The Trump administration is considering selling off part of the federal government’s $1.6 trillion student loan portfolio to private buyers, a new Politico report reveals.
Education and Treasury Department officials have discussed selling off high-performing sections of the portfolio, Politico reports, citing three officials familiar with the talks. These officials have also talked with finance industry executives, including some who could be potential buyers, according to the outlet.
This comes as the Trump administration moves to reverse policies from former President Joe Biden’s administration that provided additional student debt repayment plans and forgiveness options.
“The Trump administration is committed to analyzing all aspects of the federal student loan portfolio,” a senior administration official told Politico “Unlike the previous administration, we are focused on ensuring the long-term health of the portfolio for the benefit of both students and taxpayers.”
Federal law would allow the Department of Education to sell the debt after consulting with the Treasury Department, if it came with no additional cost to the taxpayer, Politico reports. The outlet points out that there is little precedent for this, however.
As borrowers contend with the changes, Michele Zampini, associate vice president of federal policy and advocacy at the Institute for College Access and Success, warns that the sale of debt could throw the system into “even further chaos.”
Here’s what you need to know about the potential sale:
How will the sale of student debt impact borrowers?
Zampini told The Independent this proposal “doesn’t really make good sense, either from a borrower perspective or a taxpayer perspective.” While some aspects could remain the same, borrowers may see fewer benefits and private owners could have a more difficult time collecting on loans, she said.
Zampini said student loan holders would likely still be entitled to the same repayment options and protections that are in statute, regardless of whether they’re repaying the debt to the federal government or a private entity. These legal protections can only be changed through an act of Congress. Plans that are not defined in statute are more of a “gray area,” Zampini said.
“Any repayment plans that they have through the current program, unless Congress makes changes to those, they would not theoretically go away, even if the loans move to being bought off by a private entity,” she said.
Megan Walter, a senior policy analyst with the National Association of Student Financial Aid Administrators, told The Independent there are still unanswered questions about existing repayment plans and whether borrowers will be able to retain them under a potential sale.
“It remains unclear whether borrowers would be able to retain their current repayment plans, borrower protections, and forgiveness options generally not available in the private market, what the transition timeline would look like, and if this would only affect certain types of borrowers, such as those in standard repayment plans,” Walter said.
“We also have questions about borrowers’ rights, and if borrowers would have a choice in their loans being sold to the private market if the federal loan protections are not conserved,” she added.
Federal agencies also often share data to help streamline the loan repayment process, which means borrowers could lose some of that automation if their debt is sold to a private owner, Zampini said. For example, the Veterans Affairs Administration and the Social Security Administration review data to determine whether benefit recipients with outstanding student loan debt are eligible for certain discharge programs, according to Zampini.
“There’s all of that automation and all that data matching that has been really successful in getting more people access to the relief program — so there could be that loss as well,” she said.
The Independent has contacted the Education and Treasury Departments for comment.
Who would buy up the student debt?
It’s unclear which private entities would actually want to buy portions of the federal government’s student debt portfolio. Student loan debt is “not a particularly attractive investment,” Zampini said, which could leave buyers private apprehensive. Private buyers are also unlikely to pay more for the debt than it’s worth, Politico reports.
“I really don’t see a scenario here where taxpayers come out ahead,” Preston Cooper, a senior fellow at the American Enterprise Institute think tank, told Politico. “I think the most likely scenario is that taxpayers get less than the loans are actually worth.”
“The federal student loan program is kind of an odd consumer credit program because it’s not underwritten,” Zampini added. “There’s no asset to kind of repurpose or take back, and so it’s not a particularly attractive investment. It’s not an attractive program because you can’t pick and choose who you lend to.”
The federal government also has more collection authority than private entities, Zampini noted.
“The federal government has really vast collections authority for the student loan program — extrajudicial collections powers, they can garnish wages, they can garnish tax refunds, they can garnish social security. Those are things that are typically a lot harder for private entities to do,” she said.
What has the Trump administration said recently about student loans?
As questions loom about debt repayment plans, the Trump administration has resumed forgiving student debt for some borrowers enrolled in the Income-Based Repayment program, which had been partially paused for the past three months, CNBC reports.
This plan will be one of only a few repayment options left for student loan borrowers under President Donald Trump’s “Big, Beautiful Bill,” which he signed into law over the summer. In addition to eliminating some existing repayment plans, the bill also caps federal loans for graduate students at $20,500 a year and enforces a lifetime limit of $100,000.
The Trump administration is also eager to reduce the size of the Department of Education, which oversees the portfolio. When signing as executive order to closer the agency, Trump said “the Department of Education is not a bank, and it must return bank functions to an entity equipped to serve America’s students,” Forbes reports.
With borrowers already facing significant changes to repayment plans, Zampini argues this policy could create more uncertainty.
“They’re already in a state of chaos…this would throw the entire system into even further chaos,” she said.
Zampini also noted that the White House considered a similar plan to sell debt during Trump’s first term, in 2019. However, their efforts stalled soon afterward, especially as the U.S. was hit by the COVID-19 pandemic.
