Trump officials reportedly consider selling student debt to private investors | Trump administration

Trump administration officials are reportedly exploring the possibility of selling part of the federal government’s $1.6 trillion student loan portfolio to private investors, which experts say could carry risks for both taxpayers and borrowers that could reshape the student loan landscape in unpredictable ways.

Top officials at the Education and Treasury departments have engaged in internal discussions about offloading select, high-performing segments of the government’s student debt, according to a Politico report released this week. These loans are part of a larger portfolio owed by approximately 45 million borrowers across the country.

Administration officials also reportedly contacted figures in the financial sector, including potential buyers, to discuss the idea. The deliberations, which began earlier this year, initially included “Department of Government Effectiveness” (Doge) officials stationed at the Ministry of Education, but are now guided primarily by senior politicians.

It’s unclear how far the administration will go in this direction, or what parts of the $1.6 trillion portfolio might be put on the market.

Daniel Zibel, vice president and chief counsel for the National Student Legal Defense Network, described the proposed loan sale as a “complex and unprecedented” idea, essentially the opposite of the 2008 financial crisis, when the government purchased private loans to stabilize the market.

“The student debt system is incredibly complicated, and the fact that the administration is doing this in a way that is on par with the protections that exist in the law for student loan borrowers makes it even more complicated,” Zibel said.

Selling them now, he said, would shift repayment and management responsibilities to private entities, raising questions about enforcement, oversight and continuity of borrower protections. It could also eliminate the government’s power to forgive the loan.

“If you’re talking about unilateral cancellation, like what President Biden was talking about, the department would certainly lose all authority to tell a private company that they have to cancel a debt,” he said.

The proposed sale aligns with the administration’s broader goal of reducing the federal footprint in the student loan system and encouraging greater private sector participation. This could also explain why the Trump administration was so eager to rescind the loan forgiveness offered by the Biden administration.

“Now we know why President Trump and Secretary (Linda) McMahon are determined to squeeze every last dollar out of families with student debt,” Mike Pierce, executive director of Protect Borrowers, said in a statement. “Once again we see that in the Trump administration, when the demands of Wall Street run counter to the financial needs of workers, the banks get what they want.”

Michele Zampini, associate vice president for federal policy at the Institute for College Access and Success, says the plan is likely tied to the Trump administration’s broader ideological goal of shrinking or dismantling the Department of Education.

“It’s all part of the same conversation because the department manages this huge loan portfolio of over $1 billion,” Zampini said. “You can’t really close the department and still have responsibility for this type of loan portfolio. This is driven by their desire to close the department more broadly. It’s a hurdle in their way in many ways.”

Any attempt to sell federal student loans would raise significant legal and logistical questions. Borrowers may wonder whether current consumer protections, often more favorable than those offered in the private market, will remain intact. It is also unclear whether the government will continue to guarantee the loans.

Zampini adds that the move would endanger borrower protections “because there’s really no precedent for this.”

“There’s no indication that there is, in the first place, any interest from the private market. And if there is any interest, their interest would probably be to get as much profit as possible from the reimbursement,” she said. “So the interest of a private buyer and a private investor would most likely not be to offer borrowers any type of generous benefits or relief programs. »

This isn’t the first time the idea has surfaced. During Trump’s first term, the Department of Education hired consulting firms to evaluate the student loan portfolio and estimate its potential sale value. That analysis found the loans were worth significantly less than government accountants had assumed, and the plan was abandoned as the Covid-19 pandemic upended the economy.

Now, with Trump back in office, the administration appears to be reviving the concept as part of a broader overhaul of the student loan system. Officials are reportedly exploring the possibility of moving management of the loan portfolio, or segments of it, from the Education Department to the Treasury Department, an idea apparently consistent with Trump’s stated desire to close the Education Department entirely.

“I don’t think this is driven by an interest in helping borrowers,” Zampini said. “Certainly, I don’t think it’s driven by an interest in improving the program. And I also don’t think it’s driven by a real interest in saving taxpayer dollars. I think it’s driven primarily by political interest.”

The potential sale is just part of a broader effort to overhaul the student loan system. The administration has already rolled back almost all Biden-era policies that offered loan forgiveness or expanded repayment options. It also began collecting on delinquent loans again for the first time since March 2020, when the pandemic caused a nationwide pause.

Yet it is not entirely clear to what extent these plans are feasible under the current legal system.

“The law specifically authorizes the Secretary of Education to work with the Treasury Department to sell loans,” Zibel said. “But it says very clearly that the secretary must determine that it is in the best interest of the United States to do so, but also that it will not result in any cost to the federal government.”

Concerns are not only that current borrowers could lose their protections, but also that a student loan market controlled by private entities would increase barriers to attending college.

“The federal student loan program is unique because loans are not made with the intent of making a profit,” Zampini said. “They’re essentially an access tool for people who wouldn’t necessarily have access to the same credit in the private market to go to college.

“All of these factors make them much less likely to generate a return for an investor. So it’s hard to imagine how anyone looking to make these loans profitable, on this portfolio, would do anything other than increase the payment amount as much as possible and decrease the relief programs and flexibilities offered by the federal government.”