The Trump administration is reportedly considering the controversial move of privatizing the federal student loan portfolio, a decision that has drawn criticism from Democrats and raised doubts among various stakeholders.

Valued at $1.77 trillion, this loan portfolio is currently managed by the government and overseen by contracted loan servicers. Recent discussions between the Education and Treasury Departments hint at the possibility of selling this vast asset to private entities.

Critics argue that such a move could significantly impact borrowers, offering little advantage to the federal government. Moreover, questions remain about whether this proposal could gain Congressional approval.

When contacted by The Hill, the Education Department provided limited information on the potential sale, which was initially reported by Politico.

“We are exploring options to enhance the financial stability of the nearly $1.7 trillion student loan portfolio, aiming to protect the interests of both students and taxpayers,” stated Ellen Keast, the department’s press secretary for higher education.

The Treasury Department did not provide a comment when requested.

The sale is not an idea that Education Secretary Linda McMahon has discussed in depth publicly, though she has advocated for the student loan portfolio to be moved to the Treasury Department in the past.  

But a deal to sell it to private companies produces many questions, such as will borrowers still get access to certain income-driven repayment programs or receive debt relief if they are defrauded by their schools.  

While Democrats argue those protections are illegal to eliminate, they said in a letter sent to the Treasury and Education departments Monday that they expect the Trump administration to try. 

“Let’s be clear: This sale would be a giveaway to wealthy insiders at the expense of working-class borrowers and taxpayers. It threatens the loss of borrowers’ legally guaranteed protections, and the sale would likely be illegal if the debt is sold at a loss for taxpayers. We urge you to immediately cease any efforts to privatize the federal student loan portfolio,” reads the letter, which was led by Sen. Elizabeth Warren (D-Mass.) and signed by more than 40 Democratic lawmakers. 

Another obstacle for the Trump administration could be the unwillingness of private investors to buy the portfolio in the first place.

Experts believe the sale would have to come with the loans’ original terms to allow borrowers to keep certain repayment options and interest rates. Meanwhile, the federal government is more lenient than the private market would have been on how much or what type of loans students could get for certain majors. 

And private lenders would not have the means to collect on the debt that the federal government would, such as garnishing wages.  

“If you preserve the current terms of federal student loans, there is no way that the federal government would make a profit on selling student loans to the private markets, because private lenders are never going to pay more than the loans are actually worth, because otherwise they would be taking a loss,” said Preston Cooper, senior fellow at the American Enterprise Institute. 

“If I’m a private lender, I’m probably collecting even less on these loans than the federal government would, which means that the price I’m going to pay for the loans as a private lender is probably going to be even less than the loans are actually worth, which means that the federal government would probably take a loss if it sold these loans to the private markets, and therefore taxpayers would lose out,” he added. 

Others say there could be a few benefits to borrowers, such as streamlined services and bankruptcy protections regained.  

“I’m not necessarily opposed to it if, for example, standard bankruptcy rights were returned to the debt, if statutes of limitations were returned to the debt. From the borrower’s perspective, I think that would probably be a good thing if those two things were to happen, but my guess is that Wall Street wouldn’t take the loans unless those two very important consumer protections remain gone from the debt,” said Alan Collinge, founder of Student Loan Justice. 

Others who don’t see much benefit in selling the portfolio say it could be part of a long game in eliminating mass student loan forgiveness.  

Under the Biden White House, $183 billion of student loan forgiveness was distributed. While the Trump administration is making reforms to the student loan system, it has not yet done anything to prevent future administration from resuming mass relief. 

“The one argument that I can convince myself does make sense to sell the student loans is that it makes it much harder for future administration to engage in mass student loan forgiveness,” said Andrew Gillen, research fellow at the Cato Institute’s Center for Educational Freedom. 

“If you sell off the student loan portfolio, now when the government wants to forgive student loans, they actually have to write a check to some financial institution when they do that, rather than just wiping it off their own books. And so, that makes it a lot harder and a lot more politically risky to forgive student loans,” he added.  

While the idea of selling the portfolio is not new, it has not picked up much traction over the years and would need approval from Congress, which would be a fight. 

“There are definitely people in the Trump administration that are trying to pursue this, but it hasn’t really gained much traction, from what I can tell, and also, I would almost expect the first move to actually be to stop making federal loans, because if you sell off the student loan portfolio, but then you’re still making federal loans, then you’re just going to have a new federally owned student loan portfolio going forward,” Gillen said.