Court order challenges Trump's plan to move federal student loans to Small Business Administration
A federal judge's recent order may foil President Donald Trump's plans to transfer the country's more than $1.6 trillion student loan portfolio from the U.S. Department of Education to the Small Business Administration.
U.S. District Judge Myong J. Joun wrote in his May 22 preliminary injunction that the Trump administration was required to reinstate over 1,300 Education Dept. employees and was blocked from carrying out Trump's directive "to transfer management of federal student loans and special education functions out of the Department."
In other words, federal student loans will stay with the Department of Education, for now.
Trump had announced on March 21 a plan to transfer over 40 million student loan accounts to the SBA.
"They're all set for it," the president said of the SBA at the time. "They're waiting for it."
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Madi Biedermann, deputy assistant secretary for communications at the Education Department, slammed the judge's decision.
"Once again, a far-left Judge has dramatically overstepped his authority, based on a complaint from biased plaintiffs, and issued an injunction against the obviously lawful efforts to make the Department of Education more efficient and functional for the American people," Biedermann wrote in a statement to CNBC on Thursday.
The Trump administration requested the order be stayed pending an appeal of the decision.
The development that student loans will remain in the Education Dept. for now is good news for borrowers, said Sarah Sattelmeyer, a project director at New America and senior advisor under the Biden administration.
"Instead of increasing efficiency, the movement of the Department's core functions would have increased confusion and decreased the effectiveness of programs that students depend on to access education," Sattelmeyer said.
Consumer advocates are worried that a mass transfer of accounts between federal agencies could trigger errors, or compromise federal student loan borrowers' privacy. Those problems have occurred during much smaller transfers between loan servicers.
Advocates also raise concerns about how a change in agency might affect borrower protections and programs such as Public Service Loan Forgiveness.
The Small Business Administration has no experience relevant to the management of federal student loans, said higher education expert Mark Kantrowitz.
It would ultimately require an act of Congress to move the loan portfolio to the SBA, Kantrowitz said. The Higher Education Act of 1965 spells out that that the Education Department's Federal Student Aid office is responsible for the debt, he said.
Adding to advocates' criticism over Trump's proposed transfer was his administration's announcement in March that the SBA's workforce would be reduced by 43% — leaving fewer people to manage this new responsibility.
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