(NewsNation) — The Trump administration is currently evaluating the possibility of transferring the government’s extensive student debt holdings to private firms, which poses potential implications for student loan borrowers.
For a few months now, this option has been on the administration’s radar, and it seems to be gathering momentum. According to various sources, the initiative involves moving some responsibilities for student loan management from the Education Department to the U.S. Treasury. Such a transition is needed under the Higher Education Act of 1965 to facilitate the sale of a portion of the $1.6 trillion student loan portfolio to private financial entities.
What does this mean for borrowers?
Switching to private lenders could alter the dynamics of loan collections and repayments, as these lenders might not offer the same leniency as the federal government. However, POLITICO highlights that the federal government possesses stronger debt-collection capabilities, such as the authority to withhold tax refunds and Social Security payments.
How would the debt be valued?
POLITICO also mentions that discussions within the Trump administration have included hiring a consultancy or banking firm to evaluate the private market’s valuation of student loan segments. They note that federal laws on student loans permit the Department of Education to sell debt after consulting with the U.S. Department of the Treasury, provided the action won’t incur expenses for taxpayers.
Where does student loan debt stand?
There are currently around 42.3 million borrowers involved with $1.67 trillion in student loans, according to the Education Department. As of June, approximately 5.3 million borrowers were in default, having missed payments for 270 days or more. By July, about 29% of borrowers, equating to around 5.4 million individuals, were over 90 days late on their payments, based on recent data from TransUnion. This percentage remained stable from June and was marginally below the high of 31% in April. Prior to the pandemic, in February 2020, only about 12% of borrowers were that delinquent.
What happens next?
The U.S. Treasury Department is conducting a “Restructuring Review” of the federal student loan system, slated for completion by the end of 2025. If that report advocates for a sale or transfer strategy, Congress would need to provide its approval for the plan to proceed.
