US plans to separate federal student aid office from Education Department, report says

The US Department of Education is reportedly preparing to separate its Federal Student Aid (FSA) office into an independent agency by October 1, 2027, in a move that could change how federal student loans and financial assistance are administered.

The Washington Sun reported on Oct 15, citing three people familiar with the matter and internal documents, that Richard Lucas, FSA’s chief operating officer, is leading the proposed transition with the White House Office of Management and Budget (OMB).

The reported plan would affect an office responsible for administering federal student loans, grants and work-study programmes.

The Education Department says FSA provides more than $120 billion annually in grants, work-study funds and low-interest loans to approximately 13 million students. The Washington Sun reported that the department’s outstanding student debt portfolio totals $1.6 trillion across 45 million borrowers.

Legal hurdles and questions over implementation

The proposed restructuring faces a significant legal obstacle. Federal law requires FSA to remain within the Education Department, and separating it into an independent agency would require congressional action, according to the report. The newspaper said the administration had not yet engaged Congress on the proposal.

The reported timeline has also raised concerns among current and former officials about whether the transition can be completed without disrupting the delivery of financial aid. FSA relies on the department for functions including budgeting, human resources and procurement, which would need to be established independently under the proposed arrangement.

Melanie Storey, who previously led policy implementation and oversight at FSA and now heads the National Association of Student Financial Aid Administrators, questioned whether the October 2027 deadline was realistic, describing the transition as complex.

Education Department disputes report

The Education Department rejected the report’s characterisation of its plans. Spokesperson Ellen Keast called the story “fake news” and said the department was working to restore FSA as a performance-based organisation. The White House budget office also described the reporting as inaccurate but did not elaborate, according to The Washington Sun.

The distinction is important because restoring FSA’s existing performance-based status is not the same as establishing a separate independent agency.

The reported plan comes amid broader efforts by the Trump administration to reduce the Education Department’s responsibilities and transfer some functions to other federal agencies. Any separation of FSA, however, would require overcoming the legal and operational hurdles outlined in the report.

No completed transfer has been announced. The proposal remains a reported plan, and its final form and timeline are uncertain.