Last week, President Donald Trump announced that federal student loans, currently managed by the U.S. Department of Education, would soon be transferred to the Small Business Administration (SBA). This move aims to improve the servicing of over $1.6 trillion in student loan debt, affecting more than 40 million Americans.

Trump has stated that the SBA will handle the loans "much better" than the Department of Education, calling the current system a "mess." However, experts and consumer advocates are expressing concerns about the implications of such a transition, including potential errors in loan servicing, borrower privacy issues, and changes to existing protections and programs like Public Service Loan Forgiveness (PSLF).

Is It Possible for Trump to Move Student Loans to the SBA?
Despite the announcement, it’s not clear whether President Trump has the legal authority to transfer the management of federal student loans from the Department of Education to the SBA. The Higher Education Act of 1965 clearly designates the Department of Education’s Federal Student Aid office as responsible for handling student loans, meaning any such transfer would require an act of Congress.

Financial aid expert Mark Kantrowitz pointed out that while Trump’s executive orders have had far-reaching effects, this move would likely face legal challenges. "It will require an act of Congress," Kantrowitz noted, further complicating the timeline and feasibility of the transfer.

Moreover, while the president has expressed intentions to reduce the size of the Education Department, only Congress has the authority to abolish the agency entirely. Trump’s recent executive order aimed at dismantling parts of the Department of Education could face opposition from lawmakers, further complicating the situation.

Potential Legal Challenges and Uncertainty for Borrowers
The proposed shift in student loan management has created significant uncertainty among borrowers. According to Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center, the transition is likely to face legal challenges. "Borrowers don’t know what to do," Yu said. "There’s a lot of uncertainty."

Consumer advocates are particularly concerned about the risk of errors and confusion during the transition process. In the past, when federal student loan accounts were transferred between servicing companies, borrowers frequently encountered problems, such as inaccurate credit report entries or lost information. Given that many loans go back decades, these errors can have serious long-term consequences for borrowers.

Concerns About SBA's Capability and Staffing
One of the major concerns about the proposed transfer is the lack of experience at the SBA in handling federal student loans. The SBA is primarily responsible for helping small businesses access loans and grants, not managing complex federal student loan programs. The Department of Education has long had the expertise needed to oversee these loans, including various income-driven repayment plans, deferment options, and other borrower protections.

Compounding this concern is the announcement earlier this month that the SBA’s workforce would be reduced by 43%, which raises questions about whether the agency will have enough staff to effectively manage the new responsibilities.

What Borrowers Can Do Now to Prepare
Even with all the uncertainty surrounding the proposed transfer, experts emphasize that borrowers’ rights and obligations will not change simply because the agency managing their loans shifts. Your rights were established when you signed your Master Promissory Note, and those terms remain in place regardless of who services the loan.

However, there are several important steps borrowers should take now to safeguard against potential issues during the transition:

1. Track Your Loan Balance and Payment History
   Borrowers should gather up-to-date information on their student loan balance and payment history. This can be done through Studentaid.gov, which provides access to loan details, including the servicer handling the debt. If your loan has been transferred between servicers in the past, it’s wise to request a complete payment history from your current servicer as well.
2. Certify Your Public Service Loan Forgiveness (PSLF) Work History
   If you are pursuing Public Service Loan Forgiveness, now is the time to certify your employment history with the Department of Education. PSLF allows borrowers who work in qualifying public service jobs to have their loans forgiven after 10 years of qualifying payments. Given that past borrowers have reported issues with inaccurate payment counts, it’s critical to ensure all your eligible periods of employment are documented and confirmed before any potential changes take place.
3. Stay Informed About Changes
   As the situation develops, keep an eye on any official announcements regarding the transfer of student loan servicing. While Trump’s proposal remains in flux, it’s important for borrowers to remain vigilant and proactive in case the transfer moves forward.

While President Trump’s push to move federal student loans to the SBA is still in the early stages and faces significant legal hurdles, it’s crucial for borrowers to stay informed and prepared for any potential changes. Whether or not the transfer takes place, borrowers’ rights and protections remain intact, but ensuring that your loan records are accurate and up-to-date will be key to avoiding complications down the road.

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