U.S. Government Considers Selling Student Loan Debt Portfolio
The Trump administration is evaluating the potential sale of the federal government’s substantial student loan portfolio, which amounts to approximately $1.6 trillion. This proposal is gaining momentum and could significantly impact the management of student loans and the experience of borrowers across the United States.
Under the current plan, management responsibilities for some student loans would transition from the Education Department to the U.S. Treasury. This change is required by the Higher Education Act of 1965 if the government pursues selling parts of its student loan portfolio to private lenders.
Implications for Borrowers
Should this plan move forward, the implications for borrowers could be considerable. Private lenders may adopt different policies regarding collections and repayments, potentially leading to less flexibility compared to federal loan management. Notably, federal debt collection methods are more robust; for instance, the government can garnish tax returns and Social Security benefits, which may not be the case with private entities.
Discussions have also arisen regarding how to value the student loan debt in the private market. According to reports from POLITICO, the Trump administration is contemplating hiring a consulting firm or bank to assess the value of portions of the portfolio. Federal law permits the Department of Education to sell the debt, but only after consulting with the U.S. Treasury and ensuring that the transaction does not impose a cost on taxpayers.
Current State of Student Loan Debt
As of June 2023, there are approximately 42.3 million borrowers with outstanding student loans. The total debt stands at about $1.67 trillion, with around 5.3 million borrowers in default, meaning they are at least 270 days overdue on their payments. Furthermore, new data from TransUnion reveals that 29% of borrowers, equating to 5.4 million people, are at least 90 days past due on their loan payments. This figure remains consistent with the previous month and is only slightly lower than the peak of 31% recorded in April 2023. In contrast, prior to the pandemic, in February 2020, only about 12% of borrowers were similarly delayed.
Looking ahead, the U.S. Treasury Department is undertaking a “Restructuring Review” of the federal student loan system. This comprehensive review is slated for completion by the end of 2025. If the forthcoming report endorses the sale or transfer of student loan management, Congress will need to approve the proposed changes for them to take effect.
The potential sale of student loan debt could reshape the landscape for millions of borrowers, altering their repayment experiences and the overall dynamics of student debt management in the United States.
