State universities would be responsible for portions of students’ defaulted loans under legislation advanced Wednesday by an Iowa House subcommittee.
House Study Bill 540 would require state universities to offset 25% of a borrower’s liability if they default on an educational loan taken out to attend the institution. This means the university would be liable for 25% of what the student owes.
More than 40% of Iowa public college graduates finish their education debt-free, Iowa Board of Regents State Relations Officer Jillian Carlson said, and those who do take out loans receive financial counseling early in their college career “to help them right-size their debt and advise them on not taking out more than they need.”
“One question or concern that we do have is to clarify whether students who default on their loans are actually defaulting because they’re unable to make the payments, versus defaulting on their loans because they know that we would pick up 25% of the bill when they actually do have the resources to make the payments,” Carlson said.
Rep. Heather Matson, D-Ankeny, said there are important, practical questions on the topic of universities potentially being liable for defaulted loans that are not answered in the bill, such as where the money to take on these debts would come from. She also asked whether it should be the responsibility of a university to “be on the hook for” part of a loan in certain situations, like if a graduate finds themself in medical debt and must decide how they’ll use their money to stay safe and healthy.
“I think it’s important to recognize that the majority party talks a lot about personal responsibility, especially when it comes to student loans,” Matson said. “So I’m curious as to why you all are proposing to put a graduate’s financial decisions back onto a university if personal responsibility for student loans is so incredibly important.”
Rep. Jeff Shipley, R-Fairfield, said during the subcommittee meeting he believes the idea presented in the bill has “some merit.” He and subcommittee chair Rep. Taylor Collins, R-Mediapolis, approved the legislation to move to the Iowa House Higher Education Committee.
“My general thoughts are, we need to make sure we have some skin in the game when it comes to … the future employment of these individuals, once they graduate,” Collins said.
Iowa Capital Dispatch is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Iowa Capital Dispatch maintains editorial independence. Contact Editor Kathie Obradovich for questions: [email protected].
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This week we paid for The Girl’s last semester at college. Barring catastrophe, I have filled out my last FAFSA. I won’t miss those at all. We managed to get her through college without her (or us) taking out loans, so when she graduates she’ll be in the best position to launch that we could give her.
That’s good in itself, of course, but I also learned recently that it’s good for another reason. A few months ago we paid off The Boy’s student loans. The loans had been in his name, as traditional student loans are. When we paid them off, his credit score took a hit!
I am not making that up.
As a young man starting out his adult career—weighing options for places to live, thinking about medical school(s), grappling seriously with adult choices around locations and relationships—taking a swift kick in the credit score has real impact. He doesn’t have enough spare capital lying around to, say, buy a house for cash. At 24, most people don’t. I certainly didn’t. A new place and/or a new tuition bill will require debt, which is more expensive when your credit score is lower. It’s a sort of poverty tax, except that the proceeds go to banks.
People who take out student loans get criticized for not paying them off, but then also get punished for paying them off. I don’t blame him for being frustrated.
This perverse outcome happened in a close-to-best-case scenario: He finished his degree, got a job in his field and got parental help paying off the loans. Most students would gladly trade scenarios, and yet …
I know it’s culturally double-edged, but it’s still true that minimizing student loan debt is a great argument for starting at a community college. Intro to Psychology doesn’t vary that much from one college to another; why go into debt to pay double or triple what you could have paid? My own kids proved stubbornly immune to that argument—they knew what they wanted, and they are their own people—but it’s still true.
At least The Girl has managed to get through without loans, so she’ll be spared the no-win choice he faced. She’ll have her own challenges, but not that particular one.
Of course, the right policy way to address scenarios like these is to recognize that they’re structural and therefore the correct response is structural. Giving public colleges and universities the funding they need to do their jobs without annual tuition increases would obviate much of the need for loans in the first place; add support for student basic needs, and the space for loans would get even smaller. Making loans moot would get around the double bind of either paying back or not paying back and would do so regardless of whether students have parents who can afford to help. On a broader level, working toward a more equitable economy—one in which young people just starting out could afford homes, say—would do a world of good. In the meantime, moving to interest-free loans would offer much more bang for the buck without violating any major cultural norms.
