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On March 24, 2025, individuals passed the headquarters of the U.S. Small Business Administration located in the Southwest Federal Center area in Washington, DC.
Recently, President Donald Trump announced a significant shift in the management of federal student loans, stating that these loans would be transferred from the U.S. Department of Education to the Small Business Administration (SBA). He asserted that this transition would lead to improved servicing of the loans, claiming, “It’s been a mess.”
However, consumer advocates have raised alarm over potential pitfalls associated with this sweeping transfer, including the risk of errors in loan servicing and the protection of borrower privacy. There are ongoing concerns about how this change might impact existing programs like Public Service Loan Forgiveness.
As details surrounding the president’s announcement remain largely unclear, it is important to understand the implications and context of this proposed shift.
Authority to Move Student Loans in Question
Trump stated that the SBA is prepared to take over the managing of the nation’s $1.6 trillion in federal student loan debt, impacting over 40 million American borrowers. However, this declaration has prompted scrutiny regarding the president’s legal authority to execute such a transfer.
Mark Kantrowitz, a financial aid expert, highlighted a critical aspect of The Higher Education Act of 1965, which assigns responsibility for federal student loans to the Education Department’s Federal Student Aid office. He emphasized that transferring the loans to the SBA would require legislative action from Congress.
Moreover, Kantrowitz pointed out that the president cannot unilaterally eliminate the Department of Education; such a move falls within Congress’s purview. Nonetheless, Trump has already initiated steps to reduce the agency’s scope through an executive order earlier this month.
Legal specialists, like Persis Yu from the Student Borrower Protection Center, anticipate that the proposed transfer will encounter legal challenges, creating additional uncertainty for borrowers. “Borrowers don’t know what to do,” Yu stated, underscoring the confusion surrounding the situation.
‘Past Transitions Have Posed Challenges for Borrowers’
The potential transfer to the SBA raises red flags, particularly given the historical context. Yu pointed out that when accounts have previously changed servicing companies, borrowers frequently encountered issues, such as errors on credit reports and lost information. “Every transition has gone very poorly for borrowers,” she asserted, indicating that these errors, particularly in sensitive financial records, could have lasting repercussions.
Another concern is the lack of experience among SBA staff in managing the complexities of federal student loans. Yu cautioned that new personnel, unfamiliar with the intricacies of various repayment programs, could struggle to handle the existing systems effectively. This concern is compounded by the recent announcement of a 43% workforce reduction at the SBA, which would further limit the agency’s capability to take on this new responsibility.
Recommended Steps for Borrowers
Borrowers should bear in mind that the terms and conditions of their federal student loans will remain unchanged, regardless of administrative shifts. When loans were initially issued, certain rights and conditions were established in the master promissory note.
As preparations are made for the transition to the SBA, experts advise borrowers to compile current information about their loan balances and keep meticulous records. On the Studentaid.gov website, borrowers can find relevant data concerning their loan status and servicer identity.
Moreover, those who have experienced transfers between servicers should request a comprehensive payment history from their current loan servicer. This documentation is essential for addressing any discrepancies that may arise regarding loan balances or payment records in the future.
For individuals pursuing Public Service Loan Forgiveness, it is crucial to verify their work history with the Education Department at this time to ensure that all eligible employment periods are formally recognized. The PSLF program offers loan forgiveness after a decade of qualifying payments, but borrowers have previously reported issues with inaccurate payment counts.
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