A day after White House officials said the Education Department would administer the student loan program, President Donald Trump announced that the Small Business Administration would be taking over the $1.7 trillion portfolio.
He told White House reporters that the move would happen “immediately,” though he didn’t say how that process would work. Currently, federal law requires the Education Department to manage student loans, so the president doesn’t have the authority for the move, several experts and advocates said Friday.
Neither the White House nor the Small Business Administration responded to requests for comment.
In response to questions about how moving loans to SBA would work, the Education Department referred Inside Higher Ed to an interview that Education Secretary Linda McMahon did Friday with Fox News. McMahon said she’s working with the SBA on a strategic plan.
The announcement follows Trump’s executive order, signed Thursday, directing McMahon to close her department “to the maximum extent of the law.” McMahon and others have said a smaller version of the department would focus on core functions, which many experts presumed to include the student loan program. (Trump also said Friday that the Department of Health and Human Services would take over programs that support students with disabilities.)
Kelly Loeffler, who leads the SBA, wrote on social media that her agency “stands ready to take the lead on restoring accountability and integrity to America’s student loan portfolio.” Whether the department has the capacity to take on the program is an open question; Loeffler is planning to cut 43 percent of the staff, Politico and other news outlets have reported. The SBA runs several programs to support small businesses, including providing loans and helping with disaster recovery.
The Education Department issues about $100 billion in student loans each year and disburses $30 billion in Pell Grants. That funding is crucial to students who rely on the government to help pay for college.
But borrowers have struggled over the years to navigate the cumbersome student loan system and often have faced difficulty in repaying their loans. Meanwhile, the federal government’s growing loan portfolio has become a key issue for lawmakers on both sides of the political aisle. Former president Joe Biden’s fix was in part to make student loan forgiveness more accessible and make loan payments more affordable.
Trump said Friday that the loan system “will be serviced much better than it has in the past,” adding, “it’s been a mess.”
Agency Blindsided
It wasn’t clear Friday afternoon whether SBA would also take over the Pell Grant program and the Free Application for Federal Student Aid—a form that millions of students rely on to access federal, student and institutional aid. Currently, the Office of Federal Student Aid, which is part of the Education Department, administers those programs. That office was hit hard by recent mass layoffs at the department, and experts have questioned whether it will be able to fulfill its many responsibilities, which also include overseeing colleges and rooting out fraud in the federal student aid system.
Trump’s executive order pointed out that the Education Department manages a portfolio the size of Wells Fargo but with significantly fewer employees. “The Department of Education is not a bank, and it must return bank functions to an entity equipped to serve America’s students,” the order said.
An official high up at Federal Student Aid said Friday that the office was blindsided by the announcement. Just a day before, the official said, the plan was to move the loans to the Treasury Department. Agency officials have yet to receive any plans or communication about handing over the reins to SBA or what that would entail, the official said.
‘Clear Violation’
The federal statute that created FSA specifically gives that office authority to administer student financial assistance programs. Additionally, laws dictating how federal funding is allocated explicitly send money to the Education Department for the student aid programs. A former department staffer told Inside Higher Ed that the administration is “clearly circumventing the spirit and intent of the law if you were to move to functions.”
Sen. Patty Murray, a Democrat from Washington State, agreed, writing on social media that the announcement “is a clear violation of education [and] appropriations law.”
Beth Maglione, interim president of the National Association of Student Financial Aid Administrators, added in a statement that only Congress can move the student loan portfolio to a different agency; if the legislative branch agreed, doing so would take time.
“The administration would first need to articulate a definitive strategy outlining how the work of administering student aid programs would be allocated within the SBA, determine the necessary staffing and resources, and build the requisite infrastructure to facilitate the transition of these programs to another federal agency,” she said. “In the absence of any comprehensive plan, a serious concern remains: how will this restructuring be executed without disruption to students and institutions?”
Not a ‘Crazy Idea’
Some conservative policy experts who support shutting down the department cheered the move. Lindsey Burke, director for the Center for Education Policy at the Heritage Foundation, wrote on social media that “without student loans at ED, there will be little left at the agency. Just a few programs—certainly not enough to justify a cabinet-level agency.”
Beth Akers, a senior fellow at the American Enterprise Institute, like the Heritage Foundation a conservative think tank, acknowledged in an email to Inside Higher Ed that there are a lot of open questions about how the SBA move would work. But she said the announcement shows that the Trump administration understands that the recent staffing cuts “will likely make it too difficult to keep these programs properly administered otherwise,” she wrote.
Akers noted that since SBA currently manages its own loans, “it isn’t a crazy idea that they could pull this off.”
“Frankly, the department has handled student loan administration poorly, so the bar is pretty low on what would constitute an improvement,” she added. “I expect that the existing student loan infrastructure (and remaining staff) will likely move over to SBA, and there won’t be immediate changes in how these programs are run. That’s my hope. Because if things change too quickly, I expect that students will see disruptions that could affect their enrollments and personal finances.”
