The Trump administration confirmed Monday that it is considering selling portions of the nearly $1.7 trillion federal student loan portfolio to private sector companies.
While the private investors would gain ownership and collection rights over the loans, the original federal terms of the loans would theoretically remain unchanged.
While controversial, a sale could be conducted legally if certain rules are followed. Under the Higher Education Act of 1965, the Secretary of Education – with the consultation of the Treasury department – may sell existing Direct Loans, so long as the sale imposes no net cost to the federal government.
Supporters of the idea say that a sale would provide an immediate revenue boost to the federal government and reduce federal administrative burdens. They also suggest that private management could potentially lead to more efficient and innovative refinancing plans.
Critics, however, are concerned that a sale could involve conflicts of interest and possibly jeopardize federally granted borrower protections, as well as pave the way for fully privatized lending.
“Instead of helping Americans drowning with student loan debt, Trump is thinking up ways to make life worse for borrowers,” Sen. Elizabeth Warren, D-Mass., who requested an explanation of the Education department, said Monday. “If the Trump administration cared about working-class families, it would stop its ridiculous plan to sell out families to Wall Street.”
Department of Education Under Secretary Nicholas Kent told Warren that while the department has already met with stakeholders “to discuss ideas,” it so far “has not taken any final actions or made final decisions regarding selling all or part of the student loan portfolio.”
“We continue to explore all viable options to reduce the burden on taxpayers by restoring the health of the portfolio,” Kent added. “The Department remains focused on helping borrowers return to repayment and escape the albatross of delinquency and default.”
The sale discussions are the latest move by the Trump administration to tackle the so-called student debt crisis while simultaneously shrinking the federal government’s role in national education.
Student borrowers are already facing changes to their federal loan repayment plans, due to provisions in Republicans’ budget reconciliation bill.
Starting this July, new borrowers will have only two loan repayment plan options, the Standard Repayment Plan or the Repayment Assistance Plan. Borrowers currently on other plans will be phased into one of the two by July 2028, The Center Square reported.
