The Trump administration is exploring whether to sell the federal government’s massive student debt portfolio to private companies, raising questions about what the move could mean for student loan borrowers.
The administration has been considering the move for months, and it now appears to be gaining traction. Multiple sources confirm the plan would shift some student loan management from the Education Department to the U.S. Treasury.
This shift would be a necessary step under the Higher Education Act of 1965 to sell off part of the $1.6 trillion student loan portfolio to private lenders.
What does this mean for borrowers?
This could change how collections and repayments work, as private lenders may be less forgiving than the federal government. However, POLITICO reports that the federal government has more powerful debt-collection abilities, including the ability to garnish tax returns and Social Security benefits.
How would the debt be valued?
The outlet noted that there have been discussions among the Trump administration to possibly bring in a consulting firm or bank to assess how the private market would value parts of the student loan portfolio. Politico’s reporting adds that federal law governing student loans allows the Education Department to sell the debt after consulting the Treasury, but only if the transaction would not cost the taxpayers money.
Where does student loan debt stand?
Overall, some 42.3 million borrowers owe $1.67 trillion in student loans, according to the Education data. About 5.3 million borrowers were in default, or at least 270 days past due, as of June.
As of July, about 29 percent of borrowers — 5.4 million people — were at least 90 days past due on their loan payments, according to new data from TransUnion. That share was essentially unchanged from June and only slightly below the 31 percent peak in April.
Before the pandemic, in February 2020, only about 12 percent of student loan borrowers were that far behind.
What happens next?
The Treasury Department is conducting a “Restructuring Review” of the federal student loan system, which is expected to be completed by the end of 2025.
If that report formally recommends a sale or transfer plan, the next step would be for Congress to sign off.