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Takeaways from the Key Takeaways
- In order to close down the Department of Education as part of the President Donald Trump’s executive order, student loans will now be transferred to the Small Business Administration.
- Congress would need to act if it wants to eliminate the DEO, or shift its responsibilities.
- Experts say that shifting the loans of 43 millions Americans would create chaos, confusion and even a loss of trust, especially since both agencies had almost halved staff.
The Small Business Administration was given responsibility for student loans as part of President Trump’s closure of the Department of Education. Trump claims that the move will result in “much improved” service. However, advocates and experts claim the change would only add to the confusion for 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. Trump said on Friday that the Department of Education would be responsible for this.
The DOE oversees private servicing companies that manage payments and provide customer service to 43 million American student loans borrowers. Experts say that the change may not be a positive one for them.
The confusion caused by the new student loan program could be a further problem for borrowers
Borrowers of federal student loans have experienced several disruptions in their repayment plans. All income-driven repayment applications were closed recently due to a court case debating the future repayment plan of former President Joe Biden, Saving for a Valuable Education.
Some government watchers believe that Congress must take action to move student loan management to another agency, or eliminate DOE. Others are worried about the logistics—and what could happen in the wake of the change.
The SBA announced that it would reduce its workforce by 43% the same day Trump said that student loans would be transferred to the SBA. The advocates say that moving trillions in student loan debt while cutting staff at the two agencies will create 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."
Katharine Meyer of the Brookings Institute (a nonpartisan research group) told Investopedia that borrowers could experience disruptions in customer services, causing them to default on their loan if they don’t receive clear, timely and accurate information regarding repayment.
“Look no further than last year’s FAFSA launch to see how a simple, yet fundamental, change in form and process at an agency that has been handling this for decades can still cause a lot disruptions,” said Meyer.
