President Donald Trump on Friday unexpectedly announced that he would be moving the entire federal student loan system from the U.S. Department of Education to the Small Business Association.
“I’ve decided that the SBA, the Small Business Administration, headed by Kelly Loeffler, will handle will all of the student loan portfolio,” Trump told reporters in the Oval Office. The transfer will happen “immediately,” he said.
Trump’s statement comes one day after he issued an order to close the Department of Education – which most legal experts agree cannot be done without Congressional authorization. It also comes after the Trump administration made repeated assurances that the department would continue to administer the federal student loan system. Advocates have expressed heightened concerns that dismantling the Department of Education is likely illegal and will cause massive disruptions for federal student loan programs, including income-driven repayment plans and student loan forgiveness, which are already facing unprecedented turmoil.
Trump’s Transfer Of Federal Student Loan System Follows Order To Close The Department of Education
Trump’s unexpected announcement that the federal student loan system would be moved to the Small Business Association comes less than 24 hours after he issued an executive order to close the Department of Education.
“The Congress created the Department of Education in 1979 at the urging of President Jimmy Carter, who received a first-ever Presidential endorsement from the country’s largest teachers’ union shortly after pledging to the union his support for a separate Department of Education,” reads the order. “Since then, the Department of Education has entrenched the education bureaucracy and sought to convince America that Federal control over education is beneficial.” The order goes on to say, “Closing the Department of Education would provide children and their families the opportunity to escape a system that is failing them.”
As the President was signing the order, White House press secretary Karoline Leavitt told reporters, “When it comes to student loans and Pell Grants, those will still be run out of the Department of Education.”
Similarly, the Department of Education issued a statement earlier this month announcing mass layoffs that said, “The Department of Education will continue to deliver on all statutory programs that fall under the agency’s purview, including formula funding, student loans, Pell Grants, funding for special needs students, and competitive grantmaking.”
But Trump’s announcement on Friday directly contradicts those assurances.
Advocacy Groups Warn Of Massive Disruptions To Student Loan Forgiveness And Repayment Programs
Student loan borrower advocacy groups have been sounding the alarm that closing the Department of Education and transferring its operations to other agencies that have no experience with the nation’s massive federal student loan portfolio may cause profound disruptions for borrowers.
“When the federal government accidentally bills a student loan borrower $5,000 a month instead of $50 — or when a predatory student loan servicer illegally withdraws multiple payments from debtors — there will be little to no recourse for working people to get their money back because of today’s reckless decision by the Trump administration,” said Braxton Brewington, spokesperson for the Debt Collective, a debtor’s union advocating for student loan borrowers, in a statement on Thursday. “Nearly every lawyer, ombudsman and team that was specifically designed to help the tens of millions of working class Americans with one of their largest monthly bills has been fired. This dismantling of the Department of Education will not save anyone a dime — in fact, it will come at great cost to our economy.”
“History tells us that dismantling the Department of Education, ending programs that help students learn, and shuffling the remaining programs among other agencies won’t fix anything,” said Abby Shafroth, co-director of advocacy at the National Consumer Law Center in a statement this week. “What it will do is eliminate education as a national priority; create inefficiency and disorder in federal educational programs; and make it harder for citizens to hold the federal government accountable for how it supports—or fails to support—access to education and educational excellence in the United States.”
Borrowers are already contending with significant problems across the vast federal student loan system. The SAVE plan, a new income-driven repayment program enacted by former President Joe Biden that provided reduced payments and an end to runaway interest accrual, remains blocked by a court order, resulting in millions of borrowers unable to pay their student loans. Earlier in March, the Department of Education abruptly shut down the income-driven repayment system by removing applications and issuing an order to loan servicers to halt all application processing. This has resulted in millions of borrowers being unable to enroll in repayment plans that they are legally entitled to access, while others have been cut off from student loan forgiveness programs such as PSLF or are experiencing massive spikes in monthly payments.
Meanwhile, relief for borrowers suffering from medical impairments who are entitled to a discharge under federal law are unable to receive one as the Total and Permanent Disability discharge program remains in a “paused” status following a long-planned servicer platform change. It is unclear how President Trump’s recent announcement of the transfer of the federal student loan system to the SBA will impact this program.
Closure Of Department Of Education And Transfer Of Federal Student Loan System To SBA May Provoke Legal Challenges
The Trump administration’s actions to dismantle the Department of Education may lead to legal challenges. Congress established the Department of Education through legislation, and most legal experts agree that it would take an act of Congress to dismantle it. Similarly, federal laws passed by Congress specifically designate the Department of Education to administer and implement repayment and student loan forgiveness programs for federal borrowers; shifting the department’s student loan operations to other agencies within the federal government may violate the law.
Some advocacy organizations have already threatened to sue the Trump administration.
“The real effect of this Executive Order will be more hardship and chaos for students and families,” said the National Student Legal Defense Network in a tweet on Friday. “We will stop this in court.”
“Moving the student loan program to the SBA is illegal, unserious, and a clear attempt to distract the public from the fact that Trump has broken the student loan system and is actively cheating millions of borrowers out of their rights,” said Mike Pierce, Student Borrower Protection Center Executive Director, in a statement on Friday. “Donald Trump, Linda McMahon, and Kelly Loeffler don’t have to worry about whether they can afford to send their kids to college or how they will stay on top of their bills. The cruelty is the point, and they are intentionally stoking the flames of chaos that will impact the economic stability of millions of working families.”
“First and foremost, Congressional approval is needed to transfer management of the loan portfolio to the SBA,” said Jessica Thompson, Senior Vice President of The Institute of College Access & Success, in a statement on Friday. “There is no discernible reason to do this. It will benefit neither borrowers nor taxpayers at large. Of further concern, the Administration today also announced a 40 percent staff reduction at SBA—on top of the 50 percent staff reduction that has already taken place at the Department of Education. With no clear strategy, the Administration has decimated staffing and oversight capabilities at both agencies while simultaneously announcing its intent to immediately transfer a more than $1.5 trillion loan portfolio between them. This can only result in borrowers experiencing erratic and inconsistent management of their federal student loans. Errors will prove costly to borrowers and ultimately, to taxpayers.”
The Department of Education is already contending with several legal challenges over recent Trump administration actions. This week, the American Federation of Teachers filed a lawsuit over the department’s decision to take down income-driven repayment plan applications and block new enrollments in affordable payment plans that the department is required under law to offer borrowers. And earlier this month, a group of Democratic-led states filed a legal challenge to halt the administration’s efforts to lay off nearly half of the department’s staff, including many that help run the federal student loan system.
The author has previously worked with the National Student Legal Defense Network on an unrelated matter. This article was updated on March 21, 2025 to include statements by the Student Borrower Protection Center and The Institute of College Access & Success on the announced student loan transfer to the SBA.
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