Shortly before the announcement the club also revealed it had sold flop utility man Havard Nordtveit to Gladbach's German rivals Hoffenheim.
Many supporters were frustrated at Oxford's lack of chances in the first team squad last season after he burst onto the scene with that memorable man of the match display in the 2-0 win at Arsenal on Slaven Bilic's debut as West Ham boss back in 2015.
With Nordtveit gone and Bilic busy reshaping his squad, many fans thought the likes of Oxford would get his chance next season.
Instead some supporters have been left baffled by the decision as were talkSPORT pundits Adrian Durham and Darren Gough.
The duo rounded on the club and co-owner David Gold for recent comments he made about youth development at a club famed for its academy.
Oxford has barely been used since his hugely impressive debut in August 2015
"We're baffled by that one, I don't understand how he (Oxford) can't get in their side," Gough said on talkSPORT Drive.
"To go on loan next season? I thought he'd have been ready to play (for West Ham), he was linked to Manchester United last year wasn't he?!"
Host Durham then took aim at Gold for recent comments he made on Twitter about it being harder than ever for teenagers to establish themselves in Premier League sides.
West Ham co owner David Gold
"This goes back to a couple of weeks ago when the West Ham co-owner David Gold was saying teenagers weren't going to break into the first team at West Ham United, which sounds like it's a policy which has been talked about around a table rather than people looking at players on a pitch.
"That makes sense for me then, the (Oxford) move, if that's the West Ham policy that they're not going to go with any young players.
Oxford poses for a picture with West Ham fans
"I think it's an absolute heads gone, I think it's counter productive to the football club and it's seen a player - who I believe a lot of West Ham fans want to see given his fair chance in the first team - go off to a mid table Bundesliga team.
"The fundamental issue is why would West Ham - who weren't particularly brilliant last season - let go a young player, even if just for a year, to a Bundesliga club?!"