Student Loan System Failure is Inevitable with Transfer to Small Business Administration, Putting Millions at Risk

WASHINGTON, D.C. – Earlier today, President Trump indicated that the federal loan portfolio would be transferred immediately to the Small Business Administration (SBA). During the COVID-19 pandemic, SBA was charged with administering loans representing a ninefold increase in their normal business. Since then, the Office of the Inspector General has documented how inadequately the small agency’s systems and staff were able to detect and prevent fraud and effectively service and oversee billions of dollars of loans—wasting large amounts of taxpayer dollars in the process. With zero prior planning, history is doomed to repeat itself. By cutting 40 percent of SBA staff while at the same time tasking the agency with taking on a more than $1.5 trillion loan portfolio, system failure is inevitable. 

The following statement is attributed to Jessica Thompson, Senior Vice President for The Institute for College Access & Success (TICAS):

“First and foremost, Congressional approval is needed to transfer management of the loan portfolio to the SBA. There is no discernible reason to do this. It will benefit neither borrowers nor taxpayers at large.

“Of further concern, the Administration today also announced a 40 percent staff reduction at SBA—on top of the 50 percent staff reduction that has already taken place at the Department of Education.

“With no clear strategy, the Administration has decimated staffing and oversight capabilities at both agencies while simultaneously announcing its intent to immediately transfer a more than $1.5 trillion loan portfolio between them. This can only result in borrowers experiencing erratic and inconsistent management of their federal student loans. Errors will prove costly to borrowers and ultimately, to taxpayers. 

“Borrowers are already experiencing a mountain of problems: they cannot currently apply for any form of income-driven repayment plan, including those to which they are legally entitled. All of this means continued chaos and confusion for the more than 44 million Americans who do not have clarity on how to manage their monthly student loan payments.

“We urge Congress to reject the Administration’s efforts to dismantle the Education Department. Should policymakers mistakenly proceed with a transfer of the loan portfolio to another agency, we urge them to craft a thoughtful, methodical plan to transfer these major and complex functions to prevent a total breakdown of the system—and real financial harm for millions.”