Can Trump Really Forgive Your Student Loans? Answers to Your Most Pressing Questions!

Last week, President Donald Trump made a surprising announcement regarding federal student loans. He signed an executive order to shut down the U.S. Department of Education and transfer all federal student loan responsibilities to the Small Business Administration (SBA). This move left many people scratching their heads. The SBA, a much smaller agency, has no experience managing the $1.5 trillion federal student loan system.

Adding to the confusion, the SBA has faced significant staff cuts recently, raising concerns about its ability to handle such a massive and complex task. Legal experts have pointed out that this unapproved transfer might actually violate federal law, as the Office of Federal Student Aid, which oversees student loans, was specifically established within the Department of Education by Congress.

#### Can Trump Make This Transfer Alone?

Many legal analysts doubt President Trump can independently transfer federal student loans without congressional authorization. When Congress created the Office of Federal Student Aid, it made the Department of Education responsible for student loan management, repayment options, and forgiveness. For example, the Income-Based Repayment and Public Service Loan Forgiveness programs are explicitly mandated to be managed by the Secretary of Education. This makes it clear that any major changes, like moving these functions to another agency, would likely require Congress to step in.

A coalition of labor unions and groups like the NAACP have raised legal challenges, arguing that the President does not have the power to close a Cabinet-level agency or transfer its functions without legislative support.

#### What If Congress Gets Involved?

While Congress can indeed pass a law to transfer federal student loan operations, political dynamics may make this complicated. The Republican-controlled Congress might consider inserting such a transfer into an upcoming reconciliation bill aimed at renewing tax cuts. However, this could require collaboration with Democrats, many of whom might oppose closing the Department of Education.

Current discussions in Congress also include other significant changes to student loans, such as rescinding the student loan interest deduction and changing eligibility for various loan forgiveness programs.

#### Impact on Contracts and Borrowers

A significant concern arises from the potential transfer of loans: what happens to the contracts borrowers signed with the Department of Education? The Master Promissory Note stipulates that the lender is the Department of Education. If loans shift to the SBA without legislative backing, questions could arise about repayment obligations. However, Congress can amend the Higher Education Act, allowing borrowers to send payments to a new agency, thus maintaining clarity.

#### Will Loan Programs Change?

If the federal student loan system is successfully transferred, existing programs for repayment and forgiveness might remain intact. However, without careful planning, the effectiveness of these programs could suffer. Advocacy groups have already voiced worries about the SBA’s readiness to take on the student loan portfolio, especially after its struggles during the COVID-19 pandemic. The Institute for College Access and Success noted that past issues with fraud and service inefficiencies at the SBA could resurface if they oversee a system as large as the student loan program.

While transferring the management of student loans to the SBA might not change the loans themselves, Congress could still enact significant modifications that could affect many borrowers. Lawmakers are currently contemplating a range of reforms, including possible changes to eligibility for forgiveness programs.

The situation remains fluid, and as more details emerge, both borrowers and educational advocates will be watching closely. Understanding how this change might unfold is key for anyone navigating the student loan landscape.



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