In the meantime, though, can we at least agree to stop punishing people who actually pay off their loans? What would we rather have people do?
This week on the podcast from Nijmegen on the SUs study tour the team discuss the return of the UK to Erasmus+. What steps can UK HE take to ensure that UK students take advantage of and get the benefits of mobility?
Plus there’s a Private Members’ Bill on student loan timings, and the team share reflections on the associations, student leaders, curricula and food they’ve seen across Germany, France, Belgium, the Netherlands, Luxemburg and Switzerland.
With Abi Taylor, President at Durham SU, Gary Hughes, CEO at Durham SU, Mack Marshall, Community and Policy Officer at Wonkhe and presented by Jim Dickinson, Associate Editor at Wonkhe.
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Dive Brief:
Over 40 Democratic lawmakers have called on the Trump administration to abandon reported talks about the possibility of selling off a chunk of the federal government’s $1.6 million student loan portfolio to the private market.
In a Sunday letter toU.S. Education Secretary Linda McMahon and Treasury Secretary Scott Bessent,the federal lawmakers warned transferring student debt ownership to the private sector could strip borrowers of legal protections and violate the law if the loans are sold at a loss to taxpayers.
“The federal government cannot simply eliminate its legal obligations to borrowers,” the members of Congress said. “Federal law requires that the protections guaranteed in the original terms of a borrower’s loan must be honored even if the Department of Education proceeds with a sale.”
Dive Insight:
The letter from Democrats — signed by U.S. Sens. Elizabeth Warren, Richard Blumenthal and Ron Wyden, among others —follows an October report from Politicoabout talks in the Trump administration that centered on a partial sale of the government’s student loans.
According to Politico, senior officials in the U.S. departments of Education and Treasury have recently discussed selling high-performing student loan debt to the private sector.
The administration has also broached the possibility with finance executives, among them potential buyers of the loans, and is considering bringing in consultants or banks to review the portfolio, the news outlet reported.
In addition to calling for the Trump administration to cease any talks, the lawmakers requested detailed information on any potential plan and the names of those who have participated in any discussions. The Education and Treasury departments did not respond to requests for comment by publication time on Tuesday.
The Education Department’s Federal Student Aid office oversees the loan portfolio and contracts out servicing to private entities. Student loan receivables represent one of the largest assets on the nation’s balance sheet.
A 1998 law allows the government to sell student loan assets — so long as it is done at no cost to the government — which could be why no such sale has taken place to date. The Sunday letter said the first Trump administration mulled the possibility but never pursued it, pointing to Wall Street Journal reporting that the agency hired the consultancy McKinsey & Co. at the time to review the portfolio..
The Democratic lawmakers and others have argued the no-cost provision means the government could not sell the loans for less than what it would collect if it kept them on the public balance sheet.
In 2024, FSA estimated the net value of the government’s student loan portfolio at about $1.1 trillion. However, a 2025 analysis from the Project on Predatory Student Lending argues this figure “is almost certainly wrong,” based on data and assumptions that “have proven wildly off-base.”
That figure represents the government’s own valuation of the loan portfolio. In the case of a sale, the relevant figure would be the price a private sector buyer would be willing to pay.
The student lending project said the government has several advantages as a lender over private companies, including unlimited time to collect, the ability to withhold federal payments such as tax refunds to offset loan defaults, and immunity from legal liability for loan servicing failures.All of that means student loans are likely worth more to the government than to the private sector, according to PPSL.
Along with a potential loss to taxpayers, the Democratic lawmakers warned of the possible impact to student borrowers from transferring loan assets.
“By selling parts of the federal student loan portfolio, the Trump Administration may seek to unlawfully strip borrowers of their legally guaranteed protections,” they wrote.
The lawmakers pointed to protections such as income-driven repayment, public service loan forgiveness, disability and death discharges, and debt relief for those determined to have been defrauded by predatory colleges.
“Private lenders typically do not guarantee these kinds of borrower rights,” they wrote. “Profits would likely come at the expense of the borrower via fewer protections and less generous benefits. However, the federal government cannot simply eliminate its legal obligations to borrowers.”
