Trump eyes sweeping overhaul of federal student loan system
President Donald Trump has put forth an ambitious proposal to fundamentally restructure the federal student loan system, advocating for the transfer of the Federal Student Aid (FSA) office from the Department of Education to the Small Business Administration (SBA). Asserting that the facilitation of college financing should not fall within the purview of the Education Department, Trump’s proposition represents a dramatic departure from longstanding policy. Should this overhaul come to fruition, it would not only redefine the administration of the nation’s vast student loan portfolio but also place its oversight in an agency traditionally dedicated to fostering entrepreneurship. However, the initiative faces formidable challenges, including the necessity of congressional approval and widespread apprehension regarding potential disruptions to an already intricate financial aid infrastructure.
Trump’s proposal: Moving student loans out of the Education Department
Speaking to reporters at the White House, Trump argued that the Education Department should not be responsible for handling student loans. “That’s not their business,” he stated as reported by USA Today, emphasizing his belief that federal student aid should be managed differently.
Trump pointed to Kelly Loeffler, a former Republican senator from Georgia and the current SBA chief, as someone interested in overseeing the student loan portfolio. He also referenced Linda McMahon, who previously led the SBA under his first term, as an example of strong leadership in the agency. “Kelly really liked it and would like to do it,” Trump added as reported by USA Today, suggesting the transition could streamline student loan operations.
Challenges and political roadblocks
Despite Trump’s enthusiasm, shifting FSA to the SBA—or any other federal agency—would be a complex and politically fraught process. The restructuring would require an act of Congress, which is unlikely to pass given the current partisan divide. Senate filibuster rules would necessitate Democratic support, making the proposal a tough sell.
Even Trump acknowledged the difficulties of such a move, calling FSA “the most complicated thing” to relocate. The office, which manages loans for millions of borrowers, operates at a scale comparable to major banks, and transitioning it would pose significant logistical and technical hurdles.
Uncertainty over the education department’s future
Trump’s comments come at a time of broader uncertainty about the role of the Department of Education. A White House official told USA Today that the former president is still considering executive action to reassess the department’s future. A preliminary draft of an executive order reportedly instructs the education secretary to shut down the agency “to the maximum extent appropriate and permitted by law.” However, it remains unclear whether this directive is still under consideration.
Federal student aid faces workforce reductions
The potential overhaul comes amid a shrinking workforce at FSA. An internal review indicates that roughly 10% of FSA employees accepted voluntary buyout offers modeled after Elon Musk’s “Fork in the Road” strategy. Additionally, just last week, the Education Department offered agency staffers up to $25,000 to resign or retire, further depleting the office’s personnel.
Meanwhile, Project 2025—a conservative policy blueprint influencing Trump’s proposals—suggests transferring FSA to the Treasury Department instead. This alternative approach raises further questions about the future of federal student aid management.
Concerns from financial aid experts
Financial aid experts have raised significant concerns over Trump’s proposal, warning that relocating the Federal Student Aid (FSA) office could create disruptions in an already complex system responsible for managing billions in student loans. They argue that such a transition would not only be technically challenging but could also lead to administrative delays, borrower confusion, and potential inefficiencies in loan servicing. Experts emphasize that any major structural change should be carefully evaluated to avoid unintended consequences for millions of borrowers relying on federal student aid.
What comes next?
While Trump’s proposal faces steep challenges, it underscores an ongoing debate over how federal student loans should be managed. With FSA’s workforce already shrinking and discussions about the Education Department’s future ongoing, major changes to the student loan system could still be on the horizon. Whether through legislative action or executive measures, Trump’s vision for student loan reform is likely to remain a contentious issue in the coming months.
