More than 43 million people are borrowers in the federal student loan portfolio, which is valued at $1.6 trillion, and President Trump made the far-reaching and controversial decision in March 2025 that the SBA will assume responsibility for managing the portfolio. This action is in line with Trump’s broader strategy to dismantle the Department of Education and reassign its functions to other federal entities.
Sources: npr.org, nypost.com, CompanyInsider.com, inc.com, thetelegraph.com, Forbes.com
Rationale Behind the Move
The president defended the move by stating that the SBA, under the leadership of Administrator Kelly Loeffler, would be more equipped to manage the student loan portfolio than the Department of Education. He expressed confidence that the SBA could handle the complex loan arrangements and used the term “mess” to describe the existing system. As part of a broader effort to streamline federal processes and reduce bureaucratic red tape, the administration has proposed this measure.
Difficulties & Problems with Operations
A lot of people are worried about the decision, including lawmakers, groups that help borrowers, and education experts. The complexity of federal student loans, including debt forgiveness programs, income-driven repayment plans, and borrower protections, is said by opponents to be beyond the expertise and resources of the SBA. Concerns about the SBA’s capacity to handle the additional responsibilities were intensified when, on the same day as the transfer, the agency announced a 43% reduction in personnel.
Sources: inclusiveeducation.com, Corporate Insider, Higher Education Inquirer, inc.com
Implications for Law and Policy
Legislative approval is required to dissolve the Department of Education and reassign its functions, according to legal experts, because the department was established by statute. Concerned advocacy groups have threatened legal action in response to the executive order’s unilateral issuance, arguing that it could significantly impair student loan servicing and put present borrower protections at risk.
Sources: Forbes.com, Inc.com, The Telegraph
Impact on Owing Parties
Borrowers face uncertainty due to the changeover regarding loan servicing, repayment options, and eligibility for forgiveness programs. Concerns regarding potential errors, delays, and miscommunications stem from the SBA’s lack of expertise in managing student loans. Additional barriers to financial aid for students could arise as a result of the change, since it could make submitting and processing data from the Free Application for Federal Student Aid (FAFSA) more complicated.
Sources: Higher Education Inquirer, DiverseStudy Online, Forbes.com, bizsugar.com
Impact on Society and the Economy
Economic and social justice are two areas that stand to benefit greatly from this policy shift. The default rate, students’ credit, and economic mobility can all take a hit if student loan portfolios aren’t managed well, according to experts. Students from low-income backgrounds and those attending college for the first time are particularly vulnerable because they rely on financial aid and other forms of government protection to fund their education.
Sources: Higher Education Inquirer, inclusiveeducation.com
Conclusion
The decision by President Trump to transfer the administration of federal student loans to the Small Business Administration (SBA) is a significant shift in education policy that will have far-reaching consequences for students, schools, and the way the federal government pays for higher education. As things progress, stakeholders will closely monitor the strategy’s implementation and its impact on the nation’s student loan system.