The Trump administration is exploring the potential sale of the government’s substantial student loan portfolio to private companies, which raises concerns about the implications for borrowers.
This consideration is not new, having been in discussion for months, but it seems to be gaining traction now. Reports suggest that the plan could shift some management of student loans from the Department of Education to the U.S. Treasury.
This action aligns with the stipulations of the Higher Education Act of 1965, which necessitates the selling of a portion of the $1.6 trillion student loan portfolio to private lenders.
What does this mean for borrowers?
The implications could be significant for repayment and collection processes since private lenders typically aren’t as lenient as federal entities. However, it’s worth noting that the federal government possesses stronger debt collection tools, like the ability to intercept tax refunds and Social Security benefits.
How is debt valued?
Discussions are ongoing about potentially involving consulting firms and banks to determine how the private sector might value pieces of the student loan portfolio. It’s important to understand that federal law permits the Department of Education to sell off debt, but only after consultation with the Treasury and as long as there’s no cost to taxpayers.
Where is the student loan debt?
As of now, around 42.3 million borrowers collectively owe about $1.67 trillion in student loans. Recently, about 5.3 million borrowers were in default or at least 270 days overdue on their payments.
According to recent data, roughly 29% of borrowers—around 5.4 million people—were at least 90 days late on their loans as of July. This figure has remained relatively stable since June and is just below the peak of 31% noted in April.
For some context, back in February 2020, before the pandemic, only around 12% of borrowers were behind on their payments.
What happens next?
The Treasury Department is currently conducting a “restructuring review” of the federal student loan system, which is expected to wrap up by the end of 2025.
If the findings suggest a sale or transfer is a viable option, Congress would then need to approve the plan.
