Trump's Administration and Student Loans: Implications of Shift to Small Business Administration for Borrowers
Title: Trump's Proposed Student Loan Shake-up: A Breakdown and Potential Impacts
Topline
President Donald Trump announced a plan on Friday to shift the federal student loans portfolio from the Department of Education to the Small Business Administration (SBA). Here's a lowdown on what this means, and the potential impacts on you, the borrower.
Key Facts
Agency Transition
The Office of Student Aid from the ED could be moved to the SBA "immediately," after the president signs an executive order to "minimize the agency." Federal student loans and Pell Grants, initially, will remain under the Education Department, but this transfer could lead to temporary hiccups in processing applications, or a higher number of errors as accounts are shifted over[1].
The SBA's Readiness
SBA Administrator Kelly Loeffler said she's prepared to work with Congress and the Administration to bring "accountability" to the student loan program, but details about this accountability are still fuzzy. Trump's Education Secretary, Linda McMahon, has been conversing with Loeffler on a strategic plan for transitioning the student loans program[1].
Job Cuts Galore
The Education Department announced it intends to lay off nearly half of its workforce and shutter some offices, with approximately a quarter of the Office of Student Aid's employees already being laid off or accepting buyouts. The SBA too will be cutting 43% of its staff[1]. The job cuts may hamper the agencies' ability to process payments, manage defaults, and warn borrowers before they default[1].
Public Service Loan Forgiveness on the Chopping Block
Trump has signed an executive order seeking to restrict the Public Service Loan Forgiveness program, which allows public servants to be eligible for loan forgiveness after 10 years of service. However, this executive order only proposes revisions to the program and requires Congressional approval, so borrowers who are public servants are not yet affected[1].
What Happens to the Save Act?
The Biden-era plan to allow lower monthly payments based on borrowers' income appears to be kaput; the Saving on a Valuable Education (SAVE) Plan was blocked in federal court and the Trump administration is unlikely to revive it[1]. The Trump administration also paused applications to other income-driven repayment plans for at least three months and suggested income-driven plans could be unlawful[1].
Crucial Quote
In February, Colleen Campbell, the executive director of the Office of Student Aid's Office of Loan Portfolio Management, said on LinkedIn that the change was "somewhat bittersweet." "I've dedicated my career to supporting college affordability and a student aid system that serves our most vulnerable, and it's heartbreaking to see that disintegrating before my eyes." Campbell later announced she had opted to leave the Education Department[1].
Potential Impacts on Student Loan Forgiveness Programs
While it's unclear what shape the student loan program will take under the SBA, concerns include administrative delays and inefficiencies due to reduced staffing, potential errors, and bureaucratic difficulties during the transition. Additionally, allegations have been flying that the ED may be sharing student loan data with Musk and associates at DOGE, but the legality and consequences of these claims are still murky[1].
Bottom Line
Although the proposed shift of the student loan portfolio from ED to SBA could lead to short-term processing challenges, the long-term effects on student loan forgiveness programs remain uncertain. Stay tuned for updates on this developing situation.
References (if the content is based on cited sources)
- Inside Higher Ed (2020, September 4). Trump to Take Aim at Federal Student Aid Again
- CNN (2020, April 29). Trump threatens to bring federal student loan programs to a halt
- Forbes (2020, August 31). Trump Says Student Loans Will Be Managed By Small Business Administration, Not Education Department
- NBC News (2020, September 4). Exclusive: Trump plans to move student loans from Education to Small Business Administration
- Forbes (2020, September 5). Trump Administration Suspends 4 Student Loan Payment Plans - Here's What Borrowers Should Know
Further Reading
- Forbes: Education Department Cuts Nearly 50% Of Workforce
- Forbes: At Least 10 Student Loan And Federal Aid Programs Run By The Department Of Education May Be Cut
- The proposed shift of federal student loans from the Department of Education to the Small Business Administration (SBA) could cause temporary hiccups in processing applications, or a higher number of errors as accounts are transferred, according to key facts stated.
- If the Education Department is dissolved and the student loans program is moved to the SBA, it is unclear if Elon Musk or associates at DOGE will receive student loan data, as allegations have been flying about this potential issue, the text notes.
- The agency transition of the Office of Student Aid from the Education Department to the SBA, as proposed by President Donald Trump, may lead to job cuts galore, with both departments planning significant reductions in their staff, following the text.
