President Trump announced on Friday that he plans to move management of the federal student loan program to the Small Business Administration (SBA), a major step in his effort to dismantle and possibly shut down the Department of Education.
“We have a portfolio that is 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, vastly understating the number of outstanding loans — there are currently about 43 million Americans with student debt.
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The president offered few details about how the Small Business Administration would go about assuming control of the loan program or what borrowers could expect in the weeks ahead, but suggested the process would be smooth.
“They’re all set for it. They’re waiting for it,” he said, referring to the SBA. “It will be serviced much better than it has in the past. It’s been a mess.”
The White House and Commerce Department did not return a request for comment. Education officials referred Yahoo Finance to an interview with Education Secretary Linda McMahon on Fox News on Friday, in which she said, in part, that she would work with the SBA on a strategic plan.
Trump has signaled for weeks that he intended to move student lending out of the Department of Education, but it’s unclear why the White House settled on placing it within the Small Business Administration. Many conservative experts have argued that student lending could be better managed by the Treasury Department, which has long acted as a debt collector for most of the federal government.
The SBA, currently headed by former Georgia Sen. Kelly Loeffler, is a relatively small department. And while it has long run small business lending programs, it has rarely been responsible for anything close to the size and scope of the student loan program. Its management of the pandemic small business rescue efforts such as the Paycheck Protection Program were often criticized for being scattershot and plagued with fraud.
On Friday, the SBA announced plans to reduce its own workforce by 43%.
“This has mostly been discussed in terms of Treasury. It’s on the administration to explain the rationale for this move, and I haven’t seen that they’ve yet done so,” said Frederick Hess, director of education policy studies at the conservative American Enterprise Institute. “Until they make that case, I think it’s fair to ask hard questions about why the SBA and how this will work.”
Most of the student loan program’s day-to-day operations are handled by major contractors. However, Department of Education officials closely monitor the work of private companies to ensure they’re properly serving students and correct issues as they crop up. Unless the SBA essentially takes over the existing staff at the Federal Student Aid office, it likely won’t have the expertise to keep the program functioning, former officials told Yahoo Finance.
”I don’t think you can just call up one guy at the Small Business Administration and say ‘OK, you run this now,’” said Julie Margetta Morgan, a former deputy undersecretary for education during the Biden administration.
Legal experts said they were skeptical that Trump actually has the authority to move student lending to another agency. The Higher Education Act states that the office charged with managing federal student aid shall be “established in” the Department of Education, and the Secretary of Education “shall maintain responsibility” for overseeing regulations and policies affecting it.
“There are laws that give the president flexibility about where things get assigned, but this is not one of them,” said Georgetown University law professor David Super, who specializes in administrative and constitutional law.
While some conservatives have suggested that the loan program could be legally transformed into a joint program between the Department of Education and SBA, Super disagreed.
“This is not being proposed as a joint operation, this is being proposed as a change,” he said. “Whether it’s a good change or a bad change, I don’t know. But it’s a change that’s inconsistent with what Congress has written.”
The professor added that if the SBA tried in the future to make any changes to student lending, its decisions could be vulnerable to lawsuits by borrowers claiming the agency doesn’t have the legal authority to run the program.
The student loan program has already been stuck in a state of limbo for weeks, after the Trump administration blocked online access to popular income-driven repayment programs in response to a court ruling.
Jordan Weissmann is a Senior Reporter at Yahoo Finance.
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