Key Points
- The Washington Sun reported the Education Department wants to make Federal Student Aid an independent agency by Oct. 1, 2027.
- A spokesperson for the department called the report “fake news,” and the White House budget office called it “inaccurate.”
- Federal law keeps FSA inside the Education Department, so a spin-off would require an act of Congress.
According to a report in the Washington Sun, the Education Department is planning to spin off the Office of Federal Student Aid into an independent agency by Oct. 1, 2027. The Sun cited three sources and internal documents. FSA chief operating officer Richard Lucas is reportedly leading the effort with the White House Office of Management and Budget.
If this happens, it would be the largest step yet in the administration’s push to dismantle the Education Department.
The Department of Education denies the report. Spokesperson Ellen Keast told the Sun the story is “fake news“. She said the department “is engaged in an effort to restore FSA as a performance-based organization — not a political tool.” OMB called the reporting “inaccurate” without elaborating, and nothing has changed for borrowers leaving the SAVE forbearance.
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Why It Matters
Federal Student Aid cannot be its own independent department outside of the Department of Education without an act of Congress.
The federal law that made FSA a performance-based organization places the office under the direction of the Secretary of Education. The Sun reported that the department has acknowledged this internally, but it hasn’t approached Capitol Hill.
The stakes are large for the millions of Americans who interact with the agency. FSA manages $1.6 trillion in student debt owed by 45 million borrowers and allocates $120 billion in loans and grants each year. The office now has 800 employees after shedding 43% of its staff since Trump took office.
The department’s inspector general has already found that staff cuts weakened student loan oversight.
The Pushback
The pushback to the idea was swift.
Melanie Storey, who leads the National Association of Student Financial Aid Administrators and once ran policy implementation at FSA, doubts the timeline. “October of 2027, I mean come on,” Storey told The Sun. “This is extraordinarily complex work.”
NASFAA has found that 60% of college aid offices report slower federal processing since the layoffs. Three former Education secretaries have already asked the inspector general to investigate the cost of the department’s layoffs.
Borrower advocates say the reorganization ignores the bigger problem. “Changing the name on the agency letterhead will do nothing to lower costs for working-class families,” Protect Borrowers Executive Director Mike Pierce said in a statement. His group says more than 3 million borrowers went into student loan default last year, with 3 million more on track to do so this year.
American Federation of Teachers President Randi Weingarten joined that statement. She said the union “had to sue McMahon once to force her to follow the law and respect borrowers’ rights to lower student loan payments.” That refers to the AFT lawsuit over income-driven repayment. Weingarten said the reorganization “will only make things worse.“
How This Connects
An independent FSA would be a logical next step in the administration’s 18-month effort to move work out of the Education Department. President Trump proposed in March 2025 that the Small Business Administration “will handle all of the student loan portfolio.” No formal transfer followed, and federal student loans stayed at the Education Department under the Higher Education Act.
The department turned to interagency agreements instead. In November 2025, it shifted most Higher Education Act grant programs to the Labor Department, with Education keeping oversight. In march 2026, another agreement then gave Treasury control of defaulted student loan collections. That plan runs in three phases and could expand to the full loan portfolio and the FAFSA.
Those moves already face challenges. In April 2026, five Senate Democrats called the Treasury transfer an “illegal scheme” and argued the 2026 spending law bars the department from handing its statutory duties to other agencies.
Staffing is another critical issue. FSA had about 1,440 full-time staff before the layoffs, and it was forced to try to re-hire roughly 380 workers this spring to rebuild. Education Secretary Linda McMahon has conceded the cuts went too far.
What’s Next
The Department of Education and OMB are allegedly scheduled to meet on this topic next week. Watch for a formal request to Congress, where House Republicans have already proposed a series of bills to dismantle the department.
Another scenario we’re watching is a rebrand, where what’s left of the department gets a new name built around student aid. Congress created the Department of Education by statute, so a new name wouldn’t change the law or how your student loans work. However, it could give the administration a “win” in that there is no longer an agency named the Department of Education.
For borrowers, none of this changes what you owe or who services your loans today. Borrowers in default should keep working on getting out of default through rehabilitation, whatever happens to the org chart. And borrowers in the SAVE forbearance need to take action when they receive their notices.
Editor: Colin Graves
The post Report: Federal Student Aid Could Become Independent Agency By October 2027 appeared first on The College Investor.