PPSL argued in its analysis that removing provisions for borrowers could make the loan portfolio more valuable to private buyers, but those loan provisions in contracts with the federal government represent property protected by the Fifth Amendment.
“Any law stripping repayment rights or other favorable terms from student loan contracts would potentially trigger an obligation to compensate student loan borrowers for the loss of those terms,” the organization said.
Moving abroad doesn’t erase your student loans — it just makes managing them more complicated.
Your loans stay with you, and so do the repayment rules.
Where things change is in how your income is reported, verified, and used to calculate payments under an Income-Driven Repayment (IDR) plan. The way you file your U.S. taxes — especially if you claim the Foreign Earned Income Exclusion (FEIE) — can affect what your loan servicer sees as your income and what you owe each month.
Let’s break down what really happens when you take your student loans overseas.
What Moving Abroad Means for Your Federal Student Loans
Living abroad doesn’t cancel your loans, but it changes how you handle them — from repayment calculations to paperwork to keeping contact with your servicer.
Here’s what actually changes when your student loans follow you overseas:
1. Payment Calculation and the FEIE
The biggest shift happens in how your income is treated.
If you claim the FEIE, your Adjusted Gross Income (AGI) looks smaller on your U.S. tax return — and that can lower your IDR payment if your servicer accepts that number as-is.
But that outcome isn’t guaranteed. The Department of Education allows income to be verified using either your AGI from tax data or alternative documentation of all taxable income (Per 34 CFR §685.209(a)(1)(viii)). If that happens, your excluded foreign income could be included in the review.
In practice, though, some borrowers (especially those using the IRS data link on StudentAid.gov) report their lower AGI being accepted, while others are asked to provide pay stubs or other proof of income, which can wipe out the FEIE benefit.
So your payment amount depends on how your income is verified — whether through the IRS data pull (the FTI system) or through Alternative Documentation of Income (ADOI). Even if your excluded income is added back, borrowers with modest earnings or larger households may still qualify for $0 payments under IDR.
2. Communication and Logistics
Keep your contact info current through your servicer’s portal — some accept foreign addresses, others require a U.S. one. If you use a family address, confirm it’s allowed. Go paperless when possible; it’s faster and more reliable overseas.
Most servicers prefer payments from a U.S. bank account, though some do accept online payments from international accounts or via wire transfers. It’s not universal, so always confirm which payment types your servicer supports.
Finally, watch exchange rates and transfer fees — small swings can quietly raise your real payment cost each month.
Related: If you’ll be overseas for a long time, read our guide onmanaging your student loans while living abroad. It covers practical steps like setting up e-bills, auto-pay, and mail management to avoid missed payments or surprises while you’re away.
3. What Happens If You Don’t Pay
Moving abroad doesn’t make your loans uncollectible.
4. Continued U.S. Tax Obligations
U.S. citizens must file taxes every year, no matter where they live.
Your tax return plays a double role — for compliance and as the base income document for your IDR recertification.
Whether your servicer uses IRS data or ADOI, your tax return is still the foundation for verifying your income.
Common Mistakes for Borrowers Living Abroad
Here are the biggest mistakes expats make — and how to avoid them.
1. Forgetting to recertify income.
Even while abroad, you must update your income for IDR plans every year. Miss it, and your payment jumps to the standard amount.
2. Ignoring U.S. tax filing rules.
You still have to file a U.S. tax return annually. Skipping it breaks tax compliance and can disrupt income verification for your repayment plan.
3. Overlooking how your spouse’s income is counted.
If you’re married filing jointly, your spouse’s income (even if earned abroad) can raise your AGI and your payment. Some borrowers file separately to manage this — but that comes with trade-offs.
4. Failing to cut state tax ties.
If you left a state like California or Virginia without ending residency properly, that state can still tax your income — inflating your AGI and, in turn, your loan payment.
Heading overseas with student loans? Run through this first:
✅ Understand the FEIE/IDR Rule. Don’t expect a guaranteed $0 payment just because your AGI looks smaller on paper. Know how your servicer verifies income and that your total income before exclusions may be used.
