Borrower FAQ: Trump Moves Student Loans to Small Business Administration
Credit: Kent Nishimura / Bloomberg / Getty Images- President Donald Trump is taking steps to “dismantle” the Department of Education.
- That includes handing control of the federal student loan portfolio to another agency.
- The Small Business Administration already manages loans made to small businesses.
- It’s unclear, however, when the SBA will take full control of the loan portfolio.
The agency overseeing federal student loans is in flux, leaving many borrowers questioning how this move will impact their debt.
President Donald Trump promised to move oversight of the $1.64 trillion federal student loan portfolio from the Department of Education (ED) to the Small Business Administration (SBA) on March 21. From the get-go, Trump’s announcement created more questions than it answered in the wake of an executive order aimed at dismantling ED altogether.
“That’s coming out of the Department of Education immediately, and it’s going to be headed up by Kelly Loeffler at SBA, and they’re all set for it,” he said, announcing the transition. “They’re waiting for it, and it’ll be serviced much better than it has in the past; it’s been a mess.”
Loeffler was sworn in as administrator of the SBA on Feb. 20.
By the end of 2024, approximately 42.7 million borrowers held federal student loan debt, according to Federal Student Aid. The majority of those borrowers (38.2 million) held direct loans.
Frequently Asked Questions
- What Is the Small Business Administration?
- When Will the SBA Assume the Loan Portfolio?
- Will the Loan Transfer Affect My Payments?
- How Will Repayment Plans Be Affected?
- Will This Influence Student Loan Interest Rates?
- How Can Borrowers Protect Their Interests?
- Is Moving the Loan Portfolio to SBA Legal?
- Will Loan Forgiveness Still Be Available?
- What Happens if I Don’t Pay My Loans?
What Is the Small Business Administration?
The Small Business Administration is an independent agency of the federal government established by former President Dwight D. Eisenhower in 1953. It aids small businesses by providing loans, counseling, and contracting expertise.
SBA approved nearly 104,000 loans to small businesses in 2024, according to the agency. Across its many loan programs, it approved approximately $44.1 billion in loans in 2024.
For comparison, ED distributed approximately $101.6 billion in federal student loans for the 2022-23 academic year.
When Will the SBA Assume the Loan Portfolio?
Trump said on March 21, 2025, that the federal student loan portfolio would “immediately” transfer to the SBA.
However, the details of this transfer remain murky.
Will the entire Federal Student Aid (FSA) office move to SBA? Or will loan management go to an existing department within SBA? How will loan servicers be affected?
ED Secretary Linda McMahon said during an interview with Fox News that a strategic plan is still being developed.
“I’ve had a good conversation with Administrator Loeffler already about that,” McMahon said, “and we’re going to work on a strategic plan together. We’ve talked also with [the Department of the] Treasury and how can they be interactive in that process.”
Recent downsizing at SBA calls into question how this handoff will work. The same day that Trump announced the loan portfolio move, the SBA said it planned to cut its staff by 43%. This comes after ED cut its staff by about 50% since the start of Trump’s second term.
Will the Loan Transfer Affect My Payments?
Third-party contractors, called loan servicers, handle the day-to-day operations of managing the federal student loan portfolio. Still, ED does directly manage some loans — servicing varies on a case-by-case basis.
Currently, it does not appear that the change in loan management will directly affect borrowers. For example, payment deadlines appear unchanged.
That’s not to say there won’t be roadblocks.
The FSA website reportedly was inaccessible for hundreds of users on March 12. Some attributed the outage to the Trump administration’s staff cuts at ED. Politico reported on March 21 that ED recently brought back FSA staff initially cut through the reduction in workers.
Loeffler hinted during a Fox News interview that the SBA may be more aggressive in debt collection.
“The student loan program right now is a liability for America. We have the ability to turn it into an asset,” she said. “What the Biden administration tried to do is to create an entitlement program for student loans.”
How Will Repayment Plans Be Affected?
For over a month, borrowers couldn’t enroll online in any of the income-driven repayment (IDR) plans.
