Add thelocalreport.in As A Trusted Source
trump administration The federal government is considering selling its share. $1.6 trillion student loan portfolio to private buyers, a new politico The report shows.
education and treasury department official Discussed selling high-performing sections of the portfolio, politico The report, citing three officials familiar with the talks. These executives have also spoken with finance industry executives, some of whom could be potential buyers, according to the outlet.
This comes as the Trump administration Policies contrary to former President Joe Biden’s administration It offers additional student loan repayment plans and pardon option,
“The Trump administration is committed to analyzing all aspects of the federal student loan portfolio,” a senior administration official told POLITICO, adding that “unlike the previous administration, we are focused on ensuring the long-term health of the portfolio for the benefit of both students and taxpayers.”
Federal law would allow the Department of Education to sell the loans after consulting with the Treasury Department, if it resulted in no additional cost to the taxpayer. politico Report. The outlet points out that there is little precedent for this, however.
As borrowers struggle with the changes, Michelle Zampini, associate vice president for federal policy and advocacy at the Institute for College Access and Success, warned that loan sales could throw the system into “even more chaos.”
Here’s what you need to know about a potential sale:
How will student loans impact borrowers’ sales?
Zampini said Independent This proposal “really doesn’t make good sense, either from the borrower’s perspective or the taxpayer’s perspective.” While some aspects may remain the same, borrowers may have fewer benefits and private owners may have a more difficult time collecting on loans, he said.
Zampini said student loan holders will likely still be entitled to the same repayment options and protections that are in the statute, whether they are repaying the loan to the federal government or a private entity. These legal protections can only be changed through an act of Congress. Zampini said plans that are not defined in law are more of a “grey area.”
“Any repayment plans that they have through the current program, unless Congress makes changes to those, they theoretically won’t go away, even if the loans go to be purchased by a private entity,” she said.
Megan Walter, a senior policy analyst at the National Association of Student Financial Aid Administrators, said Independent There are still unanswered questions about existing repayment plans and whether borrowers would be able to maintain them under a potential sale.
“It is unclear whether borrowers will be able to maintain their current repayment plans, borrower protections, and forgiveness options not typically available in the private market, what the transition timeline will look like, and if it will only affect certain types of borrowers, such as those in standard repayment plans,” Walter said.
“We also have questions about borrowers’ rights, and whether borrowers will have a choice in their loans being sold to the private market if federal loan protections are not preserved,” he said.
Federal agencies often share data to help streamline the loan repayment process, meaning borrowers could lose some of that automation if their loan is sold to a private owner, Zampini said. For example, the Veterans Affairs Administration and the Social Security Administration review data to determine whether benefit recipients with outstanding student loan debt are eligible for certain discharge programs, according to Zampini.
“All of that automation and all that data matching that’s actually been successful in getting more people to access the relief program — so that loss may be there as well,” she said.
Independent The Education and Treasury departments have been contacted for comment.
Who will buy student loans?
It is unclear which private entities actually want to purchase parts of the federal government’s student loan portfolio. Student loan debt “is not a particularly attractive investment,” Zampini said, which may leave buyers private apprehensive. Private buyers are also unlikely to pay more for a loan than it is worth, politico Report.
“I don’t really see a scenario here where taxpayers come out ahead,” said Preston Cooper, a senior fellow at the American Enterprise Institute think tank. politico“I think the most likely scenario is that taxpayers get less than the loans are really worth.”
“The federal student loan program is kind of a weird consumer credit program because it’s not underwritten,” Zampini said. “There’s no asset to recoup or take back that way, and so it’s not a particularly attractive investment. It’s not an attractive program because you can’t pick and choose who you lend to.”
The federal government also has more collection authority than private entities, Zampini said.
“The federal government has really vast collection authority for the student loan program — extraordinary collection powers, they can garnish wages, they can garnish tax refunds, they can garnish Social Security. Those are things that are typically very difficult for private entities to do,” he said.
What has the Trump administration said recently about student loans?
As questions remain about loan repayment plans, the Trump administration has forgiven student loans for some borrowers enrolled in an income-based repayment program that had been partially paused for the past three months, cnbc Report.
The plan would be one of only a few repayment options for student loan borrowers under President Donald Trump’s “big, beautiful bill,” which he signed into law over the summer. In addition to eliminating some existing repayment plans, the bill also caps federal loans for graduate students at $20,500 per year and imposes a lifetime limit of $100,000.
The Trump administration is also eager to reduce the size of the Education Department, which oversees the portfolio. When signing the executive order to close the agency, Trump said that “the Department of Education is not a bank, and he must return the bank function to an entity equipped to serve America’s students,” forbes Report.
With borrowers already facing significant changes to repayment plans, Zampini argues that this policy could create more uncertainty.
“They’re already in a state of chaos … this will throw the entire system into even more chaos,” she said.
Zampini also said the White House considered a similar plan to sell debt in 2019 during Trump’s first term. However, their efforts soon came to a halt, especially as the US was hit by the Covid-19 pandemic.