✅ Assess FEIE and FTC implications. Learn how the FEIE or FTC affects both your taxes and IDR payments. Servicers may request tax documents or alternative proof of income — plan for both scenarios.
✅ Update your contact info. Make sure your loan servicer has your correct email, phone, and mailing address (ask if a foreign address is allowed).
✅ Keep a U.S. bank account open. Most servicers still process payments through U.S. accounts. If you rely on a foreign bank, confirm accepted payment methods or wire options first.
✅ Budget for currency and transfer logistics. Decide how you’ll make payments — online or via transfer — and factor in exchange rates and fees. Some servicers accept international transfers; others require USD payments from a domestic account.
✅ File your taxes every year. You’ll need a current return for IDR recertification, even if your FEIE wipes out your taxable income. Keeping your filings up to date also makes it easier to verify income automatically through the IRS data link.
✅ Time your IDR recertification wisely. If you claim the FEIE, consider recertifying soon after your most recent tax return is fully processed and accurate. That timing can improve the odds your AGI will transfer correctly through the IRS data link, reducing the need for manual income verification that might include your excluded foreign income.
✅ Plan for data-sharing with your loan servicer. Some servicers pull IRS data automatically; others require copies of tax returns or income verification. Decide in advance whether you’ll authorize data sharing with your servicer.
✅ Store every document. Keep digital copies of your tax return, Form 2555, pay stubs, and proof of residence — they’re gold if your file ever gets flagged for manual review.
Bottom Line
Moving abroad doesn’t erase your loans — it just changes how you manage them.
Your income-driven payment could drop if your AGI from the IRS data pull is accepted — but that outcome isn’t guaranteed. Depending on how your income is verified or what documentation is used, your excluded foreign earnings might still be considered in the calculation.
If you’re living or planning to live overseas, understand the rules, document everything, and stay ahead of deadlines.
Subscribe for student loan updates or book a consult with a CFP® who understands international borrowers.
Disclaimer: This article provides general information and should not be taken as personalized tax, legal, or financial advice. Rules change frequently, and your situation may vary. Consult a qualified student loan or tax professional before acting on this information.
FAQs: Student Loans and Living Abroad
Will my student loans be wiped after three years abroad?
No. There’s no law or program that automatically cancels your student debt after living abroad — that’s a myth. However, living overseas can lower your required payments if you qualify for an income-driven plan and report foreign income correctly.
Do student loans follow you to another country?
Yes. Federal student loans remain your responsibility no matter where you live. The Department of Education can still collect through tax refunds or Social Security if you return, and your credit report remains active while you’re abroad.
Can I stop making payments if I move overseas?
Not safely. Missing payments can lead to default, wage garnishment (if you return to the U.S.), and long-term credit damage. Instead, apply for an IDR plan or a deferment if you qualify.
Can I qualify for forgiveness or PSLF while living abroad?
Yes, but it depends. Time spent abroad can count toward IDR forgiveness if you stay on an eligible plan and keep payments current. PSLF, on the other hand, requires qualifying employment.
Can I refinance or consolidate my loans while living abroad?
You can consolidate federal loans from anywhere, since it stays within the U.S. system. But refinancing through a private lender can be tricky — most lenders require a U.S. address, bank account, and credit history. Some expat-friendly lenders may still consider you, but it’s rare.
Pedro Gomez is the new Student Loan Sherpa and a Certified Financial Planner™ with over a decade of experience helping clients navigate complex financial decisions. He is the founder of Global Financial Plan, where he writes about international living, geoarbitrage, and strategies for retiring young, and also leads Brickell Financial Group, a registered investment advisory firm focused on accelerating financial freedom.
Pedro is the architect behind the “12 Levels of Financial Freedom” framework and blends student loan strategy with long-term planning, tax efficiency, and investing. His work is especially geared toward upwardly mobile professionals, entrepreneurs, and those looking to design a life beyond the default path.
Borrowers in default could see their tax refunds or other federal benefits withheld once collections resume.
