WASHINGTON, DC – JANUARY 20: President Donald Trump signs executive orders in the Oval Office of the … More
Trump Student Loan Transfer: What Student Loan Borrowers Need To Know
President Donald Trump has directed that the federal student loan program – a portfolio of roughly $1.6 trillion owed by 43 million borrowers – be shifted from the Education Department to the Small Business Administration. Announcing the move in the Oval Office, Trump said, “I’ve decided that the SBA… will handle all of the student loan portfolios… [out of]
the Department of Education immediately”, adding that SBA Administrator Kelly Loeffler and her team are “all set” and that the federal loan program will “be serviced much better than it has in the past. It’s been a mess,” a post on Forbes noted.
This unprecedented change comes from Trump’s effort to dismantle the Department of Education via executive order. The SBA, a much smaller agency traditionally focused on aiding small businesses, would suddenly oversee the nation’s federal student lending system.
What Won’t Change For Student Loan Borrowers
Despite the seismic shift in federal student loan management oversight, experts underscore that borrowers’ obligations and rights remain the same. The terms of federal student loans are set by law and contract, not by which agency manages the accounts. As CNBC reported, “the terms and conditions of … federal student loans cannot change even if the agency overseeing them does” because “borrowers’ rights were guaranteed when they signed the master promissory note when their loans were originated.”
In practical terms, this means that your interest rate, repayment schedule, and available programs are established by federal law and your loan agreement – and those don’t vanish with an agency move. Borrowers still owe whatever debt they borrowed, and no blanket loan forgiveness or cancellation is triggered by moving the portfolio to the SBA.
Key student loan benefits and protections are also embedded in statutes. For instance, PSLF and some income-driven repayment plans are written into law, so the president cannot unilaterally end them (although Trump has sought to amend the eligibility for PSLF via executive order); Congress must vote on any changes. Thus, participants in forgiveness programs or specialized repayment plans should see no immediate change to their status. Beth Akers, a senior fellow at the American Enterprise Institute, expects that the existing student loan infrastructure and remaining staff will “move over to SBA, and there won’t be immediate changes in how these programs are run,” according to Inside Higher Ed.
The Education Department itself has asserted it will continue to uphold all its statutory programs during the transition. Even as the Education Department is being unwound, the Master Promissory Note each borrower signed remains a binding contract. Your monthly payment, interest accrual, and eligibility for forgiveness or deferment stay governed by the law and your loan terms, not by which agency’s letterhead is on the billing statement. The terms of your loans are set in stone and the move of the federal loan program to the SBA won’t erase your debt or change your repayment plan in and of itself.
Small Business Administration Taking On Student Loans: What May Change For Borrowers
Moving the student loan portfolio to the SBA does raise significant questions about implementation and oversight as well as SBA loan servicing. “This has mostly been discussed in terms of [the] Treasury. It’s on the administration to explain the rationale for this move, and I haven’t seen that they’ve yet done so,” Frederick Hess, director of education policy studies at the American Enterprise Institute, told Yahoo Finance . “Until they make that case, I think it’s fair to ask hard questions about why the SBA and how this will work.” Hess’s skepticism highlights that even conservative policy analysts are unsure why the SBA was chosen and how it will manage a loan program of such scale.
Trump insists the change will bring more efficiency. Still, former Education Department officials note that while contractors currently run most loan servicing operations, “Department of Education officials closely monitor” those companies to protect borrowers. Without that existing Federal Student Aid oversight team, “it likely won’t have the expertise to keep the program functioning,” those former officials told Yahoo Finance.
Another expert noted that slashing Department staff by 50% (as has already happened) and moving functions to SBA could hurt customer service. “You can’t have programs without people, and if you are… reducing staff, that’s going to impact delivery,” said Jared Bass, senior vice president at the nonprofit Center for American Progress, according to Business Insider.
In short, borrowers might face more bureaucratic hiccups or longer wait times if the SBA lacks the infrastructure and experienced personnel to smoothly administer repayment plans, resolve errors, and communicate with borrowers.
Legal and structural challenges could also shape what changes – or how quickly they do. Jessica Thompson, vice president at the Institute for College Access & Success, argued that transferring student loans to another agency cannot happen without congressional approval. “Should policymakers mistakenly proceed with a transfer of the loan portfolio to another agency, we urge them to craft a thoughtful, methodical plan to… prevent a total breakdown of the system – and real financial harm for millions,” Thompson said in a public statement.
In other words, any dramatic overhaul of loan management may take time and face court or legislative hurdles. Until a detailed plan is in place (and legally authorized), day-to-day loan payments, servicers, and programs might continue operating as they have, just under a different agency’s umbrella.
The bottom line is that the planned hand-off of federal student loans to the SBA is historic and controversial but does not alter the loans’ fundamental legal nature. Borrowers should prepare for potential administrative quirks during the transition and stay alert for updates. Still, they can rest assured that their obligations and protections under the student loan program remain intact unless and until Congress enacts changes.