Can The Trump Administration Sell Your Student Loans?

Last week, media reports suggested that the Trump administration is considering selling portions of the federal government’s $1.6 trillion student loan portfolio to outside private entities.The news, first reported by POLITICO, indicates that administration officials are actively considering pursuing such a sale, which could impact more than 40 million borrowers if implemented.No firm decisions have been made yet, however.Student loan borrower advocacy organizations were quick to raise concerns in response to the news, arguing that selling federal student loans to private entities would be unprecedented and could lead to a loss of borrower protections.

“Whether President Trump and Secretary McMahon like it or not, students and families have rights and protections when they take on a federal student loan, and the Trump Administration is required to honor them,” said Protect Borrowers policy director, Aissa Canchola Bañez, in a statement last week. “Instead of helping the millions of borrowers on the brink of default and reducing the unprecedented backlog of over one million IDR applications from borrowers desperately seeking more affordable payments, the Trump Administration seems more interested in selling out working families to the highest bidder.It is shameful but unsurprising.” But would it be legal for the Trump administration to sell your federal student loans to a private company? And if so, what would that mean for borrowers and their access to federal student loan programs? Here’s what borrowers should know.Selling federal student loans is potentially legal Federal law does generally allow the government to sell portions of the federal student loan portfolio to a private company.But there are requirements that the Trump administration would have to comply with for this to be legal.

“In 1998, Congress authorized the Secretary of Education, ‘in consultation with the Secretary of the Treasury,’ to sell existing Direct Loans,” said the Project on Predatory Student Lending (PPSL) in an analysis earlier this year.“The only requirement is that a sale must break even: it cannot ‘result in any cost to the Federal Government.’ The provision has never been invoked.” So, what does it mean for a sale of federal student loans to “break even” for the federal government? Using the accepted federal accounting method, “the Department estimates the net present value of future cash flows (repayment of interest and principal) on the portfolio versus the cost to the government of borrowing money (from the Treasury) and collecting the loans,” said the PPSL.“As of September 30, 2024, the Direct Loan portfolio outstanding balance stood at roughly $1.47 trillion.The Department estimated a positive subsidy cost to the government of approximately 31 cents on the dollar—meaning the breakeven price of the portfolio to the federal government is around $1.08 trillion.”  It’s highly unlikely that the government would be able to sell the entire federal student loan portfolio for such a massive price.

But it’s possible that it could offload smaller chunks of the portfolio, if potential buyers are willing to pay.Would a private company actually buy federal student loans? Even if the sale of federal student loans to a private company is legal and would comply with the “break even” requirement under federal law, that doesn’t necessarily mean a private company would be eager to make the purchase.That’s because once a private lender takes over a federal student loan, that new lender would lose some of the government’s collections powers.Private lenders lost federal collection powers For example, a private lender would be subject to a statute of limitations that would limit the timeframe for collections efforts against a borrower in default on their federal student loans.

The government itself is not subject to any statute of limitations on collections.“Congress eliminated time limitations on collection for federal student loans in 1991,” said PPSL in its analysis.“This provision by its terms applies only to ‘the Secretary, the Attorney General, or the administrative head of another Federal agency, as the case may be.’ By contrast, a private lender that acquired these loans would be constrained by state statutes of limitations on loan collection actions.” They can’t use the government’s collection tools In addition, private student loan lenders would not be able to utilize the collections powers of the federal government.These include administrative wage garnishment, as well as the Treasury Offset program that allows the government to intercept federal tax refunds or offset federal income and benefits, such as Social Security.

“In 2019, the Treasury Department collected $14.5 billion against defaulted student loans owned or guaranteed by the Department of Education, by offsetting other federal payments such as tax refunds and disability, survivor, and retirement benefits,” said PPSL.“This cheap and seamless intra-governmental collection mechanism enjoyed by heads of federal agencies is not transferable.Nor is the government’s ability to garnish a borrower’s wages without going to court.” In addition, most Social Security payments are protected from collections efforts by private entities.Private companies face legal risks the government doesn’t Private lenders could also be subject to liability in ways that the federal government is not.

That is because the constitutional concept of “sovereign immunity” shields federal government entities from many kinds of lawsuits.But sovereign immunity does not extend to purely private companies in most cases.“Sovereign immunity shields the federal government from liability for damages caused by systemic failures in loan servicing and recordkeeping,” said PPSL.“Although entities like Navient—private companies under contract with the federal government to service federal student loans—have been forced to pay damages to borrowers for shoddy servicing, forbearance steering, and inaccurate bookkeeping, the government is immune.” A private loan holder would not be immune from suit, however.

Significant risks, limitations, and costs For these reasons, a prospective buyer of a portion of the federal student loan portfolio may be hesitant to proceed with a purchase.Even if the sale would comply with the “break even” requirement under federal law, a private debt buyer may find the risks, limitations, and costs too great to move forward, although there may be other considerations at play.“Why would anyone buy this portfolio? It’s not clear that, as a freestanding deal, anyone would,” said PPSL.“Prior investors in a securitized student debt vehicle, the National Collegiate Student Loan Trust, experienced decades of lawsuits and no returns, and dubbed it one of the worst-performing investments ever created by Wall Street.

If the sale were part of a larger transaction—for example, to gain preferred status or advantageous standing as a private student lender, potentially involving Congress—it could make sense for certain entities.It’s also possible that a private entity could seek to tap unrealized value in the portfolio for unrelated commercial activities—for example, in the reams of data on student loan borrowers collected by the Department.” What about student loan relief programs, like student loan forgiveness? If a sale of federal student loans to a private lender did occur, it is not entirely clear what would happen to eligibility for federal student loan programs, such as income-driven repayment, loan discharge, and programs like Public Service Loan Forgiveness that offer eventual student loan forgiveness, as this would be an unprecedented event.Many observers argue that the benefits are tied to the loans themselves, and should carry over to any new lender.  However, Congress could make changes to the laws that govern federal student loan programs to potentially make a sale more appealing.“Limiting or removing some or all of these repayment terms—by an act of Congress or by unilateral modification—would increase the value of the portfolio by reducing uncertainty and administrative burdens associated with repayment programs like Public Service Loan Forgiveness (PSLF) and income-drive repayment (IDR),” said PPSL.

But, “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, as the terms are specifically referenced in the standard loan forms and disclosures.”