J. David Ake/Getty Images
The Education Department will resume collecting on defaulted student loans early next month, restarting a system that’s been on hold since spring 2020, the agency announced Monday.
Starting May 5, the department will withhold tax refunds or benefits such as Social Security from borrowers who are in default. Later this summer, the department will begin garnishing the wages of defaulted borrowers, a move consumer protection advocates have criticized as out of control.
About 38 percent of the nearly 43 million student loan borrowers are current on their payments, and a record number of borrowers are at risk of or in delinquency and default, the department said Monday. Borrowers default when they miss at least 270 days of payments.
When the Biden administration restarted student loan payments in September 2023, it offered a one-year grace period for borrowers during which those who didn’t make payments were spared the worst financial consequences, including default.
Research into borrowers who default and other data shows they typically fall behind on their payments because other loans take a higher priority or they can’t afford their payments, among other reasons. And borrowers in default usually don’t have the ability to repay their loans. A survey from the Pew Charitable Trusts found that unemployed borrowers were twice as likely to default compared to those who worked full-time. Additionally, borrowers who didn’t complete the education they took out loans to pay for are more likely to default than completers.
“The folks who fall behind on their payments are those who are least well served by the higher education and repayment systems,” said Sarah Sattelmeyer, project director for education, opportunity and mobility in the higher education initiative at New America, a left-leaning think tank. “A lot of those folks did not receive a return on their higher education investment … These aren’t people who overwhelmingly do not want to pay their loans.”
About 5.3 million borrowers have defaulted on their loans, and many have been in default for more than seven years, according to the department. Another four million borrowers are in “late-stage delinquency,” or 91 to 180 days behind on their payments. The department expects about 10 million or nearly one-quarter of borrowers to default by the fall.
“We think that the federal student loan portfolio is headed toward a fiscal cliff if we don’t start repayment and collections,” a senior department official said on a press call Monday. “American taxpayers can no longer serve as collateral for student loans.”
The official didn’t take questions, and a department spokesperson referred reporters to Education Secretary Linda McMahon’s recent op-ed in The Wall Street Journal. She’s also slated to appear on CNBC and Fox Business to discuss the restart in collections.
In her public statements Monday, McMahon blamed the Biden administration and colleges for the current situation.
“Colleges and universities call themselves nonprofits, but for years they have profited massively off the federal subsidy of loans, hiking tuition and piling up multibillion-dollar endowments while students graduate six figures in the red,” she wrote in the Journal.
Beyond the immediate restart, the senior department official said the department is planning to work with Congress to fix the system so that students can afford their loan payments and to lower the cost of college.
Former Biden administration officials, borrowers and debt-relief advocates havesaid that efforts to forgive student loans were a way to address systemic failures in the student loan system and to help vulnerable borrowers who were likely to never repay their loans.
The department is planning a “robust communication strategy,” the senior official said, to spread the word to borrowers and share information about their options, such as enrolling in an income-driven repayment plan or loan rehabilitation.
Currently, about 1.8 million borrowers have pending applications for an IDR plan, but the department intends to clear that backlog over the next few weeks, the official said. The department also is planning to email borrowers individually about their options. The outreach plan also includes extending the loan servicers’ call center hours on weekends and weeknights.
Sattelmeyer, who worked in the Office of Federal Student Aid during the Biden administration, said it will be important to ensure borrowers have access to information and the tools such as IDR plans to either get out of or avoid default and then stay on track. She questioned whether the department has enough staff to restart collections effectively, given the recent mass layoffs at the agency.
“The issue is that the system is in disarray right now and there have not been a consistent set of options available for borrowers at the same time that we’re turning back on collections,” she said. “At the end of the day, I think the most important thing is that it does not feel like we have the resources and the staffing in place to make this go smoothly and to ensure that borrowers have support and access to resources and tools.”
President Donald Trump said Friday that the U.S. Small Business Administration would handle the student loan portfolio for the slated-for-elimination Education Department, and that the Department of Health and Human Services would handle special education services and nutrition programs.
