Moving Student Loans to the SBA Could Create Problems for Borrowers, Experts Say

President Trump’s order to close the Department of Education included the move of student loans to the Small Business Administration. Trump has said the change will mean “much better” service, but advocates and experts say the shift would add to the confusion of already overwhelmed borrowers.

Trump in a press conference last week said the SBA would take on the DOE’s responsibilities for managing federal student loans. “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,” Trump said Friday. 

The DOE oversees several private servicing companies, which handle payments and customer service for 43 million American student loan borrowers. The change, experts say, may cloud rather than clear up the outlook for them.

Moving Student Loans Could Add to Borrower Confusion

Federal student loan borrowers have faced several disruptions to their repayment plans. Recently, all income-driven repayment applications closed because of a court battle debating the future of former President Joe Biden’s Saving for a Valuable Education (SAVE) repayment plan.

Some government watchers have said moving student loans to another agency or eliminating DOE would require action from Congress. Others are worried about the logistics—and what could happen in the wake of the change.

The same day Trump said student loans would be transitioned to the SBA, the agency announced it would cut its workforce by 43%. Advocates say moving trillions of dollars in student loans while cutting staffing at both agencies will cause more chaos.

“This can only result in borrowers experiencing erratic and inconsistent management of their federal student loans,” Jessica Thompson, senior vice president of The Institute for College Access and Success, said in a statement. “Errors will prove costly to borrowers and, ultimately, to taxpayers.”

Borrowers could see disruptions in customer service, causing more students to default on their loans if they do not receive clear, timely, and accurate information about repayment, Katharine Meyer, a fellow in governance study at the Brookings Institute, a nonpartisan research organization, told Investopedia earlier this month.

“Look only to last year’s rollout of the FAFSA and how much, at a fundamental level, a simple change in the form and process within an existing agency that has been dealing with this for decades still causes a lot of disruptions,” said Meyer.