GOP could raise student loan bills to pay for Trump’s tax cuts
Millions of student loan borrowers could be stuck paying more as GOP lawmakers considering ending repayment plans to fund Trump’s tax cuts.
Straight Arrow News
If the U.S. government sells your student loan to the private market, would you even notice?
That’s a question 45 million federal student loan borrowers may be asking. The Trump administration is considering selling part of the federal government’s $1.6 trillion student loan portfolio to the private market, a source familiar with the matter confirmed to USA TODAY.
No decisions are imminent, the source said. Politico first reported the potential move.
Lenders routinely sell loans like mortgages to banks, mutual funds and other large investors to free up money to issue new loans. Beyond sending a payment to a new company, borrowers usually don’t even notice. The original terms of your loan, including the interest rate, monthly payment and loan duration, remain the same.
But federal student loans could be different because the U.S. government provides protections that private companies may not, experts said.
For example, “selling off the loans would reduce the ability for future administrations to try to create loan pauses, which may be the main concern that the administration is trying to deal with,” said Kent Smetters, head of nonpartisan research group Penn Wharton Budget Model.
Former President Joe Biden paused student loan repayments for about 3.5 years due to the COVID-19 pandemic.
Can Trump sell off federal student loans?
The law allows the federal student loan portfolio to be sold if it doesn’t cost taxpayers any money, experts told USA TODAY.
And it’s not the first time a sale has come up in recent years: In 2019, the first Trump administration explored a similar option, the source familiar with recent conversations noted.
Trump also hinted at handing over student loans to a different institution in a March executive order seeking to close the federal Department of Education. “The (department) is not a bank, and it must return bank functions to an entity equipped to serve America’s students,” he said at the time.
A sale could be part of Trump’s broader desire to shutter the department, one of his signature 2024 campaign promises.
Could the sale be cost-free for taxpayers?
Experts say it’s not clear. That’s because private buyers would likely value the student loan portfolio lower than the government has.
For example, results from a 2019 analysis by McKinsey consultants to assess the value and credit profile of the Direct Loan portfolio “were not good: an estimated 45 percent of loans in the portfolio were not expected to ever be repaid,” said the Project on Predatory Student Lending, a legal organization that represents student borrowers.
Additionally, private companies couldn’t be as aggressive in their collections. They can’t garnish wages or other benefits without first going to court, experts noted.
It’s “a high hurdle for arguing that selling off the loans will not cost taxpayers any money,” Smetters said.
What happens if my student loan is sold?
If your federal student loan is sold to a private investor, the first thing you may notice is you’re sending your payments someplace new.
Digging deeper, for any sale to occur, terms may have to be altered. Private entities, again, wouldn’t be allowed to garnish wages or benefits to help pay back the loan without going to court. They also can’t give borrowers unlimited time to repay loans. These – and many other powers – are only given to the federal government, experts said.
Changing terms comes with another set of issues, according to PPSL.
“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,” according to the group.
Having to compensate 45 million Americans for stripping them of their repayment rights could give borrowers an initial financial boost, it said. But that would negate some of the potential savings for the Trump administration because the government would be on the hook for paying them.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