The announcement — which raises myriad questions over the logistics to carry out these transfers of authority — came a day after Trump signed a sweeping executive order that directs Education Secretary Linda McMahon to “take all necessary steps to facilitate the closure” of the department to the extent she is permitted to by law.
“I do want to say that I’ve decided that the SBA, the Small Business Administration, headed by Kelly Loeffler — terrific person — will handle all of the student loan portfolio,” Trump said Friday morning.
The White House did not provide advance notice of the announcement, which Trump made at the opening of an Oval Office appearance with Defense Secretary Pete Hegseth.
The Education Department manages student loans for millions of Americans, with a portfolio of more than $1.6 trillion, according to the White House.
In his executive order, Trump said the federal student aid program is “roughly the size of one of the Nation’s largest banks, Wells Fargo,” adding that “although Wells Fargo has more than 200,000 employees, the Department of Education has fewer than 1,500 in its Office of Federal Student Aid.”
‘Everything else’ to HHS
Meanwhile, Trump also said that the Department of Health and Human Services “will be handling special needs and all of the nutrition programs and everything else.”
It is unclear what nutrition programs Trump was referencing, as the U.S. Department of Agriculture manages school meal and other major nutrition programs.
One of the Education Department’s core functions includes supporting students with special needs. The department is also tasked with carrying out the federal guarantee of a free public education for children with disabilities Congress approved in the Individuals with Disabilities Education Act, or IDEA.
Trump added that the transfers will “work out very well.”
“Those two elements will be taken out of the Department of Education,” he said Friday. “And then all we have to do is get the students to get guidance from the people that love them and cherish them, including their parents, by the way, who will be totally involved in their education, along with the boards and the governors and the states.”
Trump’s Thursday order also directs McMahon to “return authority over education to the States and local communities while ensuring the effective and uninterrupted delivery of services, programs, and benefits on which Americans rely.”
SBA, HHS heads welcome extra programs
Asked for clarification on the announcement, a White House spokesperson on Friday referred States Newsroom to comments from White House press secretary Karoline Leavitt and heads of the Small Business Administration and Health and Human Services Department.
Leavitt noted the move was consistent with Trump’s promise to return education policy decisions to states.
“President Trump is doing everything within his executive authority to dismantle the Department of Education and return education back to the states while safeguarding critical functions for students and families such as student loans, special needs programs, and nutrition programs,” Leavitt said. “The President has always said Congress has a role to play in this effort, and we expect them to help the President deliver.”
Loeffler and HHS Secretary Robert F. Kennedy Jr. said their agencies were prepared to take on the Education Department programs.
“As the government’s largest guarantor of business loans, the SBA stands ready to deploy its resources and expertise on behalf of America’s taxpayers and students,” Loeffler said.
Kennedy, on the social media platform X, said his department was “fully prepared to take on the responsibility of supporting individuals with special needs and overseeing nutrition programs that were run by @usedgov.”
The Education Department directed States Newsroom to McMahon’s remarks on Fox News on Friday, where she said the department was discussing with other federal agencies where its programs may end up, noting she had a “good conversation” with Loeffler and that the two are “going to work on the strategic plan together.”
Maine Morning Star is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Maine Morning Star maintains editorial independence. Contact Editor Lauren McCauley for questions: [email protected].
A day after White House officials said the Education Department would administer the student loan program, President Donald Trump announced that the Small Business Administration would be taking over the $1.7 trillion portfolio.
He told White House reporters that the move would happen “immediately,” though he didn’t say how that process would work. Currently, federal law requires the Education Department to manage student loans, so the president doesn’t have the authority for the move, several experts and advocates said Friday.
Neither the White House nor the Small Business Administration responded to requests for more information or details about the plan.
In response to questions about how moving loans to SBA would work, the Education Department referred Inside Higher Ed to an interview that Education Secretary Linda McMahon did Friday with Fox News. McMahon said she’s working with the SBA on a strategic plan.
The announcement follows Trump’s executive order, signed Thursday, directing McMahon to close her department “to the maximum extent of the law.” McMahon and others have said a smaller version of the department would focus on core functions, which many experts presumed to include the student loan program. (Trump also said Friday that the Department of Health and Human Services would take over programs that support students with disabilities.)
