussed below. Chief Operating Officer (COO) The HEA assigns several responsibilities to FSA’s COO. The Secretary has delegated additional responsibilities to the COO. In practice, while responsibilities are assigned or delegated to the COO, individual employees or offices within FSA may perform the day-to-day tasks associated with fulfilling those responsibilities. Section 141(d) of the HEA vests management of FSA in a COO and mandates several of the COO’s activities and responsibilities. Annually, the COO and the Secretary must publicly make available a five-year performance plan for FSA that establishes measurable goals and objectives for FSA.158 In developing the plan, the Secretary and the COO are to consult with stakeholders such as students, IHEs, and Congress.159 The COO is required annually to submit to Congress a report on FSA’s performance that is to include, among other items, (1) an independent financial audit, (2) the results achieved during the year relative to the performance plan goals, (3) the evaluation of the COO and senior managers, and (4) recommendations for legislative and regulatory changes to improve administration of the Title IV student aid programs.160 FSA states that the Annual Report satisfies these 155 ED, FY2024 Agency Financial Report, November 14, 2024, p. 15. 156 HEA §141(b)(4). 157 For a chart depicting FSA’s organization as of November 15, 2024, see FSA, FY2024 Report, p. 10. 158 FSA’s performance plans are available at FSA, “Strategic Planning and Reporting,” https://studentaid.gov/data- center/business-info/strategic-planning-and-reporting. 159 HEA §141(c)(1). 160 HEA §141(c)(2). Congressional Research Service 31 The Office of Federal Student Aid as a Performance-Based Organization responsibilities.161 In preparing the report, the COO is to establish appropriate ways to consult with stakeholders, including students and IHEs.162 Section 142 of the HEA authorizes the COO, subject to the authority of the Secretary, to procure property and services to perform its functions. In practice, while the Secretary is considered ED’s senior procurement official, it appears that FSA typically has significant autonomy in its contracting functions.163 The HEA specifies that the Secretary maintains responsibility for the development and promulgation of policy and regulations related to Title IV aid. However, in developing and promulgating Title IV student aid policies and regulations, the Secretary is required to request the advice of, and work in cooperation with, the COO.164 FSA’s Policy Implementation and Oversight Directorate (PIOD) is the unit within FSA that leads FSA’s involvement with the Secretary on Title IV student aid policies and regulations. Among other functions, PIOD provides information and advice about Title IV program administration and operations to ED and other federal agencies and assists other FSA offices to ensure proper implementation of Title IV statutory, regulatory, and other policy requirements. PIOD facilitates the implementation of policy (and supports FSA staff in implementing policy) developed by ED through the Office of the Secretary, the Office of the Under Secretary, and OPE. PIOD also165 • • • • formulates policy recommendations and identifies policy issues affecting the Title IV student aid programs; provides advice on regulations, policies, administrative policy guidance, and procedures; prepares preliminary drafts of subregulatory guidance for consideration by ED and drafts policy electronic announcements for review by FSA staff; and designs, manages, and monitors the Experimental Sites Initiative.166 Finally, the HEA specifies that the COO is to disseminate information to stakeholders on the student loan ombudsman (described below).167 The Secretary may delegate additional functions to the COO (and FSA in general) to achieve FSA’s purposes.168 Authorities that the Secretary has previously delegated to the COO include, but are not limited to, 161 FSA, FY2024 Report, p. viii. 162 HEA §141(c)(3). 163 CRS communication with FSA personnel, April 17, 2019. 164 HEA §141(b)(1). Additionally, the Secretary shall request cost estimates from FSA for system changes required by specific policy proposals and assist FSA in identifying goals for the administration of systems used to administer the Title IV aid programs and updating such systems to current technology. 165 ED, “FSA Functional Statements—Partner Participation and Oversight,” https://www.ed.gov/about/ed-organization/ functional-statements/fsa-functional-statements/partner-participation-and-oversight, accessed August 21, 2025. 166 HEA Section 487A(b) authorizes ED to waive certain statutory and regulatory requirements related to IHEs’ aid award processes to test and provide recommendations to the Secretary on the impact and effectiveness of proposed regulations or new management initiatives. See FSA, “Experimental Sites,” https://experimentalsites.ed.gov/exp/ index.html. 167 HEA §141(f)(2). 168 HEA §141(b)(3)). Congressional Research Service 32 The Office of Federal Student Aid as a Performance-Based Organization • • • • authority to take certain personnel actions, such as carrying out reductions-inforce for FSA in coordination with ED, approving telework agreements, and handling FSA employee grievances;169 programmatic authorities related to Title IV programs, such as awarding certain formula grants (e.g., awarding campus-based funds to IHEs) and entering into agreements with entities outside of ED (e.g., IHEs or other federal agencies);170 authority to compromise, waive, and write-off certain claims against individuals under Title IV programs, such as waiving or writing off the collection of current or defaulted federal student loans; and171 authority to develop, implement, and manage an Employee Personnel Security Program in accordance with established ED directives and guidance.172 Student Loan Ombudsman Section 141(f) of the HEA specifies that the COO, in consultation with the Secretary, shall appoint an ombudsman “to provide timely assistance to borrowers of loans made, insured, or guaranteed under Title IV.” Specifically, the ombudsman is to (1) review and attempt to informally resolve borrower disputes with Title IV loan program participants and (2) compile and analyze data on borrower complaints and make recommendations. Each year, the ombudsman is to submit to the COO (for inclusion in the COO’s annual report) a report describing the ombudsman’s activities and effectiveness during the preceding year. FSA’s Office of Consumer Education and Ombudsman (the Ombudsman) is the specific office tasked with fulfilling the HEA Section 141 requirements for a student loan ombudsman. The office also administers FSA’s comprehensive informal complaint resolution and customer inquiry/case resolution processes related to all Title IV student aid programs, not just those related to student loans. The most frequent types of cases received by the office relate to student loans, however.173 Addressing customer cases regarding non-loan Title IV student aid programs is not part of the ombudsman’s specific statutory mandate.174 On September 5, 2025, FSA announced that the office’s mission and work was “expanding … to focus on providing information to students and families on the benefits and risks of federal student loan borrowing” by taking a “proactive approach to improve financial literacy among students, parents, and borrowers.”175 169 Memorandum from the Secretary of Education to the FSA COO, “Delegations of Human Resources Authority,” January 9, 2006. 170 Memorandum from the Secretary of Education to the FSA COO, “Delegation of Program Authority,” May 29, 2008. 171 Memorandum from the Secretary of Education to Director, Program Management Services, Business Operations, FSA, through the FSA COO, “Delegation of Authority for Collection and Compromise of Claims Against Individuals under the Federal Student Aid (FSA) Programs,” November 9, 2009. 172 Memorandum from the Acting Assistant Secretary, Office of Management to the FSA COO, “Delegation of Authority: Employee Personnel Security Program,” September 13, 2018. 173 FSA, FY2024 Report, p. 132. 174 However, HEA Section 141(a)(2) does specify that one of FSA’s broad purposes is to improve customer service to students and other Title IV student aid program participants. The FSA’s Office of Consumer Education and Ombudsman’s role of addressing disputes regarding non-loan Title IV aid programs could be viewed as fulfilling this statutory purpose. 175 ED, “U.S. Department of Education Bolsters Office of the Ombudsman to Improve Consumer Education and Increase Transparency for Stud [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR46143. Public record. Not legal advice.