The Trump administration took down the online IDR application Feb. 21. ED cited a recent court decision regarding former President Joe Biden’s Saving on a Valuable Education (SAVE) plan as the reason for the removal.
ED returned access to three of the four IDR plans March 26, including:
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
- Pay As You Earn (PAYE)
The following federal student loan repayment options are also available:
Will This Influence Student Loan Interest Rates?
The federal government does not set the interest rates for federal student loans, so the SBA taking control of the loan portfolio should not impact rates.
Congress sets interest rates each year. The 10-year Treasury note, issued by the U.S. Department of the Treasury, acts as a benchmark for these rates.
The rate for 2024-25 academic year loans were:
- Direct loans (undergraduate): 6.53%
- Direct unsubsidized loans (graduate): 8.08%
- PLUS loans: 9.08%
How Can Borrowers Protect Their Interests?
Many borrowers are worried that their loans may be negatively affected during the loan portfolio transfer.
First, you should document your current payment status and payment history. Head to your loan servicer’s website and note:
- Outstanding debt balance
- Balance of individual loans
- Interest rate of each remaining loan
- Past payment history
Loan servicer websites allow borrowers to download payment history and loan details.
This information could prove useful if any issues arise during the portfolio transfer. For example, if your debt balance somehow grows or past payments aren’t counted, it may be useful to have as much documentation as possible to eventually file a complaint.
Some borrowers have recommended turning off automatic payments until the transfer is complete.
Is Moving the Loan Portfolio to SBA Legal?
The legality of moving the federal student loan portfolio into the SBA will surely play out in the courts over the coming months, potentially years.
At a glance, the legal authority for Trump to make this transition is rocky.
A 2018 report from the Congressional Research Service (CRS) determined that while the executive branch has broad authority to re-delegate tasks within a department or agency, the president may need congressional approval to move agency tasks to other departments.
“Some, though not necessarily all, of the Trump administration’s reorganization proposals appear likely to require authorizing legislation from Congress,” the CRS report states.
“For instance, proposals to transfer an entity or function vested by Congress in a particular agency to another agency, or to combine statutorily created entities into a new department, likely require new legislation authorizing the action.”
The Student Loan Reform Act of 1993 established the current federal student loan system. The bill’s text specifies that the secretary of education originates student loans, so placing the SBA administrator in charge of the loan system may violate this statute.
Mike Pierce, executive director of the Student Borrower Protection Center, called the move “illegal” and “unserious.”
Will Loan Forgiveness Still Be Available?
This move should not — in theory — affect existing student loan forgiveness programs, including Public Service Loan Forgiveness (PSLF).
However, in practice, it’s very possible that forgiveness will run into roadblocks in the coming months.
Forgiveness through programs like PSLF or borrower defense often requires ED to review an application and approve the borrower for a debt discharge. With limited staff and a new department overseeing loans, it could take longer for bureaucrats to process these applications.
Trump signed an executive order on March 7, 2025, directing ED to revise the PSLF program to exclude organizations that serve a “substantial illegal purpose.”
It’s worth noting that during Trump’s first administration, ED stopped processing borrower defense to repayment applications altogether. This inaction eventually led to a more than $6 billion settlement.
What Happens if I Don’t Pay My Loans?
There can be steep consequences if you refuse to pay your federal student loan debt.
Once you miss a payment on a student loan, that loan becomes delinquent. Loan servicers will report your nonpayment to the three major credit bureaus once a loan has been delinquent for 90 days.
Eventually, your loan will fall into default status, usually after 270 days of inaction.
The loan holder can then begin garnishing part of your wages to collect on that debt. Notably, Federal Student Aid’s guidance specifies that it is the “loan holder” who can order your employer to withhold part of your salary — it does not specify that it must be the department directly.
It’s reasonable to assume, therefore, that the SBA would be able to garnish wages for student loans previously held by ED.
Loan holders can also dip into federal tax refunds and benefits like Social Security to recoup payments.