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CounterCurrent:
The Future of Federal
Student Loans
The Trump administration’s decision to move the federal student loan portfolio to the Small Business Administration is being met with controversy

CounterCurrent is the National Association of Scholars’ weekly newsletter, bringing you the most significant issues in academia and our responses to them.
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Category: Student Loans, Academic Reform, Higher Ed;
Reading Time: ~4 minutes
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By now, the controversy surrounding the Trump administration’s Executive Order ([link removed]) to close the Department of Education (ED) has made the rounds in the news. A new layer to the controversy was added when Trump announced ([link removed]) on Friday that the ED’s student loan portfolio will be moved to the Small Business Administration (SBA).

Many are still waiting for a detailed plan to be unveiled as to how this transfer will take place and what student loan programs will look like under the SBA, as no comment has been given by the Trump administration nor the SBA at this time.

What we know so far is minimal. The federal student loan portfolio—which totals about $1.7 trillion in loans for roughly 43 million borrowers—will be moved to the SBA, headed by Kelly Loeffler. Linda McMahon, now the Secretary of Education, was the SBA administrator during President Trump’s first term. The ED’s “special needs” programs will be moved to the Health and Human Services Department. Right now, it is unclear ([link removed]) whether the Pell Grant program and the Free Application for Federal Student Aid will be transferred to the SBA along with other aid programs.

While the ED’s office of Federal Student Aid (FSA) has historically managed federal student loans to postsecondary students—albeit at times poorly—most people were surprised by the decision to move federal loan management to the SBA in the first place, or even to the SBA over the Treasury Department or the Internal Revenue Service. The SBA is an independent agency of the U.S. government—with a Cabinet level position—and is responsible for supporting small businesses and entrepreneurs, along with managing loans to said parties in order to bolster the economy.

There are many unanswered questions as to how this portfolio move will help federal student aid in the long-run, or even solve ongoing issues. This move comes at a time when approximately 8 million borrowers are still in loan repayment limbo after the Biden-era repayment plan—i.e., Saving on a Valuable Education Plan—was stopped by a judge for being “illegal.”

Along with this, the SBA announced a cut ([link removed]) to its workforce of more than 40 percent on Friday, the same day Trump announced the student loan portfolio move with no additional details. The federal student loan program has long been fraught with difficulties and technical snafus for borrowers. A statement ([link removed]) from ED last Thursday cleared up none of the confusion, but it did hint at the road forward:

Closing the Department does not mean cutting off funds from those who depend on them—we will continue to support K-12 students, students with special needs, college student borrowers, and others who rely on essential programs. We’re going to follow the law and eliminate the bureaucracy responsibly by working through Congress to ensure a lawful and orderly transition.

Time will tell. Additionally, consider that Trump’s decision to move the responsibility of federal student loan portfolio oversight to SBA may run into legal snags ([link removed]) when it comes to enforcement,

Logistical challenges aside, the role of the office of Federal Student Aid as the administrator of the student loan portfolio is protected by law ([link removed]) . It's not clear how these responsibilities could be legally moved without a vote of Congress.

As I said last week, it is clear that the Trump administration means business when it comes to reforming education. Columbia University certainly got the message to “shape up or ship out” when the administration officials rescinded funds ([link removed]) over the school’s hesitance to enforce its student code of conduct. The school also agreed to several other demands ([link removed]) including granting campus law enforcement the ability to arrest student agitators. Outside pressure does appear to work when higher education is hit where it hurts the most—financially. This seems to prove that outside reform can work, at least in the short-term.

Tying this idea of reforming education from the outside to the Trump administration decision to move federal student loans to the SBA, the National Association of Scholars (NAS) has long maintained the stance that the federal student aid program is in dire need of reform ([link removed]) —preferably through Congressional legislation. Additionally, colleges and universities should be partially on the hook for the vast amounts of student loan debt taken on by students—debt that is fueled by tuition hikes due to administrative bloat, inflation, and even the federal student aid program itself. We also suggest ([link removed]) that “Congress should reform Title IV regulations to require that colleges and universities assume partial responsibility for student loans” up to 50 percent of the total borrowed amount. Especially now, colleges and universities should bear some of the responsibility for
future student loans—maybe this would take away the incentive for schools to overcharge and underperform.

While the Trump administration is deciding the details of their plan in moving the federal student loan portfolio to the SBA, consider a few of the policy recommendations ([link removed]) from our Waste Land ([link removed]) report regarding the FSA, and how the government can best cut down and reform the ED:

* Consolidate all federal student grant programs into Pell Grants. Policymakers should redirect the funding for eliminated grant programs to the Pell Grants.
* Remove all ED discretionary power to discharge or forgive loans, save for narrowly enumerated circumstances such as clearly demonstrated fraud by an educational institution.
* Consider whether to convert the federal direct loan program into a professionally governed and managed autonomous government corporation, immune from abusive misgovernment by the executive branch.

All of this being said, it is still commendable what the Trump administration is attempting to do in flushing out gross overspending, malign ideology, and corruption within academia. But there are alternative ways to go about this reform—ideally through Congressional action and oversight. And with reform guidance from non-government sources who have skin in the game and care to see higher education focused once again on merit, excellence, and integrity.

In the meantime, we await details about the next steps in the takedown of ED and what it means for academia’s future.

Until next week.
Kali Jerrard
Communications Associate
National Association of Scholars
Read the Article ([link removed])
For more on the student loans, academic reform, and higher ed:
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March 20, 2025


** Trump Expected to Sign Executive Order to Eliminate the Department of Education, but the Reform Effort May Be Short-Lived ([link removed])
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Alyza Harris

His decision to close the ED follows a series of ambitious education reform initiatives.

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March 17, 2025


** A Private Student Loan System Should Not Mirror the Federal Family Education Loan Program ([link removed])
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Andrew Gillen

Shifting student loans from the current government-as-lender model to the private market would be beneficial.

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February 24, 2021


** Report: Priced Out ([link removed])
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Neetu Arnold

As more Americans attend college, costs rise, and more students fail to graduate, we ask, "why?" Priced Out details the spending habits of 50 universities across America and provides perspective from students, parents, and college administrators.


** About the NAS
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The National Association of Scholars, founded in 1987, emboldens reasoned scholarship and propels civil debate. We’re the leading organization of scholars and citizens committed to higher education as the catalyst of American freedom.

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