ED announces plan to shift FSA to Treasury
On Thursday afternoon, the Department of Education (ED) announced a new interagency agreement (IAA) to move functions of the Office of Federal Student Aid (FSA) to the Department of Treasury. This move is the latest by the Trump Administration to fulfill a campaign promise to dismantle ED and move its operations to other government agencies. The new Treasury IAA is the 10th such partnership, joining others with the Departments of Labor, Health and Human Services, Interior, and State.
In the joint announcement, ED and Treasury detail a three-part plan to move FSA operations to Treasury, called the “Federal Student Assistance Partnership.” In the first phase, Treasury will take over collections associated with student loans in default and operational responsibilities for the Default Resolution Group and the Default Management and Collections Systems (DMCS). The second phase will focus on moving the entire student loan portfolio, including non-defaulted student loans, to Treasury. The third and final phase will move FSA’s remaining functions (including federal financial aid eligibility, the Free Application for Federal Student Aid (FAFSA), and financial aid disbursement) to Treasury, within the confines of statute. Like with other IAAs pursued by the Trump Administration, ED will retain both oversight and policy development functions for programs formerly administered by the agency.
According to the fact sheet co-released by the agencies, Treasury was selected to be the new home for FSA in part because both the FAFSA application process and involuntary debt collection processes rely on data matching with the Internal Revenue Service (IRS). The Trump Administration had previously announced that FSA would move to the Small Business Administration (SBA) before announcing this partnership with Treasury.
House Committee advances legislation on financial aid fraud
The House Education and Workforce Committee reported out three pieces of legislation this week to address financial aid fraud.
As covered in the Community College Daily, the No Aid for Ghost Students Act of 2026 requires the Education Department (ED) to proactively identify financial aid applicants who exhibit patterns associated with fraud when a student submits a Free Application for Federal Student Aid (FAFSA), codifying an agency policy going into effect for Spring 2026 (and covered in previous Office of Government Relations updates). The bill also requires institutions to adhere to ED requirements relating to preventing Title IV fraud, which, again under existing policy, will consist of running V4/V5 identity verification before distributing any aid to a student whose FAFSA is initially rejected by ED for having a high likelihood of fraud.
A second bill, the Student Aid Fraud Oversight and Accountability Act, would require ED to prioritize for program reviews institutions that have not been compliant with identity verification policies. Committee members agreed that, as the legislation moves forward, small modifications may be made to better reflect congressional intent — in part, to ensure that enforcement actions focus on institutions with a pattern of non-compliance, rather than just an individual case.
Both bills on ghost students were approved by the committee with bipartisan support.
A third piece of legislation – the FAFSA Verification Efficiency Act – passed with only Republican votes. The bill would require all contributors to a student’s financial resources who are listed on a FAFSA to provide their citizenship status as part of identity verification. Currently, some contributors, including stepparents and spouses, are not required to provide this information. Democrats raised concerns around data privacy and security, whether data would be shared across agencies to inform immigration enforcement actions, and a potential chilling effect on aid applicants from mixed-status families.
Companion bills for these pieces of legislation have not yet been introduced in the Senate. If any of the bills are approved overwhelmingly by the House (possibly under “suspension of the rules”), it is possible that the Senate will take up the bill without going through the regular committee process.
ICYMI: Proposed Workforce Pell rules published in the Federal Register
The Department of Education (ED) on Monday published a Notice of Proposed Rulemaking (NPRM) on the Workforce Pell Grant program. (See AACC’s analysis).
As covered in the Community College Daily, the proposed rules are a product of a week-long negotiated rulemaking session held by ED in December. Despite several remaining questions around how to calculate and verify placement rates, the timing and structure of calculating the “value-added earnings” measure, and the process for programs to regain eligibility, negotiators reached consensus on the draft regulatory package. Because ED is bound by the Higher Education Act to use the consensus language, the NPRM largely reflects the agreed-upon text.
However, looking forward, ED can make changes to the proposed regulations based on public comments. In fact, ED has posed in the NPRM several “directed questions” seeking input on aspects of the regulations and opening the door to possible changes or clarifications. These topics include:
- Written arrangements with non-accredited entities to provide a portion of the Workforce Pell program
- Agreements between governors regarding out-of-state students
- A possible interim value-added earnings calculation
- Modification to how cohorts are assembled for the value-added earnings metric
- Whether people who are enrolled in higher education should be included in the earnings calculation
AACC will provide draft comments to members early in the week of March 23. While AACC’s input will be made on behalf of the entire community college sector, additional comments from campuses and state offices are important in hopefully persuading department officials to alter some of their proposals. We will encourage members to build on AACC’s comments to highlight areas of particular concern for your institution and to add campus examples.