Trump wants the SBA to take over student loans: What it means for borrowers

President Trump signed an executive order last week declaring his intention to dismantle the Department of Education, saying that federal student loans will be handled by the Small Business Administration. I've decided that the SBA, the Small Business Administration, headed by Kelly Loeffler, who's a terrific person, will handle all of the student loan portfolio. We have a portfolio that's very large, lots of loans, tens of thousands of loans, pretty complicated deal, and that's coming out of the Department of Education immediately. Hear from more on what that plan would look like and whether that would mean any changes for borrowers. I want to bring in Frederick Hess, American Enterprise Institute Director of Education Policy Studies and Senior Fellow, and Julie Margetta Morgan, who is the former Deputy Undersecretary at the Department of Education under President Biden. Thank you both for joining me here, and just to kick off this discussion, exactly what would this mean if the Small Business Administration were to assume some of these tasks from a Department of Education that essentially the president is looking to sunset here? Frederick, I'll start with you. I mean, first off, viewers should know this is all entirely speculative. Right now, there's statute that attaches the student loan operation to the Department of Either the courts will have to weigh in or Congress will have to change that. If it were to move, it's unclear what it would mean. We have enormous problems right now. Under President Biden, the department failed three consecutive audits. The FAFSA form turned into a debacle. Half a trillion dollars was shifted from borrowers to taxpayers, and most loans really weren't collected. So right now, the whole student loan situation is a morass, and what it would look like, either whether it stays in the department or hypothetically moved to the SBA, who knows? Julie, I want to get you to weigh in on that, too, especially considering the fact that as we're thinking about the number of borrowers out there trying to figure out, even if this is speculative right now, of course, there's going to be legal proceedings. Of course, there's going to be actions of Congress that will need to come forward as well. As that all settles, what does this mean for borrowers? Yeah, I think we really have to put this move in the larger context of the student loan program and of America today. So Donald Trump was elected at a time when Americans are really concerned about the cost of living, and student loans are a big part of that. And we have a student loan program that's run by servicers like Mohila that have proven time and again that they'll put their own bottom line ahead of borrowers and they'll look to cut corners wherever they can. And so instead of targeting that waste, fraud, and abuse in the program by the student loan servicers, the Trump administration has actually fired the watchdogs who keep an eye on the servicers and they've put on leave many of the staff who would help you if you had a problem with your loan, both the staff at the Department of Education and at the Consumer Financial Protection Bureau, which has been a key resource for borrowers when they get into trouble. So instead of really addressing the problems at the bottom of the student loan program, the Trump administration is continuing to let these big companies siphon hundreds of millions of dollars out of the program, and then here they come with this suggestion that they'll move the program to the Small Business Administration. And obviously, moving it unilaterally is illegal, but even if they had the legal authority to do this, it would be a disaster for borrowers. The student loan program is the size of Wells Fargo Bank, right? The Small Business Administration just laid off 40% of their staff. There's no way this is a good idea. Frederick, if we did see more privatization of some of the actions and servicing and obligations that has really fallen upon the Department of Education for so long, what does that look like in a change of experience, a change of who gets qualified even as well? Because now they're looking at creditworthiness for people who are just looking to go and get a higher education and hopefully get paid more over an extended period of time in their career. So there's a couple of things. First off, it's important to keep in mind that we used to run the federal student loan program by guaranteeing private loans up until 2009. We nationalized the student loan operation. It was supposed to help pay for the Affordable Care Act. Instead of helping make taxpayers more than whole, what we have seen, especially again the last five years, was taxpayers ate a half trillion or more in debt that they had provided mostly to folks who had taken loans to go to graduate school, who then didn't want to repay their loans. So the first thing to keep in mind is that the system we have right now is not working. It's not being implemented as legislated. My colleague spoke about Mohella, for instance. One of the unfortunate realities of the last four years was that the Federal Department of Education just smacked the living heck out of the loan servicers and the folks who were charged with actually making sure that loans were collected. And then when the system crashed, turned around and scapegoated them for not doing work that the department had made impossible to do. Is the SBA the right place to park this thing? It's unclear. The reality is the system we have right now isn't working. But more important for folks watching who are borrowers is none of this is likely to have nearly as direct an impact on them as the decisions Congress is going to make in the reconciliation legislation this spring and summer. Those are what are going to involve overhauling some of the ways in which the system actually works. And whether that works out well or poorly is really going to be the most significant thing on the horizon. Julie, just last question to you. The system as we have it right now is extremely expensive. The costs of college education, higher education far outpace that of wage growth. And with that in mind, are there any advancements that we're hearing at this juncture to rectify what is the very core issue which President Trump, as you mentioned, was elected at a time where a lot of Americans were saying everything is so expensive, how do we bring down some of these costs? And this is a family financial decision for many households who can't afford it. Yeah, and I completely agree with my colleague here that the program is broken. And Americans agree that affordability in higher education right now is broken. And that is where the Trump administration should be putting its efforts. And instead, what we're seeing them do is create chaos in both the student loan program and in the provision of federal funding for higher education overall. Colleges are scrambling, borrowers are scrambling to understand what these changes are going to mean. And meanwhile, they're waiting for a solution from Donald Trump, who was elected to help address the cost of living in America, about what exactly he's going to do to bring down the cost of college and to make people less dependent on student loans. Frederick and Julie, thank you both so much for taking the time here with us today. We're going to continue to follow the developments here and perhaps continue the conversation as well in the future. Thanks.