Trump's Proposed Student Loan Transfer to SBA: A Threat to Educational Accountability

Roxanne GarzaAmid ongoing efforts to close the U.S. Department of Education, President Trump has, more recently, spoken about his desire to transfer the $1.6 trillion federal student loan portfolio from the U.S. Department of Education to the Small Business Administration (SBA)—an agency that, on the same day, announced it would be cutting its staff by nearly half. 

Beyond the headlines, the proposal represents a deliberate dismantling of the federal student aid infrastructure that has long supported students needing help to pay for college. Reassigning student loans to the SBA may sound like a bureaucratic shuffle, but it would radically disrupt a system built on decades of student aid policy expertise and leave borrowers with no place to turn for assistance. 

The Federal Student Aid (FSA) office is not just a loan servicer. It plays a central role in ensuring access and accountability in higher education. FSA manages the process that determines which institutions are allowed to participate in the federal student aid program through Program Participation Agreements (PPAs)—legal contracts that require colleges to meet quality standards in areas such as accreditation, fiscal responsibility, and compliance with civil rights protections. Without these safeguards, students are left vulnerable to predatory institutions and subpar programs while leaving taxpayers vulnerable to the very waste, fraud, and abuse the Trump Administration has purportedly sought to root out of the federal government. 

So, what would it mean for the SBA—a business-focused agency with no background in education policy—to take over these responsibilities? Would they sever loan servicing from oversight, leaving school participation decisions adrift? Would they understand the nuances of Title IV program eligibility, or the legal obligations that come with administering federal aid? Would they manage the application and processing of FAFSA data? There is no evidence they could—or plan in place to show they would. 

The President has claimed this move would improve loan servicing, yet offered no explanation as to how the SBA, already planning major staffing cuts, could manage a loan portfolio of this scale.  Rather, transferring student loans to an under-resourced agency without the necessary expertise will likely lead to delays in processing, breakdowns in communication, and an even more confusing, frustrating experience for borrowers—particularly those navigating the system for the first time. 

It’s no secret that student loan servicing needs reform. But the solution is not to offload responsibility to an unrelated agency with no demonstrated capacity to manage it. The goal should be to improve federal student aid while preserving—and strengthening—the accountability structures that protect students. 

Beyond the practical concerns, there’s a legal roadblock that can’t be ignored. The legal framework, as codified in 20 U.S.C. § 1018, explicitly establishes the Office of Federal Student Aid as a performance-based organization within the Department of Education. It names the Secretary of Education as the official responsible for administering the student aid programs, including the necessary policymaking, and requiring FSA to implement that policy.  

Put more plainly, shutting down the Department of Education would require an act of Congress. But so would this proposed transfer. Yet the rhetoric around these piecemeal changes implies otherwise—that these shifts can happen unilaterally by executive fiat. They cannot, at least not without ignoring the rule of law. Congress located these programs at the Department for a reason: to ensure they are guided by the overarching values and expertise of an agency dedicated to improving education for all students, not the bottom line of a business agency. 

This isn’t just a policy debate—it’s about protecting opportunity for the very students who need it most. First-generation and low-income students depend on a federal aid system that understands their barriers, upholds accountability, and ensures that every dollar of federal aid supports quality, equitable education. 

Moving the student loan portfolio to the SBA would be more than a bureaucratic error. It wouldn't solve the system's problems; it would create uncertainty for students who need financial aid information to decide if and where to go to college and it would escalate chaos for borrowers already living in limbo not knowing where to turn for answers about their student loans.

Roxanne Garza is director of higher education policy at EdTrust.