(NewsNation) — The Trump administration is evaluating the possibility of transferring the federal government’s substantial student loan portfolio to private entities, sparking concerns over potential impacts on student loan borrowers.
For months, the administration has been contemplating this idea, and it appears to be gaining momentum. Sources indicate that the initiative could involve transferring some student loan oversight from the Education Department to the U.S. Treasury. This transition would be necessary under the Higher Education Act of 1965 to facilitate the sale of portions of the $1.6 trillion student loan portfolio to private lenders.
What does this mean for borrowers?
This shift may alter how collections and repayments are handled, as private lenders might not be as lenient as the federal government. Nevertheless, POLITICO highlights that the government holds more robust debt-collection capabilities, such as garnishing tax refunds and Social Security benefits.
How would the debt be valued?
According to POLITICO, there have been discussions within the Trump administration about engaging a consulting firm or bank to evaluate how the private sector might appraise sections of the student loan portfolio. The article explains that federal student loan laws permit the Department of Education to sell the debt after consultation with the U.S. Department of the Treasury, provided it doesn’t cost taxpayers money.
Where does student loan debt stand?
In total, around 42.3 million borrowers owe $1.67 trillion in student loans, as reported by the Education Department. Approximately 5.3 million borrowers were in default or over 270 days past due as of June. By July, roughly 29% of borrowers, or 5.4 million people, were at least 90 days overdue on their payments, according to recent data from TransUnion. This figure remained stable from June and was only slightly below the peak of 31% in April. Prior to the pandemic, in February 2020, only about 12% of student loan borrowers were this far behind.
What happens next?
The U.S. Treasury Department is conducting a “Restructuring Review” of the federal student loan system, with completion expected by the end of 2025. Should the report formally advise a sale or transfer plan, congressional approval would be the subsequent step.
