GOP could raise student loan bills to pay for Trump’s tax cuts
Millions of student loan borrowers could be paying more as GOP lawmakers consider an exit plan to fund Trump’s tax cuts.
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Would you notice if the U.S. government sold student loans to the private market?
That’s the question 45 million federal student loan borrowers may be asking. The Trump administration is considering selling a portion of the federal government’s $1.6 trillion student loan portfolio into the private market.
No decision is imminent, the sources said. Politico first reported the potential move.
Lenders routinely sell loans, such as mortgages, to banks, mutual funds, and other large investors, freeing up money to issue new loans. Other than sending the payment to the new company, the borrower is usually unaware. The original terms of the loan remain the same, including the interest rate, monthly payments, and loan term.
But federal student loans may be different because the U.S. government offers protections that private companies may not, experts said.
For example, “selling loans reduces the ability of future administrations to seek to create moratoriums on loans, which may be a major concern that administrations seek to address.”
Former President Joe Biden suspended student loan repayments for about 3.5 years due to the Covid-19 pandemic.
Can Trump sell federal student loans?
The law allows portfolios of federal student loans to be sold if there is no cost to taxpayers, experts told USA Today.
And it’s not the first time the sale has occurred in recent years. In 2019, the first Trump administration explored similar options, a source familiar with recent conversations noted.
Trump also suggested handing over student loans to another agency in a March executive order that sought to shut down the federal Department of Education. “(The department) needs to return banking functions to entities equipped to serve America’s students, not banks,” he said at the time.
The sale could be part of Trump’s broader desire to shut down the department, one of his signature 2024 campaign promises.
Is the sale less costly to the taxpayer?
Experts say it’s not clear. That’s because private buyers are more likely to value lower student loan portfolios than governments.
For example, the results of a 2019 analysis by McKinsey consultants to assess the value and credit profile of the Direct Loan portfolio were “poor. An estimated 45% of the loans in the portfolio were not expected to be repaid,” said the Project on Predatory Student Lending, a legal organization representing student borrowers.
Moreover, private companies were less aggressive in their collections. Experts said they cannot garnish wages and other benefits without first going to court.
That’s “a high bar to argue that selling loans doesn’t cost taxpayers money,” Smatters said.
What if my student loan is sold?
The first thing you might notice is when your federal student loans are sold to private investors.
Digging deeper, terms may need to change for a sale to occur. Again, you will not be allowed to garnish your wages or benefits to help pay off your loan without going to court. It also does not give the borrower unlimited time to repay the loan. Experts said these are only given to the federal government.
According to PPSL, there is another issue with the terminology change.
“Laws that strip repayment rights or other favorable terms from student loan agreements may trigger obligations to compensate student loan borrowers for the loss of those terms,” according to the group.
Having to compensate 45 million Americans to have their repayment rights stripped could give borrowers their first financial boost, he said. But that would negate some of the Trump administration’s potential savings because the government would be on the hook to pay them.
Medora Lee is a money, markets and personal finance reporter for USA Today. You can contact her at mjlee@usatoday.com and subscribe to the free Daily Money Newsletter for personal finance tips and business news every Monday through Friday morning.
