During a Q&A with reporters on Friday, President Donald Trump said he wants the $1.6 trillion federal student loan portfolio to be handled by the Small Business Administration. “I’ve decided that the SBA, the Small Business Administration, headed by Kelly Loeffler, a terrific person, will handle all of the student loan portfolio,” President Donald Trump said on Friday. 

The remark came just one day after he signed an executive order directing Secretary of Education Linda McMahon to begin winding down the U.S. Department of Education.

However, no official documents back up the announcement, and no formal directive has been published. The Department of Education remains legally responsible for managing student loan programs under the Higher Education Act of 1965 (HEA). Until Congress acts, that legal authority cannot be transferred to another federal agency—no matter the president’s intent.

Statute, Structure, and the Scope of Authority

The idea of transferring student loans to a different federal agency is not new, but it’s long been viewed as unworkable without changes to existing law.

At the center of this debate are the legal documents borrowers sign when taking out federal student loans. The MPN states that loans are made and managed by the Department of Education. Changing the responsible agency to one not authorized by law could open the government to lawsuits.

The Master Promissory Note (MPN) that every borrower signs names the Department of Education as the lender and the entity that controls the loans. That contract specifies how loans are managed, who can service them, and under what legal structure. The MPN does state that Congress can alter the terms of the MPN by amending the HEA.

In short, even if the administration wanted to shift the loans to the SBA, it may not be able to do so without Congress amending the HEA or passing a new law.

If President Trump tries to to it without amending the HEA, one side effect could be that existing student loans become uncollectible. While that’s extremely unlikely, it would undermine the enforceability of existing loan agreements. 

Logistical Hurdles

Moving a portfolio the size of the federal student loan system would be a technical and legal undertaking of enormous complexity. The Office of Federal Student Aid oversees loans for more than 43 million borrowers. There are numerous repayment plans, forgiveness programs, and compliance requirements that the SBA has never dealt with.

Meanwhile, the SBA is also facing staff reductions, adding another layer of risk. Last week, it was announced that the SBA would cut its workforce by 40%, compounding fears that the agency may not have the capacity to absorb the Education Department’s most complex and demanding responsibilities.

The most likely scenario, if student loans were to move, is that the entirety of Federal Student Aid would simply move within the SBA, but that’s not been clearly defined yet.

Even if the legal roadblocks are addressed through legislation, any actual transfer would take months, or even years, to implement. And if it is implemented, existing loan servicers would likely remain.

In the meantime, borrowers would remain under the existing system, with the Department of Education still in charge of their repayment plans, forgiveness applications, and servicer contracts.

What Borrowers Need To Know Today

Despite the headlines, student loan borrowers should know that nothing has changed for now. The Department of Education remains the legal administrator of federal student loans. The terms of existing loans remain in place. No loan transfers are happening, and no payments are due to the SBA.

Borrowers should continue making payments through their loan servicer. Those who receive unexpected bills from unfamiliar agencies should not pay until confirming the legitimacy of the change. This chaos opens up the possibility of more student loan scams.

Borrowers may also want to download a copy of their Master Promissory Note from StudentAid.gov to keep on file. Beyond being prepared for potential future issues, keeping a record of your loan documents is a savvy personal finance skill.

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