Kelly Loeffler, who leads the SBA, wrote on social media that her agency “stands ready to take the lead on restoring accountability and integrity to America’s student loan portfolio.” Whether the department has the capacity to take on the program is an open question; Loeffler is planning to cut 43 percent of the staff, Politico and other news outlets have reported. The SBA runs several programs to support small businesses, including providing loans and helping with disaster recovery.
The Education Department issues about $100 billion in student loans each year and disburses $30 billion in Pell Grants. That funding is crucial to students who rely on the government to help pay for college.
But borrowers have struggled over the years to navigate the cumbersome student loan system and often have faced difficulty in repaying their loans. Meanwhile, the federal government’s growing loan portfolio has become a key issue for lawmakers on both sides of the political aisle. Former president Joe Biden’s fix was in part to make student loan forgiveness more accessible and make loan payments more affordable.
Trump said Friday that the loan system “will be serviced much better than it has in the past,” adding, “it’s been a mess.”
Agency Blindsided
It wasn’t clear Friday afternoon whether SBA would also take over the Pell Grant program and the Free Application for Federal Student Aid—a form that millions of students rely on to access federal, student and institutional aid. Currently, the Office of Federal Student Aid, which is part of the Education Department, administers those programs. That office was hit hard by recent mass layoffs at the department, and experts have questioned whether it will be able to fulfill its many responsibilities, which also include overseeing colleges and rooting out fraud in the federal student aid system.
Trump’s executive order pointed out that the Education Department manages a portfolio the size of Wells Fargo but with significantly fewer employees. “The Department of Education is not a bank, and it must return bank functions to an entity equipped to serve America’s students,” the order said.
An official high up at Federal Student Aid said Friday that the office was blindsided by the announcement. Just a day before, the official said, the plan was to move the loans to the Treasury Department. Agency officials have yet to receive any plans or communication about handing over the reins to SBA or what that would entail, the official said.
‘Clear Violation’
The federal statute that created FSA specifically gives that office authority to administer student financial assistance programs. Additionally, laws dictating how federal funding is allocated explicitly send money to the Education Department for the student aid programs. A former department staffer told Inside Higher Ed that the administration is “clearly circumventing the spirit and intent of the law if you were to move to functions.”
Sen. Patty Murray, a Democrat from Washington State, agreed, writing on social media that the announcement “is a clear violation of education [and] appropriations law.”
Beth Maglione, interim president of the National Association of Student Financial Aid Administrators, added in a statement that only Congress can move the student loan portfolio to a different agency; if the legislative branch agreed, doing so would take time.
“The administration would first need to articulate a definitive strategy outlining how the work of administering student aid programs would be allocated within the SBA, determine the necessary staffing and resources, and build the requisite infrastructure to facilitate the transition of these programs to another federal agency,” she said. “In the absence of any comprehensive plan, a serious concern remains: how will this restructuring be executed without disruption to students and institutions?”
Not a ‘Crazy Idea’
Some conservative policy experts who support shutting down the department cheered the move. Lindsey Burke, director for the Center for Education Policy at the Heritage Foundation, wrote on social media that “without student loans at ED, there will be little left at the agency. Just a few programs—certainly not enough to justify a cabinet-level agency.”
Beth Akers, a senior fellow at the American Enterprise Institute, like the Heritage Foundation a conservative think tank, acknowledged in an email to Inside Higher Ed that there are a lot of open questions about how the SBA move would work. But she said the announcement shows that the Trump administration understands that the recent staffing cuts “will likely make it too difficult to keep these programs properly administered otherwise,” she wrote.
Akers noted that since SBA currently manages its own loans, “it isn’t a crazy idea that they could pull this off.”
“Frankly, the department has handled student loan administration poorly, so the bar is pretty low on what would constitute an improvement,” she added. “I expect that the existing student loan infrastructure (and remaining staff) will likely move over to SBA, and there won’t be immediate changes in how these programs are run. That’s my hope. Because if things change too quickly, I expect that students will see disruptions that could affect their enrollments and personal finances.”
